Registration No. 33-74232
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Pre-Effective Amendment No. _____ _____
Post-Effective Amendment No. __2__ __X__
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. ___ _____
(Check appropriate box or boxes)
Principal Mutual Life Insurance Company Separate Account B
- --------------------------------------------------------------------------------
(Exact Name of Registrant)
Principal Mutual Life Insurance Company
- --------------------------------------------------------------------------------
(Name of Depositor)
The Principal Financial Group, Des Moines, Iowa 50392
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(Address of Depositor's Principal Executive Offices) (Zip Code)
Depositor's Telephone Number, including Area Code (515) 248-3842
M. D. Roughton, The Principal Financial Group, Des Moines, Iowa 50392
- --------------------------------------------------------------------------------
(Name and Address of Agent for Service)
Registrant has heretofore registered an indefinite amount of such Separate
Account B Variable Annuity Contracts under the Securities Act of 1933 pursuant
to Rule 24f-2; Registrant filed a 24f-2 notice for the fiscal year ending
December 31, 1995 on February 27, 1996.
It is proposed that this filing will become effective (check appropriate box)
_____ immediately upon filing pursuant to paragraph (b) of Rule 485
_____ on (date) pursuant to paragraph (b) of Rule 485
_____ 60 days after filing pursuant to paragraph (a)(1) of Rule 485
__X__ on May 1, 1996 pursuant to paragraph (a)(1) of Rule 485
75 days after filing pursuant to paragraph (a)(2) of Rule 485
_____ on (date) pursuant to paragraph (a)(2) of Rule 485
If appropriate, check the following box:
_____ This post-effective amendment designates a new effective date for
a previously filed post-effective amendment.
<PAGE>
PRINCIPAL MUTUAL LIFE INSURANCE COMPANY SEPARATE ACCOUNT B
FLEXIBLE VARIABLE ANNUITY ("FVA") CONTRACT
Registration Statement on Form N-4
Cross Reference Sheet
Form N-4 Item Caption in Prospectus
Part A
1. Cover Page Principal Mutual Life
Insurance Company Separate
Account B Flexible Variable
Annuity ("FVA") Contract
2. Definitions Glossary of Special Terms
3. Synopsis Expense Table and Example,
Summary
4. Condensed Financial Performance Calculation,
Information Experts, Financial
Statements
5. General Description of Summary, Description of
Registrant Principal Mutual Life
Insurance Company, Principal
Mutual Life Insurance Company
Separate Account B, Voting
Rights, Mutual Funds
6. Deductions Summary, Charges and
Deductions, Annual Fee,
Mortality and Expense Risks
Charge, Transaction Fee,
Premium Taxes, Surrender
Charge, Administrative Expense
Charge, Distribution of the
Contract
7. General Description of Summary, The Contract,
Variable Annuity Contract Purchasing a Contract,
Purchase Payment Limitations,
Allocation of Purchase Payment
Right to Examine the Contract,
Prior to the Retirement Date,
Determining the Accumulated
Value of the Contract,
Allocation of Purchase Payments
and Transfers, Total and
Partial Surrenders, Benefit
Payable on Death of
Annuitant or Owner, After the
Retirement Date, Retirement
Date, Benefit Options, Death
of Annuitant or Payee,
Principal Mutual Life
Insurance Company Separate
Account B, General Provisions,
Rights Reserved by the Company,
Contractholders' Inquiries
8. Annuity Period After the Retirement Date,
Retirement Date, Benefit
Options
9. Death Benefit Benefit Payable on Death of
Annuitant or Owner, Death of
Annuitant or Payee, Federal
Tax Matters, Non-Qualified
Contracts, Required
Distributions for Non-Qualified
Contracts
10. Purchase and Contract Value Summary, The Contract,
Purchasing a Contract, Purchase
Payment Limitations, Allocation
of Purchase Payments, Right
to Examine the Contract, Prior
to the Retirement Date,
Determining the Accumulated
Value of the Contract,
Allocation of Purchase Payments
and Transfers, Postponement of
Payments, Distribution of the
Contract
11. Redemptions Summary, Benefit Options,
Total and Partial Surrenders,
Postponement of Payments
12. Taxes Summary, Benefit Options,
Federal Tax Matters,
Non-Qualified Contracts,
Required Distributions for
Non-Qualified Contracts, IRA,
SEP and SAR/SEP, Withholding,
Mutual Fund Diversification
13. Legal Proceedings Legal Proceedings
14. Table of Contents of the Table of Contents of the
Statement of Additional Statement of Additional
Information Information
Part B Statement of Additional
Information
Caption**
15. CPrincipal Mutual Life
Insurance Company Separate
Account B Flexible Variable
Annuity ("FVA") Contract
16. Table of Contents Table of Contents
17. General Information and None
History
18. Services Experts**, Independent
Auditors
19. PSummary**, Allocation of
Being Offered Purchase Payments and
Transfers**, Distribution
of the Contract**
20. Underwriters Summary**, Distribution of the
Contract**
21. Calculation of Performance Calculation of Yield and
Data Total Return
22. Annuity Payments Benefit Options**
23. Financial Statements Financial Statements
** Prospectus caption given where appropriate.
<PAGE>
PRINCIPAL MUTUAL LIFE INSURANCE COMPANY
SEPARATE ACCOUNT B
FLEXIBLE VARIABLE ANNUITY ("FVA") CONTRACT
Issued by Principal Mutual Life Insurance Company (the "Company")
Prospectus dated May 1, 1996
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 May 1, 1996, 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 27 of this Prospectus. A copy of the Statement of
Additional Information can be obtained, free of charge, upon request by writing
or telephoning:
Variable Annuity
The Principal Financial Group
P.O. Box 9382
Des Moines, IA 50306-9382
Telephone: 1-800-852-4450
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
Condensed Financial Information............................................ 6
Summary .................................................................. 7
Description of Principal Mutual Life Insurance Company .................... 9
Principal Mutual Life Insurance Company Separate Account B ................ 9
Mutual Funds............................................................... 10
Surplus Distribution at Sole Discretion of the Company .................... 10
The Contract .............................................................. 10
Purchasing a Contract................................................... 10
Purchase Payment Limitations.......................................... 11
Allocation of Purchase Payments....................................... 11
Right to Examine the Contract......................................... 12
Prior to the Retirement Date............................................ 12
Determining the Accumulated Value of the Contract..................... 12
Allocation of Purchase Payments and Transfers......................... 13
Total and Partial Surrenders.......................................... 14
Benefit Payable on Death of Annuitant or Owner........................ 15
After the Retirement Date............................................... 16
Retirement Date ...................................................... 16
Benefit Options ...................................................... 16
Death of Annuitant or Payee........................................... 17
Charges and Deductions .................................................... 17
Annual Fee.............................................................. 17
Mortality and Expense Risks Charge ..................................... 18
Transaction Fee......................................................... 18
Premium Taxes .......................................................... 18
Surrender Charge........................................................ 18
Administrative Expense Charge........................................... 20
Fixed Account.............................................................. 20
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............................. 22
Assignment ............................................................. 22
Change of Owner......................................................... 22
Beneficiary............................................................. 22
Reports ............................................................... 22
Rights Reserved by the Company............................................. 22
Distribution of the Contract............................................... 23
Performance Calculation.................................................... 23
Voting Rights.............................................................. 23
Federal Tax Matters........................................................ 24
Non-Qualified Contracts................................................. 24
Required Distributions for Non-Qualified Contracts...................... 25
IRA, SEP and SAR/SEP.................................................... 25
Withholding............................................................. 25
Mutual Fund Diversification............................................. 25
State Regulation........................................................... 26
Legal Opinions............................................................. 26
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............... 27
Appendix A................................................................. 28
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.
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."
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
0 (year of Purchase Payment) 6%
1 6%
2 6%
3 5%
4 4%
5 3%
6 2%
7 and later 0%
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%
Other Separate Account Expenses 0
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
Aggressive Growth Fund .80% .10% .90%
Asset Allocation Fund .80% .19% .89%
Balanced Fund .60% .06% .66%
Bond Fund .50% .06% .56%
Capital Accumulation Fund .49% .02% .51%
Emerging Growth Fund .65% .05% .70%
Government Securities Fund .50% .05% .55%
Growth Fund .50% .08% .58%
Money Market Fund .50% .08% .58%
World Fund .75% .20% .95%
(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.
<TABLE>
<CAPTION>
EXAMPLE
Separate Account Division 1 Year 3 Years 5 Years 10 Years
<S> <C> <C> <C> <C>
If you surrender your contract at the end Aggressive Growth Division $84 $122 $151 $251
of the applicable time period: Asset Allocation Division $84 $122 $151 $250
Balanced Division $82 $116 $139 $226
You would pay the following Bond Division $81 $113 $134 $216
expenses on a $1,000 investment, Capital Accumulation Division $80 $111 $132 $210
assuming 5% annual return on assets: Emerging Growth Division $82 $117 $141 $230
Government Securities Division $80 $112 $134 $214
Growth Division $81 $113 $135 $218
Money Market Division $81 $113 $135 $218
World Division $84 $124 $154 $256
If you annuitize at the end of the Aggressive Growth Division $22 $68 $117 $251
applicable time period or do not Asset Allocation Division $22 $68 $116 $250
---
surrender your contract: Balanced Division $20 $61 $105 $226
Bond Division $19 $58 $99 $216
Capital Accumulation Division $18 $56 $97 $210
You would pay the following Emerging Growth Division $20 $62 $107 $230
expenses on a $1,000 investment, Government Securities Division $19 $57 $99 $214
assuming 5% annual return on assets:
Growth Division $19 $58 $100 $218
Money Market Division $19 $58 $100 $218
World Division $23 $70 $119 $256
</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."
<TABLE>
<CAPTION>
CONDENSED FINANCIAL INFORMATION
Financial statements are included in the Statement of Additional
Information. Following are Unit Values for the Flexible Variable Annuity
Contract for the periods ended December 31.
Accumulation Unit Value Number of Accumulation Units
Beginning End Outstanding at End of Period
of period of period (in thousands)
Aggressive Growth Division
<S> <C> <C> <C>
Year Ended December 31, 1995 10.184 14.503 1,324
Period Ended December 31, 1994 (1) 10.075 10.184 362
Asset Allocation Division
Year Ended December 31, 1995 9.978 11.891 912
Period Ended December 31, 1994 (1) 10.075 9.978 303
Balanced Division
Year Ended December 31, 1995 9.972 12.270 1,373
Period Ended December 31, 1994 (1) 10.266 9.972 370
Bond Division
Year Ended December 31, 1995 10.064 12.143 1,401
Period Ended December 31, 1994 (1) 10.050 10.064 301
Capital Accumulation Division
Year Ended December 31, 1995 10.234 13.333 2,232
Period Ended December 31, 1994 (1) 10.328 10.234 699
Emerging Growth Division
Year Ended December 31, 1995 10.108 12.880 3,059
Period Ended December 31, 1994 (1) 10.157 10.108 973
Government Securities Division
Year Ended December 31, 1995 9.973 11.728 2,023
Period Ended December 31, 1994 (1) 10.133 9.973 572
Growth Division
Year Ended December 31, 1995 10.454 12.970 2,619
Period Ended December 31, 1994 (1) 10.336 10.454 764
Money Market Division
Year Ended December 31, 1995 10.194 10.628 1,370
Period Ended December 31, 1994 (1) 10.027 10.194 702
World Division
Year Ended December 31, 1995 9.582 10.804 2,146
Period Ended December 31, 1994 (1) 9.624 9.582 936
<FN>
(1) Commenced operations on June 16, 1994.
</FN>
</TABLE>
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.
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: Variable Annuity, The Principal
Financial Group, P.O. Box 9382, Des Moines, Iowa 50306-9382; 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 50306,
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 $51.3 billion in assets under management
and serves more than 9.3 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 an 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.
Some 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."
The states in which Purchase Payments are returned are
listed below:
State
Connecticut* Louisiana Oklahoma
Georgia Maryland Rhode Island
Hawaii Michigan South Carolina
Idaho Missouri Utah
Indiana Nebraska Washington
Kentucky North Carolina
* Purchase Payments are refunded if the Contract is
cancelled prior to its delivery, otherwise the account value
is refunded.
Initial Purchase Payments for a Contract issued in one of the states in
the above table are allocated to the Money Market Division until 15
days (20 days for Contracts issued in the State of Idaho) after the
Contract Date at which time they are reallocated in accordance with the
Owner's allocation instructions.
3. Right to Examine the Contract
Under state law, the Owner has the right to examine the Contract. The
right is often referred to as a "free look" period. The "free look"
period is 10 days after the date the contract is delivered to the Owner
in all states except as follows:
a. Contracts issued in California to Owenrs age 60 and over have a 30
day "free look" period;
b. Contracts issued in Colorado have a 15 day "free look" period; and
c. Contracts issued in Idaho and North Dakota have a 20 day "free
look" period.
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 last day of the "free look" period. 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 "free look" 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.
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 incurred) 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 (and Surrender Charges incurred)
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."
The death benefit will be paid according to benefit instructions
provided by the deceased. If benefit instructions have not been
provided the death benefit will be paid upon receipt of a written
request for settlement method. The Company will pay interest (at an
annual rate equal to or greater than 3% or such other rate required by
state law) on the death benefit from the date it receives proof of
death (or such other date required by state law) 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 Years Surrender Charge Applied to all Purchase
Since Purchase Payment was Paid Payments Received in 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, but the Surrender Charge will
apply to Purchase Payments made by the participant's surviving
spouse after the participant's date of death occurring on or
after July 1, 1996;
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. To any amount transferred from a Contract used to fund an IRA to
another annuity contract issued by the Company to fund an IRA of
the participant's spouse when the distribution is made pursuant to
a divorce decree.
8. 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
50392-0200, 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 the Statement of
Additional Information 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: Variable Annuity, The
Principal Financial Group, P.O. Box 9382, Des Moines, Iowa 50306-9382,
1-800-852-4450.
TABLE OF CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION
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:
Variable Annuity
The Principal Financial Group
P.O. Box 9382
Des Moines, Iowa 50306-9382
Telephone: 1-800-852-4450
APPENDIX A
he 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. The Company reserves the right to terminate this
exchange offer at any time. 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.
<PAGE>
PART B
PRINCIPAL MUTUAL LIFE INSURANCE COMPANY SEPARATE ACCOUNT B
FLEXIBLE VARIABLE ANNUITY ("FVA") CONTRACT
Statement of Additional Information
dated May 1, 1996
This Statement of Additional Information provides information about Principal
Mutual Life Insurance Company Separate Account B Flexible Variable Annuity (the
"Contract") in addition to the information that is contained in the Contract's
Prospectus, dated May 1, 1996.
This Statement of Additional Information is not a prospectus. It should be read
in conjunction with the Prospectus, a copy of which can be obtained free of
charge by writing or telephoning:
Variable Annuity
The Principal Financial Group
P.O. Box 9382
Des Moines Iowa 50306-9382
Telephone: 1-800-852-4450
RF 581 B-3
<PAGE>
TABLE OF CONTENTS
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
<PAGE>
INDEPENDENT AUDITORS
Ernst & Young LLP, Des Moines, Iowa, serve as independent auditors for Principal
Mutual Life Insurance Company Separate Account B and Principal Mutual Life
Insurance Company and perform audit and accounting services for Separate Account
B and the Company.
CALCULATION OF YIELD AND TOTAL RETURN
The Separate Account may publish advertisements containing information
(including graphs, charts, tables and examples) about the performance of one or
more of its Divisions. The Contract was not offered prior to June 16, 1994.
However, shares of some of the 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.
From time to time the Account advertises its Money Market Division's "yield" and
"effective yield" for these Contracts. Both yield figures are based on
historical earnings and are not intended to indicate future performance. The
"yield" of the Division refers to the income generated by an investment under
the contract in the Division over a seven-day period (which period will be
stated in the advertisement). This income is then "annualized." That is, the
amount of income generated by the investment during that week is assumed to be
generated each week over a 52-week period and is shown as a percentage of the
investment. The "effective yield" is calculated similarly but, when annualized,
the income earned by an investment in the division is assumed to be reinvested.
The "effective yield" will be slightly higher than the "yield" because of the
compounding effect of this assumed reinvestment. Neither yield quotation
reflects a sales load deducted from purchase payments which, if included, would
reduce the "yield" and "effective yield."
In addition, from time to time, the Separate Account will advertise the "yield"
for certain other Divisions for the Contract. The "yield" of a Division is
determined by annualizing the net investment income per unit for a specific,
historical 30-day period and dividing the result by the ending maximum offering
price of the unit for the same period. This yield quotation does not reflect a
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 contingent deferred sales charge that decreases from 6% to 0% over
a period of 7 years. The Separate Account may also advertise total return
figures for its Divisions for a specified period that does not take into account
the sales charge in order to illustrate the change in the Division's unit value
over time. See "Charges and Deductions" in the Prospectus for a discussion of
contingent deferred sales charges.
<TABLE>
<CAPTION>
Following are the hypothetical average annual total returns for the period
ending December 31, 1995 assuming the contract had been offered as of the
effective dates of the underlying mutual funds in which the Divisions invest:
With Contingent Deferred Without Contingent
Sales Charge Deferred Sales Charge
Division One Year Five Year Ten Year One Year Five Year Ten Year
- ------------------------------ -------- --------- -------- -------- --------- --------
<PAGE>
<S> <C> <C> <C> <C> <C> <C>
Aggressive Growth Division 36.41 23.13(1) 23.13 42.41 26.46(1) 26.46
Asset Allocation Division 13.17 7.93(1) 7.93 19.17 11.51(1) 11.51
Balanced Division 17.04 13.57 10.66(2) 23.04 14.05 10.66(2)
Bond Division 14.66 9.15 9.11(2) 20.66 9.71 9.11(2)
Capital Accumulation Division 24.28 14.86 11.00 30.28 15.32 11.00
Emerging Growth Division 21.41 20.41 15.86(2) 27.41 20.79 15.86(2)
Government Securities Division 11.60 7.40 7.90(2) 17.60 8.00 7.90(3)
Growth Division 18.06 13.62(4) 13.62 24.06 16.90(4) 16.90
Money Market Division -1.40 2.32 4.52 4.26 3.04 4.52
World Division 6.75 1.25(4) 1.25 12.75 4.71(4) 4.71
<FN>
(1) Period from June 1, 1994 through December 31, 1995.
(2) Period from December 18, 1987 through December 31, 1995.
(3) Period from April 9, 1987 through December 31, 1995.
(4) Period from May 2, 1994 through December 31, 1995.
</FN>
</TABLE>
TAXATION UNDER CERTAIN RETIREMENT PLANS
INDIVIDUAL RETIREMENT ANNUITIES
Purchase Payments. Individuals may make contributions for individual retirement
annuity ("IRA") Contracts. Deductible contributions for any year may be made up
to the lesser of $2,000 or 100% of compensation for individuals who (1) are not
(and whose spouses are not) active participants in another retirement plan, (2)
are unmarried and have adjusted gross income of $25,000 or less, or (3) are
married and have adjusted gross income of $40,000 or less. Such individuals may
establish an IRA for a spouse who makes no contribution to an IRA for the tax
year. The annual purchase payments for both spouses' Contracts cannot exceed the
lesser of $2,250 or 100% of the working spouse's earned income, and no more than
$2,000 may be contributed to either spouse's IRA for any year. Individuals who
are active participants in other retirement plans and whose adjusted gross
income (with certain special adjustments) exceeds the cut-off point ($25,000 for
unmarried, $40,000 for married persons filing jointly, and $0 for married
persons filing a separate return) by less than $10,000 are entitled to make
deductible IRA contributions in proportionately reduced amounts. For example, a
married individual who is an active participant in another retirement plan and
files a separate tax return is entitled to a partial IRA deduction if the
individual's adjusted gross income is less than $10,000, and no IRA deduction if
his or her adjusted gross income is equal to or greater than $10,000.
An individual may make non-deductible IRA contributions to the extent of the
excess of (1) the lesser of $2,000 ($2,250 in the case of a spousal IRA) or 100%
of compensation over (2) the IRA deductible contributions made with respect to
the individual.
An individual may not make any contribution to his/her own IRA for the year in
which he/she reaches age 70 1/2 or for any year thereafter.
Taxation of Distributions. Distributions from IRA Contracts are taxed as
ordinary income to the recipient, although special rules exist for the tax-free
return of non-deductible contributions. In addition, taxable distributions
received under an IRA Contract prior to age 59 1/2 are subject to a 10% penalty
tax in addition to regular income tax. Certain distributions are exempted from
this penalty tax, including distributions following the owner's death or
disability if the distribution is paid as part of a series of substantially
equal periodic payments made for the life (or life expectancy) of the Owner or
the joint lives (or joint life expectancies) of Owner and the Owner's designated
Beneficiary.
Required Distributions. Generally, distributions from IRA Contracts must
commence not later than April 1 of the calendar year following the calendar year
in which the employee attains age 70 1/2, and such distributions must be made
over a period that does not exceed the life expectancy of the employee (or the
employee and Beneficiary). A penalty tax of 50% would be imposed on any amount
by which the minimum required distribution in any year exceeded the amount
actually distributed in that year. In addition, in the event that the employee
dies before his or her entire interest in the Contract has been distributed, the
employee's entire interest must be distributed in accordance with rules similar
to those applicable upon the death of the Contract Owner in the case of a
non-qualified contract, as described in the Prospectus.
Tax-Free Rollovers. The Code permits the taxable portion of funds to be
transferred in a tax-free rollover from a qualified employer pension,
profit-sharing, annuity, bond purchase or tax-deferred annuity plan to an IRA
Contract if certain conditions are met, and if the rollover of assets is
completed within 60 days after the distribution from the qualified plan is
received. A direct rollover of funds may avoid a 20% federal tax withholding
generally applicable to qualified plans or tax-deferred annuity plan
distributions. In addition, not more frequently than once every twelve months,
amounts may be rolled over tax-free from one IRA to another, subject to the
60-day limitation and other requirements. The once-per-year limitation on
rollovers does not apply to direct transfers of funds between IRA custodians or
trustees.
SIMPLIFIED EMPLOYEE PENSION PLANS AND SALARY REDUCTION SIMPLIFIED EMPLOYEE
PENSION PLANS
Purchase Payments. Under Section 408(k) of the Code, employers may establish a
type of IRA plan referred to as a simplified employee pension plan (SEP).
Employer contributions to a SEP cannot exceed the lesser of $22,500 or 15% or
the employee's earned income. Employees of certain small employers may have
contributions made to the salary reduction simplified employee pension plan
("SAR/SEP") on their behalf on a salary reduction basis. These salary reduction
contributions may not exceed $9,500 in 1996, which is indexed for inflation.
Employees of tax-exempt organizations and state and local government agencies
are not eligible for SAR/SEPs.
Taxation of Distributions. Generally, distribution payments from SEPs and
SAR/SEPs are subject to the same distribution rules described above for IRAs.
Required Distributions. SEP and SAR/SEP distributions are subject to the same
minimum required distribution rules described above for IRAs.
Tax-Free Rollovers. Generally, rollovers and direct transfers may be made to and
from SEPs and SAR/SEPs in the same manner as described above for IRAs, subject
to the same conditions and limitations.
<PAGE>
<TABLE>
<CAPTION>
Principal Mutual Life Insurance
Company Separate Account B
Statement of Net Assets
December 31, 1995
Assets
Investments (Note 1):
Aggressive Growth Division:
Principal Aggressive Growth Fund, Inc. - 1,483,620 shares at net asset value of
<S> <C>
$12.94 per share (cost - $18,325,213) $ 19,198,047
Asset Allocation Division:
Principal Asset Allocation Fund, Inc. - 975,797 shares at net asset value of
$11.11 per share (cost - $10,437,689) 10,841,100
Balanced Division:
Principal Balanced Fund, Inc. - 1,522,049 shares at net asset value
of $13.97 per share (cost - $20,112,401) 21,263,022
Bond Division:
Principal Bond Fund, Inc. - 1,588,119 shares at net asset value of $11.73 per
share (cost - $18,122,886) 18,628,633
Capital Accumulation Division:
Principal Capital Accumulation Fund, Inc. - 3,728,696 shares at net asset value
of $27.80 per share (cost - $92,908,561) 103,657,763
Emerging Growth Division:
Principal Emerging Growth Fund, Inc. - 1,665,414 shares at net
asset value of $25.33 per share (cost - $37,189,023) 42,184,948
Government Securities Division:
Principal Government Securities Fund, Inc. - 4,307,388 shares at
net asset value of $10.55 per share (cost - $44,523,062) 45,442,936
Growth Division:
Principal Growth Fund, Inc. - 3,049,334 shares at net asset value of $12.43 per
share (cost - $33,989,529) 37,903,233
Money Market Division:
Principal Money Market Fund, Inc. - 22,309,488 shares at net asset value (cost)
of $1.00 per share 22,309,488
World Division:
Principal World Fund, Inc. - 2,349,081 shares at net asset value of $10.72 per
share (cost - $23,424,723) 25,182,149
===================
Net assets $346,611,319
===================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Principal Mutual Life Insurance
Company Separate Account B
Statement of Net Assets (continued)
Unit
Units Value
----------------------------
----------------------------
Net assets are represented by:
Aggressive Growth Division:
Contracts in accumulation period - The Principal
<S> <C> <C> <C>
Variable Annuity 1,323,663 $14.50 $ 19,198,047
Asset Allocation Division:
Contracts in accumulation period - The Principal
Variable Annuity 911,657 11.89 10,841,100
Balanced Division:
Contracts in accumulation period:
Personal Variable 327,372 1.21 395,555
Premier Variable 3,316,975 1.21 4,018,252
The Principal Variable Annuity 1,373,157 12.27 16,849,215
-------------------
-------------------
21,263,022
Bond Division:
Contracts in accumulation period:
Personal Variable 101,036 1.23 124,183
Premier Variable 1,207,749 1.23 1,488,447
The Principal Variable Annuity 1,401,301 12.14 17,016,003
-------------------
-------------------
18,628,633
Capital Accumulation Division:
Currently payable annuity contracts:
Bankers Flexible Annuity 10,014 17.70 177,260
Pension Builder Plus - Rollover IRA 67,563 3.72 251,017
Contracts in accumulation period:
Bankers Flexible Annuity 324,861 17.70 5,751,347
Pension Builder Plus 9,967,305 3.41 33,981,462
Pension Builder Plus - Rollover IRA 2,115,464 3.72 7,859,055
Personal Variable 2,336,347 1.50 3,500,687
Premier Variable 14,824,208 1.51 22,380,360
The Principal Variable Annuity 2,231,777 13.33 29,756,575
-------------------
-------------------
103,657,763
Emerging Growth Division:
Contracts in accumulation period:
Personal Variable 287,939 1.27 365,808
Premier Variable 1,895,863 1.27 2,415,033
The Principal Variable Annuity 3,059,324 12.88 39,404,107
-------------------
-------------------
42,184,948
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Principal Mutual Life Insurance
Company Separate Account B
Statement of Net Assets (continued)
Unit
Units Value
----------------------------
Net assets are represented by (continued):
Government Securities Division:
Contracts in accumulation period:
<S> <C> <C> <C>
Pension Builder Plus 3,738,233 $ 1.84 $ 6,882,964
Pension Builder Plus - Rollover IRA 1,771,981 1.92 3,407,555
Personal Variable 1,889,788 1.26 2,371,868
Premier Variable 7,159,023 1.26 9,053,348
The Principal Variable Annuity 2,023,123 11.73 23,727,201
-------------------
-------------------
45,442,936
Growth Division:
Contracts in accumulation period:
Personal Variable 277,708 1.25 346,944
Premier Variable 2,859,893 1.25 3,582,532
The Principal Variable Annuity 2,619,339 12.97 33,973,757
-------------------
-------------------
37,903,233
Money Market Division:
Contracts in accumulation period:
Pension Builder Plus 1,327,197 1.76 2,339,446
Pension Builder Plus - Rollover IRA 439,501 1.82 797,914
Personal Variable 1,143,063 1.12 1,278,235
Premier Variable 2,958,777 1.13 3,335,350
The Principal Variable Annuity 1,370,204 10.63 14,558,543
-------------------
-------------------
22,309,488
World Division:
Contracts in accumulation period:
Personal Variable 159,698 1.09 173,584
Premier Variable 1,672,346 1.09 1,822,554
The Principal Variable Annuity 2,145,969 10.80 23,186,011
-------------------
-------------------
25,182,149
===================
Net assets $346,611,319
===================
See accompanying notes.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Principal Mutual Life Insurance
Company Separate Account B
Statement of Operations
Year ended December 31, 1995
Aggressive Asset
Growth Allocation Balanced
Combined Division Division Division
--------------------------------------------------------------
--------------------------------------------------------------
Investment income
Income:
<S> <C> <C> <C> <C>
Dividends (Note 1) $ 8,765,352 $ 169,797 $ 363,337 $ 636,546
Capital gains distributions 11,188,947 1,879,337 270,245 392,158
--------------------------------------------------------------
--------------------------------------------------------------
19,954,299 2,049,134 633,582 1,028,704
Expenses (Note 2):
Mortality and expense risks 2,690,588 125,688 80,633 122,571
Administration charges 345,587 7,043 1,214 1,975
Contingent sales charges 227,015 4,176 2,173 4,526
--------------------------------------------------------------
--------------------------------------------------------------
3,263,190 136,907 84,020 129,072
--------------------------------------------------------------
--------------------------------------------------------------
Net investment income 16,691,109 1,912,227 549,562 899,632
Realized and unrealized gains (losses) on
investments (Note 4)
Net realized gains (losses) on investments 2,865,382 448,426 74,402 103,410
Change in net unrealized appreciation/
depreciation of investments 31,314,846 912,921 490,584 1,347,509
--------------------------------------------------------------
==============================================================
Net increase in net assets resulting from
operations $50,871,337 $3,273,574 $1,114,548 $2,350,551
==============================================================
See accompanying notes.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Capital Emerging Government Money Market
Bond Division Accumulation Growth Securities Growth Division Division World Division
Division Division Division
- -----------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C> <C>
$ 918,871 $ 2,051,110 $ 353,883 $2,482,944 $ 495,175 $879,065 $ 414,624
- 8,040,992 330,442 - 257,829 - 17,944
- -----------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------
918,871 10,092,102 684,325 2,482,944 753,004 879,065 432,568
103,748 950,830 306,214 357,325 258,835 171,164 213,580
1,284 223,785 13,050 64,967 4,604 25,185 2,480
7,310 114,476 10,588 38,738 10,167 26,112 8,749
- -----------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------
112,342 1,289,091 329,852 461,030 273,606 222,461 224,809
- -----------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------
806,529 8,803,011 354,473 2,021,914 479,398 656,604 207,759
50,961 1,908,275 241,047 (303,527) 254,149 - 88,239
679,932 12,768,964 5,294,039 3,801,338 3,955,502 - 2,064,057
- -----------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------
$1,537,422 $23,480,250 $5,889,559 $5,519,725 $4,689,049 $656,604 $2,360,055
===========================================================================================================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Principal Mutual Life Insurance
Company Separate Account B
Statements of Changes in Net Assets
Years ended December 31, 1995 and 1994
Aggressive Asset
Growth Allocation Balanced
Combined Division Division Division
----------------------------------------------------------------
<S> <C> <C> <C> <C>
Net assets at January 1, 1994 $137,066,766 $ $ $ -
- -
Increase (decrease) in net assets
Operations:
Net investment income 6,189,070 28,335 66,422 151,699
Net realized gains (losses) on investments 145,940 316 (74) (635)
Change in net unrealized appreciation/
depreciation of investments (9,269,736) (40,087) (87,173) (196,888)
----------------------------------------------------------------
----------------------------------------------------------------
Net increase (decrease) in net assets resulting
from operations (2,934,726) (11,436) (20,825) (45,824)
Changes from principal transactions:
Purchase payments, less sales charges, per
payment fees and applicable premium taxes 162,307,213 3,729,494 3,048,277 3,914,946
Contract terminations (40,138,840) (3,855) (100) -
Death benefit payments (45,257) (4,629) - -
Flexible withdrawal option payments (98,120) (1,190) (1,931) (4,660)
Transfer payments to other contracts (78,225,382) (23,882) - (44,750)
Annuity payments (45,771) - - -
Mortality guarantee transfer (1,830) - - -
----------------------------------------------------------------
----------------------------------------------------------------
Increase (decrease) in net assets from principal
transactions 43,752,013 3,695,938 3,046,246 3,865,536
----------------------------------------------------------------
----------------------------------------------------------------
Total increase (decrease) 40,817,287 3,684,502 3,025,421 3,819,712
----------------------------------------------------------------
Net assets at December 31, 1994 177,884,053 3,684,502 3,025,421 3,819,712
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Capital Emerging Government Money Market
Bond Division Accumulation Growth Securities Growth Division Division World Division
Division Division Division
- -----------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C> <C>
$ $96,467,365 $ $29,762,953 $ $10,836,448 $
- - - -
194,093 3,292,499 322,224 1,751,663 51,605 277,374 53,156
267 671,701 (1,080) (527,977) 5,584 - (2,162)
(174,185) (4,877,919) (298,114) (3,246,941) (41,798) - (306,631)
- -----------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------
20,175 (913,719) 23,030 (2,023,255) 15,391 277,374 (255,637)
3,076,098 29,730,601 10,224,130 19,469,052 8,448,347 71,213,235 9,453,033
- (26,290,355) (5,153) (10,515,456) (5,272) (3,308,423) (10,226)
- (11,029) (14,169) (3,039) (4,690) - (7,701)
(2,423) (3,620) (26,751) (7,540) (23,355) - (26,650)
(37,501) (9,201,231) (235,391) (6,409,017) (329,097) (61,909,148) (35,365)
- (45,771) - - - - -
- (1,830) - - - - -
- -----------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------
3,036,174 (5,823,235) 9,942,666 2,534,000 8,085,933 5,995,664 9,373,091
- -----------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------
3,056,349 (6,736,954) 9,965,696 510,745 8,101,324 6,273,038 9,117,454
- -----------------------------------------------------------------------------------------------------------
3,056,349 89,730,411 9,965,696 30,273,698 8,101,324 17,109,486 9,117,454
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Principal Mutual Life Insurance
Company Separate Account B
Statements of Changes in Net Assets (continued)
Aggressive Asset
Growth Allocation Balanced
Combined Division Division Division
----------------------------------------------------------------
<S> <C> <C> <C> <C>
Net assets at January 1, 1995 $177,884,053 $ 3,684,502 $ 3,025,421 $ 3,819,712
Increase (decrease) in net assets
Operations:
Net investment income 16,691,109 1,912,227 549,562 899,632
Net realized gains (losses) on investments 2,865,382 448,426 74,402 103,410
Change in net unrealized appreciation/
depreciation of investments 31,314,846 912,921 490,584 1,347,509
----------------------------------------------------------------
----------------------------------------------------------------
Net increase in net assets resulting from
operations 50,871,337 3,273,574 1,114,548 2,350,551
Changes from principal transactions:
Purchase payments, less sales charges, per
payment fees and applicable premium taxes 283,284,033 14,908,019 7,493,760 17,579,517
Contract terminations (51,871,322) (147,494) (76,769) (243,855)
Death benefit payments (616,609) (111,616) (30,363) (22,485)
Flexible withdrawal option payments (591,573) (23,563) (12,654) (56,396)
Transfer payments to other contracts (112,300,367) (2,385,375) (672,843) (2,164,022)
Annuity payments (48,233) - - -
----------------------------------------------------------------
----------------------------------------------------------------
Increase (decrease) in net assets from principal
transactions 117,855,929 12,239,971 6,701,131 15,092,759
----------------------------------------------------------------
----------------------------------------------------------------
Total increase 168,727,266 15,513,545 7,815,679 17,443,310
----------------------------------------------------------------
================================================================
Net assets at December 31, 1995 $346,611,319 $19,198,047 $10,841,100 $21,263,022
================================================================
See accompanying notes.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Capital Emerging Government Money Market
Bond Division Accumulation Growth Securities Growth Division World Division
Division Division Division Division
- -----------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 3,056,349 $ 89,730,411 $ 9,965,696 $30,273,698 $ 8,101,324 $17,109,486 $ 9,117,454
806,529 8,803,011 354,473 2,021,914 479,398 656,604 207,759
50,961 1,908,275 241,047 (303,527) 254,149 - 88,239
679,932 12,768,964 5,294,039 3,801,338 3,955,502 - 2,064,057
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
1,537,422 23,480,250 5,889,559 5,519,725 4,689,049 656,604 2,360,055
15,702,412 37,285,598 28,874,128 24,062,104 29,628,926 92,190,303 15,559,266
(274,508) (34,074,636) (420,250) (9,547,633) (428,438) (6,320,639) (337,100)
(44,089) (80,185) (14,885) (129,425) (44,665) (97,824) (41,072)
(73,005) (87,530) (52,968) (96,784) (50,522) (85,680) (52,471)
(1,275,948) (12,547,912) (2,056,332) (4,638,749) (3,992,441) (81,142,762) (1,423,983)
- (48,233) - - - - -
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
14,034,862 (9,552,898) 26,329,693 9,649,513 25,112,860 4,543,398 13,704,640
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
15,572,284 13,927,352 32,219,252 15,169,238 29,801,909 5,200,002 16,064,695
- -------------------------------------------------------------------------------------------------------------
=============================================================================================================
$18,628,633 $103,657,763 $42,184,948 $45,442,936 $37,903,233 $22,309,488 $25,182,149
=============================================================================================================
</TABLE>
<PAGE>
Principal Mutual Life Insurance
Company Separate Account B
Notes to Financial Statements
December 31, 1995
1. Investment and Accounting Policies
Principal Mutual Life Insurance Company Separate Account B is a segregated
investment account of Principal Mutual Life Insurance Company (Principal Mutual)
and is registered under the Investment Company Act of 1940 as a unit investment
trust, with no stated limitations on the number of authorized units. As directed
by eligible contractholders, Separate Account B invests solely in shares of
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., diversified open-end
management investment companies organized by Principal Mutual. Investments are
stated at the closing net asset values per share on December 31, 1995.
The average cost method is used to determine realized gains and losses on
investments. Dividends are taken into income on an accrual basis as of the
ex-dividend date.
Principal Mutual no longer accepts contributions for Bankers Flexible Annuity
contracts. Beginning in early 1996, it is anticipated that contributions will
also no longer be accepted for Pension Builder Plus contracts, with transfer and
withdrawal options of affected contractholders to be communicated at that time.
2. Expenses
Principal Mutual is compensated for the following expenses:
Bankers Flexible Annuity Contracts - Mortality and expense risks assumed by
Principal Mutual are compensated for by a charge equivalent to an annual rate of
0.48% of the asset value of each contract. An annual administration charge of $7
for each participant's account is deducted as compensation for administrative
expenses. The mortality and expense risk and annual administration charges
amounted to $26,286 and $1,187, respectively, during the year ended December 31,
1995. A sales charge of up to 7% was deducted from each contribution made on
behalf of each participant. The sales charge was deducted from the contributions
by Principal Mutual prior to their transfer to Separate Account B.
Pension Builder Plus Contracts - Mortality and expense risks assumed by
Principal Mutual are compensated for by a charge equivalent to an annual rate of
1.4965% (1.0001% for a Rollover Individual Retirement Annuity) of the asset
value of each contract. A contingent sales charge of up to 7% may be deducted
from withdrawals made during the first 10 years of a contract, except for death
or permanent disability. An annual administration charge will be deducted
ranging from a minimum of $25 to a maximum of $275 depending upon a
participant's investment account values and the
<PAGE>
Principal Mutual Life Insurance
Company Separate Account B
Notes to Financial Statements (continued)
2. Expenses (continued)
number of participants under the retirement plan and their participant
investment account value. The charges for mortality and expense risks,
contingent sales, and annual administration amounted to $836,135, $131,273, and
$285,909, respectively, during the year ended December 31, 1995.
Personal Variable Contracts - Mortality and expense risks assumed by Principal
Mutual are compensated for by a charge equivalent to an annual rate of 0.55% of
the asset value of each contract. A contingent sales charge of up to 5% may be
deducted from withdrawals from an investment account which correlates to a plan
participant made during the first seven years from the date the first
contribution which relates to such participant is accepted by Principal Mutual.
This charge does not apply to withdrawals made from investment accounts which
correlate to a plan participant as a result of the plan participant's death or
permanent disability. An annual administration charge of $31 (1994 - $28) for
each participant's account plus 0.35% of the annual average balance of
investment account values which correlate to a plan participant will be deducted
on a quarterly basis. The charges for mortality and expense risks, contingent
sales and annual administration amounted to $29,903, $16,882, and $17,673,
respectively, during the year ended December 31, 1995.
Premier Variable Contracts - Mortality and expense risks assumed by Principal
Mutual are compensated for by a charge equivalent to an annual rate of 0.33% of
the asset value of each contract. An annual administration charge of $300 for
each contract account plus .35% of the annual average balance of investment
account values under the contract will be billed or deducted on a quarterly
basis. The charges for mortality expense risks and annual administration
amounted to $117,935 and $1,813, respectively, during the year ended December
31, 1995. There were no contingent sales charges provided for in these
contracts.
The Principal Variable Annuity (initially available in 1994) - Mortality and
expense risks assumed by Principal Mutual are compensated for by a charge
equivalent to an annual rate of 1.25% of the asset value of each contract. A
contingent sales charge of up to 6% may be deducted from the withdrawals made
during the first six years of a contract, except for death, annuitization,
permanent disability, confinement in a health care facility, or terminal
illness. An annual administration charge of the lessor of two percent of the
accumulated value or $30 is deducted at the end of the contract year. Principal
Mutual reserves the right to charge an additional administrative fee of up to
0.15% of the asset value of each Division. This fee is currently being waived.
The mortality expense risks, contingent sales, and annual administration
amounted to $1,680,329, $78,860, and $39,005, respectively, during the year
ended December 31, 1995.
3. Federal Income Taxes
Operations of Separate Account B are a part of the operations of Principal
Mutual. Under current practice, no federal income taxes are allocated by
Principal Mutual to the operations of Principal Mutual Life Insurance Company
Separate Account B.
<PAGE>
Principal Mutual Life Insurance
Company Separate Account B
Notes to Financial Statements (continued)
4. Purchases and Sales of Investment Securities
<TABLE>
<CAPTION>
The aggregate units and cost of purchases and proceeds from sales of investments
were as follows:
Year ended December 31, 1995
----------------------------------------------------------------------
Units Amount Units Amount
Purchased Purchased Redeemed Redeemed
----------------------------------------------------------------------
----------------------------------------------------------------------
Aggressive Growth Division:
<S> <C> <C> <C> <C>
The Principal Variable Annuity 1,162,971 $16,957,154 201,095 $ 2,804,956
Asset Allocation Division:
The Principal Variable Annuity 678,626 8,127,343 70,172 876,650
Balanced Division:
Personal Variable 334,553 385,447 11,639 14,109
Premier Variable 4,677,390 5,246,438 1,485,326 1,592,984
The Principal Variable Annuity 1,080,849 12,976,336 78,060 1,008,737
----------------------------------------------------------------------
----------------------------------------------------------------------
6,092,792 18,608,221 1,575,025 2,615,830
Bond Division:
Personal Variable 123,065 148,020 22,243 25,730
Premier Variable 1,840,967 2,123,674 663,884 722,145
The Principal Variable Annuity 1,184,200 14,349,589 83,479 1,032,017
----------------------------------------------------------------------
----------------------------------------------------------------------
3,148,232 16,621,283 769,606 1,779,892
Capital Accumulation Division:
Bankers Flexible Annuity (2,074) 586,673 26,790 484,160
Pension Builder Plus 1,177,659 6,843,608 7,859,266 22,762,416
Pension Builder Plus - Rollover IRA
1,886,220 1,378,668 5,357,391 11,244,730
Personal Variable 1,106,595 1,748,682 408,298 529,070
Premier Variable 9,404,706 13,956,170 8,547,118 10,455,522
The Principal Variable Annuity 1,739,038 22,863,899 206,288 2,651,689
----------------------------------------------------------------------
----------------------------------------------------------------------
15,312,144 47,377,700 22,405,151 48,127,587
Emerging Growth Division:
Personal Variable 292,833 348,128 18,735 22,981
Premier Variable 2,320,114 2,651,113 543,652 613,426
The Principal Variable Annuity 2,252,301 26,559,212 165,780 2,237,880
----------------------------------------------------------------------
----------------------------------------------------------------------
4,865,248 29,558,453 728,167 2,874,287
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Principal Mutual Life Insurance
Company Separate Account B
Notes to Financial Statements (continued)
4. Purchases and Sales of Investment Securities (continued)
Year ended December 31, 1995
----------------------------------------------------------------------
Units Amount Units Amount
Purchased Purchased Redeemed Redeemed
----------------------------------------------------------------------
Government Securities Division:
<S> <C> <C> <C> <C>
Pension Builder Plus 586,364 $ 1,344,275 2,795,319 $ 4,747,357
Pension Builder Plus - Rollover IRA
117,394 407,431 2,462,194 4,357,297
Personal Variable 724,111 966,857 408,940 483,072
Premier Variable 4,015,136 5,118,317 3,286,750 3,736,310
The Principal Variable Annuity 1,576,129 18,708,169 125,206 1,549,586
----------------------------------------------------------------------
----------------------------------------------------------------------
7,019,134 26,545,049 9,078,409 14,873,622
Growth Division:
Personal Variable 288,529 338,347 15,831 18,761
Premier Variable 3,384,751 3,805,395 634,749 707,988
The Principal Variable Annuity 2,193,600 26,238,189 338,161 4,062,924
----------------------------------------------------------------------
----------------------------------------------------------------------
5,866,880 30,381,931 988,741 4,789,673
Money Market Division:
Pension Builder Plus 259,307 585,027 928,805 1,623,965
Pension Builder Plus - Rollover IRA
73,307 206,073 1,861,305 3,275,611
Personal Variable 4,808,023 5,271,738 4,407,096 4,786,833
Premier Variable 19,308,743 21,221,953 18,140,572 19,805,796
The Principal Variable Annuity 6,262,716 65,784,577 5,594,373 58,377,161
----------------------------------------------------------------------
----------------------------------------------------------------------
30,712,096 93,069,368 30,932,151 87,869,366
World Division:
Personal Variable 147,751 154,436 9,257 10,003
Premier Variable 2,079,728 2,137,579 544,500 566,419
The Principal Variable Annuity 1,337,260 13,699,818 126,959 1,503,012
----------------------------------------------------------------------
----------------------------------------------------------------------
3,564,739 15,991,833 680,716 2,079,434
----------------------------------------------------------------------
======================================================================
78,422,862 $303,238,335 67,429,233 $168,691,297
======================================================================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Principal Mutual Life Insurance
Company Separate Account B
Notes to Financial Statements (continued)
4. Purchases and Sales of Investment Securities (continued)
Year ended December 31, 1994
----------------------------------------------------------------------
Units Amount Units Amount
Purchased Purchased Redeemed Redeemed
----------------------------------------------------------------------
----------------------------------------------------------------------
Aggressive Growth Division:
<S> <C> <C> <C> <C>
The Principal Variable Annuity 365,021 $ 3,764,495 3,234 $ 40,222
Asset Allocation Division:
The Principal Variable Annuity 303,404 3,120,664 201 7,996
Balanced Division:
Personal Variable 4,458 4,510 - 1
Premier Variable 134,069 137,040 9,158 9,075
The Principal Variable Annuity 374,366 3,932,274 3,998 47,513
----------------------------------------------------------------------
----------------------------------------------------------------------
512,893 4,073,824 13,156 56,589
Bond Division:
Personal Variable 214 229 - -
Premier Variable 30,684 32,652 18 27
The Principal Variable Annuity 304,552 3,243,070 3,972 45,657
----------------------------------------------------------------------
----------------------------------------------------------------------
335,450 3,275,951 3,990 45,684
Capital Accumulation Division:
Bankers Flexible Annuity 2,374 301,977 51,727 734,507
Pension Builder Plus 2,446,494 9,006,081 7,066,481 19,561,666
Pension Builder Plus - Rollover IRA
949,817 3,764,900 3,969,948 11,681,145
Personal Variable 1,472,634 1,771,211 339,067 396,040
Premier Variable 10,159,761 12,414,226 4,172,940 4,837,072
The Principal Variable Annuity 704,037 7,483,988 5,010 62,689
----------------------------------------------------------------------
----------------------------------------------------------------------
15,735,117 34,742,383 15,605,173 37,273,119
Emerging Growth Division:
Personal Variable 13,841 14,069 - 6
Premier Variable 122,378 124,838 2,977 2,976
The Principal Variable Annuity 1,000,413 10,426,294 27,610 297,329
----------------------------------------------------------------------
----------------------------------------------------------------------
1,136,632 10,565,201 30,587 300,311
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Principal Mutual Life Insurance
Company Separate Account B
Notes to Financial Statements (continued)
4. Purchases and Sales of Investment Securities (continued)
Year ended December 31, 1994
----------------------------------------------------------------------
Units Amount Units Amount
Purchased Purchased Redeemed Redeemed
----------------------------------------------------------------------
Government Securities Division:
<S> <C> <C> <C> <C>
Pension Builder Plus 1,705,948 $ 3,472,965 3,191,017 $ 5,229,829
Pension Builder Plus - Rollover IRA
1,343,428 2,767,254 5,104,801 8,454,316
Personal Variable 1,592,426 1,856,027 826,327 909,485
Premier Variable 6,358,242 7,432,287 2,480,866 2,736,826
The Principal Variable Annuity 582,127 6,197,216 9,927 109,630
----------------------------------------------------------------------
----------------------------------------------------------------------
11,582,171 21,725,749 11,612,938 17,440,086
Growth Division:
Personal Variable 5,010 5,023 - 1
Premier Variable 109,908 110,749 17 35
The Principal Variable Annuity 798,340 8,399,024 34,440 377,222
----------------------------------------------------------------------
----------------------------------------------------------------------
913,258 8,514,796 34,457 377,258
Money Market Division:
Pension Builder Plus 824,944 1,537,336 1,733,074 2,976,732
Pension Builder Plus - Rollover IRA
658,567 1,300,232 1,324,777 2,327,495
Personal Variable 6,290,739 6,573,245 5,731,682 5,968,932
Premier Variable 31,282,964 32,799,567 30,393,364 31,815,309
The Principal Variable Annuity 2,902,432 29,495,563 2,200,571 22,344,437
----------------------------------------------------------------------
----------------------------------------------------------------------
41,959,646 71,705,943 41,383,468 65,432,905
World Division:
Personal Variable 21,212 21,051 8 18
Premier Variable 137,240 135,769 122 151
The Principal Variable Annuity 944,065 9,365,533 8,397 95,937
----------------------------------------------------------------------
----------------------------------------------------------------------
1,102,517 9,522,353 8,527 96,106
----------------------------------------------------------------------
======================================================================
73,946,109 $171,011,359 68,695,731 $121,070,276
======================================================================
</TABLE>
Purchases include reinvested dividends and capital gains.
Money Market purchases include transactions where investment allocations are not
known at the time of the deposit. Redemptions reflect subsequent allocations to
directed investment divisions.
<PAGE>
Principal Mutual Life Insurance
Company Separate Account B
Notes to Financial Statements (continued)
5. Net Assets
<TABLE>
<CAPTION>
Net assets at December 31, 1995 consisted of the following:
Accumulated Net Net Unrealized
Investment Appreciation
Unit Income of Investments
Combined Transactions
-------------------------------------------------------------------
Aggressive Growth Division:
<S> <C> <C> <C> <C>
The Principal Variable Annuity $ 19,198,047 $16,585,472 $ 1,739,741 $ 872,834
Asset Accumulation Division:
The Principal Variable Annuity 10,841,100 9,858,412 579,277 403,411
Balanced Division:
Personal Variable 395,555 359,859 16,939 18,757
Premier Variable 4,018,252 3,685,129 130,683 202,440
The Principal Variable Annuity 16,849,215 15,107,991 811,800 929,424
-------------------------------------------------------------------
-------------------------------------------------------------------
21,263,022 19,152,979 959,422 1,150,621
Bond Division:
Personal Variable 124,183 118,401 4,895 887
Premier Variable 1,488,447 1,397,785 50,150 40,512
The Principal Variable Annuity 17,016,003 15,672,902 878,753 464,348
-------------------------------------------------------------------
-------------------------------------------------------------------
18,628,633 17,189,088 933,798 505,747
Capital Accumulation Division:
Bankers Flexible Annuity 5,928,607 1,372,769 3,151,941 1,403,897
Pension Builder Plus 33,981,462 22,315,837 7,447,921 4,217,704
Pension Builder Plus - Rollover IRA
8,110,072 5,394,422 1,747,988 967,662
Personal Variable 3,500,687 2,876,197 329,409 295,081
Premier Variable 22,380,360 18,395,190 2,038,475 1,946,695
The Principal Variable Annuity 29,756,575 25,472,959 2,365,453 1,918,163
-------------------------------------------------------------------
-------------------------------------------------------------------
103,657,763 75,827,374 17,081,187 10,749,202
Emerging Growth Division:
Personal Variable 365,808 336,153 4,506 25,149
Premier Variable 2,415,033 2,161,763 31,411 221,859
The Principal Variable Annuity 39,404,107 34,039,475 615,715 4,748,917
-------------------------------------------------------------------
-------------------------------------------------------------------
42,184,948 36,537,391 651,632 4,995,925
Government Securities Division:
Pension Builder Plus 6,882,964 5,704,191 991,052 187,721
Pension Builder Plus - Rollover IRA
3,407,555 2,825,811 531,974 49,770
Personal Variable 2,371,868 2,174,499 165,545 31,824
Premier Variable 9,053,348 8,177,753 654,665 220,930
The Principal Variable Annuity 23,727,201 21,870,768 1,426,804 429,629
-------------------------------------------------------------------
-------------------------------------------------------------------
45,442,936 40,753,022 3,770,040 919,874
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Principal Mutual Life Insurance
Company Separate Account B
Notes to Financial Statements (continued)
5. Net Assets (continued)
Accumulated Net Net Unrealized
Investment Appreciation
Unit Income of Investments
Combined Transactions
-------------------------------------------------------------------
Growth Division:
<S> <C> <C> <C> <C>
Personal Variable $ 346,944 $ 320,239 $ 5,282 $ 21,423
Premier Variable 3,582,532 3,184,495 54,938 343,099
The Principal Variable Annuity 33,973,757 30,003,254 421,321 3,549,182
-------------------------------------------------------------------
37,903,233 33,507,988 481,541 3,913,704
Money Market Division:
Pension Builder Plus 2,339,446 2,142,956 196,490 -
Pension Builder Plus - Rollover IRA
797,914 727,279 70,635 -
Personal Variable 1,278,235 1,269,540 8,695 -
Premier Variable 3,335,350 3,314,495 20,855 -
The Principal Variable Annuity 14,558,543 14,487,342 71,201 -
-------------------------------------------------------------------
-------------------------------------------------------------------
22,309,488 21,941,612 367,876 -
World Division:
Personal Variable 173,584 163,826 2,034 7,724
Premier Variable 1,822,554 1,708,566 21,627 92,361
The Principal Variable Annuity 23,186,011 21,301,001 227,669 1,657,341
-------------------------------------------------------------------
-------------------------------------------------------------------
25,182,149 23,173,393 251,330 1,757,426
-------------------------------------------------------------------
===================================================================
$346,611,319 $294,526,731 $26,815,844 $25,268,744
===================================================================
</TABLE>
<PAGE>
Report of Independent Auditors
Board of Directors and Participants
Principal Mutual Life Insurance Company
We have audited the accompanying statement of net assets of Principal Mutual
Life Insurance Company Separate Account B (comprising, respectively, the
Aggressive Growth, Asset Allocation, Balanced, Bond, Capital Accumulation,
Emerging Growth, Government Securities, Growth, Money Market and World
Divisions) as of December 31, 1995, and the related statements of operations for
the year then ended, and changes in net assets for each of the two years in the
period then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our procedures included
confirmation of securities owned as of December 31, 1995, by correspondence with
the transfer agent. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Principal Mutual Life Insurance
Company Separate Account B at December 31, 1995, and the results of its
operations for the year then ended, and the changes in its net assets for each
of the two years in the period then ended, in conformity with generally accepted
accounting principles.
Ernst & Young LLP
February 7, 1996
<PAGE>
Principal Mutual Life Insurance Company
Statements of Financial Position
December 31
1995 1994
---------------------------
(In Millions)
Assets
Bonds $21,798 $20,626
Preferred stocks 93 69
Common stocks 1,330 914
Investment in subsidiaries 546 501
Commercial mortgage loans 9,794 8,901
Residential mortgage loans 234 287
Investment real estate 1,313 1,155
Properties held for Company use 204 159
Policy loans 711 683
Cash and short-term investments 913 485
Accrued investment income 467 468
Separate account assets 12,957 9,197
Other assets 908 672
---------------------------
Total assets $51,268 $44,117
===========================
Liabilities
Insurance reserves $ 6,297 $ 6,007
Annuity reserves 25,770 24,311
Reserves for policy dividends 578 583
Other policy liabilities 748 618
Investment valuation reserves 1,041 792
Tax liabilities 241 189
Separate account liabilities 12,891 9,099
Other liabilities 1,494 591
---------------------------
Total liabilities 49,060 42,190
Surplus
Surplus notes 298 298
Unassigned and other surplus funds 1,910 1,629
---------------------------
Total surplus 2,208 1,927
---------------------------
Total liabilities and surplus $51,268 $44,117
===========================
See accompanying notes.
<PAGE>
<TABLE>
<CAPTION>
Principal Mutual Life Insurance Company
Statements of Operations and Surplus
Year ended December 31
1995 1994 1993
------------------------------------------
(In Millions)
Income
<S> <C> <C> <C>
Premiums and annuity and other considerations $11,940 $10,718 $ 9,983
Net income from investments 2,651 2,520 2,369
Other income 25 505 18
------------------------------------------
Total income 14,616 13,743 12,370
Benefits and expenses
Benefit payments other than dividends 9,268 8,211 6,729
Dividends to policyowners 309 317 410
Additions to policyowner reserves 3,439 3,756 3,890
Insurance expenses and taxes 1,199 1,145 1,029
------------------------------------------
Total benefits and expenses 14,215 13,429 12,058
------------------------------------------
Income before federal income taxes and realized capital gains
(losses) 401 314 312
Federal income taxes 140 130 48
------------------------------------------
Net gain from operations before realized capital gains (losses)
261 184 264
Realized capital gains (losses) 2 (32) (52)
------------------------------------------
Net income $ 263 $ 152 $ 212
==========================================
Surplus
Surplus at beginning of year $ 1,927 $ 1,641 $ 1,440
Net income 263 152 212
Issuance of surplus notes - 298 -
Increase in investment valuation reserves (249) (131) (43)
Increase in non-admitted assets and related items (45) (51) (59)
Net unrealized capital gains 326 47 57
Adjustment for prior years' federal income taxes - (63) -
Net policyowner reserve adjustments 1 31 18
Other adjustments - net (15) 3 16
------------------------------------------
Surplus at end of year $ 2,208 $ 1,927 $ 1,641
==========================================
See accompanying notes.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Principal Mutual Life Insurance Company
Statements of Cash Flows
Year ended December 31
1995 1994 1993
------------------------------------------
(In Millions)
CASH PROVIDED
Proceeds from operating activities
<S> <C> <C> <C>
Premiums and annuity and other considerations received $11,923 $10,711 $ 9,967
Net investment income received 2,723 2,509 2,421
Benefit payments other than dividends (9,277) (8,186) (6,700)
Dividends paid to policyowners (317) (293) (396)
Insurance expenses and taxes paid (1,198) (1,159) (1,007)
Federal income taxes paid (125) (67) (119)
Transfers for separate account operations (1,549) (1,396) (1,120)
Other (3) 7 (5)
------------------------------------------
Net cash provided from operations 2,177 2,126 3,041
Proceeds from investments sold, matured or repaid
Bonds and stocks 12,028 10,951 20,072
Mortgage loans 1,276 2,043 6,852
Real estate and other invested assets 70 168 37
Tax on capital gains (22) (25) (29)
------------------------------------------
Total cash provided from investments 13,352 13,137 26,932
Issuance of surplus notes - 298 -
Other cash provided 793 - 85
------------------------------------------
Total cash provided 16,322 15,561 30,058
CASH APPLIED
Cost of investments acquired
Bonds and stocks acquired (13,234) (13,709) (22,434)
Mortgage loans acquired or originated (2,265) (1,611) (7,253)
Real estate and other invested assets acquired (195) (91) (132)
------------------------------------------
Total cash applied to investments (15,694) (15,411) (29,819)
Other cash applied (200) (135) (72)
------------------------------------------
Total cash applied (15,894) (15,546) (29,891)
SHORT-TERM BORROWINGS
Proceeds of short-term borrowings 990 3,152 1,743
Repayment of short-term borrowings (990) (3,152) (1,743)
------------------------------------------
Net cash provided by short-term borrowings - - -
------------------------------------------
Net increase in cash and short-term investments 428 15 167
Cash and short-term investments at beginning of year 485 470 303
------------------------------------------
Cash and short-term investments at end of year $ 913 $ 485 $ 470
==========================================
See accompanying notes.
</TABLE>
<PAGE>
Principal Mutual Life Insurance Company
Notes to Financial Statements
December 31, 1995
1. Nature of Operations and Significant Accounting Policies
Description of Business
Principal Mutual Life Insurance Company (the Company) is primarily engaged in
the marketing and management of life insurance, annuity, health and pension
products. In addition, the Company provides various other financial services
through its subsidiaries.
Use of Estimates in the Preparation of Financial Statements
The preparation of the Company's financial statements and accompanying notes
requires management to make estimates and assumptions that affect the amounts
reported and disclosed. These estimates and assumptions could change in the
future as more information becomes known, which could impact the amounts
reported and disclosed in the financial statements and accompanying notes.
Basis of Presentation
The Company's financial statements have been prepared on the basis of accounting
practices prescribed or permitted by the Insurance Division of the Department of
Commerce of the State of Iowa (statutory accounting practices), which practices
are currently regarded as generally accepted accounting principles (GAAP) for
mutual life insurance companies.
Beginning in 1996, however, under the requirements of Financial Accounting
Standards Board (FASB) Interpretation No. 40, "Applicability of Generally
Accepted Accounting Principles to Mutual Life Insurance and Other Enterprises,"
as amended, financial statements prepared on the basis of statutory accounting
practices will no longer be described as prepared "in conformity with GAAP." The
Accounting Standards Executive Committee of the American Institute of Certified
Public Accountants and the FASB issued authoritative accounting and reporting
pronouncements in January 1995, effective for calendar year 1996, addressing how
mutual life insurance companies should account for certain insurance activities.
Applying the provisions of these authoritative accounting and reporting
pronouncements may result in surplus and net income that differ from the amounts
reported under existing statutory accounting practices. The Company has not yet
determined the impact of these pronouncements on its financial statements. The
Company plans to issue general-purpose financial statements for calendar year
1996 that follow these authoritative pronouncements and will be described as
prepared in conformity with GAAP. These statutory-basis financial statements,
however, will continue to be required by insurance regulatory authorities.
<PAGE>
Principal Mutual Life Insurance Company
Notes to Financial Statements (continued)
1. Nature of Operations and Significant Accounting Policies (continued)
The National Association of Insurance Commissioners (NAIC) currently is in the
process of recodifying statutory accounting practices, the result of which is
expected to constitute the only source of "prescribed" statutory accounting
practices. Accordingly, that project, which is not expected to be completed
before 1997, will likely change, to some extent, prescribed statutory accounting
practices and may result in changes to the accounting practices that the Company
uses to prepare its statutory-basis financial statements.
Subsidiaries
Investment in subsidiaries is reported at equity in net assets determined on a
statutory basis for insurance subsidiaries and on the basis of prescribed
valuation alternatives for non-insurance subsidiaries, resulting in carrying
values periodically approved by the Securities Valuation Office of the NAIC.
Total assets of these unconsolidated subsidiaries amounted to $2.6 billion at
December 31, 1995 and $2.1 billion at December 31, 1994, and total revenues were
$1,190 million in 1995, $911 million in 1994 and $669 million in 1993. During
1995, 1994 and 1993, the Company included $(48) million, $(2) million and $(37)
million, respectively, in net income from investments representing the current
year net losses of its subsidiaries.
Investments
Investments in bonds, short-term investments, and commercial and residential
mortgage loans are reported principally at cost (unpaid principal balance),
adjusted for amortization of premiums and accrual of discounts, both computed
using the interest method; policy loans and investments in preferred stocks
primarily at cost; common stocks at market value based on the latest quoted
market prices; and investments in real estate and properties held for Company
use generally at cost less encumbrances and accumulated depreciation. For the
loan-backed and structured securities included in the bond portfolio, the
Company recognizes income using the prospective method which results in a new
constant effective yield based on currently anticipated prepayments as
determined by broker-dealer surveys or internal estimates. Properties acquired
through loan foreclosures with cumulative carrying values of $946 million at
December 31, 1995, and $830 million at December 31, 1994, are recorded at the
lower of cost (principal balance of the former mortgage loan) or fair market
value at the time of foreclosure or receipt of deed in lieu of foreclosure. This
becomes the new cost basis of the real estate and is subject to further
potential carrying value reductions as a result of depreciation and quarterly
valuation determinations. Depreciation expense is computed primarily on the
basis of accelerated and straight-line methods over the estimated useful lives
of the assets. Other admitted assets are valued as prescribed by the Iowa
Insurance laws. Net realized capital gains and losses on investments are
determined using the specific identification basis.
<PAGE>
Principal Mutual Life Insurance Company
Notes to Financial Statements (continued)
1. Nature of Operations and Significant Accounting Policies (continued)
The Asset Valuation Reserve (AVR) provides a reserve for losses from investments
in bonds, preferred and common stocks, mortgage loans, real estate, and other
invested assets, with related increases or decreases being recorded directly to
surplus. At December 31, 1995 and 1994, the AVR was $1,041 million and $792
million, respectively. At both December 31, 1995 and 1994, other liabilities
include additional investment reserves of $36 million and $51 million,
respectively, of which $9 million is required by statutory accounting practices
as a provision for potential losses on specific mortgages in default. Unrealized
capital gains and losses on investments, including changes in mortgage and
security reserves, are recorded directly in surplus. Comparable adjustments are
also made to the AVR.
The Interest Maintenance Reserve (IMR) primarily defers certain interest-related
gains and losses (net of tax) on fixed income securities which are amortized
into net income from investments over the estimated remaining lives of the
investments sold. At December 31, 1995 and 1994, the IMR, which is included in
other liabilities, was $109 million and $52 million, respectively.
In connection with preparation of its statement of cash flows, the Company
considers all highly liquid investments with a maturity of one year or less when
purchased to be short-term investments.
Fair Values of Financial Instruments
The Company has accumulated information to disclose the fair values of certain
financial instruments, whether or not recognized in the statement of financial
position, as required by the FASB. The FASB excludes certain financial
instruments and all nonfinancial instruments from its disclosure requirements.
The aggregate fair value asset amounts for investments (including cash and
short-term investments, policy loans and accrued investment income and excluding
investment in subsidiaries and investment real estate) are presented in Note 2
(carrying value: 1995 - $35.3 billion, 1994 - $32.4 billion; fair value: 1995 -
$37.5 billion, 1994 - $31.9 billion). Fair value information for derivatives
held or issued for purposes other than trading is presented in Note 3.
Information for certain of the Company's reserves and liabilities that are
investment-type contracts (insurance, annuity and other policy contracts that do
not involve significant mortality or morbidity risk) is presented in Note 4
(carrying value: 1995 - $21.4 billion, 1994 - $20.0 billion; fair value: 1995 -
$22.0 billion, 1994 - $19.5 billion). Those referenced notes also describe the
methods and assumptions utilized by the Company in estimating its fair value
disclosures for financial instruments. Those techniques utilized in estimating
the fair values of financial instruments are affected by the assumptions used,
including discount rates and estimates of the amount and timing of future cash
flows. Care should be exercised in deriving conclusions about the Company's
business, its value or financial position based on the fair value information of
certain financial instruments presented in the referenced notes.
<PAGE>
Principal Mutual Life Insurance Company
Notes to Financial Statements (continued)
1. Nature of Operations and Significant Accounting Policies (continued)
Futures and Forward Contracts and Interest Rate and Equity Swaps
The Company uses financial futures contracts, forward purchase commitments and
interest rate swaps to hedge risks associated with interest rate fluctuations
and uses equity swaps to hedge risks associated with market fluctuations of
certain unaffiliated common stocks. Realized capital gains and losses on those
contracts which hedge risks associated with interest rate fluctuations are
amortized over the remaining lives of the underlying assets, primarily by
including them in the IMR. Realized capital gains and losses on equity swaps are
recognized in the period incurred.
Reserves for Insurance, Annuity and Accident and Health Policies
The reserves for life, health and annuity policies, all developed by actuarial
methods, are established and maintained on the basis of mortality and morbidity
tables using assumed interest rates and valuation methods that will provide, in
the aggregate, reserves that are greater than the minimum valuation required by
law or guaranteed policy cash values. The cumulative effects of changes in
valuation bases at the beginning of the year for previously established
policyowner reserves are included as adjustments to surplus. Significant
decreases in valuation bases are approved by the Insurance Division of the
Department of Commerce of the State of Iowa.
The liability for unpaid accident and health claims is determined using
statistical analyses and case basis evaluations. This liability is an estimate
of the ultimate net cost of all reported and unreported losses that are unpaid.
This liability is determined using estimates of future trends in claim severity,
frequency, and other factors that could vary as claims are ultimately settled.
Although considerable variability is inherent in such estimates, the Company
believes that the liability for unpaid claims is adequate. These estimates are
continually reviewed and, as adjustments to this liability become necessary,
such adjustments are reflected in current operations.
Recognition of Premium Revenues and Costs
For life and annuity contracts, premiums are recognized as revenues over the
premium-paying period, whereas commissions and other costs applicable to the
acquisition of new business are charged to operations as incurred.
<PAGE>
Principal Mutual Life Insurance Company
Notes to Financial Statements (continued)
1. Nature of Operations and Significant Accounting Policies (continued)
Reinsurance
The Company reinsures certain of its risks. Reinsurance premiums, expenses, and
reserves related to reinsured business are accounted for on bases consistent
with those used in accounting for the original policies issued and the terms of
the reinsurance contracts. Premiums ceded to other companies (1995 - $27
million, 1994 - $21 million and 1993 - $19 million) are reported as a reduction
of premium income, and insurance reserves applicable to reinsurance ceded have
also been reported as reductions of these items (1995 - $33 million and 1994 -
$24 million). The Company is contingently liable with respect to reinsurance
ceded to other companies in the event the reinsurer is unable to meet the
obligations that it has assumed.
Separate Accounts
The separate accounts presented in the financial statements represent the fair
market value of funds that are separately administered by the Company for
contracts with equity, real estate and fixed-income investments. The separate
account contract owner, rather than the Company, bears the investment risk of
these funds. The Company receives a fee for administrative and investment
advisory services.
Separate account assets and liabilities are disclosed in the aggregate in the
statements of financial position. The statements of operations include the
premiums, increases in reserves, benefits, and other items arising from the
operations of the separate accounts of the Company. The statements of surplus
reflect the gain from operations and surplus of the separate accounts. Such gain
from operations and surplus arises from the transfer by the Company of funds to
the separate accounts to facilitate their operations.
Reclassifications
Certain reclassifications have been made to the 1994 and 1993 financial
statements to conform to the 1995 presentation.
2. Investments
Investments in debt securities, preferred stocks, and other fixed maturity
instruments are generally held for investment purposes to maturity, and,
therefore, are carried in the financial statements at amortized cost. The
Company's liabilities, to which such fixed maturity investments are closely
matched, are long-term in nature so the Company does not expect to be required
to sell such securities prior to maturity.
<PAGE>
<TABLE>
<CAPTION>
Principal Mutual Life Insurance Company
Notes to Financial Statements (continued)
2. Investments (continued)
The carrying values and estimated market values of investments in bonds and
preferred stocks as of December 31, 1995 and 1994, are as follows (in millions):
Gross Gross Estimated
Carrying Value Unrealized Unrealized Market
Gains Losses Value
---------------------------------------------------------------
December 31, 1995
Bonds:
<S> <C> <C> <C> <C>
United States Government and agencies $ 232 $ 4 $ - $ 236
States and political subdivisions 230 21 - 251
Corporate - public 4,374 328 16 4,686
Corporate - private 13,877 1,332 15 15,194
Mortgage-backed securities 3,085 134 4 3,215
---------------------------------------------------------------
21,798 1,819 35 23,582
Preferred stocks 93 12 - 105
---------------------------------------------------------------
$21,891 $1,831 $35 $23,687
===============================================================
December 31, 1994
Bonds:
United States Government and agencies $ 111 $ 1 $ 4 $ 108
States and political subdivisions 198 2 12 188
Corporate - public 3,986 74 142 3,918
Corporate - private 13,678 365 391 13,652
Mortgage-backed securities 2,653 2 166 2,489
---------------------------------------------------------------
20,626 444 715 20,355
Preferred stocks 69 4 2 71
---------------------------------------------------------------
$20,695 $448 $717 $20,426
===============================================================
</TABLE>
Market values of public bonds and preferred stocks have been determined by the
Company from public quotations, when available, or bonds have been assigned a
market rate by the Securities Valuation Office of the NAIC. Private placement
securities are valued by discounting the expected total cash flows. Market rates
used are applicable to the yield, credit quality and average maturity of each
security.
<PAGE>
<TABLE>
<CAPTION>
Principal Mutual Life Insurance Company
Notes to Financial Statements (continued)
2. Investments (continued)
The carrying values and estimated market values of bonds at December 31, 1995,
by expected maturity, are as follows (in millions):
Carrying Value Estimated Market
Value
------------------------------------
<S> <C> <C>
Due in one year or less $ 747 $ 768
Due after one year through five years 6,878 7,271
Due after five years through ten years 6,189 6,695
Due after ten years 3,176 3,657
------------------------------------
16,990 18,391
Mortgage-backed and other securities without
a single maturity date 4,808 5,191
------------------------------------
Total $21,798 $23,582
====================================
</TABLE>
<TABLE>
<CAPTION>
The carrying value and estimated market value of mortgage loans at December 31,
1995 and 1994, are as follows (in millions):
1995 1994
----------------- -----------------
Estimated Estimated Market
Carrying Value Market Carrying Value Value
Value
-----------------------------------------------------------------
<S> <C> <C> <C> <C>
Commercial mortgage loans $9,794 $10,129 $8,901 $8,580
Residential mortgage loans 234 262 287 299
</TABLE>
Market values of commercial mortgage loans are valued by discounting the
expected total cash flows using market rates that are applicable to the yield,
credit quality, and maturity of each loan. Market values of residential mortgage
loans are valued by a pricing and servicing model using market rates that are
applicable to the yield, rate structure, credit quality, size, and maturity of
each loan. The carrying value for policy loans approximates the fair value.
<PAGE>
Principal Mutual Life Insurance Company
Notes to Financial Statements (continued)
2. Investments (continued)
Major categories of income from investments are summarized as follows (in
millions):
Year ended December 31
1995 1994 1993
------------------------------------------
Bonds $1,761 $1,622 $1,549
Preferred stocks 6 3 2
Common stocks 35 22 26
Investment in subsidiaries (48) (2) (37)
Mortgage loans 808 766 811
Investment real estate 211 179 129
Policy loans 48 44 44
Cash and short-term investments 29 20 6
Other 18 48 1
------------------------------------------
2,868 2,702 2,531
Less investment expenses 217 182 162
------------------------------------------
Net income from investments $2,651 $2,520 $2,369
==========================================
<TABLE>
<CAPTION>
The major components of realized capital gains (losses) on investments reflected
in operations, and unrealized capital gains (losses) on investments reflected
directly in surplus, are summarized as follows (in millions):
Realized Unrealized
1995 1994 1993 1995 1994 1993
--------------------------------- -----------------------------
<S> <C> <C> <C> <C> <C> <C>
Bonds $101 $(133) $150 $ (17) $32 $(32)
Preferred stocks (1) - (11) 1 (7) 11
Common stocks 32 6 29 398 7 23
Mortgage loans (24) (34) (81) 9 3 41
Investment real estate 7 3 1 5 6 (1)
Investment in subsidiaries 1 32 - (6) 6 (5)
Other 4 45 (44) (1) - 20
------------------------------ -----------------------------
Net capital gains (losses) 120 (81) 44 389 47 57
Related federal income taxes (41) 6 (26) (63) - -
Transferred (to) from interest
maintenance reserve (77) 43 (70) - - -
============================== =============================
Total capital gains (losses) $ 2 $ (32) $(52) $326 $47 $57
============================== =============================
</TABLE>
<PAGE>
Principal Mutual Life Insurance Company
Notes to Financial Statements (continued)
2. Investments (continued)
Proceeds from sales of investments (excluding maturity proceeds) in debt
securities were $6.5 billion in both 1995 and 1994, and $11.9 billion in 1993.
Gross gains of $93 million, $53 million and $173 million and gross losses of $54
million, $213 million and $65 million in 1995, 1994 and 1993, respectively, were
realized on those sales. Of the 1995, 1994 and 1993 proceeds, $6.1 billion, $5.7
billion and $11.5 billion, respectively, relates to sales of mortgage-backed
securities. The Company actively manages its mortgage-backed securities
portfolio to control prepayment risk. Gross gains of $66 million, $19 million
and $152 million and gross losses of $17 million, $139 million and $29 million
in 1995, 1994 and 1993, respectively, were realized on sales of mortgage-backed
securities. At December 31, 1995, the Company had security purchases payable
totaling $426 million relating to the purchases of mortgage-backed securities at
forward dates.
The Company has a revolving credit agreement with Principal Residential
Mortgage, Inc., a wholly-owned subsidiary which conducts the Company's mortgage
banking operations, of up to $800 million, which had a balance of $458 million
outstanding at December 31, 1995.
Commercial mortgage loans and corporate private placement bonds originated or
acquired by the Company represent its primary areas of credit risk exposure. At
December 31, 1995 and 1994, the commercial mortgage portfolio is diversified by
geographic region and specific collateral property type as follows:
<TABLE>
<CAPTION>
Geographic Distribution Property Type Distribution
---------------------------------- --------------------------------------
December 31 December 31
1995 1994 1995 1994
----------------------- -----------------------
<S> <C> <C> <C> <C> <C>
South Atlantic 22% 21% Industrial 43% 47%
Pacific 34 38 Office 26 24
Mid Atlantic 17 17 Retail 26 24
North Central 14 13 Other 5 5
South Central 7 6
New England 4 3
Mountain 2 2
</TABLE>
The corporate private placement bond portfolio is diversified by issuer and
industry. Restrictive bond covenants are monitored by the Company to regulate
the activities of issuers and control their leveraging capabilities. Under the
NAIC bond classification system, 99.8% and 99.7% of the Company's bond portfolio
were carried at amortized cost at December 31, 1995 and 1994, respectively, with
the remainder carried at the lower of amortized cost or market value.
<PAGE>
Principal Mutual Life Insurance Company
Notes to Financial Statements (continued)
2. Investments (continued)
Effective December 29, 1995, the Company entered into short-term equity swap
agreements to mitigate its exposure to declines in the value of about one-half
of its marketable common stock portfolio. Under the agreements, the return on
that portion of the Company's marketable common stock portfolio was swapped for
a fixed short-term interest rate. At December 31, 1995, there was no realized or
unrealized gains or losses recorded on the equity swap agreements and,
accordingly, there was no credit exposure. The unrealized appreciation and
depreciation of marketable common stocks recognized in the Company's statement
of financial position were $814 million and $85 million, respectively, at
December 31, 1995.
Investment real estate includes properties directly owned by the Company and
investments in subsidiaries include properties owned jointly with venture
partners and operated by the partners. Joint ventures in which the Company has
an interest have mortgage loans with the Company of $2.2 billion at both
December 31, 1995 and December 31, 1994. The Company is committed to provide
additional mortgage financing for such joint ventures aggregating $304 million
at December 31, 1995.
3. Derivatives Held or Issued for Purposes Other Than Trading
The Company uses exchange-traded interest rate futures and forward contracts to
hedge against interest rate risks. The Company attempts to match the timing of
when interest rates are committed on insurance products and on new investments.
However, timing differences do occur and can expose the Company to fluctuating
interest rates. Interest rate futures and forward contracts are used to minimize
these risks. In these contracts, the Company is subject to the risk that the
counterparties will fail to perform and to the risks associated with changes in
the value of the underlying securities; however, such changes in value generally
are offset by opposite changes in the value of the hedged items. Futures
contracts are marked to market and settled daily, which minimizes the
counterparty risk. The notional amounts of futures and forward contracts ($303
million at December 31, 1995, and $80 million at December 31, 1994) represent
the extent of the Company's involvement but not the risk of loss.
The Company enters into interest rate swaps to minimize its exposure to
fluctuations in interest rates and to correct duration mismatches. The most
common use is to modify the duration of an asset or portfolio, a less common use
is to convert a floating rate asset into a fixed rate asset. The notional
principal amounts of the swaps outstanding at December 31, 1995 and 1994, were
$599 million and $586 million, respectively, and the credit exposure at December
31, 1995 and December 31, 1994 was $8 million. The Company's current credit
exposure on swaps is limited to the value of interest rate swaps that have
become favorable to the Company. The average unexpired terms of the swaps were
approximately three years at both December 31, 1995 and 1994, respectively. The
net amount payable or receivable from interest rate swaps is accrued as an
adjustment to interest income. The Company's interest rate swap agreements
include cross-default provisions when two or more swaps are transacted with a
given counterparty.
<PAGE>
Principal Mutual Life Insurance Company
Notes to Financial Statements (continued)
3. Derivatives Held or Issued for Purposes Other Than Trading (continued)
The Company enters into currency exchange swap agreements to convert certain
foreign denominated fixed rate assets into dollar denominated fixed rate assets
and eliminate the exposure to future currency volatility on those securities. At
December 31, 1995, the Company had various foreign currency exchange agreements
with maturities ranging from 1995 to 2002, with an aggregate notional amount
involved of approximately $312 million and the credit exposure was $4 million.
The average unexpired term of the swaps was approximately five years at December
31, 1995.
4. Insurance, Annuity and Accident and Health Reserves
The carrying values and fair values of the Company's reserves and liabilities
for investment-type insurance contracts (which are only a portion of the
insurance reserves, annuity reserves, and other policy liabilities appearing in
the statement of financial position) at December 31, 1995 and 1994, are
summarized as follows (in millions):
<TABLE>
<CAPTION>
1995 1994
----------------------------------------------------------------------
Carrying Value Fair Carrying Value Fair
Value Value
----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Insurance reserves $ 30 $ 33 $ 30 $ 30
Annuity reserves 20,989 21,524 19,714 19,168
Other policy liabilities 398 403 270 270
----------------------------------------------------------------------
Total $21,417 $21,960 $20,014 $19,468
======================================================================
</TABLE>
The fair values for the Company's reserves and liabilities under investment-type
contracts (insurance, annuity and other policy contracts that do not involve
significant mortality or morbidity risk) are estimated using discounted cash
flow analyses (based on current interest rates being offered for similar
contracts with maturities consistent with those remaining for the
investment-type contracts being valued) or surrender values.
The fair values for the Company's insurance contracts (insurance, annuity and
other policy contracts that do involve significant mortality or morbidity risk),
other than investment-type contracts, are not required to be disclosed. The
Company does consider, however, the various insurance and investment risks in
choosing investments for both insurance and investment-type contracts.
<PAGE>
Principal Mutual Life Insurance Company
Notes to Financial Statements (continued)
4. Insurance, Annuity and Accident and Health Reserves (continued)
Activity in the liability for unpaid accident and health claims, which is
included with insurance reserves in the statement of financial position, is
summarized as follows (in millions):
Year ended December 31
1995 1994 1993
------------------------------------------
Balance at beginning of year $ 844 $ 723 $ 657
Incurred:
Current year 2,665 2,735 2,307
Prior years (24) (105) (37)
------------------------------------------
Total incurred 2,641 2,630 2,270
Payments:
Current year 2,196 2,065 1,814
Prior years 481 444 390
------------------------------------------
Total payments 2,677 2,509 2,204
------------------------------------------
Balance at end of year:
Current year 469 670 493
Prior years 339 174 230
------------------------------------------
Total balance at end of year $ 808 $ 844 $ 723
==========================================
5. Federal Income Taxes
The Company files a consolidated income tax return that includes all of its
qualifying subsidiaries, and has a policy of allocating income tax expenses and
benefits to companies in the group based upon pro rata contribution of taxable
income or operating losses. The Company is taxed at corporate rates on taxable
income based on existing tax laws. Due to the inherent differences between
income for financial reporting purposes and income for tax purposes, the
Company's provision for federal income taxes may not have the customary
relationship of taxes to income.
Deferred income taxes are generally not recognized for the tax effects of
temporary differences between income for financial reporting purposes and income
for tax purposes. In 1993, 1994 and 1995, however, the Company recognized a
deferred tax asset and operating benefit for the tax effect of unamortized
deferred acquisition costs required for tax purposes. This deferred tax asset
was non-admitted in accordance with statutory accounting practices. In 1995, the
Company also recognized a deferred tax liability and surplus charge for the tax
effect of unrealized gains for common stocks identified for sale in 1996.
<PAGE>
Principal Mutual Life Insurance Company
Notes to Financial Statements (continued)
5. Federal Income Taxes (continued)
In December 1994, a U. S. Court of Appeals with jurisdiction over the Company
ruled that federal law did not permit mutual life insurance companies to use a
negative recomputed differential earnings rate to compute their equity tax
liability for the preceding year. Accordingly, the Company increased its
liability for federal income taxes attributable to its equity for years prior to
1994 and made a corresponding adjustment to surplus in the amount of $63
million.
6. Short-Term Borrowings
The Company issues commercial paper to meet its short-term financing needs.
There were no outstanding borrowings at December 31, 1995 or 1994. The Company
also maintains credit facilities with various banks for short-term borrowing
purposes.
7. Employee and Agent Benefits
The Company has defined benefit pension plans covering substantially all of its
employees and certain agents. The employees and agents are generally first
eligible for the pension plans when they reach age 21. The pension benefits are
based on the years of service and generally the employee's or agent's average
annual compensation during the last five years of employment. Partial benefit
accrual of pension benefits is recognized from first eligibility until
retirement based on attained service divided by potential service to age 65 with
a minimum of 35 years of potential service.
During 1995, the Company adopted Statement of Financial Standards (SFAS) No. 87,
"Employers' Accounting for Pensions," and accordingly changed its method of
accounting for the costs of defined benefit pension plans to an accrual method.
Prior to this change, the cost of pension benefits was recognized as
contributions were made to the pension trusts. The Company's policy is to fund
the cost of providing pension benefits in the years that the employees and
agents are providing service to the Company. The Company's funding policy is to
deposit the actuarial normal cost and any change in unfunded accrued liability
over a 30-year period as a percentage of compensation.
The pension plans' combined funded status, reconciled to amounts recognized in
the statements of financial position and statements of operations and surplus as
of and for the years ended December 31, 1995 and 1994, is as follows (in
millions):
<PAGE>
<TABLE>
<CAPTION>
Principal Mutual Life Insurance Company
Notes to Financial Statements (continued)
7. Employee and Agent Benefits (continued)
December 31
1995 1994
------------------------------
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested benefit obligation $437 $324
==============================
Accumulated benefit obligation $457 $338
==============================
Plan assets at fair value, primarily affiliated mutual funds
and investment contracts of the Company $719 $581
Projected benefit obligation 661 462
------------------------------
Plan assets in excess of projected benefit obligation 58 119
Unrecognized net (gains) losses and funding different from that assumed
and from changes in assumptions 42 (23)
Unrecognized net transition asset as of January 1, 1994 (72) (83)
------------------------------
Prepaid pension asset (non-admitted) $ 28 $ 13
==============================
Net periodic pension income included the following components (in millions):
Year ended December 31
1995 1994
------------------------------
Service cost $22 $26
Interest cost on projected benefit obligation 39 37
Actual return on plan assets (144) 6
Net amortization and deferral 79 (72)
------------------------------
Total net periodic pension income $ (4) $ (3)
==============================
</TABLE>
During 1994 and 1993, $10 million and $8 million, respectively, was charged to
expense and contributed to the trusts previously established to provide for
future costs of pension benefits. During 1995, $12 million was contributed to
these pension trusts. In addition, to adjust the pension accounting to the new
method required by SFAS No. 87 and to make the change effective as of January 1,
1994, surplus as of January 1, 1995 has been increased by $13 million. According
to the requirements of statutory accounting practices, pension expense for 1994
has not been restated and the 1994 pension amounts shown above are for
comparative purposes only. The pension asset at January 1, 1995 ($13 million)
and December 31, 1995 ($28 million) was non-admitted as prescribed by statutory
accounting practices.
<PAGE>
Principal Mutual Life Insurance Company
Notes to Financial Statements (continued)
7. Employee and Agent Benefits (continued)
The weighted-average assumed discount rate used in determining the projected
benefit obligation was 7% and 8.5% at December 31, 1995 and 1994, respectively.
Some of the trusts holding the plan assets are subject to federal income taxes
at a 35% tax rate while others are not subject to federal income taxes. For both
1995 and 1994, the expected long-term rates of return on plan assets were
approximately 6% (after estimated income taxes) for those trusts subject to
federal income taxes and approximately 10% for those trusts not subject to
federal income taxes. The assumed rate of increase in future compensation levels
varies by age for both the qualified and non-qualified pension plans.
In addition, the Company has defined contribution plans that are generally
available to all employees and agents who are age 21 or older and have completed
one year of service. Eligible participants may contribute up to 15% of their
compensation or $9,240 annually to the plans. The Company matches the
participant's contribution with a 50% contribution up to a maximum contribution
of 2% of the participant's compensation. During both 1995 and 1994, the Company
contributed $7 million to the defined contribution plans. During 1993, such
contributions totaled $6 million.
The Company also provides certain health care, life insurance, and long-term
care benefits for retired employees. Substantially all employees are first
eligible for these postretirement benefits when they reach age 57 and have
completed ten years of service with the Company. Partial benefit accrual of
these health, life, and long-term care benefits is recognized from first
eligibility until retirement based on attained service divided by potential
service to age 65 with a minimum of 35 years of potential service. The Company's
policy is to fund the cost of providing retiree benefits in the years that the
employees are providing service to the Company. The Company's funding policy is
to deposit the actuarial normal cost and an accrued liability over a 30-year
period as a percentage of compensation.
The postretirement plans' combined funded status, reconciled to amounts
recognized in the statement of financial position and statement of operations
and surplus as of and for the years ended December 31, 1995 and 1994, is as
follows (in millions):
<PAGE>
<TABLE>
<CAPTION>
Principal Mutual Life Insurance Company
Notes to Financial Statements (continued)
7. Employee and Agent Benefits (continued)
December 31
1995 1994
<S> <C> <C>
-------------------------------
Plan assets at fair value, primarily affiliated mutual funds and
investment contracts of the Company $208 $155
Accumulated postretirement benefit obligation:
Retirees (83) (71)
Eligible employees (40) (31)
--------------------------------
Total accumulated postretirement benefit obligation (123) (102)
-------------------------------
Plan assets in excess of accumulated postretirement benefit obligation
85 53
Unrecognized net losses and funding different from that assumed and
from changes in assumptions 3 29
-------------------------------
Postretirement benefit asset (non-admitted) $ 88 $ 82
===============================
</TABLE>
<TABLE>
<CAPTION>
The net periodic postretirement benefit cost included the following components
(in millions):
Year ended
December 31
1995 1994 1993
--------------------------------
<S> <C> <C> <C>
Service cost $ 5 $ 4 $ 3
Interest cost on accumulated postretirement benefit cost 9 7 6
Expected return on plan assets (10) (10) (6)
Net amortization of gains and losses 1 - -
================================
Total net periodic postretirement benefit cost $ 5 $ 1 $ 3
================================
</TABLE>
The weighted-average assumed discount rate used in determining the accumulated
postretirement benefit obligation was 7% and 8.5% at December 31, 1995 and 1994,
respectively. Some of the trusts holding the plan assets are subject to federal
income taxes at a 35% tax rate while others are not subject to federal income
taxes. For both 1995 and 1994, the expected long-term rates of return on plan
assets were approximately 6% (after estimated income taxes) for those trusts
subject to federal income taxes and approximately 9% for those trusts not
subject to federal income taxes. These rates of return on plan assets vary by
benefit type and employee group.
The assumed health care cost trend rate used in measuring the accumulated
postretirement benefit obligations starts at 11.5% in 1995, declines to 9.5% in
2001, and then declines to an ultimate rate of 6.5% in 2036. If the health care
cost trend rate assumptions were increased by 1% in each year, the accumulated
postretirement benefits obligation for health plans as of December 31, 1995
would increase by 11.8% ($10 million). The effect of this 1% increase would also
increase the aggregate of the service cost and interest cost components of the
net periodic postretirement benefit cost of health plans for the year ended
December 31, 1995 by 13.5% ($1 million).
<PAGE>
Principal Mutual Life Insurance Company
Notes to Financial Statements (continued)
7. Employee and Agent Benefits (continued)
These statutory accounting provisions are similar to Statement of Financial
Accounting Standards (SFAS) No. 106, "Employers' Accounting for Postretirement
Benefits Other Than Pensions," issued by the FASB except that SFAS No. 106
includes ineligible employees in the accumulated postretirement benefit
obligation calculations. The accumulated postretirement benefit obligation for
ineligible employees was $77 million and $48 million at December 31, 1995 and
1994, respectively.
8. Surplus Notes
On March 10, 1994, the Company issued $300 million of surplus notes, including
$200 million due March 1, 2024 at a 7.875% annual interest rate and the
remaining $100 million due March 1, 2044 at an 8% annual interest rate. No
affiliates of the Company hold any portion of the surplus notes. The discount
and direct costs associated with issuing these surplus notes is being amortized
to expense over their respective terms using the interest method. For statutory
accounting purposes, these notes are considered a part of total surplus of the
Company. Each payment of interest and principal on the surplus notes may be made
only with the prior approval of the Commissioner of Insurance of the State of
Iowa (the Commissioner) and only to the extent that the Company has sufficient
surplus earnings to make such payments. For the years ended December 31, 1995
and 1994, interest of $24 million and $11 million, respectively, was approved by
the Commissioner, paid and charged to expense. Had the accrual of interest on
surplus notes not been subject to approval of the Commissioner, accrued interest
payable on surplus notes at both December 31, 1995 and 1994 would have been $8
million.
Subject to Commissioner approval, the surplus notes due March 1, 2024 may be
redeemed at the Company's election on or after March 1, 2004 in whole or in part
at a redemption price of approximately 103.6% of par. The approximate 3.6%
premium is scheduled to gradually diminish over the following ten years. These
surplus notes may then be redeemed on or after March 1, 2014, at a redemption
price of 100% of the principal amount plus interest accrued to the date of
redemption. Non-insurance companies individually held over 10% of these surplus
notes (approximately $50 million and $73 million at December 31, 1995 and 1994,
respectively).
In addition, subject to Commissioner approval, the surplus notes due March 1,
2044 may be redeemed at the Company's election on or after March 1, 2014, in
whole or in part at a redemption price of approximately 102.3% of par. The
approximate 2.3% premium is scheduled to gradually diminish over the following
ten years. These surplus notes may be redeemed on or after March 1, 2024, at a
redemption price of 100% of the principal amount plus interest accrued to the
date of redemption. Non-insurance companies individually held over 10% of these
surplus notes (approximately $43 million and $62 million at December 31, 1995
and 1994, respectively).
<PAGE>
Principal Mutual Life Insurance Company
Notes to Financial Statements (continued)
9. Other Commitments and Contingencies
The Company leases office space and furniture and equipment under various
operating leases. Rental expense for all operating leases totaled $48 million in
1995, $43 million in 1994 and $44 million in 1993. At December 31, 1995, future
minimum rental commitments under noncancelable operating leases for office space
and electronic data processing equipment totaled approximately $97 million.
The Company is a defendant in various legal actions arising in the normal course
of its investment and insurance operations. In the opinion of management, any
losses resulting from such actions would not have a material effect on the
financial statements.
The Company is also subject to insurance guarantee laws in the states in which
it writes business. These laws provide for assessments against insurance
companies for the benefit of policyholders and claimants in the event of
insolvency of other insurance companies. At December 31, 1995 and 1994,
approximately $18 million and $15 million, respectively, of surplus is
appropriated for possible guarantee fund assessments for which notices have not
been received.
In 1995, the Company sold its wholly-owned subsidiary, Principal National Life
Insurance Company (Principal National), at a gain of approximately $1 million.
At December 31, 1994, substantially all the assets ($513 million), liabilities
($470 million), and equity ($43 million) of Principal National were transferred
to and assumed by the Company. This resulted in increases in both other income
and additions to policyowner reserves of $470 million in 1994.
<PAGE>
Report of Independent Auditors
The Board of Directors
Principal Mutual Life Insurance Company
We have audited the accompanying statements of financial position of Principal
Mutual Life Insurance Company (the Company) as of December 31, 1995 and 1994,
and the related statements of operations and surplus and cash flows for each of
the three years in the period ended December 31, 1995. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Principal Mutual Life Insurance
Company at December 31, 1995 and 1994, and the results of its operations and its
cash flows for each of the three years in the period ended December 31, 1995, in
conformity with generally accepted accounting principles and with reporting
practices prescribed or permitted by the Insurance Division of the Department of
Commerce of the State of Iowa.
Ernst & Young LLP
Des Moines, Iowa
January 31, 1996
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements included in the Registration Statement
(1) Part A:
Condensed Financial Information for the year ended
December 31, 1995 and for the period beginning June 16,
1994 and ended December 31, 1994.
(2) Part B:
Principal Mutual Life Insurance Company Separate
Account B:
Statement of Net Assets, December 31, 1995.
Statement of Operations for the year ended
December 31, 1995.
Statements of Changes in Net Assets for the years
ended December 31, 1995 and 1994.
Notes to Financial Statements.
Report of Independent Auditors.
Principal Mutual Life Insurance Company:
Statements of Financial Position, December 31, 1995
and 1994.
Statements of Operations and Surplus for the years
ended December 31, 1995, 1994 and 1993.
Statements of Cash Flows for the years ended
December 31, 1995, 1994 and 1993.
Notes to Financial Statements.
Report of Independent Auditors.
(b) Exhibits
(1) Board Resolution of Registrant
(3a) Distribution Agreement
(3b) Selling Agreement
(4a) Form of Variable Annuity Contract
(4b) Form of Variable Annuity Contract
(5) Form of Variable Annuity Application
(6a) Articles of Incorporation of the Depositor
(6b) Bylaws of Depositor
(9) Opinion of Counsel
(10a) Consent of Ernst & Young LLP
(10b) Powers of Attorney
(13a) Total Return Calculation
(13b) Annualized Yield for Separate Account B
(27) Financial Data Schedule for Separate Account B
<PAGE>
Item 25. Officers and Directors of the Depositor
Principal Mutual Life Insurance Company is managed by a Board of
Directors which is elected by its policyowners. The directors and
executive officers of the Company, their positions with the Company,
including Board Committee memberships, and their principal business
address, are as follows:
DIRECTORS: Principal
Name, Positions and Offices Business Address
MARY VERMEER ANDRINGA Vermeer Manufacturing Company
Director Box 200
Member, Nominating Committee Pella, IA 50219-0200
RUTH M. DAVIS The Pymatuning Group, Inc.
Director Suite 570, 4900 Seminary Road
Member, Nominating Committee Alexandria, VA 22311
DAVID J. DRURY The Principal Financial Group
Director Des Moines, IA 50392
Chairman of the Board
Chief Executive Officer
Chair,Executive Committee
C. DANIEL GELATT, JR. NMT Corporation
Director Post Office Box 2287
Member, Executive and La Crosse, WI 54602-2287
Human Resources Committees
G. DAVID HURD The Principal Financial Group
Director Des Moines, IA 50392
Member, Executive and
Human Resources Committees
THEODORE M. HUTCHISON The Principal Financial Group
Director Des Moines, IA 50392
Vice Chairman
C. S. JOHNSON Pioneer Hi-Bred International, Inc.
Director 400 Locust
Member, Audit Committee Des Moines, IA 50309
WILLIAM T. KERR Meredith Corporation
Director 1716 Locust St.
Member, Nominating Committee Des Moines, IA 50309-3023
LEE LIU IES Industries Inc.
Director Post Office Box 351
Member, Executive and Cedar Rapids, IA 52406
Human Resources Committees
VICTOR. H. LOEWENSTEIN Egon Zehnder International
Director 55 East 59th Street
Member, Audit New York, NY 10022
Committee
JOHN R. PRICE Chemical Banking Corporation
Director 270 Park Avenue - 44th Floor
Chair, Audit Committee New York, NY 10017
BARBARA A. RICE Rice @ Associates
Director 712 Germantown Pike
Member, Human Resources Lafayette, PA 19444-1604
Committee
JEAN-PIERRE C. ROSSO Case Corporation
Director 700 State Street
Member, Audit Committee Racine, WI 53404
DONALD M. STEWART The College Board
Director 45 Columbus Avenue
Chair, Nominating New York, NY 10023-6992
Committee
ELIZABETH E. TALLETT Transcell Technologies, Inc.
Director 2000 Cornwall Road
Member, Audit Committee Monmouth Junction, NJ 08852
DEAN D. THORNTON 1602- 34 Court West
Director Seattle, WA 98199
Chair, Human Resources
Committee
FRED W. WEITZ Essex Meadows, Inc.
Director 800 Second Avenue
Member, Executive and Des Moines, IA 50309
Nominating Committees
Executive Officers (Other than Directors):
JOHN E. ASCHENBRENNER Senior Vice President
RAY S. CRABTREE Executive Vice President
THOMAS J. GAARD Senior Vice President
MICHAEL H.GERSIE Senior Vice President
THOMAS J. GRAF Senior Vice President
J. BARRY GRISWELL Executive Vice President
RONALD E. KELLER Executive Vice President
GREGG R. NARBER Senior Vice President and
General Counsel
CHARLES E. ROHM Executive Vice President
Item 26. Persons Controlled by or Under Common Control with Depositor
Principal Mutual Life Insurance Company (incorporated as a mutual life
insurance company under the laws of Iowa);
Sponsored the organization of the following mutual funds, some of
which it controls by virtue of owning voting securities:
Principal Asset Allocation Fund, Inc. (a Maryland
Corporation)100.0% of shares outstanding owned by Principal
Mutual Life Insurance Company and its separate accounts on
February 13, 1996.
Principal Aggressive Growth Fund, Inc. (a Maryland Corporation)
100.0% of shares outstanding owned by Principal Mutual Life
Insurance Company and its separate accounts on February 13, 1996.
Princor Balanced Fund, Inc. (a Maryland Corporation) 14.48% of
shares outstanding owned by Principal Mutual Life Insurance
Company on February 13, 1996.
Principal Balanced Fund, Inc. (a Maryland Corporation) 100.0% of
shares outstanding owned by Principal Mutual Life Insurance
Company and its separate accounts on February 13, 1996.
Princor Blue Chip Fund, Inc. (a Maryland Corporation) 12.68% of
shares outstanding owned by Principal Mutual Life Insurance
Company on February 13, 1996.
Princor Bond Fund, Inc. (a Maryland Corporation) 1.79% of shares
outstanding owned by Principal Mutual Life Insurance Company on
February 13, 1996.
Principal Bond Fund, Inc. (a Maryland Corporation) 100.0% of
shares outstanding owned by Principal Mutual Life Insurance
Company and its separate accounts on February 13, 1996.
Princor Capital Accumulation Fund, Inc. (a Maryland
Corporation)44.14% of outstanding shares owned by Principal
Mutual Life Insurance Company on February 13, 1996.
Principal Capital Accumulation Fund, Inc. (a Maryland
Corporation)100.0% of outstanding shares owned by Principal
Mutual Life Insurance Company and its Separate Accounts on
February 13, 1996.
Princor Cash Management Fund, Inc. (a Maryland Corporation) 1.26%
of outstanding shares owned by Principal Mutual Life Insurance
Company (including subsidiaries and affiliates) on February 13,
1996.
Princor Emerging Growth Fund, Inc. (a Maryland Corporation) .83%
of shares outstanding owned by Principal Mutual Life Insurance
Company on February 13, 1996
Principal Emerging Growth Fund, Inc. (a Maryland Corporation)
100.0% of shares outstanding owned by Principal Mutual Life
Insurance Company and its Separate Accounts on February 13, 1996.
Princor Government Securities Income Fund, Inc. (a Maryland
Corporation) 0.39% of shares outstanding owned by Principal
Mutual Life Insurance Company on February 13, 1996.
Principal Government Securities Fund, Inc. (a Maryland
Corporation) 100.0% of shares outstanding owned by Principal
Mutual Life Insurance Company and its Separate Accounts on
February 13, 1996.
Princor Growth Fund, Inc. (a Maryland Corporation) 0.70% of
outstanding shares owned by Principal Mutual Life Insurance
Company on February 13, 1996.
Principal Growth Fund, Inc. (a Maryland Corporation) 100.0% of
outstanding shares are owned by Principal Mutual Life Insurance
Company and its Separate Accounts on February 13, 1996.
Princor High Yield Fund, Inc. (a Maryland Corporation) 35.34% of
shares outstanding owned by Principal Mutual Life Insurance
Company on February 13, 1996.
Principal High Yield Fund, Inc. (a Maryland Corporation) 100.0%
of shares outstanding owned by Principal Mutual Life Insurance
Company and its Separate Accounts on February 13, 1996.
Princor Limited Term Bond Fund, Inc. (a Maryland Corporation)
100.0% of shares outstanding owned by Principal Mutual Life
Insurance Company on February 13, 1996.
Principal Money Market Fund, Inc. (a Maryland Corporation) 100.0%
of shares outstanding owned by Principal Mutual Life Insurance
Company and its Separate Accounts on February 13, 1996.
Principal Special Markets Fund, Inc. (a Maryland Corporation)
79.25% of the shares outstanding of the International Securities
Portfolio and 82.79% of the shares outstanding of the
Mortgage-Backed Securities Portfolio were owned by Principal
Mutual Life Insurance Company on February 13, 1996.
Princor Tax-Exempt Bond Fund, Inc. (a Maryland Corporation) 0.60%
of shares outstanding owned by Principal Mutual Life Insurance
Company on February 13, 1996.
Princor Tax-Exempt Cash Management Fund, Inc. (a Maryland
Corporation) 0.87% of shares outstanding owned by Principal
Mutual Life Insurance Company on February 13, 1996.
Princor Utilities Fund, Inc. (a Maryland Corporation) 1.34%% of
shares outstanding owned by Principal Mutual Life Insurance
Company on February 13, 1996.
Princor World Fund, Inc. (a Maryland Corporation) 20.50% of
shares outstanding owned by Principal Mutual Life Insurance
Company on February 13, 1996.
Principal World Fund, Inc. (a Maryland Corporation) 100.0% of
shares outstanding owned by Principal Mutual Life Insurance
Company on February 13, 1996.
Subsidiaries organized and wholly-owned by Principal Mutual Life
Insurance Company:
Principal Life Insurance Company (an Iowa Corporation) A general
insurance and annuity company. It is not currently active.
Principal Holding Company (an Iowa Corporation) A holding company
wholly-owned by Principal Mutual Life Insurance Company.
PT Asuransi Jiwa Principal Egalita Indonesia (an Indonesia
Corporation
Subsidiaries wholly-owned by Principal Holding Company:
a. Petula Associates, Ltd. (an Iowa Corporation) a real
estate development company.
b. Patrician Associates, Inc. (a California Corporation) a real
estate development company.
c. Principal Development Associates, Inc. (a California
Corporation) a real estate development company.
d. Princor Financial Services Corporation (an Iowa
Corporation) a registered broker-dealer.
e. Invista Capital Management, Inc. (an Iowa Corporation) a
registered investment adviser.
f. Principal Marketing Services, Inc. (a Delaware Corporation) a
corporation formed to serve as an interface between marketers
and manufacturers of financial services products.
g. The Principal Financial Group, Inc. (a Delaware corporation)
a general business corporation established in connection with
the new corporate identity. It is not currently active.
h. Delaware Charter Guarantee & Trust Company (a Delaware
Corporation) a nondepository trust company.
i. Principal Securities Holding Corporation (a Delaware
Corporation) a holding company.
j. Principal Health Care, Inc. (an Iowa Corporation) a developer
and administrator of managed care systems.
k. Principal Financial Advisors, Inc. (an Iowa Corporation) a
registered investment advisor.
l. Principal Asset Markets, Inc. (an Iowa Corporation) a
residential mortgage loan broker.
m. Principal Portfolio Services, Inc. (an Iowa Corporation) a
mortgage due diligence company.
n. Principal International, Inc. (an Iowa Corporation) a company
formed for the purpose of international business development.
o. Principal Spectrum Associates, Inc. (a California
Corporation) a real estate development company.
p. Principal Commercial Advisors, Inc. (an Iowa Corporation) a
company that purchases, manages and sells commercial real
estate assets.
q. Principal FC, Ltd. (an Iowa Corporation) a limited purpose
investment corporation.
r. Principal Residential Mortgage, Inc. (an Iowa Corporation) a
residential mortgage loan broker.
s. Equity FC, LTD. (an Iowa Corporation) engaged in investment
transactions including limited partnership and limited
liability companies.
Subsidiaries organized and wholly-owned by Princor Financial Services
Corporation:
a. Princor Management Corporation (an Iowa Corporation) a
registered investment advisor.
b. Principal Investors Corporation (a New Jersey Corporation) a
registered broker-dealer with the Securities Exchange
Commission. It is not currently active.
Subsidiary wholly owned by Principal Securities Holding Corporation:
Principal Financial Securities, Inc. (a Delaware Corporation) an
investment banking and securities brokerage firm.
Subsidiaries organized and wholly-owned by Principal Health Care,
Inc.:
a. Americas Health Plan, Inc. (a Maryland Corporation) a
developer of discount provider networks.
b. PHC Merging Company ( a Florida Corporation) (a Florida
Corporation) it is not currently active.
c. Principal Behavioral Health Care, Inc. (an Iowa Corporation)
a mental and nervous/substance abuse preferred provider
organization.
d. Principal Health Care of Illinois, Inc. (an Illinois
Corporation) a health maintenance organization.
e. Principal Health Care of Nebraska, Inc. (a Nebraska
Corporation) a health maintenance organization.
f. Principal Health Care of Delaware, Inc. (a Delaware
Corporation) a health maintenance organization.
g. Principal Health Care of Georgia, Inc. (a Georgia
Corporation) a health maintenance organization.
h. Principal Health Care of Kansas City, Inc. (a Missouri
Corporation) a health maintenance organization.
i. Principal Health Care of Louisiana, Inc. (a Louisiana
Corporation) a health maintenance organization.
j. Principal Health Care of Florida, Inc. (a Florida
Corporation) a health maintenance organization.
k. United Health Care Services of Iowa, Inc. (an Iowa
Corporation) a health maintenance organization.
l. Principal Health Care of Iowa, Inc. (an Iowa Corporation) a
health maintenance organization.
m. Principal Health Care of Indiana, Inc. (a Delaware
Corporation) a health maintenance organization.
n. Principal Health Care of Pennsylvania, Inc. (a Pennsylvania
Corporation) a health maintenance organization. It is not
currently active.
o. Principal Health Care of Tennessee, Inc. (a Tennessee
Corporation) a health maintenance organization.
p. Principal Health Care of Texas, Inc. ( a Texas Corporation) a
health maintenance organization.
q. Principal Health Care of the Carolinas, Inc. (a North
Carolina Corporation) a health maintenance organization.
r. Principal Health Care, of South Carolina, Inc. (A South
Carolina Corporation) a health maintenance organization.
s. Principal Health Care of South Carolina, Inc. (A South
Carolina Corporation) a health maintenance organization.
Subsidiary owned by Principal Health Care of Delaware, Inc.:
Principal Health Care of the Mid-Atlantic, Inc. (a Virginia
Corporation) a health maintenance organization.
Subsidiaries owned by Principal International, Inc.:
a. Grupo Financiero Principal, S.A. de Seguros de Vida (a
Spanish insurance company).
b. Principal Internacional, S.A. Compania de Seguros (a Mexico
Corporation).
c. Principal International Argentina, S.A. (an Argentina
Corporation).
d. Principal International Asia Limited (formerly known as
Goldchin Champ, Limited) (a Hong Kong Corporation).
e. Principal International de Chile, S.A.
Subsidiary owned by Grupo Financiero Principal, S.A. de Seguros de
Vida:
Agencia de Seguros, SA (an insurance agency). It is currently
dormant.
Subsidiaries owned by Principal International Argentina, S.A.:
a. Ethika, S.A. Administradora de Fondos de Jubilaciones y
Pensiones (an Argentina Corporation).
b. Princor Compania de Seguros de Retiro, S.A. (an Argentina
Corporation).
c. Prinlife Compania de Seguros de Vida, S.A. (an Argentina
Corporation)
d. Jacaranda Administradora de Fondos Jubilaciones y Pensiones,
S.A. (an Argentina Corporation)
Subsidiary owned by Principal owned by Principal International de
Chile, S.A.:
a. Ban Renta Compania de Seguros de Vida Banmedica, S.A.
Item 27. Number of Contractowners - As of: December 31, 1995
(1) (2)
Title of Class Number of Plan Participants
-------------- ---------------------------
BFA Variable Annuity Contracts 317
Pension Builder Contracts 4,722
Personal Variable Contracts 2,451
Premier Variable Contracts 10,866
Flexible Variable Annuity Contract 8,538
Item 28. Indemnification
None
Item 29. Principal Underwriters
(a) Princor Financial Services Corporation, principal underwriter for
Registrant, acts as principal underwriter 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 High Yield Fund, Inc.,
Principal Money Market Fund, Inc., Principal World Fund, Inc.,
Princor Balanced Fund, Inc., Princor Blue Chip Fund, Inc.,
Princor Bond Fund, Inc., Princor Capital Accumulation Fund, Inc.,
Princor Cash Management Fund, Inc., Princor Emerging Growth Fund,
Inc., Princor Government Securities Income Fund, Inc., Princor
Growth Fund, Inc., Princor High Yield Fund, Inc., Princor Limited
Term Bond Fund, Inc., Princor Tax-Exempt Bond Fund, Inc., Princor
Tax-Exempt Cash Management Fund, Inc., Princor Utilities Fund,
Inc., Princor World Fund, Inc., Principal Special Markets Fund,
Inc. and for variable annuity contracts participating in
Principal Mutual Life Insurance Company Separate Account B, a
registered unit investment trust for retirement plans adopted by
public school systems or certain tax-exempt organizations
pursuant to Section 403(b) of the Internal Revenue Code, Section
457 retirement plans, Section 401(a) retirement plans, certain
non-qualified deferred compensation plans and Individual
Retirement Annuity Plans adopted pursuant to Section 408 of the
Internal Revenue Code, and for variable life insurance contracts
issued by Principal Mutual Life Insurance Company Variable Life
Separate Account, a registered unit investment trust.
(b) (1) (2)
Positions
and offices
Name and principal with principal
business address underwriter
J. Barbara Alvord Marketing Officer
The Principal
Financial Group
Des Moines, IA 50392
Robert W. Baehr Marketing Services Officer
The Principal
Financial Group
Des Moines, IA 50392
Michael J. Beer Vice President and
The Principal Chief Operating Officer
Financial Group
Des Moines, IA 50392
Mary L. Bricker Assistant Corporate
The Principal Secretary
Financial Group
Des Moines, IA 50392
Ray S. Crabtree Director
The Principal
Financial Group
Des Moines, IA 50392
David J. Drury Director
The Principal
Financial Group
Des Moines, IA 50392
Arthur S. Filean Vice President
The Principal
Financial Group
Des Moines, IA 50392
Paul N. Germain Assistant Vice President-
The Principal Operations
Financial Group
Des Moines, IA 50392
Ernest H. Gillum Assistant Vice President-
The Principal Registered Products
Financial Group
Des Moines, IA 50392
Thomas J. Graf Director
The Principal
Financial Group
Des Moines, IA 50392
J. Barry Griswell Director
The Principal
Financial Group
Des Moines, IA 50392
Joyce N. Hoffman Vice President and
The Principal Corporate Secretary
Financial Group
Des Moines, IA 50392
Theodore M. Hutchison Director
The Principal
Financial Group
Des Moines, IA 50392
Stephan L. Jones Director and
The Principal President
Financial Group
Des Moines, IA 50392
Ronald E. Keller Director
The Principal
Financial Group
Des Moines, IA 50392
John R. Lepley Senior Vice
The Principal President
Financial Group Marketing and Distribution
Des Moines, IA 50392
Gregg R. Narber Director
The Principal
Financial Group
Des Moines, IA 50392
Richard H. Neil Director
The Principal
Financial Group
Des Moines, IA 50392
Layne A. Rasmussen Controller
The Principal
Financial Group
Des Moines, IA 50392
Charles E. Rohm Director
The Principal
Financial Group
Des Moines, IA 50392
Michael D. Roughton Counsel
The Principal
Financial Group
Des Moines, IA 50392
Jean B. Schustek Compliance Officer
The Principal
Financial Group
Des Moines, IA 50392
Roger C. Stroud Assistant Director
The Principal
Financial Group
Des Moines, IA 50392
Jerry G. Wisgerhof Vice President and
The Principal Treasurer
Financial Group
Des Moines, IA 50392
Peter D. Zornik Arkansas State Director
2624 North Fillmore
Little Rock, AR 72207
(c) (1) (2)
Net Underwriting
Name of Principal Discounts and
Underwriter Commissions
Princor Financial $5,326,848.77
Services Corporation
(3) (4) (5)
Compensation on Brokerage
Redemption Commissions Compensation
0 0 0
Item 30. Location of Accounts and Records
All accounts, books or other documents of the Registrant are located
at the offices of the Depositor, The Principal Financial Group, Des
Moines, Iowa 50392.
Item 31. Management Services
Inapplicable
Item 32. Undertakings
The Registrant undertakes to file a post-effective amendment to this
registration statement as frequently as is necessary to ensure that
the audited financial statements in the registration statement are
never more than 16 months old for so long as payments under the
variable annuity contracts may be accepted.
The Registrant undertakes to include either (1) as part of any
application to purchase a contract offered by the prospectus, a space
that an applicant can check to request a Statement of Additional
Information, or (2) a post card or similar written communication
affixed to or included in the prospectus that the applicant can remove
to send for a Statement of Additional Information.
The Registrant undertakes to deliver any Statement of Additional
Information and any financial statements required to be made available
under this Form promptly upon written or oral request.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant, Principal Mutual Life Insurance
Company Separate Account B, certifies that it meets the requirements of
Securities Act Rule 485(b) for effectiveness of the Registration Statement and
has duly caused this Amendment to the Registration Statement to be signed on its
behalf by the undersigned thereto duly authorized in the City of Des Moines and
State of Iowa, on the 28th day of February, 1996.
PRINCIPAL MUTUAL LIFE INSURANCE COMPANY
SEPARATE ACCOUNT B
(Registrant)
By: PRINCIPAL MUTUAL LIFE INSURANCE COMPANY
(Depositor)
David J. Drury
By ______________________________________________
David J. Drury
Chairman and Chief Executive Officer
Attest:
Joyce N. Hoffman
- -----------------------------------
Joyce N. Hoffman
Vice President and
Corporate Secretary
As required by the Securities Act of 1933, this Amendment to the Registration
Statement has been signed by the following persons in the capacities and on the
date indicated.
Signature Title Date
D. J. Drury Director, Chairman and February 28, 1996
Chief Executive Officer
D. C. Cunningham Vice President and February 28, 1996
Controller (Principal
Accounting Officer)
C. E. Rohm Executive Vice February 28, 1996
President (Principal
Financial Officer)
(M. V. Andringa)* Director February 28, 1996
M. V. Andringa
(R. M. Davis)* Director February 28, 1996
R. M. Davis
(C. D. Gelatt, Jr.)* Director February 28, 1996
C. D. Gelatt, Jr.
(G. D. Hurd)* Director February 28, 1996
G. D. Hurd
(T. M. Hutchison)* Director February 28, 1996
T. M. Hutchison
(C. S. Johnson)* Director February 28, 1996
C. S. Johnson
(W. T. Kerr)* Director February 28, 1996
W. T. Kerr
(L. Liu)* Director February 28, 1996
L. Liu
(V. H. Loewenstein)* Director February 28, 1996
V. H. Loewenstein
(J. R. Price, Jr.)* Director February 28, 1996
J. R. Price, Jr.
(B. A. Rice)* Director February 28, 1996
B. A. Rice
(J-P. C. Rosso)* Director February 28, 1996
J-P. C. Rosso
(D. M. Stewart)* Director February 28, 1996
D. M. Stewart
(E. E. Tallett)* Director February 28, 1996
E. E. Tallett
(D. D. Thornton)* Director February 28, 1996
D. D. Thornton
(F. W. Weitz)* Director February 28, 1996
F. W. Weitz
*By David J. Druy
David J. Drury
Chairman and Chief Executive Officer
Pursuant to Powers of Attorney
Previously Filed or Included Herein
BANKERS LIFE COMPANY
BOARD RESOLUTION
No. 11315
Passed 6-24-68
BE IT RESOLVED:
1. That the Chairman of the Board or the President shall designate the
appropriate officers to have the primary responsibility and authority within the
provisions of the Articles of Incorporation of the Bankers Life Company and as
permitted under the applicable law to prepare and issue group and/or individual
variable annuity contracts which would result in tax deferral under the Internal
Revenue Code of 1954, as amended, but which do not provide for participation in
the Separate Account established by the Company on the 8th day of August, 1964.
Such variable annuity contracts may provide for benefits whose dollar amount or
other measure of value may vary during the period subsequent to as well as the
period prior to the maturity dates of such contracts.
2. That the Chairman of the Board or the President shall designate the
same or other officers to have the primary responsibility and authority within
the provisions of the Articles of Incorporation of Bankers Life Company and as
permitted under the applicable law to establish one or more additional Separate
Accounts or funds, each of which shall meet the requirements of a "unit
investment trust" as defined by the Investment Company Act of 1940, as amended.
3. That the officers so designated are hereby authorized and directed
to prepare, execute and file with the Securities and Exchange Commission in
accordance with the provisions of the Securities Act of 1933, as amended, a
registration statement or statements, and such amendments thereto as may be
necessary or appropriate, relating to such variable annuity contracts as
described in this resolution.
4. That the officers so designated are hereby authorized if necessary
to prepare, execute and file with the Securities and Exchange Commission in
accordance with the provisions of the Investment Company Act of 1940, as
amended, a registration statement or statements, and such amendments thereto as
may be necessary or appropriate, relating to such unit investment trust or
trusts.
5. That the officers so designated are hereby authorized to take such
further action as may in their judgment be necessary or desirable to effect the
registration of such variable annuity contracts and of such unit investment
trust or trusts.
This is to certify that the above is a true copy of Board Resolution
No. 11315 as it appears on the minute book of the Corporation.
R. E. Cassell
------------------------------------------
R. E. Cassell
Senior Vice-President and Secretary
<PAGE>
EXECUTIVE COMMITTEE RESOLUTION
No. 2000
Passed January 12, 1970
RESOLVED, That in furtherance of resolution No. 11315 of the Board of
Directors enacted on the 24th day of June, 1968, a separate account to be known
as Separate Account B be and hereby is established for the purpose of issuing
variable annuity contracts entitled to special tax treatment under Sections 401
or 403(b) of the Internal Revenue Code 1954, as amended.
<PAGE>
EXECUTIVE COMMITTEE RESOLUTION
RESOLUTION NO. 2115
PASSED 4-12-71
"RESOLVED, That Separate Account B heretofore established by Executive
Committee Resolution No. 2000, passed January 12, 1970, be and is hereby amended
by deleting all reference to Section 401 of the Internal Revenue Code, and as
amended said resolution reads as follows:
'RESOLVED, That in furtherance of Resolution No. 11315 of the Board of
Directors enacted on the 24th day of June 1968, a separate account to
be known as Separate Account B be and hereby is established for the
purpose of issuing variable annuity contracts entitled to special tax
treatment under Section 403(b) of the Internal Revenue Code 1954, as
amended.' "
<PAGE>
Executive Committee Resolution 2927, dated May 17, 1982
On motion duly made and seconded, the following Resolution was unanimously
adopted:
WHEREAS, Board Resolution No. 11315, June 24, 1968, authorized the
establishment and operation of one or more separate accounts for the
purpose of issuing variable annuity contracts entitled to special tax
treatment under the Internal Revenue Code of 1954 as amended, and, pursuant
thereto the establishment of Separate Account B was authorized by Executive
Committee Resolution No. 2000, January 12, 1970, as amended by Executive
Committee Resolution No. 2115, April 12, 1971;
WHEREAS, the Plan of Operations for Separate Account B provides for
alternative funding for variable annuity contracts participating in
Separate Account B;
NOW, THEREFORE, BE IT RESOLVED, that there are hereby established, for the
purpose of providing alternative funding methods for variable annuity
contracts entitled to special tax treatment under the Internal Revenue Code
of 1954, as amended, two separate divisions within Separate Account B, a
Common Stock Division and a Money Market Division. All income and expenses
and all gains or losses, whether or not realized, experienced with respect
to assets for a series of contracts participating in a Division of Separate
Account B shall be credited to or charged against those assets, unaffected
by income and expenses or gains or losses experienced with respect to
assets for any other series of contracts participating in the same or any
other Division of Separate Account B, or constituting any other Separate
Account, or constituting the general account of the Company.
FURTHERMORE, the assets for a series of contracts participating in a
Division of Separate Account B shall not be charged by Bankers Life Company
with any liabilities arising from any other series of contracts issued by
the company participating in the same or from any other Division of
Separate Account B.
<PAGE>
Board Resolution #12434 (passed February 23-24, 1987)
WHEREAS, Board Resolution No. 11315, June 24, 1968, authorized the
establishment and operation of one or more separate accounts for the purpose of
issuing variable annuity contracts entitled to special tax treatment under the
Internal Revenue Code of 1954 as amended, and, pursuant thereto the
establishment of Separate Account B was authorized by Executive Committee
Resolution No. 2000, January 12, 1970, as amended by Executive Committee
Resolution No. 2115, April 12, 1971, and Executive Committee Resolution No.
2927, May 17, 1982;
WHEREAS, the Plan of Operations for Separate Account B provides for
alternative funding for variable annuity contracts participating in Separate
Account B;
NOW, THEREFORE, BE IT RESOLVED, that there are hereby established, for
the purpose of providing alternative funding methods for variable annuity
contracts entitled to special tax treatment under the Internal Revenue Code of
1954, as amended, three separate divisions within Separate Account B, a Common
Stock Division, a Money Market Division and a Government Securities Division.
All income and expenses and all gains or losses, whether or not realized,
experienced with respect to assets for a series of contracts participating in a
Division of Separate Account B shall be credited to or charged against those
assets, unaffected by income and expenses or gains or losses experienced with
respect to assets for any other series of contracts participating in the same or
any other Division of Separate Account B, or constituting any other Separate
Account, or constituting the general account of the Company.
FURTHERMORE, the assets for a series of contracts participating in a
Division of Separate Account B shall not be charged by Principal Mutual Life
Insurance Company with any liabilities arising from any other series of
contracts issued by the Company participating in the same or from any other
Division of Separate Account B.
<PAGE>
MEMORANDUM
November 24, 1993
TO: Dave Drury, Officers, S-6, X7-5921
FROM: Barry Griswell, Ind. Staff, G-13, X7-5749
RE: New Divisions for Separate Account B
In accordance with Principal Mutual Life Insurance Company Board Resolution No.
12503 passed February 22, 1988, I have created the following new division for
Separate Account B to reflect the funding options that will be utilized by the
variable annuity Principal Mutual will issue in the near future:
1. Utilities Division;
2. World Division;
3. Growth Division;
4. Blue Chip Division;
5. Emerging Growth Division;
6. Managed Division; and
7. Bond Division.
In addition, I have directed that the name of the Common Stock Division be
changed to the Capital Accumulation Division.
BARRY GRISWELL
__________________________________
Barry Griswell
BG/srr
dd1124.mem
<PAGE>
MEMORANDUM
July 24, 1994
TO Dave Drury, Officers, S-6, x75921
FROM Barry Griswell, Ind. Staff, G-13, x75749
RE New Divisions for Separate Account B
In accordance with Principal Mutual Life Insurance Company Board Resolution No.
12503 passed February 22, 1988, I have directed the following name changes for
the divisions of Separate Account B to relfect the funding options that will be
utilized by the variable anniuty Principal Mutual will issue in the near future:
Current Name New Name
------------ --------
Utilities Division Asset Allocation Division
Blue Chip Division Aggressive Growth Division
Managed Division Balanced Division
BARRY GRISWELL
- -------------------------------
Barry Griswell
<PAGE>
Board Resolution #12503 (passed February 22-23, 1988)
RESOLVED, that Board Resolution No. 12057, October 18-19, 1982, is amended
and superseded by the following resolution, and all references in other
resolutions to that resolution, or resolutions which it replaced, are amended to
refer to this superseding resolution:
BE IT RESOLVED, that either the Chief Executive Officer, or the President,
is authorized to designate officers who shall have the power and authority,
acting directly or through other officers and employees to whom they may
delegate the power and authority:
1. To prepare and issue or amend appropriate individual life policies,
annuity contracts, disability and double indemnity riders or contracts,
and settlement option contracts; to determine the appropriate plans of
insurance, contracts, riders, amendments and benefits to be offered; to
determine underwriting practices, including exclusions, restrictions,
amount limits and classification of risks; to determine premiums, fees
or charges, non-forfeiture values, and policy loan rates; to administer
benefit payments; and to make recommendations with respect to dividends
to be paid in connection with such policies or contracts.
2. To prepare and issue or amend appropriate individual health policies or
contracts; to determine the appropriate plans of insurance, contracts,
riders, amendments and benefits to be offered; to determine
underwriting practices, including exclusions, restrictions, amount
limits and classification of risks; to determine premium, fees or
charges and non-forfeiture values; to administer benefit payments; and
to make recommendations with respect to dividends to be paid in
connection with such policies or contracts.
3. To prepare and issue or amend appropriate group policies, contracts,
riders, amendments and other forms, including, but not limited to,
life plans, disability benefit plans, health plans, dental plans,
annuity plans and all other forms of plans, contracts or agreements
pertaining to or utilized in connection with pension, profit sharing
and other deferred compensation plans; to determine the plans and
benefits to be offered which may include coverage on dependents as well
as the participants in the plan; to determine the underwriting
practices, including the exclusions, restrictions, amount limits, and
classification of risks; to determine premiums, fees or charges and
values; to administer benefit payments; and to make recommendations
with respect to dividends to be paid in connection with such policies
or contracts.
4. To prepare, issue or amend appropriate individual or group contracts,
policies or annuities providing for a separate account or accounts and
to establish, maintain, amend and discontinue such account or accounts
as are deemed necessary or advisable.
5. To enter into reinsurance and coinsurance contracts and treaties; to
take such actions as are required to liberalize, restrict or otherwise
change benefits, values and underwriting practices with respect to any
class or classes of persons or policyholders; to cause the general
account or any account maintained by the Company to be segmented for
the purposes of crediting investment results separately to any class or
classes of policyholders; to enter into contracts or agreements wherein
the Company undertakes to provide services of any nature; and to
acquire or cause to be formed insurance companies or other
subsidiaries, the stock of which will be owned directly or indirectly
by the Company.
6. To do those other things deemed necessary or desirable to carry out the
business of Principal Mutual Life Insurance Company within the powers
of the Corporation.
BE IT FURTHER RESOLVED, that either the corporate secretary or the general
counsel is authorized to certify the powers of the corporation and the powers
and authority of the officers or employees.
DISTRIBUTION AGREEMENT
THIS DISTRIBUTION AGREEMENT is made this 15th day of June, 1994, between
Principal Mutual Life Insurance Company ("Principal Mutual"), a mutual life
insurance company organized under the laws of the State of Iowa, and Princor
Financial Services Corporation ("Princor"), an affiliate of Principal Mutual
organized under the laws of the State of Iowa.
WITNESSETH
WHEREAS, Principal Mutual has established Separate Account B ("Separate
Account") and registered such Separate Account as an investment company under
the Investment Company Act of 1940 to fund variable annuity contracts issued by
Principal Mutual Life Insurance Company;
WHEREAS, Princor is registered with the Securities and Exchange Commission
as a broker-dealer under the Securities Exchange Act of 1934 and is a member of
the National Association of Securities Dealers, Inc.; and
WHEREAS, Principal Mutual desires to issue certain Flex Variable Annuity
contracts ("Contracts") with respect to the Separate Account which will be sold
and distributed by and through Princor, and Princor is willing to sell and
distribute such Contracts under the terms and conditions stated herein;
NOW, THEREFORE, the parties agree as follows:
1. Principal Mutual hereby appoints Princor as the principal underwriter of
the Contracts issued with respect to the Separate Account, and Princor agrees to
use its best efforts to sell and distribute the Contracts through its registered
representatives or through other broker-dealers registered under the Securities
and Exchange Act of 1934 whose registered representatives are authorized by
applicable law to sell variable annuity contracts.
2. All payments and other monies payable upon the sale, distribution,
renewal or other transaction involving the Contracts shall be the property of
and be paid or remitted directly to Principal Mutual, who shall retain all such
payments and monies for its own account except to the extent such payments and
monies are allocated to the Separate Account. Princor shall not be deemed to
have any interest in such payments
3. For the administrative convenience of the parties, Principal Mutual
shall
(a) pay to the registered representatives of Princor the commissions
earned on the sale, distribution, renewal or other transaction
involving the Contracts as determined in the attached Commission
Schedule, and provide Princor with accurate records of all such
commissions paid on its behalf;
(b) pay to broker-dealers with whom Princor has entered into a
Selling Agreement for the distribution of the Contracts any
applicable dealer allowance or other compensation as provided in
such Selling Agreement, and provide Princor with accurate records
of all such payments paid on its behalf.
4. Principal Mutual shall pay to Princor an amount equal to the expenses
incurred by Princor in the performance of this Agreement. Princor shall provide
a statement of expenses to Principal Mutual at least semi-annually in a form and
manner agreed to by the parties.
5. Princor shall be solely responsible for the supervision and control of
the conduct and activities of its registered representatives with regard to the
sale and distribution of the Contracts.
6. Principal Mutual shall assume the responsibility, including the costs
thereof, for all administrative and legal functions pertaining to the Contracts
not otherwise specifically assumed by Princor in this agreement, including but
not limited to the following: filing of any contracts with a state securities
commission as required by applicable state securities (Blue Sky) laws; the
preparation, printing and filing of prospectuses; the development, filing, and
compliance with federal and state securities laws and regulations of the
Separate Account; contract development; SEC registration; filing and compliance
with state insurance laws and regulations; underwriting; contract issue and
contractowner service functions; developing sales and promotional material; and
training agents.
7. Principal Mutual will prepare and maintain all the books and records in
connection with the offer and sales of variable annuity contracts which are
required to be maintained and preserved in accordance with applicable securities
law; and all such books and records are to be maintained and held by Principal
Mutual on behalf of and as agent for the broker-dealer whose property they are
and shall remain; and all such books and records will be made available for
inspection by the Securities and Exchange Commission at all times.
8. Principal Mutual shall send to each contractowner or such other person
as appropriate a confirmation as required by law or regulation of any
transaction made with respect to the Contracts which shall reflect the true
facts of the transaction and show that confirmation of the transaction is being
sent on behalf of the broker-dealer acting in the capacity of agent for the
insurance company.
9. Princor and Principal Mutual may enter into agreements with other
broker-dealers duly licensed under applicable federal and state laws and with
their affiliated general agencies, if any, for the sale and distribution of the
Contracts. The commission payable to registered representatives on the sale of
Contracts thereunder may not exceed the amount shown on the attached Commission
Schedule.
10. This agreement may be terminated by either party upon 60 days prior
written notice. Princor shall promptly notify the Securities and Exchange
Commission of any such termination.
IN WITNESS WHEREOF, the parties hereto have caused this agreement to be
executed on the day and year written above.
PRINCIPAL MUTUAL LIFE
INSURANCE COMPANY
By:_____________________________
PRINCOR FINANCIAL SERVICES
CORPORATION
By:______________________________
BROKER-DEALER
MARKETING AND COMPENSATION AGREEMENT
FOR
FLEXIBLE VARIABLE ANNUITY CONTRACTS
AGREEMENT made this day of , 19 , by and between Princor Financial Services
Corporation (hereinafter called Distributor), (hereinafter called Broker) and
Principal Mutual Life Insurance Company (hereinafter called Issuer).
MARKETING
In consideration of the mutual agreements herein contained, the Parties hereto
agree as follows:
1. The Distributor hereby appoints the Broker to sell Flexible Variable
Annuity Contracts (hereinafter called Annuity Contracts) issued by the
Issuer. This agreement is a selling agreement between broker-dealers. It
does not designate any party as the broker, agent, or employee of any other
Party. Words and phrases in this Agreement given special meaning in any
Annuity Contracts shall have that same special meaning in this Agreement
unless specifically defined otherwise herein.
2. The Broker hereby agrees to direct its best efforts to find purchasers for
Annuity Contracts issued by the Issuer. The Broker does not undertake
hereby to sell any specific number of Annuity Contracts issued by the
Issuer.
3. The Distributor shall provide the Broker with a reasonable number of
current prospectuses and such other material as the Distributor determines
to be desirable for use in connection with the sale of Annuity Contracts or
the solicitation of applications for participation thereunder.
4. The Broker warrants that it is a member in good standing of the National
Association of Securities Dealers, Inc. (NASD) and will promptly notify
Distributor of any change in Broker's status as a member of the NASD.
5. The Broker warrants that the Broker and any person associated with or
acting for the Broker in the solicitation of applications for Annuity
Contracts shall be qualified pursuant to the requirements of the National
Association of Securities Dealers, Inc. and appropriate federal and state
agencies regulating securities, insurance, any other aspect of the Annuity
Contracts or the sale of them. The Broker shall be responsible for seeing
to such qualifications, and will indemnify and hold the Distributor and the
Issuer harmless for any failure to have all persons engaged in solicitation
on its behalf properly licensed, registered, and appointed for securities
and insurance sales.
6. The Broker shall be responsible for supervising and controlling the conduct
and activities of its Registered Representatives with regard to the sale
and distribution of Annuity Contracts. The Broker agrees to indemnify and
hold the Distributor and the Issuer harmless for claims and actions of any
sort which arise from the conduct and activities of the persons associated
with it who are involved in the sale and distribution of the Annuity
Contracts.
7. The Broker shall act only in its own behalf in making agreements with
Registered Representatives or other persons in connection with the
solicitation or sales of Annuity Contracts.
8. The Broker agrees to maintain all books and records relating to the sale of
Annuity Contracts or interests therein required to be maintained by the
Broker pursuant to the Securities Exchange Act of 1934, in conformity with
the requirements of Rules 17a-3 and 17a-4 under such Act, and to the
applicable securities or insurance laws of any state.
9. The Broker shall transmit promptly and directly to the Distributor all
Contributions collected by or paid to the Broker. All Annuity Contracts are
to be delivered promptly, and any undelivered Annuity Contracts are to be
returned within the time allowed or on demand.
COMPENSATION
With respect to these Annuity Contracts issued upon applications obtained by the
Broker while this Agreement is in force, it is agreed that, subject to all
provisions of this Agreement and only so long as the Agreement remains in force,
the Broker shall receive Compensation in the form of a dealer concession as
provided by Schedule A attached hereto.
1. Compensation shall only be paid with respect to Annuity Contracts issued
while this Agreement is in force. Determination of the Annuity Contracts
applicable to this Agreement shall be by the Issuer.
2. The Distributor may, at any time, upon written notice to the Broker, change
any and all of the rates of Compensation set out herein.
3. If the Issuer, for any reason, refunds any Contributions, or any part
thereof, on any Annuity Contract, any Compensation paid on the amount
refunded shall be repaid to the Issuer by the Broker promptly and on
demand.
4. Any indebtedness of any kind due to the Distributor or Issuer from the
Broker may be offset against any amount due the Broker.
5. No assignment of the Compensation payable pursuant to this Agreement shall
be valid unless it is accepted in writing by the Issuer and Distributor.
6. If an Annuity Contract sold by the Broker is tendered for redemption within
seven business days after the Issuer accepts the application for that
Annuity Contract, the Broker will promptly return to the Issuer any
Compensation paid on that Annuity Contract.
GENERAL
1. The Broker shall have no authority to incur any liability or debt against
the Distributor or the Issuer; accept risks or Contracts of any kind; make,
alter, authorize or discharge any Contract; extend the time of payment of
any Contributions; waive payments, fail to transmit any Contributions
collected promptly to the Distributor; use any advertising or sales
material which has not first been submitted to and approved by the
Distributor and the Issuer; nor bind the Distributor or the Issuer in any
way.
2. Any modifications of this Agreement must be in writing and signed by an
authorized officer of the Distributor and the Issuer.
3. This Agreement may be terminated by either the Distributor, the Broker or
the Issuer upon written notice to the last known address of the other
parties.
4. This Agreement supersedes and replaces any and all prior agreements of the
Distributor or the Issuer with the Broker on the subject of Contracts or
the sale of them.
IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be executed
in triplicate on the date first above written.
_________________________________Broker
By ____________________________________
PRINCOR FINANCIAL SERVICES CORPORATION
By ____________________________________
PRINCIPAL MUTUAL LIFE INSURANCE COMPANY
By ____________________________________
<PAGE>
SCHEDULE A
DEALER CONCESSION
FLEXIBLE VARIABLE ANNUITY CONTRACTS
A Dealer Concession in an amount equal to 6.0% of purchase payments for which
good payment has been received by the Distributor will be paid to the Broker.
This contract is a legal contract between you, as Owner, and us, Principal
Mutual Life Insurance Company. Your contract is issued based on the information
you provided and the initial Purchase Payment shown on the initial Data Page.
We will pay you the benefits of this contract in accordance with its provisions.
10-DAY EXAMINATION OFFER IT IS IMPORTANT TO US THAT YOU ARE SATISFIED WITH THIS
CONTRACT. IF YOU ARE NOT SATISFIED, YOU MAY RETURN YOUR CONTRACT TO EITHER
YOUR AGENT OR OUR HOME OFFICE WITHIN 10 DAYS OF ITS RECEIPT AND YOUR
CONTRACT WILL BE CONSIDERED VOID FROM ITS INCEPTION. WE WILL REFUND
YOUR PURCHASE PAYMENT IN STATES WHERE REQUIRED. IN STATES
WHERE PERMITTED, WE WILL REFUND THE TOTAL ACCUMULATED
VALUE, WHICH MAY BE MORE OR LESS THAN YOUR
PURCHASE PAYMENT. PLEASE READ YOUR
CONTRACT CAREFULLY SO YOU MAY
BETTER USE ITS MANY BENEFITS.
FLEXIBLE VARIABLE ANNUITY CONTRACT. Income payable starting on Retirement Date,
or death benefit if Annuitant or Owner dies before Retirement Date. Benefits
based on the performance of the Separate Account are variable and not
guaranteed as to dollar amount. PARTICIPATING.
A mutual company serving contractowners and beneficiaries since 1879.
Signed for Principal Mutual Life Insurance Company at Des Moines, Iowa on the
Contract Date.
OWNER John Doe
JOINT OWNER Jane Doe
ANNUITANT John Do ISSUE AGE-SEX 35-Male
JOINT ANNUITANT Jane ISSUE AGE-SEX 35-Female
CONTRACT NUMBER Sample CONTRACT Flexible Variable Annuity
CONTRACT DATE January 1, 2000 RETIREMENT DATE January 1, 2035
<PAGE>
INDEX
Accumulated Value................. 6 Incontestability.................21
Age and Sex (Annuitant)...........21 Ownership........................21
Annual Fee........................11 Participating....................21
Annuitant ........................ 4 Purchase Payments ............... 5
Assignment .......................22 Retirement Date (Change) ........22
Beneficiary ......................14 Retirement Income ...............15
Benefit Options ..................15 Separate Account ................ 8
Contract .........................21 Separate Account Value .......... 7
Contract Benefits ................11 Surrender .......................12
Death Benefits ...................13 Surrender Charge ................12
Definitions ...................... 4 Termination .....................15
Fixed Account .................... 8 Transaction Fee .................11
Fixed Account Value .............. 6 Transfers ....................... 9
A copy of any application and additional
benefits provided by rider follow the
last page of this contract.
- -------------------------------------------------------------------------------
<PAGE>
DATA PAGE
OWNER John Doe
JOINT OWNER Jane Doe
ANNUITANT John Doe ISSUE AGE-SEX 35-Male
JOINT ANNUITANT Jane Doe ISSUE AGE-SEX 35-Female
CONTRACT NUMBER Sample CONTRACT Flexible Variable Annuity
CONTRACT DATE January 1, 2000 RETIREMENT DATE January 1, 2035
FORM
NO. CONTRACT AND RIDERS
SF324 Flexible Variable Annuity
SF321 Change of Annuitant Rider
SF313 Waiver of Surrender Charge Rider
SF326 TDA Rider
The initial Purchase Payment you paid is $2,500.00
The Fixed Account's initial Purchase Payment interest rate is 4.79%
Annual Fee: Lesser of $30 or 2.00% of Accumulated Value
Transaction Fee: $30.00
Daily Separate Account Administration Charge: $.000000000 (0.00% annually)
Daily Mortality and Expense Risks Charge: $.000034246 (1.25% annually)
CONTRACT LIMITS
Minimum Transaction Amount: $ 100.00
Minimum Surrender Value: $5,000.00
Minimum Transfer Value: $5,000.00
Maximum Retirement Date: January 01, 2050
<PAGE>
DATA PAGE
OWNER John Doe
JOINT OWNER Jane Doe
ANNUITANT John Doe ISSUE AGE-SEX 35-Male
JOINT ANNUITANT Jane Doe ISSUE AGE-SEX 35-Female
CONTRACT NUMBER Sample CONTRACT Flexible Variable Annuity
CONTRACT DATE January 1, 2000 RETIREMENT DATE January 1, 2035
INITIAL
PURCHASE PAYMENT
ALLOCATION PERCENTAGES
FIXED ACCOUNT 10%
SEPARATE ACCOUNT DIVISIONS: 10%
Money Market
Invested in Principal Money Market
Fund, Inc.
Government Securities 10%
Invested in Principal Government Securities
Fund, Inc.
Bond 30%
Invested in Principal Bond Fund, Inc.
Balanced 0%
Invested in Principal Balanced Fund, Inc.
Capital Accumulation 10%
Invested in Principal Capital Accumulation
Fund, Inc.
Growth 10%
Invested in Principal Growth Fund, Inc.
World 10%
Invested in Principal World Fund, Inc.
Emerging Growth 10%
Invested in Principal Emerging Growth
Fund, Inc.
Aggressive Growth 0%
Invested in Principal Aggressive Growth
Fund, Inc.
SF 324
<PAGE>
DATA PAGE
Asset Allocation 0%
Invested in Principal Asset Allocation
Fund, Inc.
TOTAL 100%
SF 324
<PAGE>
DATA PAGE
OWNER John Doe
JOINT OWNER Jane Doe
ANNUITANT John Doe ISSUE AGE-SEX 35-Male
JOINT ANNUITANT Jane Doe ISSUE AGE-SEX 35-Female
CONTRACT NUMBER Sample CONTRACT Flexible Variable Annuity
CONTRACT DATE January 1, 2000 RETIREMENT DATE January 1, 2035
TABLE OF SURRENDER CHARGES
NUMBER OF COMPLETED CONTRACT YEARS SURRENDER CHARGE APPLIED TO
SINCE PURCHASE PAYMENT WAS MADE ALL PURCHASE PAYMENTS MADE
IN THAT CONTRACT YEAR
0 (Year of Purchase Payment) 6
1 6%
2 6%
3 5%
4 4%
5 3%
6 2%
7 and later 0%
SF 324
<PAGE>
DEFINITIONS
ACCUMULATED VALUE--means the value described in the Accumulated Value provision
of this contract.
ANNIVERSARY--means the same date and month of each year following the Contract
Date shown on the current Data Page.
ANNUAL FEE--means the fee described in the Annual Fee provision of this
contract.
ANNUITANT--means the person, including any Joint Annuitant, on whose life the
benefit payments are based. This person may or may not be the Owner.
BENEFIT OPTION--means the options described in the Benefit Options section of
this contract.
CONTRACT DATE--means the date shown on the current Data Page.
CONTRACT YEAR--means 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.
DIVISION--means a part of the Separate Account to which Purchase Payments may be
allocated or amounts transferred.
FIXED ACCOUNT--means an account to which Purchase Payments may be allocated or
amounts transferred, which earns guaranteed interest.
FIXED ACCOUNT VALUE--means the amount described in the Fixed Account Value
provision of this contract.
JOINT ANNUITANT--means an additional Annuitant. The Joint Annuitants must be
husband and wife, and must be named as Owner and Joint Owner. In this contract,
any reference to the Annuitant's death means the death of the last surviving
Annuitant.
JOINT OWNER--means 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. In this
contract, any reference to the Owner's death means the death of the last
surviving Owner.
MUTUAL FUND--means a registered open-end investment company in which a Division
invests.
NET INVESTMENT FACTOR--means the investment performance measure described in the
Net Investment Factor provision of this contract.
NOTICE--means any form of communication providing the information we need,
either in writing or another manner that we approve in advance and receive in
our home office.
SF 324
<PAGE>
OWNER--means 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 PAYMENT--means any amount you pay us under this contract as
consideration for the benefits it provides, reduced by the amount we may deduct
to pay any required premium taxes.
RETIREMENT DATE--means the date your Accumulated Value is applied under a
Benefit Option to make retirement income payments.
SEPARATE ACCOUNT--means Principal Mutual Life Insurance Company Separate Account
B, a registered unit investment trust with Divisions and segregated assets, to
which Purchase Payments may be allocated under this contract and others we
issue.
SEPARATE ACCOUNT VALUE--means the amount described in the Separate Account Value
provision of this contract.
SURRENDER CHARGE--means the charge described in the Surrender Charge sub-
provision of this contract.
TRANSACTION FEE--means the fee described in the Transaction Fee provision of
this contract.
UNIT--means the accounting measure used to calculate the Separate Account Value.
VALUATION DATE--means the date the net asset value of a Mutual Fund is
determined.
VALUATION PERIOD--means the period 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.
WE, OUR, US--means Principal Mutual Life Insurance Company.
YOU, YOUR--means the Owner of this contract, including any Joint Owner.
PURCHASE PAYMENTS
The initial Purchase Payment is due on the Contract Date and is shown on the
initial Data Page. Subsequent Purchase Payments must be sent to the home office
address we provide to you either with your annual report or in another manner.
You may make Purchase Payments at any time and in any amount while the contract
is in force and before you choose a Benefit Option, subject to the following
conditions.
PURCHASE PAYMENT LIMITS
The total Purchase Payments you make during the lifetime of this contract may
not exceed $1,000,000, except with our prior approval.
Each Purchase Payment must equal or exceed the Minimum Transaction Amount shown
on the current Data Page. We reserve the right to change this amount but it will
never exceed $1,000.
PURCHASE PAYMENT ALLOCATIONS
You may allocate Purchase Payments as additions to the Fixed Account and/or any
of the Separate Account Divisions shown on the current Data Page. However,
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. Also, we reserve the right to allocate the initial Purchase Payment
entirely to the Money Market Division for the first 15 days after the Contract
Date.
Allocations to the Fixed Account and/or each of the Separate Account Divisions
must be made as a percentage of each Purchase Payment. Percentages may be either
zero or any whole number and must total 100%. You may specify these allocations
with each Purchase Payment by providing us Notice. Otherwise, we will allocate
each Purchase Payment in the same way you allocated the initial Purchase Payment
(as shown on the initial Data Page) unless you change this default allocation.
You may change this default allocation at any time by providing us Notice.
PREMIUM TAXES
We reserve the right to deduct amounts to cover any premium taxes required by
TAXES state or local law, when applicable. Any such deduction will be made from
either a Purchase Payment when received, or the Accumulated Value when
surrendered (in whole or part) or applied under a Benefit Option.
CONTRACT VALUES
The values and benefits are equal to or greater than those required by any
applicable law. We will inform you of their amount on request.
ACCUMULATED VALUE
Your contract values are calculated based on your Accumulated Value as stated
below.
Your Accumulated Value at any time is equal to:
1. Your Fixed Account Value;
PLUS
2. Your Separate Account Value.
FIXED ACCOUNT VALUE
Your Fixed Account Value at any time is equal to:
1. Purchase Payments you allocate to the Fixed Account;
PLUS
2. Any transfers to the Fixed Account from your interest in a Separate
Account Division;
PLUS
3. Interest credited;
SF 324
<PAGE>
MINUS
4. Any transfers to your
interest in a Separate
Account Division;
MINUS
5. Any amounts from the Fixed Account that you received due to partial
surrenders;
MINUS
6. Any Surrender Charges deducted from the Fixed Account due to partial
surrenders;
MINUS
7. Any Transaction Fees and/or Annual Fees deducted from the Fixed
Account.
SEPARATE ACCOUNT VALUE
Your Separate Account Value at any time is equal to the sum of the values of
your interests in all of the Separate Account Divisions. The value of your
interest in each Separate Account Division at any time is equal to:
1. The number of Units credited due to Purchase Payments you allocate to
your interest in the Separate Account Division;
PLUS
2. The number of Units credited due to any transfers from the Fixed
Account or your interest in another Separate Account Division;
MINUS
3. The number of Units cancelled due to any transfers to the Fixed Account
or your interest in another Separate Account Division;
MINUS
4. The number of Units cancelled due to any partial surrenders you made
from your interest in the Separate Account Division;
MINUS
5. The number of Units cancelled due to any Surrender Charges collected
from your interest in the Separate Account Division due to partial
Surrenders;
MINUS
6. The number of Units cancelled due to any Transaction Fees and/or Annual
Fees deducted from your interest in the Separate Account Division.
This total number of Units is then:
MULTIPLIED BY
7. The Unit value of the Separate Account Division at the time of
valuation.
SF 324
<PAGE>
SF 324
FIXED ACCOUNT
GUARANTEED INTEREST RATES
Your Fixed Account Value will earn interest at a guaranteed interest rate. In no
event will the guaranteed interest rate be less than 3% compounded annually.
INTEREST CREDITING METHOD
Each Purchase Payment allocated or amount transferred to the Fixed Account earns
interest at the guaranteed rate in effect on the date it is received or
transferred. This rate applies to each Purchase Payment or amount transferred
until the end of the Contract Year. The interest rate applicable during the
first Contract Year to any initial Purchase Payment allocated to the Fixed
Account is shown on the initial Data Page.
Each Anniversary we will declare a renewal interest rate that is guaranteed and
applies to the Fixed Account Value in existence at that time. This rate applies
until the end of the Contract Year.
Interest is earned daily and will be compounded annually at the end of each
Contract Year.
SEPARATE ACCOUNT
SEPARATE ACCOUNT ASSETS
Our Separate Account is registered with the Securities and Exchange Commission
as a unit investment trust under the Investment Company Act of 1940 (as
amended). Assets we put into our Separate Account to support this contract are
not part of our general account. Income, gains and losses of our Separate
Account, whether or not realized, are credited to or charged against our
Separate Account assets, without regard to our other income, gains or losses.
The assets of the Separate Account will be available to cover the liabilities of
our general account only to the extent that the assets of the Separate Account
exceed the liabilities of the Separate Account arising under the contracts
supported by the Separate Account.
SEPARATE ACCOUNT DIVISIONS
Our Separate Account is comprised of the Divisions shown on the current Data
Page. Each Division invests in a Mutual Fund with a different investment
objective. Income, gains and losses, whether or not realized, from each
Division's assets are credited to or charged against that Division without
regard to income, gains or losses of other Divisions or our other income, gains
or losses.
We reserve the right to add other Divisions, eliminate or combine existing
Divisions, or transfer assets in one Division to another. If shares of a Mutual
Fund are no longer available for investment, or in our judgment investment in a
Mutual Fund becomes inappropriate considering the purposes of the Separate
Account, we may eliminate the shares of a Mutual Fund and substitute shares of
another. Substitution may be made with respect to both existing investments and
the investment of future Purchase Payments. However, no such changes will be
made without notifying you and getting any required approval from the
appropriate state and/or federal regulatory authorities.
UNITS AND UNIT VALUE
Purchase Payments allocated or amounts transferred to a Separate Account
Division are credited as Units by dividing the amount by the Division's Unit
value for the Valuation Period during which the amount is allocated or
transferred. Units are cancelled when amounts are surrendered or transferred
from a Division.
The Unit value for each Division was arbitrarily set at $10 as of the date the
Division first purchased Mutual Fund shares. Thereafter, the Unit value on any
Valuation Date is calculated by multiplying the Unit value on the previous
Valuation Date by that Division's Net Investment Factor for the current
Valuation Period. The number of Units will not change due to a subsequent change
in Unit value. The Unit value for any Valuation Period is the Unit value
determined as of the end of the Valuation Period.
NET INVESTMENT FACTOR
The Net Investment Factor measures Investment performance of each Division and
is used to determine changes in Unit value from one Valuation Period to the
next. The Net Investment Factor for a Valuation Period is equal to:
1. The quotient obtained by dividing:
a. The net asset value of a share of the Division's underlying Mutual
Fund shown on the current Data Page as of the end of such
Valuation Period, plus the per share amount of any dividend or
other distribution made by such Mutual Fund during such Valuation
Period, by
b. The net asset value of a share of such Mutual Fund as of the end
of the immediately preceding Valuation Period;
MINUS
2. An administration fee equal to the number of days within such Valuation
Period times the Daily Separate Account Administration Charge shown on
the current Data Page. We reserve the right to change the Daily
Separate Account Administration Charge but it will never exceed 0.15%
annually;
MINUS
3. A mortality and expense risks charge equal to the number of days within
such Valuation Period times the Daily Mortality and Expense Risks
Charge shown on the current Data Page. We reserve the right to change
the Daily Mortality and Expense Risks Charge but it will never exceed
1.25% annually.
We reserve the right to adjust the above formula to provide for any taxes
attributable to the operations of this contract or the Separate Account. The
Daily Separate Account Administration Charge and Daily Mortality and Expense
Risks Charge will be accrued daily and will be deducted from the Separate
Account at our discretion.
TRANSFERS AND FEES
TRANSFERS ALLOWED
You may transfer amounts between the Fixed Account and the Separate Account
Divisions prior to the Retirement Date and as provided below. To request a
transfer, you must provide us Notice. We reserve the right to not accept
transfer instructions from someone providing them for multiple contracts.
TRANSFERS FROM FIXED ACCOUNT
You may transfer amounts from the Fixed Account to a Separate Account Division
by making either a scheduled or unscheduled Fixed Account transfer, subject to
the following conditions.
You must provide us Notice within 30 days following either the Contract Date or
any Anniversary.
Either unscheduled Fixed Account transfers or scheduled Fixed Account transfers
(not both) may occur during the same Contract Year.
SF 324
<PAGE>
UNSCHEDULED FIXED ACCOUNT TRANSFERS--You may make one unscheduled transfer from
the Fixed Account each Contract Year, as follows:
1. The transfer will occur within 1 business day of the date we receive
your Notice; and
2. You must specify the dollar amount or percentage to be transferred, and
the resulting amount must not exceed 25% of your Fixed Account Value as
of the later of the Contract Date or the last Anniversary. However, you
may transfer up to 100% of your Fixed Account Value within 30 days
after the first and following Anniversaries if:
a. Your Fixed Account Value is less than $1,000; or
b. The renewal interest rate declared for your Fixed Account Value
for the current Contract Year is more than 1 percentage point
lower than an average of your total Fixed Account earnings for the
preceding Contract Year (in that event, we will notify you).
SCHEDULED FIXED ACCOUNT TRANSFERS--You may make scheduled transfers on a monthly
basis from the Fixed Account, as follows:
1. The transfer will occur on a date you specify in your Notice (other
than the 29th, 30th or 31st of any month);
2. Your Fixed Account Value must equal or exceed the Minimum Transfer
Value shown on the current Data Page. We reserve the right to change
this amount but it will never exceed $10,000;
3. The monthly amount transferred must equal 2% of your Fixed Account
Value as of the later of the Contract Date or the last Anniversary;
4. The transfers will continue until your Fixed Account Value is exhausted
or we receive Notice to stop them; and
5. If you stop the transfers, you may not start them again without our
prior approval.
TRANSFERS FROM SEPARATE ACCOUNT DIVISIONS
You may transfer amounts from a Separate Account Division to either the Fixed
Account or another Separate Account Division by making either a scheduled or
unscheduled Separate Account Division transfer, subject to the following
conditions.
Transfers to the Fixed Account are allowed only if:
1. You have not transferred any amount from the Fixed Account for at least
6 months; and
2. Your Fixed Account Value immediately after the transfer does not exceed
$1,000,000, except with our prior approval.
UNSCHEDULED SEPARATE ACCOUNT DIVISION TRANSFERS--You may make unscheduled
transfers from a Separate Account Division, as follows:
1. The transfer will occur within 1 business day of the date we receive
your Notice; and
2. You must specify the dollar amount or percentage to transfer from each
Separate Account Division, and the resulting amount must equal or
exceed the lesser of the value of your interest in the Separate Account
Division or the Minimum Transaction Amount shown on the current Data
Page.
SCHEDULED SEPARATE ACCOUNT DIVISION TRANSFERS--You may make scheduled transfers
from a Separate Account Division, as follows:
1. The transfers will occur on a date you specify in your Notice (other
than the 29th, 30th or 31st of any month);
2. You must specify how often the transfers will occur (annually, semi-
annually, quarterly or monthly);
3. You must specify the dollar amount to transfer from each Separate
Account Division, and that amount must equal or exceed the lesser of
the value of your interest in the Separate Account Division or the
Minimum Transaction Amount shown on the current Data Page;
4. The value of each Separate Account Division from which transfers are
made must equal or exceed the Minimum Transfer Value shown on the
current Data Page;
5. The transfers will continue until your interest in the Division is
exhausted or we receive Notice to stop them; and
6. We reserve the right to limit the number of Separate Account Divisions
from which transfers will be made at the same time. In no event will it
ever be less than 2.
ANNUAL FEE
The Annual Fee is shown on the current Data Page. The Annual Fee will be
reduced, as necessary, so that it never decreases the guaranteed minimum 3%
annual interest earnings of any amount in the Fixed Account.
The Annual Fee will be deducted on the last day of each Contract Year prior to
the Retirement Date. If you surrender this contract in full, the Annual Fee will
be deducted at that time. The Annual Fee will be deducted from either your Fixed
Account Value or your interest in a Separate Account Division, whichever of them
has the largest value on the date it is to be deducted.
TRANSACTION FEE
The Transaction Fee is shown on the current Data Page. It will be deducted for
each unscheduled partial surrender after the first unscheduled partial surrender
in each Contract Year. Also, we reserve the right to charge the Transaction Fee
for each unscheduled Separate Account Division transfer after the twelfth such
transfer in each Contract Year.
The Transaction Fee will be deducted from your Fixed Account Value and/or the
value of your interest in a Separate Account Division from which the amount is
surrendered or transferred, on a pro rata basis.
CONTRACT BENEFITS
You may surrender this contract, receive retirement income payments or a death
benefit will be paid, as provided below.
SF 324
<PAGE>
We will pay any Separate Account Division surrenders within 7 days after we
receive Notice. We will pay any death benefit within 7 days after we receive
Notice (including proof) of the Owner's or Annuitant's death. However, we
reserve the right to defer surrender or death benefit payments as permitted by
the Investment Act of 1940 or other laws in effect at the time payments are to
be made. We reserve the right to delay payment of the Fixed Account Value for up
to six months after you provide us Notice of a surrender. Also, we reserve the
right to require that you send us this contract so we can record any changes.
SURRENDER
You may surrender this contract on or before the Retirement Date. You may make a
full or partial surrender of this contract and receive all or a portion of its
Accumulated Value minus any applicable Surrender Charges, Transaction Fees or
Annual Fees.
To request a surrender, you must provide us Notice. For a partial surrender, you
must specify the dollar amount to surrender. The amount will be deducted from
your Fixed Account Value and/or your interest in a Separate Account Division
according to surrender allocation percentages you provide us. Percentages may be
either zero or any whole number and must total 100%.
You may specify surrender allocation percentages with each surrender request by
providing us Notice. Otherwise, we will use the default percentages you provide.
You may change default percentages at any time by providing us Notice.
UNSCHEDULED PARTIAL SURRENDERS--You may make unscheduled partial surrenders, as
follows:
1. Each unscheduled partial surrender must equal or exceed the Minimum
Transaction Amount shown on the current Data Page; and
2. The Accumulated Value after an unscheduled partial surrender must equal
or exceed the Minimum Surrender Value shown on the current Data Page.
We reserve the right to change this amount but it will never exceed
$10,000.
SCHEDULED PARTIAL SURRENDERS--You may make scheduled Partial surrenders, as
follows:
1. The surrenders will occur on a date you specify in your Notice (other
than the 29th, 30th or 31st of any month);
2. You must specify how often scheduled partial surrenders will occur
(annually, semi-annually, quarterly or monthly);
3. Your Accumulated Value must equal or exceed the Minimum Surrender Value
shown on the current Data Page; and
4. The surrenders will continue until the Accumulated Value is exhausted
or we receive Notice to stop them.
SURRENDER CHARGE--A Surrender Charge, as determined below, may be deducted if
you request a full or partial surrender on or prior to the Retirement Date. For
a full surrender, any Surrender Charge will be deducted from your Accumulated
Value.
For a partial surrender, any Surrender Charge will be deducted from your Fixed
Account Value and/or the value of your interest in a Separate Account Division
from which the amount is surrendered, on a pro rata basis.
The amount of the Surrender Charge is calculated as a percentage of the Purchase
Payments surrendered. The Table of Surrender Charges shown on the current Data
Page indicates the appropriate percentage, if any, to be applied to the sum of
the Purchase Payments made during each of the Contract Years noted in the Table.
This percentage is based on the number of completed Contract Years between the
Contract Year of the Purchase Payment and the Contract Year of surrender. The
Surrender Charge is equal to the total of the sums determined for each Contract
Year shown in the Table during which Purchase Payments were made, considering
the Free Surrender Privilege sub-provision.
For purposes of calculating any Surrender Charge, amounts are considered as
surrendered in the following order:
1. Purchase Payments made in Contract Years that are no longer subject to
a Surrender Charge;
2. Amounts described in the Free Surrender Privilege sub-provision,
first from this contract's earnings, then from the least recent
Purchase Payments (first-in, first-out); and
3. Purchase Payments made in Contract Years that are still subject to a
Surrender Charge, first-in, first-out.
We reserve the right to reduce Surrender Charges for any amounts surrendered
from this contract that are attributable to a conversion from existing products
issued by Principal Mutual Life Insurance Company and its subsidiaries and as
otherwise permitted by the Investment Company Act of 1940 (as amended).
FREE SURRENDER PRIVILEGE--No Surrender Charge applies to surrenders, each
Contract Year, totalling an amount equal to the greater of:
1. This contract's earnings (your Accumulated Value minus unsurrendered
Purchase Payments, as of the surrender date); or
2. 10% of the Purchase Payments made in Contract Years that are still
subject to a Surrender Charge, decreased by any partial surrenders made
since the last Anniversary.
DEATH BENEFIT
If you or the Annuitant dies prior to the Retirement Date, we will pay a death
benefit. No death benefit is payable under this provision after the Retirement
Date. No Surrender Charge applies when we pay a death benefit.
The amount of the death benefit equals the greater of:
1. Your Accumulated Value on the date we receive Notice (including proof)
of death:
2. The total Purchase Payments minus any partial surrenders as of the
date we receive Notice (including proof) 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 minus any
partial surrenders made after that Anniversary.
If benefit instructions are in effect, the death benefit will be paid according
to those instructions.
If the Annuitant dies before you, we will pay the death benefit to the
Annuitant's beneficiary. If no benefit instructions are in effect, the
Annuitant's beneficiary may choose to apply any unpaid death benefit under a
Benefit Option.
If you die before the Annuitant and your beneficiary is your spouse, we will
continue the contract with your surviving spouse as the new Owner or your
surviving spouse may choose to:
1. Apply the death benefit under a Benefit Option; or
2. Receive the death benefit as a single payment.
Any choice in 1 or 2 above must be made within 60 days after your death.
If your beneficiary is a natural person, but not your surviving spouse, the
death benefit may be paid as:
1. Fixed income under Benefit Option C for a period of years that does
not exceed the life expectancy of the beneficiary;
2. Life income under Benefit Option D with no minimum guaranteed period
or a minimum guaranteed period that does not exceed the life
expectancy of the beneficiary; or
3. An individual arrangement approved by us under Benefit Option A.
If your beneficiary is not a natural person, the death benefit must be paid out
within 5 years of your death.
We will pay interest on the death benefit from the date we receive Notice
(including proof) of death until date of payment or until the death benefit is
applied under a Benefit Option. We will pay interest at a rate equal to or
greater than 3%.
Life expectancy is based on the appropriate life expectancy tables published by
the United States Treasury Department, as amended.
BENEFIT INSTRUCTIONS--While the Annuitant is alive and before the Retirement
Date, you may file benefit instructions for the payment of the death benefit
under a Benefit Option. Such benefit instructions, or a change of benefit
instructions, must be in a written Notice. A change of beneficiary will revoke
any prior benefit instructions.
BENEFICIARY--The beneficiary is the person or persons you name in the
application to receive benefits payable upon the Annuitant's or your death. You
may change your beneficiary designation at any time. You may also change the
Annuitant's beneficiary while the Annuitant is alive. Your request must be in
writing. No change is effective without our prior approval. Once approved, the
change is effective as of the date you signed the request.
BENEFICIARY IF YOU ARE THE ANNUITANT--If you are the Annuitant or Joint
Annuitant, we will pay any death benefits to your beneficiary.
If any beneficiary dies before you, upon your death we will make an equal
distribution of that beneficiary's portion of the death benefit to your
surviving beneficiaries unless we have approved other written instructions from
you. If none of your beneficiaries survives you, we will pay the death benefit
to your estate in one sum.
BENEFICIARY IF YOU ARE NOT THE ANNUITANT--If you are not the Annuitant, two
beneficiary designations are possible: your's and the Annuitant's. Unless you
provide otherwise in a written beneficiary designation that we approve, your
beneficiary is the Annuitant. The Annuitant's beneficiary receives any benefits
payable upon the death of the Annuitant.
If any Annuitant's beneficiary dies before the Annuitant, upon the death of the
Annuitant, we will make an equal distribution of that beneficiary's portion of
the death benefit to any surviving beneficiaries of the Annuitant unless we have
approved other written instructions from you. If no beneficiary of the Annuitant
survives, we will pay the death benefit to you or your estate in one sum.
SIMULTANEOUS DEATH--If you and the Annuitant die and there is not sufficient
evidence that the deaths occurred other than at the same time, the death benefit
will be paid as if the Annuitant outlived you.
RETIREMENT INCOME
On the Retirement Date we will apply your Accumulated Value under a Benefit
Option and make retirement income payments to you if the Annuitant is living and
the contract is in force on that date. No Surrender Charge will be deducted from
your Accumulated Value when it is applied under a Benefit Option.
If you do not choose a different Benefit Option, we will apply your Accumulated
Value under Benefit Option D (Life Income with a 10 year guarantee), or Benefit
Option E (Joint and 100% Survivor Life Income with a 10 year guarantee) with
Joint Annuitants, to determine the retirement income benefit.
TERMINATION
CONTRACT TERMINATION
This contract will continue until one of the following events occurs:
1. Your Accumulated Value is applied under a Benefit Option;
2. You surrender your contract in full;
3. The Annuitant's death occurs; or
4. Your death occurs (unless your spouse elects to continue the contract
pursuant to the Death Benefit provision).
We reserve the right to terminate this contract by paying you the Accumulated
Value, in one sum, if you pay no Purchase Payments for two or more consecutive
Contract Years and both of the following are less than $2,000:
1. Your total Purchase Payments for this policy, less any partial
surrenders and Surrender Charges; and
2. Your Accumulated Value.
We will notify you and give you 60 days to increase the Accumulated Value to
$2,000 before we exercise this right.
BENEFIT OPTIONS
You may choose to use one of the following Benefit Options, or any other Benefit
Option we make available, on the Retirement Date. The tables shown illustrate
guaranteed minimum benefits. The benefits you receive may be greater.
Option A. SPECIAL BENEFIT ARRANGEMENT--You may arrange an individually designed
Benefit Option with our approval. Any arrangement that will not qualify this
contract as an annuity under the United States Internal Revenue Code, as
amended, will not be permitted.
Option C. FIXED INCOME--We will pay an income of a fixed amount or an income for
a fixed period of at least 5 years but not exceeding 30 years. Refer to Option C
tables to determine the minimum number of fixed amount payments or the minimum
amount of each fixed period payment. On request, we will furnish benefit
information not shown in the tables. If you die after annuity payments begin,
the remaining payments will be paid to the beneficiary named under your Benefit
Option.
Option D. LIFE INCOME--We will pay an income during a person's lifetime. A
minimum guaranteed period may be used, as shown in the Option D table. Payments
will be in an amount we determine, but not less than shown in the table. If you
die after annuity payments begin and before the end of the minimum guaranteed
period (if applicable), the remaining payments will be paid to the beneficiary
named under your Benefit Option.
Option E. JOINT AND SURVIVOR LIFE INCOME--We will pay an income during the
lifetime of two persons, and continuing until the death of the survivor. This
option includes a minimum guaranteed period of 10 years. Payments will be in an
amount we determine, but not less than shown in the Option E table. On request,
we will furnish minimum income information for age combinations not shown in the
table. If both persons die before the end of the minimum guaranteed period, the
remaining payments will be paid to the beneficiary named under your Benefit
Option.
Option F. JOINT AND TWO-THIRDS SURVIVOR LIFE INCOME--We will pay an income
during the lifetime of two persons, and two-thirds of the original amount during
the remaining lifetime of the survivor. Payments during the time both persons
are alive will be in an amount we determine (the "original amount"), but not
less than shown in the Option F table. On request, we will furnish minimum
income information for age combinations not shown in the table. If one of the
persons dies after annuity payments begin, we will continue to pay two-thirds of
the original amount to the survivor until that person's death.
<PAGE>
OPTION C TABLES
Minimum Monthly Joint and Survivor Life Income for Each $1,000 Applied. First
Payment on Effective Date of Supplementary Contract.
Amount No. of No. of No. of
Applied Income Pymts* Income Pymts* Income Pymts*
$10,000 $50 274 $100 114 $175 61
25,000 150 214 250 114 400 67
50,000 250 274 500 114 750 72
100,0 450 321 1,000 114 1,500 72
*Minimum number of months for which full monthly income will be paid. There may
be part of a payment made one month after the last one. This partial payment
will be the balance, if any, of the amount applied less the payments, all
accumulated at interest.
Minimum Monthly Income To Be Paid for Number Of Years. First Payment on
Effective Date of Supplementary Contract.
Amount Number of Years
Applied
5 10 15 20 25 30
10,000 179.10 96.10 68.70 55.10 47.10 41.80
25,000 447.75 240.25 171.75 137.75 117.75 104.50
50,000 895.50 480.50 343.50 275.50 235.50 209.00
100,000 1,791.00 961.00 687.00 551.00 471.00 418.00
0
BENEFIT OPTIONS
You may choose to use one of the following Benefit Options, or any other Benefit
Option we make available, on the Retirement Date. The tables shown illustrate
guaranteed minimum benefits. The benefits you receive may be greater.
Option A. SPECIAL BENEFIT ARRANGEMENT -- You may arrange an individually
designed Benefit Option with our approval. Any arrangement that will not
qualify this contract as an annuity under the United States Revenue Code, as
amended, will not be permitted.
Option C. FIXED INCOME -- We will pay an income of a fixed amount or an income
for a fixed period of at least 5 years but not exceeding 30 years. Refer to
option C tables to determine the minimum number of fixed amount payments or the
minimum amount of each fixed period payment. On request, we will furnish
benefit information not shown in the tables. If you die after annuity payments
begin, the remaining payments will be paid to the beneficiary names under your
Benefit Option.
Option D. LIFE INCOME -- We will pay an income during a person's lifetime. A
minimum guaranteed period may be used, as shown in the Option D table. Payments
will be in an amount we determine, but not less than shown in the table. If you
die after annuity payments begin and before the end of the minimum guaranteed
period (if applicable), the remaining payments will be paid to the beneficiary
named under your Benefit Option.
Option E. JOINT AND SURVIVOR LIFE INCOME -- We will pay an income during the
lifetime of two person, and continuing until the death of the survivor. This
option includes a minimum guaranteed period of 10 years. Payments will be in an
amount we determine, but not less than shown in the Option E table. On request,
we will furnish minimum income information for age combinations not shown in the
table. If both persons die before the end of the minimum guaranteed period, the
remaining payments will be paid to the beneficiary named under your Benefit
Option.
Option F. JOINT AND TWO-THIRDS SURVIVOR LIFE INCOME -- We will pay an income
during the lifetime of two persons, and two-thirds of the original amount during
the remaining lifetime of the survivor. Payments during the time both persons
are alive will be in an amount we determine (the "original amount"), but not
less than shown in the Option F table. On request, we will furnish minimum
income information for age combinations not shown in the table. If one of the
persons dies after annuity payments begin, we will continue to pay two-thirds of
the original amount to the survivor until that person's death.
OPTION D TABLES
Minimum Monthly Life Income for Each $1,000 Applied. First Payment on Effective
Date of Supplementary Contract.
Age Minimum Guaranteed Period
Last Birthday
Male Payee
Inst.*
None 5 Yrs. 10 Yrs. 15 Yrs. 20 Yrs. Rfd.
55 4.45 4.44 4.40 4.33 4.23 4.24
56 4.54 4.53 4.48 4.41 4.29 4.31
57 4.64 4.62 4.57 4.48 4.35 4.38
58 4.74 4.72 4.66 4.56 4.42 4.46
59 4.84 4.82 4.76 4.65 4.48 4.54
60 4.96 4.94 4.87 4.74 4.55 4.63
61 5.08 5.06 4.97 4.83 4.61 4.72
62 5.21 5.18 5.09 4.92 4.68 4.82
63 5.35 5.32 5.21 5.01 4.75 4.92
64 5.50 5.46 5.33 5.11 4.81 5.02
65 5.66 5.62 5.47 5.21 4.87 5.13
66 5.83 5.78 5.60 5.31 4.94 5.25
67 6.01 5.95 5.75 5.41 4.99 5.37
68 6.21 6.13 5.89 5.52 5.05 5.50
69 6.42 6.33 6.05 5.62 5.11 5.64
70 6.64 6.53 6.21 5.72 5.16 5.78
71 6.87 6.74 6.37 5.82 5.20 5.93
72 7.12 6.97 6.54 5.91 5.25 6.09
73 7.39 7.21 6.71 6.01 5.29 6.25
74 7.67 7.46 6.88 6.10 5.32 6.42
75 7.98 7.73 7.05 6.18 5.35 6.60
*Income payments continue until the total received equals the amount applied
under the option.
<PAGE>
OPTION D TABLES
Minimum Monthly Life Income for Each $1,000 Applied. First Payment on Effective
Date of Supplementary Contract.
Age Minimum Guaranteed Period
Last Birthday
Female Payee
Inst.*
None 5 Yrs. 10 Yrs. 15 Yrs. 20 Yrs. Rfd.
55 4.05 4.05 4.03 4.00 3.95 3.94
56 4.12 4.12 4.10 4.06 4.01 4.00
57 4.20 4.19 4.17 4.13 4.07 4.06
58 4.28 4.27 4.25 4.20 4.13 4.13
59 4.36 4.35 4.33 4.28 4.20 4.20
60 4.45 4.44 4.41 4.35 4.26 4.27
61 4.55 4.54 4.50 4.43 4.33 4.35
62 4.65 4.64 4.60 4.52 4.40 4.43
63 4.76 4.74 4.70 4.61 4.47 4.52
64 4.87 4.86 4.80 4.70 4.54 4.61
65 5.00 4.98 4.91 4.80 4.61 4.70
66 5.13 5.11 5.03 4.89 4.69 4.81
67 5.27 5.24 5.16 5.00 4.76 4.91
68 5.42 5.39 5.29 5.10 4.83 5.02
69 5.58 5.55 5.43 5.21 4.90 5.14
70 5.76 5.71 5.57 5.32 4.97 5.27
71 5.94 5.89 5.73 5.43 5.03 5.40
72 6.15 6.09 5.89 5.55 5.09 5.54
73 6.37 6.30 6.06 5.66 5.15 5.69
74 6.60 6.52 6.24 5.77 5.20 5.85
75 6.86 6.75 6.42 5.88 5.25 6.02
*Income payments continue until the total received equals the amount applied
under the option.
<PAGE>
OPTION E TABLE
Minimum Monthly Joint and Survivor Life Income for Each $1,000 Applied. First
Payment on Effective Date of Supplementary Contract.
Age Last Birthday Age Last Birthday of Female Payee
of Male Payee
55 60 62 65 70
60 3.82 4.04 4.12 4.25 4.45
62 3.85 4.09 4.19 4.33 4.57
65 3.90 4.16 4.28 4.45 4.74
70 3.95 4.26 4.40 4.62 5.01
75 3.99 4.33 4.48 4.75 5.24
OPTION F TABLE
Minimum Monthly Joint and Two-Thirds Survivor Life Income for Each $1,000
Applied. First Payment on Effective Date of Supplementary Contract.
Age Last Birthday Age Last Birthday of Female Payee
of Male Payee
55 60 62 65 70
60 4.22 4.45 4.55 4.71 5.00
62 4.30 4.54 4.65 4.82 5.14
65 4.41 4.68 4.80 4.99 5.35
70 4.61 4.92 5.06 5.29 5.74
75 4.82 5.17 5.33 5.60 6.14
INTEREST
Interest on amounts applied under a Benefit Option is at a rate we set, but
never less than 3% a year. All values in the tables shown are based on the 1983
Table A with 3% interest compounded annually. The benefit you receive may be
greater.
CONDITIONS
When a Benefit Option is chosen, the following conditions will apply:
1. This contract must be exchanged for a supplementary contract providing
the Benefit Option you choose:
2. No changes may be made as to the Benefit Option once the supplementary
contract is issued;
3. Until proceeds are applied under a Benefit Option, any death benefit
will be held in a new account at an interest rate determined by us
which will not be less than 3% per year;
4. We reserve the right to pay the Accumulated Value in a single sum if
it does not exceed $5,000, or if the amount to be applied under a
Benefit Option would result in periodic payments that do not exceed
other minimum requirements that are in effect at that time for
Annuitants in the same class;
5. Benefit Options are restricted if the recipient of benefits is not a
natural person;
6. One of the natural persons on whose life payment under Options D, E,
and F and based must be the Annuitant or a beneficiary. The size of
payments depends on the age and sex of the person or persons on whose
life payments are based, determined as of the date this contract is
exchanged for a supplementary contract. We reserve the right to
require evidence of age, sex, and continuing survival; and
7. At the time payments begin, any benefits will be at least that which
would be provided by any single premium immediate annuity contract
then being offered by us for the same class of Annuitants.
GENERAL INFORMATION
THE CONTRACT
This contract, any attached application, or amendments to it, any attached
riders or endorsements, and the current Data Pages make up the entire contract.
Any statements made in an application will be considered representations and not
warranties.
ALTERATIONS
This contract may be altered by mutual agreement unless otherwise provided. Only
our corporate officers may agree to modify or waive anything provided. Only our
corporate officers may agree to modify or waive anything in or approve
amendments to your contract. Any alterations must be in writing and signed by
one of our corporate officers. No one else, including the agent, may change this
contract or waive any provisions.
INCONTESTABILITY
This contract will be incontestable after is has been in force for 2 years from
the Contract Date. The time limit in this Incontestability provision does not
apply to fraud.
AGE AND SEX
If the Annuitant's age or sex is not correctly shown on the current Data Page,
we will adjust the monthly income payable under your contract. The age shown
should be the Annuitant's age on the Contract Date. Any adjustment will be based
on the amount of monthly income that would have been purchased at the correct
age and sex.
PARTICIPATING
Your contract is eligible to share in our divisible surplus. We will determine
its share and credit it as a dividend at the end of each Contract Year. We do
not expect any dividends will be paid under this contract. Dividends, if any,
will be paid in cash.
OWNERSHIP
The Owner or Joint Owners are named on the current Date Page. Ownership may be
changed as provided below. As Owner or Joint Owners, you may exercise every
right and privilege provided by this contract. These rights include the right to
receive income payments or to name a payee to receive these payments. The
exercise of your rights is subject to the rights of any irrevocable beneficiary.
Your rights and privileges end at the Annuitant's death. If Joint Owners are
named, both must consent to any exercise of these rights.
CHANGE OF OWNER
You may change your ownership designation at any time. Your request must be in
writing. No change is effective without our prior approval. Once approved, the
change is effective as of the date you signed the request. We reserve the right
to require that you send us this contract so we can record the change.
You may change the Retirement Date any time before a supplementary contract
which provides a Benefit Option is issued. The new date must be any Anniversary
on or before the Maximum Retirement Date shown on the current Data Page.
Your request must be in writing and have our prior approval. We reserve the
right to require that you send us this contract so we can record the change.
ASSIGNMENT
You may assign your contract as collateral for a loan. The assignment must be in
writing and filed in our home office. We assume no responsibility for any
assignment's validity. An assignment as collateral does not change the Owner,
but the rights of beneficiaries, whenever named, become subordinate to those of
the assignee. Any amount paid an assignee will be treated as a partial surrender
and will be paid in one sum.
STATEMENTS OF VALUE
We will mail you statements of your current Accumulated Value at least once each
year until your contract is applied under a Benefit Option or surrendered in
full. This will include current statements of the number of Units credited to a
Separate Account Division and the dollar value of a Unit. We will mail the
statements to your last post office address known to us.
ENDORSEMENTS
FLEXIBLE VARIABLE ANNUITY CONTRACT. Income payable starting on Retirement
Date, or death benefit if Annuitant or Owner dies before Retirement Date.
Benefits based on the performance of the Separate Account are variable and not
guaranteed as to dollar amount. PARTICIPATING.
This contract is a legal contract between you, as Owner, and us, Principal
Mutual Life Insurance Company. Your contract is issued based on the information
you provided and the initial Purchase Payment shown on the initial Data Page.
We will pay you the benefits of this contract in accordance with its provisions.
10-DAY EXAMINATION OFFER. IT IS IMPORTANT TO US THAT YOU ARE SATISFIED WITH THIS
CONTRACT. IF YOU ARE NOT SATISFIED, YOU MAY RETURN YOUR CONTRACT TO EITHER
YOUR AGENT OR OUR HOME OFFICE WITHIN 10 DAYS OF ITS RECEIPT AND YOUR
CONTRACT WILL BE CONSIDERED VOID FROM ITS INCEPTION. WE WILL REFUND
YOUR PURCHASE PAYMENT IN STATES WHERE REQUIRED. IN STATES
WHERE PERMITTED, WE WILL REFUND THE TOTAL ACCUMULATED
VALUE, WHICH MAY BE MORE OR LESS THAN YOUR
PURCHASE PAYMENT. PLEASE READ YOUR
CONTRACT CAREFULLY SO YOU MAY
BETTER USE ITS MANY BENEFITS.
FLEXIBLE VARIABLE ANNUITY CONTRACT. Income payable starting on Retirement Date,
or death benefit if Annuitant or Owner dies before Retirement Date. Benefits
based on the performance of the Separate Account are variable and not
guaranteed as to dollar amount. PARTICIPATING.
A mutual company serving contractowners and beneficiaries since 1879.
Signed for Principal Mutual Life Insurance Company at Des Moines, Iowa on the
Contract Date.
OWNER John Doe
JOINT OWNER Jane Doe
ANNUITANT John Doe ISSUE AGE-SEX 35
JOINT ANNUITANT Jane Doe ISSUE AGE-SEX 35
CONTRACT NUMBER Sample CONTRACT Flexible Variable Annuity
CONTRACT DATE January 1, 2000 RETIREMENT DATE January 1, 2035
<PAGE>
SF 325
INDEX
Accumulated Value............... 6 Incontestability..................20
Age (Annuitant).................20 Ownership.........................20
Annual Fee......................11 Participating.....................20
Annuitant....................... 4 Purchase Payments................. 5
Assignment......................21 Retirement Date (Change)..........15
Beneficiary.....................14 Retirement Income.................15
Benefit Options.................15 Separate Account.................. 8
Contract........................20 Separate Account Value............ 7
Contract Benefits ..............11 Surrender ........................12
Death Benefit ..................13 Surrender Charge .................12
Definitions .................... 4 Termination ......................15
Fixed Account .................. 8 Transaction Fee ..................11
Fixed Account Value ............ 6 Transfers ........................ 9
A copy of any application and addition
benefits provided by rider follow the
last page of this contract.
- -------------------------------------------------------------------------------
<PAGE>
DATA PAGE
OWNER John Doe
JOINT OWNER Jane Doe
ANNUITANT John Doe ISSUE AGE-SEX 35
JOINT ANNUITANT Jane Doe ISSUE AGE-SEX 35
CONTRACT NUMBER Sample CONTRACT Flexible Variable Annuity
CONTRACT DATE January 1, 2000 RETIREMENT DATE January 1, 2035
FORM
NO. CONTRACT AND RIDERS
SF325 Flexible Variable Annuity
SF321 Change of Annuitant Rider
SF313 Waiver of Surrender Charge Rider
SF326 TDA Rider
The initial Purchase Payment you paid is $2,500.00
The Fixed Account's initial Purchase Payment interest rate is 4.79%
Annual Fee: Lesser of $30 or 2.00% of Accumulated Value
Transaction Fee: $30.00
Daily Separate Account Administration Charge: $.000000000 (0.00% annually)
Daily Mortality and Expense Risks Charge: $.000034246 (1.25% annually)
CONTRACT LIMITS
Minimum Transaction Amount: $100.00
Minimum Surrender Value: $5,000.00
Minimum Transfer Value: $5,000.00
Maximum Retirement Date: January 01, 2050
<PAGE>
DATA PAGE
OWNER John Doe
JOINT OWNER Jane Doe
ANNUITANT John Doe ISSUE AGE-SEX 35
JOINT ANNUITANT Jane Doe ISSUE AGE-SEX 35
CONTRACT NUMBER Sample CONTRACT Flexible Variable Annuity
CONTRACT DATE January 1, 2000 RETIREMENT DATE January 1, 2035
INITIAL
PURCHASE PAYMENT
ALLOCATION PERCENTAGES
FIXED ACCOUNT 10%
SEPARATE ACCOUNT DIVISIONS: 10%
Money Market
Invested in Principal Money Market
Fund, Inc.
Government Securities 10%
Invested in Principal Government Securities
Fund, Inc.
Bond 30%
Invested in Principal Bond Fund, Inc.
Balanced 0%
Invested in Principal Balanced Fund, Inc.
Capital Accumulation 10%
Invested in Principal Capital Accumulation
Fund, Inc.
Growth 10%
Invested in Principal Growth Fund, Inc.
World 10%
Invested in Principal World Fund, Inc.
Emerging Growth 10%
Invested in Principal Emerging Growth
Fund, Inc.
Aggressive Growth 0%
Invested in Principal Aggressive Growth
Fund, Inc.
<PAGE>
DATA PAGE
Asset Allocation 0%
Invested in Principal Asset Allocation
Fund, Inc.
TOTAL 100%
<PAGE>
DATA PAGE
OWNER John Doe
JOINT OWNER Jane Doe
ANNUITANT John Doe ISSUE AGE-SEX 35
JOINT ANNUITANT Jane Doe ISSUE AGE-SEX 35
CONTRACT NUMBER Sample CONTRACT Flexible Variable Annuity
CONTRACT DATE January 1, 2000 RETIREMENT DATE January 1, 2035
TABLE OF SURRENDER CHARGES
NUMBER OF COMPLETED CONTRACT YEARS SURRENDER CHARGE APPLIED TO
SINCE PURCHASE PAYMENT WAS MADE ALL PURCHASE PAYMENTS MADE
IN THAT CONTRACT YEAR
0 (Year of Purchase Payment) 6%
1 6%
2 6%
3 5%
4 4%
5 3%
6 2%
7 and later 0%
<PAGE>
DEFINITIONS
ACCUMULATED VALUE--means the value described in the Accumulated Value provision
of this contract.
ANNIVERSARY--means the same date and month of each year following the Contract
Date shown on the current Data Page.
ANNUAL FEE--means the fee described in the Annual Fee provision of this
contract.
ANNUITANT--means the person, including any Joint Annuitant, on whose life the
benefit payments are based. This person may or may not be the Owner.
BENEFIT OPTION--means the options described in the Benefit Options section of
this contract.
CONTRACT DATE--means the date shown on the current Data Page.
CONTRACT YEAR--means 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.
DIVISION--means a part of the Separate Account to which Purchase Payments may be
allocated or amounts transferred.
FIXED ACCOUNT--means an account to which Purchase Payments may be allocated or
amounts transferred, which earns guaranteed interest.
FIXED ACCOUNT VALUE--means the amount described in the Fixed Account Value
provision of this contract.
JOINT ANNUITANT--means an additional Annuitant. The Joint Annuitants must be
husband and wife, and must be named as Owner and Joint Owner. In this contract,
any reference to the Annuitant's death means the death of the last surviving
Annuitant.
JOINT OWNER--means 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. In this
contract, any reference to the Owner's death means the death of the last
surviving Owner.
MUTUAL FUND--means a registered open-end investment company in which a Division
invests.
NET INVESTMENT FACTOR--means the investment performance measure described in the
Net Investment Factor provision of this contract.
NOTICE--means any form of communication providing the information we need,
either in writing or another manner that we approve in advance and receive in
our home office.
OWNER--means 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 PAYMENT--means any amount you pay us under this contract as
consideration for the benefits it provides, reduced by the amount we may deduct
to pay any required premium taxes.
RETIREMENT DATE--means the date your Accumulated Value is applied under a
Benefit Option to make retirement income payments.
SEPARATE ACCOUNT--means Principal Mutual Life Insurance Company Separate Account
B, a registered unit investment trust with Divisions and segregated assets, to
which Purchase Payments may be allocated under this contract and others we
issue.
SEPARATE ACCOUNT VALUE--means the amount described in the Separate Account Value
provision of this contract.
SURRENDER CHARGE--means the charge described in the Surrender Charge sub-
provision of this contract.
TRANSACTION FEE--means the fee described in the Transaction Fee provision of
this contract.
UNIT--means the accounting measure used to calculate the Separate Account Value.
VALUATION DATE--means the date the net asset value of a Mutual Fund is
determined.
VALUATION PERIOD--means the period 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.
WE, OUR, US--means Principal Mutual Life Insurance Company.
YOU, YOUR--means the Owner of this contract, including any Joint Owner.
PURCHASE PAYMENTS
The initial Purchase Payment is due on the Contract Date and is shown on the
initial Data Page. Subsequent Purchase Payments must be sent to the home office
address we provide to you either with your annual report or in another manner.
You may make Purchase Payments at any time and in any amount while the contract
is in force and before you choose a Benefit Option, subject to the following
conditions.
PURCHASE PAYMENT LIMITS
The total Purchase Payments you make during the lifetime of this contract may
not exceed $1,000,000, except with our prior approval.
Each Purchase Payment must equal or exceed the Minimum Transaction Amount shown
on the current Data Page. We reserve the right to change this amount but it will
never exceed $1,000.
You may allocate Purchase Payments as additions to the Fixed Account and/or any
of theOSeparate Account Divisions shown on the current Data Page. However,
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. Also, we reserve the right to allocate the initial Purchase Payment
entirely to the Money Market Division for the first 15 days after the Contract
Date.
Allocations to the Fixed Account and/or each of the Separate Account Divisions
must be made as a percentage of each Purchase Payment. Percentages may be either
zero or any whole number and must total 100%. You may specify these allocations
with each Purchase Payment by providing us Notice. Otherwise, we will allocate
each Purchase Payment in the same way you allocated the initial Purchase Payment
(as shown on the initial Data Page) unless you change this default allocation.
You may change this default allocation at any time by providing us Notice.
PREMIUM TAXES
We reserve the right to deduct amounts to cover any premium taxes required by
TAXES state or local law, when applicable. Any such deduction will be made from
either a Purchase Payment when received, or the Accumulated Value when
surrendered (in whole or part) or applied under a Benefit Option.
CONTRACT VALUES
The values and benefits are equal to or greater than those required by any
applicable law. We will inform you of their amount on request.
ACCUMULATED VALUE
Your contract values are calculated based on your Accumulated Value as stated
below.
Your Accumulated Value at any time is equal to:
1. Your Fixed Account Value;
PLUS
2. Your Separate Account Value.
FIXED ACCOUNT VALUE
Your Fixed Account Value at any time is equal to:
1. Purchase Payments you allocate to the Fixed Account;
PLUS
2. Any transfers to the Fixed Account from your interest in a Separate
Account Division;
PLUS
3. Interest credited;
MINUS
4. Any transfers to your
interest in a Separate
Account Division;
MINUS
5. Any amounts from the Fixed Account that you received due to partial
surrenders;
MINUS
6. Any Surrender Charges deducted from the Fixed Account due to partial
surrenders;
MINUS
7. Any Transaction Fees and/or Annual Fees deducted from the Fixed
Account.
SEPARATE ACCOUNT,VALUE
Your Separate Account Value at any time is equal to the sum of the values of
your interests in all of the Separate Account Divisions. The value of your
interest in each Separate Account Division at any time is equal to:
1. The number of Units credited due to Purchase Payments you allocate to
your interest in the Separate Account Division;
PLUS
2. The number of Units credited due to any transfers from the Fixed
Account or your interest in another Separate Account Division;
MINUS
3. The number of Units cancelled due to any transfers to the Fixed
Account or your interest in another Separate Account Division;
MINUS
4. The number of Units cancelled due to any partial surrenders you made
from your interest in the Separate Account Division;
MINUS
5. The number of Units cancelled due to any Surrender Charges collected
from your interest in the Separate Account Division due to partial
surrenders;
MINUS
6. The number of Units cancelled due to any Transaction Fees and/or
Annual Fees deducted from your interest in the Separate Account
Division.
This total number of Units is then:
MULTIPLIED BY
7. The Unit value of the Separate Account Division at the time of
valuation.
<PAGE>
FIXED ACCOUNT
GUARANTEED INTEREST RATES
Your Fixed Account Value will earn interest at a guaranteed interest rate. In no
event will the guaranteed interest rate be less than 3% compounded annually.
INTEREST CREDITING METHOD
Each Purchase Payment allocated or amount transferred to the Fixed Account earns
interest at the guaranteed rate in effect on the date it is received or
transferred. This rate applies to each Purchase Payment or amount transferred
until the end of the Contract Year. The interest rate applicable during the
first Contract Year to any initial Purchase Payment allocated to the Fixed
Account is shown on the initial Data Page.
Each Anniversary we will declare a renewal interest rate that is guaranteed and
applies to the Fixed Account Value in existence at that time. This rate applies
until the end of the Contract Year.
Interest is earned daily and will be compounded annually at the end of each
Contract Year.
SEPARATE ACCOUNT
SEPARATE ACCOUNT ASSETS
Our Separate Account is registered with the Securities and Exchange Commission
as a unit investment trust under the Investment Company Act of 1940 (as
amended). Assets we put into our Separate Account to support this contract are
not part of our general account. Income, gains and losses of our Separate
Account, whether or not realized, are credited to or charged against our
Separate Account assets, without regard to our other income, gains or losses.
The assets of the Separate Account will be available to cover the liabilities of
our general account only to the extent that the assets of the Separate Account
exceed the liabilities of the Separate Account arising under the contracts
supported by the Separate Account.
SEPARATE ACCOUNT DIVISIONS
Our Separate Account is comprised of the Divisions shown on the current Data
Page. Each Division invests in a Mutual Fund with a different investment
objective. Income, gains and losses, whether or not realized, from each
Division's assets are credited to or charged against that Division without
regard to income, gains or losses of other Divisions or our other income, gains
or losses.
We reserve the right to add other Divisions, eliminate or combine existing
Divisions, or transfer assets in one Division to another. If shares of a Mutual
Fund are no longer available for investment, or in our judgment investment in a
Mutual Fund becomes inappropriate considering the purposes of the Separate
Account, we may eliminate the shares of a Mutual Fund and substitute shares of
another. Substitution may be made with respect to both existing investments and
the investment of future Purchase Payments. However, no such changes will be
made without notifying you and getting any required approval from the
appropriate state and/or federal regulatory authorities.
UNITS AND UNIT VALUE
Purchase Payments allocated or amounts transferred to a Separate Account
Division are credited as Units by dividing the amount by the Division's Unit
value for the Valuation Period during which the amount is allocated or
transferred. Units are cancelled when amounts are surrendered or transferred
from a Division.
The Unit value for each Division was arbitrarily set at $10 as of the date the
Division first purchased Mutual Fund shares. Thereafter, the Unit value on any
Valuation Date is calculated by multiplying the Unit value on the previous
Valuation Date by that Division's Net Investment Factor for the current
Valuation Period. The number of
Units will not change due to a subsequent change in Unit value. The Unit value
for any Valuation Period is the Unit value determined as of the end of the
Valuation Period.
NET INVESTMENT FACTOR
The Net Investment Factor measures Investment performance of each Division
and is used to determine changes in Unit value from one Valuation Period to the
next. The Net Investment Factor for a Valuation Period is equal to:
1. The quotient obtained by dividing:
a. The net asset value of a share of the Division's underlying Mutual
Fund shown on the current Data Page as of the end of such
Valuation Period, plus the per share amount of any dividend or
other distribution made by such Mutual Fund during such Valuation
Period, by
b. The net asset value of a share of such Mutual Fund as of the end
of the immediately preceding Valuation Period;
MINUS
2. An administration fee equal to the number of days within such Valuation
Period times the Daily Separate Account Administration Charge shown on
the current Data Page. We reserve the right to change the Daily
Separate Account Administration Charge but it will never exceed 0.15%
annually;
MINUS
3. A mortality and expense risks charge equal to the number of days within
such Valuation Period times the Daily Mortality and Expense Risks
Charge shown on the current Data Page. We reserve the right to change
the Daily Mortality and Expense Risks Charge but it will never exceed
1.25% annually.
We reserve the right to adjust the above formula to provide for any taxes
attributable to the operations of this contract or the Separate Account. The
Daily Separate Account Administration Charge and Daily Mortality and Expense
Risks Charge will be accrued daily and will be deducted from the Separate
Account at our discretion.
TRANSFERS AND FEES
TRANSFERS ALLOWED
You may transfer amounts between the Fixed Account and the Separate Account
Divisions prior to the Retirement Date and as provided below. To request a
transfer, you must provide us Notice. We reserve the right to not accept
transfer instructions from someone providing them for multiple contracts.
TRANSFERS FROM FIXED ACCOUNT
You may transfer amounts from the Fixed Account to a Separate Account Division
by making either a scheduled or unscheduled Fixed Account transfer, subject to
the following conditions.
You must provide us Notice within 30 days following either the Contract Date or
any Anniversary.
Either unscheduled Fixed Account transfers or scheduled Fixed Account transfers
(not both) may occur during the same Contract Year.
UNSCHEDULED FIXED ACCOUNT TRANSFERS--You may make one unscheduled transfer from
the Fixed Account each Contract Year, as follows:
1. The transfer will occur within 1 business day of the date we receive
your Notice; and
2. You must specify the dollar amount or percentage to be transferred,
and the resulting amount must not exceed 25% of your Fixed Account
Value as of the later of the Contract Date or the last Anniversary.
However, you may transfer up to 100% of your Fixed Account Value
within 30 days after the first and following Anniversaries if:
a. Your Fixed Account Value is less than $1,000; or
b. The renewal interest rate declared for your Fixed Account Value
for the current Contract Year is more than 1 percentage point
lower than an average of your total Fixed Account earnings for the
preceding Contract Year (in that event, we will notify you).
SCHEDULED FIXED ACCOUNT TRANSFERS--You may make scheduled transfers on a monthly
basis from the Fixed Account, as follows:
1. The transfer will occur on a date you specify in your Notice (other
than the 29th, 30th or 31st of any month);
2. Your Fixed Account Value must equal or exceed the Minimum Transfer
Value shown on the current Data Page. We reserve the right to change
this amount but it will never exceed $10,000;
3. The monthly amount transferred must equal 2% of your Fixed Account
Value as of the later of the Contract Date or the last Anniversary;
4. The transfers will continue until your Fixed Account Value is
exhausted or we receive Notice to stop them; and
5. If you stop the transfers, you may not start them again without our
prior approval.
TRANSFERS FROM SEPARATE ACCOUNT DIVISIONS
You may transfer amounts from a Separate Account Division to either the Fixed
Account or another Separate Account Division by making either a scheduled or
unscheduled Separate Account Division transfer, subject to the following
conditions.
Transfers to the Fixed Account are allowed only if:
1. You have not transferred any amount from the Fixed Account for at
least 6 months; and
2. Your Fixed Account Value immediately after the transfer does not
exceed $1,000,000, except with our prior approval.
UNSCHEDULED SEPARATE ACCOUNT DIVISION TRANSFERS--You may make unscheduled
transfers from a Separate Account Division, as follows:
1. The transfer will occur within 1 business day of the date we receive
your Notice; and
2. You must specify the dollar amount or percentage to transfer from each
Separate Account Division, and the resulting amount must equal or
exceed the lesser of the value of your interest in the Separate
Account Division or the Minimum Transaction Amount shown on the
current Data Page.
SCHEDULED SEPARATE ACCOUNT DIVISION TRANSFERS--You may make scheduled transfers
from a Separate Account Division, as follows:
1. The transfers will occur on a date you specify in your Notice (other
than the 29th, 30th or 31st of any month);
2. You must specify how often the transfers will occur (annually,
semi-annually, quarterly or monthly);
3. You must specify the dollar amount to transfer from each Separate
Account Division, and that amount must equal or exceed the lesser of
the value of your interest in the Separate Account Division or the
Minimum Transaction Amount shown on the current Data Page;
4. The value of each Separate Account Division from which transfers are
made must equal or exceed the Minimum Transfer Value shown on the
current Data Page;
5. The transfers will continue until your interest in the Division is
exhausted or we receive Notice to stop them; and
6. We reserve the right to limit the number of Separate Account Divisions
from which transfers will be made at the same time. In no event will
it ever be less than 2.
ANNUAL FEE
The Annual Fee is shown on the current Data Page. The Annual Fee will be
reduced, as necessary, so that it never decreases the guaranteed minimum 3%
annual interest earnings of any amount in the Fixed Account.
The Annual Fee will be deducted on the last day of each Contract Year prior to
the Retirement Date. If you surrender this contract in full, the Annual Fee will
be deducted at that time. The Annual Fee will be deducted from either your Fixed
Account Value or your interest in a Separate Account Division, whichever of them
has the largest value on the date it is to be deducted.
TRANSACTION FEE
The Transaction Fee is shown on the current Data Page. It will be deducted for
each unscheduled partial surrender after the first unscheduled partial surrender
in each Contract Year. Also, we reserve the right to charge the Transaction Fee
for each unscheduled Separate Account Division transfer after the twelfth such
transfer in each Contract Year.
The Transaction Fee will be deducted from your Fixed Account Value and/or the
value of your interest in a Separate Account Division from which the amount is
surrendered or transferred, on a pro rata basis.
CONTRACT BENEFITS
You may surrender this contract, receive retirement income payments or a death
benefit will be paid, as provided below.
We will pay any Separate Account Division surrenders within 7 days after we
receive Notice. We will pay any death benefit within 7 days after we receive
Notice (including proof) of the Owner's or Annuitant's death. However, we
reserve the right to defer surrender or death benefit payments as permitted by
the Investment Act of 1940 or other laws in effect at the time payments are to
be made. We reserve the right to delay payment of the Fixed Account Value for up
to six months after you provide us Notice of a surrender. Also, we reserve the
right to require that you send us this contract so we can record any changes.
SURRENDER
You may surrender this contract on or before the Retirement Date. You may make a
full or partial surrender of this contract and receive all or a portion of its
Accumulated Value minus any applicable Surrender Charges, Transaction Fees or
Annual Fees.
To request a surrender, you must provide us Notice. For a partial surrender, you
must specify the dollar amount to surrender. The amount will be deducted from
your Fixed Account Value and/or your interest in a Separate Account Division
according to surrender allocation percentages you provide us. Percentages may be
either zero or any whole number and must total 100%.
You may specify surrender allocation percentages with each surrender request by
providing us Notice. Otherwise, we will use the default percentages you provide.
You may change default percentages at any time by providing us Notice.
UNSCHEDULED PARTIAL SURRENDERS--You may make unscheduled partial surrenders, as
follows:
1. Each unscheduled partial surrender must equal or exceed the Minimum
Transaction Amount shown on the current Data Page; and
2. The Accumulated Value after an unscheduled partial surrender must
equal or exceed the Minimum Surrender Value shown on the current Data
Page. We reserve the right to change this amount but it will never
exceed $10,000.
SCHEDULED PARTIAL SURRENDERS--You may make scheduled Partial surrenders, as
follows:
1. The surrenders will occur on a date you specify in your Notice (other
than the 29th, 30th or 31st of any month);
2. You must specify how often scheduled partial surrenders will occur
(annually, semi-annually, quarterly or monthly);
3. Your Accumulated Value must equal or exceed the Minimum Surrender
Value shown on the current Data Page; and
4. The surrenders will continue until the Accumulated Value is exhausted
or we receive Notice to stop them.
SURRENDER CHARGE--A Surrender Charge, as determined below, may be deducted if
you request a full or partial surrender on or prior to the Retirement Date. For
a full surrender, any Surrender Charge will be deducted from your Accumulated
Value.
For a partial surrender, any Surrender Charge will be deducted from your Fixed
Account Value and/or the value of your interest in a Separate Account Division
from which the amount is surrendered, on a pro rata basis.
The amount of the Surrender Charge is calculated as a percentage of the Purchase
Payments surrendered. The Table of Surrender Charges shown on the current Data
Page indicates the appropriate percentage, if any, to be applied to the sum of
the Purchase Payments made during each of the Contract Years noted in the Table.
This percentage is based on the number of completed Contract Years between the
Contract Year of the Purchase Payment and the Contract Year of surrender. The
Surrender Charge is equal to the total of the sums determined for each Contract
Year shown in the Table during which Purchase Payments were made, considering
the Free Surrender Privilege sub-provision.
For purposes of calculating any Surrender Charge, amounts are considered as
surrendered in the following order:
1. Purchase Payments made in Contract Years that are no longer subject to
a Surrender Charge;
2. Amounts described in the Free Surrender Privilege sub-provision, first
from this contract's earnings, then from the least recent Purchase
Payments (first-in, first-out); and
3. Purchase Payments made in Contract Years that are still subject to a
Surrender Charge, first-in, first-out.
We reserve the right to reduce Surrender Charges for any amounts surrendered
from this contract that are attributable to a conversion from existing products
issued by Principal Mutual Life Insurance Company and its subsidiaries and as
otherwise permitted by the Investment Company Act of 1940 (as amended).
FREE SURRENDER PRIVILEGE--No Surrender Charge applies to surrenders, each
Contract Year, totalling an amount equal to the greater of:
1. This contract's earnings (your Accumulated Value minus unsurrendered
Purchase Payments, as of the surrender date); or
2. 10% of the Purchase Payments made in Contract Years that are still
subject to a Surrender Charge, decreased by any partial surrenders
made since the last Anniversary.
DEATH BENEFIT
If you or the Annuitant dies prior to the Retirement Date, we will pay a
death benefit. No death benefit is payable under this provision after the
Retirement Date. No Surrender Charge applies when we pay a death benefit.
The amount of the death benefit equals the greater of:
1. Your Accumulated Value on the date we receive Notice (including proof)
of death:
2. The total Purchase Payments minus any partial surrenders as of the
date we receive Notice (including proof) 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 minus any
partial surrenders made after that Anniversary.
If benefit instructions are in effect, the death benefit will be paid according
to those instructions.
If the Annuitant dies before you, we will pay the death benefit to the
Annuitant's beneficiary. If no benefit instructions are in effect, the
Annuitant's beneficiary may choose to apply any unpaid death benefit under a
Benefit Option.
If you die before the Annuitant and your beneficiary is your spouse, we will
continue the contract with your surviving spouse as the new Owner or your
surviving spouse may choose to:
1. Apply the death benefit under a Benefit Option; or
2. Receive the death benefit as a single payment.
Any choice in 1 or 2 above must be made within 60 days after your death.
If your beneficiary is a natural person, but not your surviving spouse, the
death benefit may be paid as:
1. Fixed income under Benefit Option C for a period of years that does
not exceed the life expectancy of the beneficiary;
2. Life income under Benefit Option D with no minimum guaranteed period
or a minimum guaranteed period that does not exceed the life
expectancy of the beneficiary; or
3. An individual arrangement approved by us under Benefit Option A.
If your beneficiary is not a natural person, the death benefit must be paid out
within 5 years of your death.
We will pay interest on the death benefit from the date we receive Notice
(including proof) of death until date of payment or until the death benefit is
applied under a Benefit Option. We will pay interest at a rate equal to or
greater than 3%.
Life expectancy is based on the appropriate life expectancy tables published by
the United States Treasury Department, as amended.
BENEFIT INSTRUCTIONS--While the Annuitant is alive and before the Retirement
Date, you may file benefit instructions for the payment of the death benefit
under a Benefit Option. Such benefit instructions, or a change of benefit
instructions, must be in a written Notice. A change of beneficiary will revoke
any prior benefit instructions.
BENEFICIARY--The beneficiary is the person or persons you name in the
application to receive benefits payable upon the Annuitant's or your death. You
may change your beneficiary designation at any time. You may also change the
Annuitant's beneficiary while the Annuitant is alive. Your request must be in
writing. No change is effective without our prior approval. Once approved, the
change is effective as of the date you signed the request.
BENEFICIARY IF YOU ARE THE ANNUITANT--If you are the Annuitant or Joint
Annuitant, we will pay any death benefits to your beneficiary.
If any beneficiary dies before you, upon your death we will make an equal
distribution of that beneficiary's portion of the death benefit to your
surviving beneficiaries unless we have approved other written instructions from
you. If none of your beneficiaries survives you, we will pay the death benefit
to your estate in one sum.
BENEFICIARY IF YOU ARE NOT THE ANNUITANT--If you are not the Annuitant, two
beneficiary designations are possible: your's and the Annuitant's. Unless you
provide otherwise in a written beneficiary designation that we approve, your
beneficiary is the Annuitant. The Annuitant's beneficiary receives any benefits
payable upon the death of the Annuitant.
If any Annuitant's beneficiary dies before the Annuitant, upon the death of the
Annuitant, we will make an equal distribution of that beneficiary's portion of
the death benefit to any surviving beneficiaries of the Annuitant unless we have
approved other written instructions from you. If no beneficiary of the Annuitant
survives, we will pay the death benefit to you or your estate in one sum.
SIMULTANEOUS DEATH--If you and the Annuitant die and there is not sufficient
evidence that the deaths occurred other than at the same time, the death benefit
will be paid as if the Annuitant outlived you.
RETIREMENT INCOME
On the Retirement Date we will apply your Accumulated Value under a Benefit
Option and make retirement income payments to you if the Annuitant is living and
the contract is in force on that date. No Surrender Charge will be deducted from
your Accumulated Value when it is applied under a Benefit Option.
If you do not choose a different Benefit Option, we will apply your Accumulated
Value under Benefit Option D (Life Income with a 10 year guarantee), or Benefit
Option E (Joint and 100% Survivor Life Income with a 10 year guarantee) with
Joint Annuitants, to determine the retirement income benefit.
TERMINATION
CONTRACT TERMINATION
This contract will continue until one of the following events occurs:
1. Your Accumulated Value is applied under a Benefit Option;
2. You surrender your contract in full;
3. The Annuitant's death occurs; or
4. Your death occurs (unless your spouse elects to continue the contract
pursuant to the Death Benefit provision).
We reserve the right to terminate this contract by paying you the Accumulated
Value, in one sum, if you pay no Purchase Payments for two or more consecutive
Contract Years and both of the following are less than $2,000:
1. Your total Purchase Payments for this policy, less any partial
surrenders and Surrender Charges; and
2. Your Accumulated Value.
We will notify you and give you 60 days to increase the Accumulated Value to
$2,000 before we exercise this right.
BENEFIT OPTIONS
You may choose to use one of the following Benefit Options, or any other Benefit
Option we make available, on the Retirement Date. The tables shown illustrate
guaranteed minimum benefits. The benefits you receive may be greater.
Option A. SPECIAL BENEFIT ARRANGEMENT--You may arrange an individually designed
Benefit Option with our approval. Any arrangement that will not qualify this
contract as an annuity under the United States Internal Revenue Code, as
amended, will not be permitted.
Option C. FIXED INCOME--We will pay an income of a fixed amount or an income for
a fixed period of at least 5 years but not exceeding 30 years. Refer to Option C
tables to determine the minimum number of fixed amount payments or the minimum
amount of each fixed period payment. On request, we will furnish benefit
information not shown in the tables. If you die after annuity payments begin,
the remaining payments will be paid to the beneficiary named under your Benefit
Option.
Option D. LIFE INCOME--We will pay an income during a person's lifetime. A
minimum guaranteed period may be used, as shown in the Option D table. Payments
will be in an amount we determine, but not less than shown in the table. If you
die after annuity payments begin and before the end of the minimum guaranteed
period (if applicable), the remaining payments will be paid to the beneficiary
named under your Benefit Option.
Option E. JOINT AND SURVIVOR LIFE INCOME--We will pay an income during the
lifetime of two persons, and continuing until the death of the survivor. This
option includes a minimum guaranteed period of 10 years. Payments will be in an
amount we determine, but not less than shown in the Option E table. On request,
we will furnish minimum income information for age combinations not shown in the
table. If both persons die before the end of the minimum guaranteed period, the
remaining payments will be paid to the beneficiary named under your Benefit
Option.
Option F. JOINT AND TWO-THIRDS SURVIVOR LIFE INCOME--We will pay an income
during the lifetime of two persons, and two-thirds of the original amount during
the remaining lifetime of the survivor. Payments during the time both persons
are alive will be in an amount we determine (the "original amount"), but not
less than shown in the Option F table. On request, we will furnish minimum
income information for age combinations not shown in the table. If one of the
persons dies after annuity payments begin, we will continue to pay two-thirds of
the original amount to the survivor until that person's death.
<PAGE>
OPTION C TABLES
Minimum Number of Months for Which Monthly Income will be Paid. First
Payment on Effective Date of Supplementary Contract.
Amount No. of No. of No. of
Applied Income Pymts* Income Pymts* Income Pymts*
$10,000 $50 274 $100 114 $175 61
25,000 150 214 250 114 400 67
50,000 250 274 500 114 750 72
100,000 450 321 1,000 114 1,500 72
*Minimum number of months for which full monthly income will be paid. There may
be part of a payment made one month after the last one. This partial payment
will be the balance, if any, of the amount applied less the payments, all
accumulated at interest.
Minimum Monthly Income To Be Paid for Number Of Years. First Payment on
Effective Date of Supplementary Contract.
Amount Number of Years
Applied
5 10 15 20 25 30
$10,000 179.10 96.10 68.70 55.10 47.10 41.80
25,000 447.75 240.25 171.75 137.75 117.75 104.50
50,000 895.50 480.50 343.50 275.50 235.50 209.00
100,000 1,791.00 961.00 687.00 551.00 471.00 418.00
<PAGE>
BENEFIT OPTIONS
You may choose to use one of the following Benefit Options, or any other Benefit
Option we make available, on the Retirement Date. The tables shown illustrate
guaranteed minimum benefits. The benefits you receive may be greater.
Option A. SPECIAL BENEFIT ARRANGEMENT--You may arrange an individually designed
Benefit Option with our approval. Any arrangement that will not qualify this
contract as an annuity under the United States Internal Revenue Code, as
amended, will not be permitted.
Option C. FIXED INCOME--We will pay an income of a fixed amount or an income for
a fixed period of at least 5 years but not exceeding 30 years. Refer to Option C
tables to determine the minimum number of fixed amount payments or the minimum
amount of each fixed period payment. On request, we will furnish benefit
information not shown in the tables. If you die after annuity payments begin,
the remaining payments will be paid to the beneficiary named under your Benefit
Option.
Option D. LIFE INCOME--We will pay an income during a person's lifetime. A
minimum guaranteed period may be used, as shown in the Option D table. Payments
will be in an amount we determine, but not less than shown in the table. If you
die after annuity payments begin and before the end of the minimum guaranteed
period (if applicable), the remaining payments will be paid to the beneficiary
named under your Benefit Option.
Option E. JOINT AND SURVIVOR LIFE INCOME--We will pay an income during the
lifetime of two persons, and continuing until the death of the survivor. This
option includes a minimum guaranteed period of 10 years. Payments will be in an
amount we determine, but not less than shown in the Option E table. On request,
we will furnish minimum income information for age combinations not shown in the
table. If both persons die before the end of the minimum guaranteed period, the
remaining payments will be paid to the beneficiary named under your Benefit
Option.
Option F. JOINT AND TWO-THIRDS SURVIVOR LIFE INCOME--We will pay an income
during the lifetime of two persons, and two-thirds of the original amount during
the remaining lifetime of the survivor. Payments during the time both persons
are alive will be in an amount we determine (the "original amount"), but not
less than shown in the Option F table. On request, we will furnish minimum
income information for age combinations not shown in the table. If one of the
persons dies after annuity payments begin, we will continue to pay two-thirds of
the original amount to the survivor until that person's death.
OPTION D TABLES
Minimum Monthly Life Income for Each $1,000 Applied. First Payment on Effective
Date of Supplementary Contract.
Age Minimum Guaranteed Period
Last Birthday
of Payee
Inst.*
None 5 Yrs. 10 Yrs. 15 Yrs. 20 Yrs. Rfd.
55 4.05 4.05 4.03 4.00 3.95 3.94
56 4.12 4.12 4.10 4.06 4.01 4.00
57 4.20 4.19 4.17 4.13 4.07 4.06
58 4.28 4.27 4.25 4.20 4.13 4.13
59 4.36 4.35 4.33 4.28 4.20 4.20
60 4.45 4.44 4.41 4.35 4.26 4.27
61 4.55 4.54 4.50 4.43 4.33 4.35
62 4.65 4.64 4.60 4.52 4.40 4.43
63 4.76 4.74 4.70 4.61 4.47 4.52
64 4.87 4.86 4.80 4.70 4.54 4.61
65 5.00 4.98 4.91 4.80 4.61 4.70
66 5.13 5.11 5.03 4.89 4.69 4.81
67 5.27 5.24 5.16 5.00 4.76 4.91
68 5.42 5.39 5.29 5.10 4.83 5.02
69 5.58 5.55 5.43 5.21 4.90 5.14
70 5.76 5.71 5.57 5.32 4.97 5.27
71 5.94 5.89 5.73 5.43 5.03 5.40
72 6.15 6.09 5.89 5.55 5.09 5.54
73 6.37 6.30 6.06 5.66 5.15 5.69
74 6.60 6.52 6.24 5.77 5.20 5.85
75 6.86 6.75 6.42 5.88 5.25 6.02
*Income payments continue until the total received equals the amount applied
under the option.
<PAGE>
OPTION E TABLE
Minimum Monthly Joint and Survivor Life Income for Each $1,000 Applied. First
Payment on Effective Date of Supplementary Contract.
Age Last Birthday Age Last Birthday of Younger Payee
of Older Payee
55 60 62 65 70
60 3.75 3.91
62 3.79 3.98 4.05
65 3.84 4.07 4.16 4.29
70 3.91 4.19 4.31 4.50 4.81
75 3.96 4.29 4.43 4.67 5.09
OPTION F TABLE
Minimum Monthly Joint and Two-Thirds Survivor Life Income for Each $1,000
Applied. First Payment on Effective Date of Supplementary Contract.
Age Last Birthday Age Last Birthday of Younger Payee
of Older Payee
55 60 62 65 70
60 4.06 4.26
62 4.13 4.34 4.43
65 4.24 4.47 4.58 4.74
70 4.44 4.71 4.84 5.04 5.41
75 4.65 4.97 5.12 5.36 5.83
INTEREST
Interest on amounts applied under a Benefit Option is at a rate we set, but
never less than 3% a year. All values in the tables shown are based on the 1983
Table A with 3% interest compounded annually. The benefit you receive may be
greater.
CONDITIONS
When a Benefit Option is chosen, the following conditions will apply:
1. This contract must be exchanged for a supplementary contract providing
the Benefit Option you choose:
2. No changes may be made as to the Benefit Option once the supplementary
contract is issued;
3. Until proceeds are applied under a Benefit Option, any death benefit
will be held in a new account at an interest rate determined by us
which will not be less than 3% per year;
4. We reserve the right to pay the Accumulated Value in a single sum if
it does not exceed $5,000, or if the amount to be applied under a
Benefit Option would result in periodic payments that do not exceed
other minimum requirements that are in effect at that time for
Annuitants in the same class;
5. Benefit Options are restricted if the recipient of benefits is not a
natural person;
6. One of the natural persons on whose life payment under Options D, E,
and F and based must be the Annuitant or a beneficiary. The size of
payments depends on the age and sex of the person or persons on whose
life payments are based, determined as of the date this contract is
exchanged for a supplementary contract. We reserve the right to
require evidence of age, sex, and continuing survival; and
7. At the time payments begin, any benefits will be at least that which
would be provided by any single premium immediate annuity contract
then being offered by us for the same class of Annuitants.
GENERAL INFORMATION
THE CONTRACT
This contract, any attached application, or amendments to it, any attached
riders or endorsements, and the current Data Pages make up the entire contract.
Any statements made in an application will be considered representations and not
warranties.
ALTERATIONS
This contract may be altered by mutual agreement unless otherwise provided. Only
our corporate officers may agree to modify or waive anything provided. Only our
corporate officers may agree to modify or waive anything in or approve
amendments to your contract. Any alterations must be in writing and signed by
one of our corporate officers. No one else, including the agent, may change this
contract or waive any provisions.
INCONTESTABILITY
This contract will be incontestable after is has been in force for 2 years from
the Contract Date. The time limit in this Incontestability provision does not
apply to fraud.
AGE
If the Annuitant's age or sex is not correctly shown on the current Data Page,
we will adjust the monthly income payable under your contract. The age shown
should be the Annuitant's age on the Contract Date. Any adjustment will be based
on the amount of monthly income that would have been purchased at the correct
age and sex.
PARTICIPATING
Your contract is eligible to share in our divisible surplus. We will determine
its share and credit it as a dividend at the end of each Contract Year. We do
not expect any dividends will be paid under this contract. Dividends, if any,
will be paid in cash.
OWNERSHIP
The Owner or Joint Owners are named on the current Date Page. Ownership may be
changed as provided below. As Owner or Joint Owners, you may exercise every
right and privilege provided by this contract. These rights include the right to
receive income payments or to name a payee to receive these payments. The
exercise of your rights is subject to the rights of any irrevocable beneficiary.
Your rights and privileges end at the Annuitant's death. If Joint Owners are
named, both must consent to any exercise of these rights.
CHANGE OF OWNER
You may change your ownership designation at any time. Your request must be in
writing. No change is effective without our prior approval. Once approved, the
change is effective as of the date you signed the request. We reserve the right
to require that you send us this contract so we can record the change.
You may change the Retirement Date any time before a supplementary contract
which providesNa Benefit Option is issued. The new date must be any Anniversary
on or before theEMaximum Retirement Date shown on the current Data Page.
Your request must be in writing and have our prior approval. We reserve the
right to require that you send us this contract so we can record the change.
ASSIGNMENT
You may assign your contract as collateral for a loan. The assignment must be in
writing and filed in our home office. We assume no responsibility for any
assignment's validity. An assignment as collateral does not change the Owner,
but the rights of beneficiaries, whenever named, become subordinate to those of
the assignee. Any amount paid an assignee will be treated as a partial surrender
and will be paid in one sum.
STATEMENTS OF VALUE
We will mail you statements of your current Accumulated Value at least once each
year until your contract is applied under a Benefit Option or surrendered in
full. This will include current statements of the number of Units credited to a
Separate Account Division and the dollar value of a Unit. We will mail the
statements to your last post office address known to us.
<PAGE>
ENDORSEMENTS
FLEXIBLE VARIABLE ANNUITY CONTRACT. Income payable starting on Retirement
Date, or death benefit if Annuitant or Owner dies before Retirement Date.
Benefits based on the performance of the Separate Account are variable and not
guaranteed as to dollar amount. PARTICIPATING.
Mailing Address: Principal Mutual Life Variable Annuity
Des Moines, Iowa 50392-0001 Insurance Company Application
- -------------------------------------------------------------------------------
|_| Nonqualified |_| IRA |_| Payroll Deduct IRA |_| SEP
|_| Pension Trust |_| Other Retirement Date: ________________
|_| Rollover IRA |_| IRA Transfer: Nondeductible Amount $ _________________
(if any)
Annuitant
- -------------------------------------------------------------------------------
Name - First Middle Last |_| Male Birth Date
|_| Female
_______________________________________________________________________________
Address - Street Social Security #
_______________________________________________________________________________
City State ZIP Relationship
to Owner
_______________________________________________________________________________
- -------------------------------------------------------------------------------
Owner (Leave this section blank if Annuitant is sole Owner.)
Name - First Middle Last |_| Male Birth Date
|_| Female
_______________________________________________________________________________
Address - Street Taxpayer ID #
_______________________________________________________________________________
City State ZIP
_______________________________________________________________________________
Is Owner a: |_| Corporation? |_| Trust? |_| Partnership?
- -------------------------------------------------------------------------------
Joint Owner/Joint Annuitant (If chosen, must be Spouse.)
Name - First Middle Last |_| Male Birth Date
|_| Female
_______________________________________________________________________________
Address - Street Social Security #
_______________________________________________________________________________
City State ZIP
_______________________________________________________________________________
On the Contract Date, if you or any Annuitant are confined in a Health Care
Facility, eligible for Social Security disability payments or diagnosed with a
Terminal illness, you will not be able to use that condition to qualify for
benefits under the Waiver of Surrender Charge Rider.
- -------------------------------------------------------------------------------
Owner's Beneficiary(ies)
Primary Relationship to Owner
_______________________________________________________________________________
Contingent Relationship to Owner
_______________________________________________________________________________
Annuitant's Beneficiary(ies)(Leave this section blank if Annuitant is sole
Owner.)
Primary Relationship to Owner
_______________________________________________________________________________
Contingent Relationship to Owner
_______________________________________________________________________________
Purchase Payment Information
|_| Monthly PAC - First Payment Drawn on (date) / /
(Not available on the 29th, 30th, and 31st -----------------
of the month)
|_| List Bill - Frequency: |_| Monthly |_| Quarterly
|_| Semiannually |_| Annually
Expected Annualized Amount: $ _____________________
Employer-Information-(Complete-this-section-if-Payroll-Deduct-IRA,-SEP,-Pension-
Trust-or-a-Nonqualified-Employer-arranged-Plan.)
Name Name of Company Contact
_______________________________________________________________________________
Address Phone Number
_______________________________________________________________________________
AA 699
<PAGE>
- -------------------------------------------------------------------------------
Purchase Payment Allocations (Note whole number percentages by the selected
Division or Fixed Account.)
Aggressive Growth Bond
_______ % _______ %
Asset Allocation Capital Accumulation
_______ % _______ %
Balanced Emerging Growth
_______ % _______ %
Government Sec. World
_______ % _______ %
Growth Fixed Account
_______ % _______ %
Money Market
_______ % ____________________ _______ %
Total 100 %
Initial Purchase Payment $
________________
Make checks payable to: Principal Mutual Life Insurance Company
- -------------------------------------------------------------------------------
LOCK-IN(Applies only to initial Purchase Payment allocated to the Fixed Account)
|_| Lock-in current rate
_______ %
This rate is guaranteed only if the money is received in our home office within
90 days of the date of this application.
|_| Apply interest rate in effect when money is received.
If neither box is marked, the rate in effect at the time the money is received
will apply to the Fixed Account.
- -------------------------------------------------------------------------------
Will this annuity replace or change any existing life insurance or annuity?
|_|Yes |_| No (If yes, give details, listing company name and policy number.)
Are you attempting a Section 1035 exchange or a Direct Transfer of IRA Proceeds?
|_| Yes |_| No
- -------------------------------------------------------------------------------
Investor Information (The registered representative is required to determine the
suitability of this sale.)
My (Our) investment objective(s) is (are):
|_| Long Term Growth |_| Growth and Income
|_| Current Income |_| Safety of Principal
Estimated Net Income: (current tax year, in thousands):
Approximate Net Worth: (in thousands)
|_| Under $15 |_| $15 - $25 |_| $26 - $50 |_| Over $50
|_| Under $15 |_| $15 - $25 |_| $26 - $50 |_| $51 - $100
|_| $101 - $250 |_| Over $250
Occupation: __________________________________________________________________
Source of Funds for this purchase: ___________________________________________
Other Investments: $ __________________________________________________________
Type of Investments: _________________________________________________________
Are you employed by a National Association of Securities Dealers firm?
|_| Yes |_| No
- -------------------------------------------------------------------------------
Optional Features
|_| A. Decline Telephone Transfer Authorization. I (We) do not want telephone
transaction services as described in the prospectus.
(If this box is not checked, telephone services will apply.)
|_| B. Dollar Cost Averaging (Scheduled Transfers) (Note whole number
percentages and dollar amounts by the selected Division or Fixed
Account. Not available on the 29th, 30th, and 31st of the month.)
Transfer from Division
and Dollar Amount of Transfer
1. ____________________ $ ____________________
2. ____________________ $ ____________________
3. ____________________ $ ____________________
4. ____________________ $ ____________________
Transfer to Division and %
of Transfer Amount
1. ____________________ ______ % ____________________ ______ %
2. ____________________ ______ % ____________________ ______ %
3. ____________________ ______ % ____________________ ______ %
4. ____________________ ______ % ____________________ ______ %
Fixed Account - Transfer 2% monthly to :
____________________ ______ % ____________________ ______ %
Payment State Date / /
_________________________________
(Not available on the 29th, 30th, and 31st of the month)
Frequency: |_| Monthly |_| Quarterly |_| Semiannually |_| Annually
<PAGE>
Optional Features (continued)
- -------------------------------------------------------------------------------
|_| C. Flexible Withdrawal Option (Scheduled Partial Surrenders)
|_| Accumulated Interest Only
|_| Specified Amount $ ______________________
Payment made from Division
or Fixed Account
1. ______________________________ ________ %
2. ______________________________ ________ %
3. ______________________________ ________ %
4. ______________________________ ________ %
Total 100%
|_| The minimum required distribution for customers over age 70 1/2.
Base minimum required distribution payments on:
|_| My life expectancy only
|_| The joint life expectancy of my spouse and me
Spouse's Date of Birth / / Soc. Sec. No.
______________________ ______________
Payment State Date / /
________________________
(Not available on the 29th, 30th, and 31st of the month)
Frequency: |_| Monthly |_| Quarterly |_| Semiannually |_| Annually
- -------------------------------------------------------------------------------
Signature and Tax Certification
I have read this application and have had the opportunity to read the prospectus
and agree to all their terms. In addition, I authorize the instructions in this
application. I have been given the opportunity to ask questions regarding this
investment, and they have been answered to my satisfaction. I understand the
investment objectives of the Variable Annuity Divisions for which I am applying
and believe they are compatible with my investment objective(s). I have received
a Principal Mutual Life Insurance Company Disclosure Statement (not applicable
for nonqualified contracts). The surrender charges of this annuity have been
explained to me. All of the statements in this application are true and complete
to the best of my knowledge and are the basis of any annuity issued. I certify
under penalty of perjury (check the appropriate response):
|_| 1. That the Social Security number or taxpayer identification number
shown is correct and that the IRS has never notified me that I am
subject to backup withholding, or has notified me that I am no longer
subject to backup withholding; or
|_| 2. I have not been issued a taxpayer identification number but have
applied for such number, or intend to apply for such number in the
near future. I understand that if I do not provide a correct taxpayer
identification number to Principal Mutual Life Insurance Company
within 60 days from the date of this certification, backup
withholding as described in the prospectus will commence; or
|_| 3. I am subject to backup withholding.
Signature of Owner ____________________________________________________________
Signature of Joint Owner/Annuitant ____________________________________________
Signature of Annuitant (if other than Owner) __________________________________
|_| Check here to request a copy of the Statement of Additional Information for
Separate Account B for this contract.
To be Completed By the Rep:
Signed at (city) (state) (date)
_______________________________________________________________________________
Signature of Registered Representative ________________________________________
<PAGE>
- -------------------------------------------------------------------------------
Rep's Report (for proper credit this section must be completed)
Agency Name and No. Group Office Name and No.
Registered Representative Rep Tax ID# Rep Detail Code Credit %
__________________________ ________________ __________________ ________
__________________________ ________________ __________________ ________
Group Rep Name Group Rep Code
Do you believe that a replacement or change of existing life insurance or
annuity contract may be involved? (3) Yes (3) No (If yes, provide details,
listing company name and policy number.)
Remarks _______________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
The answers to each question on the application were recorded exactly as given,
and are true to the best of my knowledge.
Signed at (City) (state) (date)
_______________________________________________________________________________
Registered Representative _____________________________________________________
State License Identification Number ___________________________________________
- -------------------------------------------------------------------------------
To be Completed by Selling Firm
Dealer's Name By (Authorized Signature of Dealer)
________________________________________________________________________________
Home Office Address
________________________________________________________________________________
City State ZIP
________________________________________________________________________________
Address of Office Servicing Account
________________________________________________________________________________
City State ZIP Telephone
________________________________________________________________________________
Name (please print) Representative Number Rep Tax ID Number
________________________________________________________________________________
Representative's Signature
________________________________________________________________________________
Name (please print) Representative Number Rep Tax ID Number
________________________________________________________________________________
Representative's Signature
________________________________________________________________________________
% Split
________________________________________________________________________________
Princor Financial Review Date
Services Corporation
- -------------------------------------------------------------------------------
<PAGE>
ARTICLES OF INCORPORATION
Principal Mutual Life Insurance Company
711 High Street DES MOINES, IOWA 50392
AMENDED AND SUBSTITUTED ARTICLES OF INCORPORATION
AS AMENDED
Effective July 1, 1991
ARTICLE I.
The name of the corporation shall be Principal Mutual Life Insurance Company, by
which name (or by the names Bankers Life Company and Princor Mutual Life
Insurance Company which it may use in its discretion and where permitted
continue to use or adopt) it shall do business and shall have and retain all its
property, rights and privileges.
ARTICLE II.
The corporation shall be located and have its principal place of business in the
city of Des Moines, Polk County, lowa. The principal office of the corporation
is the registered office, and the President is the registered agent of the
company.
ARTICLE III.
The purpose of this corporation are and it shall have full power to engage in,
pursue, maintain and transact a general life, health and accident insurance and
annuity business, and to insure other risks, perform other services and engage
in other businesses allowed by law. It may issue participating or
nonparticipating contracts. It shall further have the power to enter into
contracts with respect to proceeds of such insurance, to accept and reinsure
risks, to enter into coinsurance agreements, to issue and perform policies and
contracts of all types, including but not limited to individual and group, to
act as trustee or advisor in any capacity, and to offer all services, including
those of a financial accounting or data processing nature, to all persons,
partnerships, corporations and other business organizations, directly or
indirectly incidental to its business. It shall have all the rights, powers and
privileges granted or permitted by the Constitution and laws of the state of
Iowa governing the conduct of insurance companies and by Titles XIX and XX of
the Code of Iowa 1966 and all acts amendatory thereof or additional thereto.
The corporation shall be empowered: To sue and be sued, complain and defend, in
its corporate or assumed name, to have a corporate seal which may be altered at
pleasure, and to use the same by causing it, or a facsimile thereof, to be
impressed or affixed or in any other manner reproduced; to purchase, take,
receive, lease, or otherwise acquire, own, hold, improve, use and otherwise deal
in and with, real or tangible or intangible personal property, or any interest
therein, wherever situated; to sell, convey, mortgage, pledge, lease, exchange,
transfer and otherwise dispose of all or any part of its property and assets; to
lend money to, and otherwise assist its employees, agents, officers and
directors unless prohibited by law; to purchase, take, receive, subscribe for,
or otherwise acquire, own, hold, vote, use, employ, sell, mortgage, lend,
pledge, or otherwise dispose of, and otherwise use and deal in and with, shares,
options, warrants or other interests in, or obligations of, other domestic or
foreign corporations, associations, partnerships or individuals, or direct or
indirect obligations of the United States or of any other government, state,
territory, governmental district or municipality or of any instrumentality
thereof unless prohibited by law; to make contracts and guaranties and incur
liabilities; to lend and borrow money for its corporate purposes, invest and
reinvest its funds, and take and hold real and personal property as security for
the payment of funds so loaned or invested; to acquire or organize subsidiaries;
to conduct its business, carry on its operations, and have offices and exercise
the powers granted in any state, territory, district, or possession of the
United States, or in any foreign country; to make donations for the public
welfare, and for religious, charitable, scientific or educational purposes; to
pay pensions and establish pension plans, pension trusts, profit-sharing plans
and other incentive, insurance and welfare plans for any or all of its
directors, officers, agents and employees; to enter into general partnerships,
limited partnerships, whether the corporation be a limited or general partner,
joint ventures, syndicates, pools, associations and other arrangements for
carrying on any or all of the purposes for which the corporation is organized,
jointly or in common with others; to indemnify officers, directors, employees
and agents, as allowed by law, subject to such limitations as may be established
by the Board of Directors; and to have and exercise all powers necessary or
convenient to effect any or all of the purposes for which the corporation is
organized.
ARTICLE IV.
The corporation shall have perpetual existence and succession.
ARTICLE V.
The private property of the members, directors and other officers and managers
of this corporation shall in no case be liable for the corporate debts, but
shall be exempt therefrom.
ARTICLE Vl.
The corporate powers of the corporation shall be exercised by the Board of
Directors, and by such officers and agents as the Board may authorize, elect or
appoint. The Board of Directors shall consist of not less than nine (9) nor more
than twenty-one (21) directors, the number to be determined from time to time by
a majority of the entire Board of Directors. The directors shall be divided into
three classes, as nearly equal numerically as possible, determined by terms
expiring in successive years. Each director shall serve a term of approximately
three years except as otherwise provided or where it is necessary to fix a
shorter term in order to preserve classification. No decrease in the number of
directors shall shorten the term of any incumbent director. Each director shall
serve until a successor is elected and shall be eligible for re-election. The
Board of Directors shall have the power to fill any vacancy in their number. The
term of office of each director shall begin at the annual meeting at which such
director is elected by the members or at the time elected by the Board of
Directors. The term of office of each director shall not extend beyond the
annual meeting next following the date such director attains age 70, or such
younger age as may be established for all directors by the Board of Directors,
except that the terms of directors holding office prior to the annual meeting in
1984 may extend to the annual meeting next following the date such director
attains age 72 and except that for officer-directors, other than one who is or
has been Chief Executive Officer, the term as a director shall not extend beyond
the annual meeting next following the date such director retires as an active
officer of this corporation. Directors need not be members.
The Board of Directors shall have the power to adopt such By-Laws and rules and
regulations for the transaction of the business of the corporation not
inconsistent with these Amended and Substituted Articles or the laws of the
state of Iowa, and to amend or repeal such By-Laws, rules and regulations. The
By-Laws shall provide procedures for the nomination and election of directors.
The Board of Directors may fix reasonable compensation of the directors for
their services. The Board of Directors shall elect from their number at the
first board meeting after the annual meeting of the corporation a President, and
shall authorize, elect or appoint at such first meeting or at any meeting
thereafter such other officers, agents or committees as in their judgment may be
necessary or advisable.
A director of this corporation shall not be personally liable to the corporation
or its members for monetary damages for breach of fiduciary duty as a director,
except for liability (i) for a breach of the director's duty of loyalty to the
corporation or its members, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of the law, or (iii)
for a transaction from which the director derives an improper personal benefit.
The liability of directors shall be deemed further limited or eliminated to the
fullest extent permitted by changes in the law governing this corporation and
approved by a majority of the entire Board of Directors. Any repeal or
modification of the provisions of this paragraph shall not adversely affect the
duty, liability, rights or protection of a director existing at the time of such
repeal or modification.
ARTICLE Vll.
The annual meeting of this corporation shall be held at the Home Office in Des
Moines, lowa, on the third Monday in May of each year for the election of a
director or directors and the transaction of any other business properly coming
before the annual meeting.
Special meetings of the corporation may be called by the directors at any time
and shall be so called upon the written request of five per cent (5%) of the
members, which request shall specify the matters proposed to be acted upon.
Notice of the time and place of each annual and each special meeting shall be
published at least one time in a newspaper of general circulation in the city
where the meeting is to be held not less than 30 nor more than 90 days prior to
the date of the meeting. No person shall be elected a director by the members at
any meeting except an annual meeting and then only if duly nominated in
accordance with the requirements of the By-Laws and named in the notice of the
annual meeting as a nominee for the class of director to be so elected. Each
notice of a meeting shall state the purpose of the meeting. These Amended and
Substituted Articles may be amended at any meeting only if the notice of the
meeting describes or sets out the proposed amendment.
At every annual or special meeting each member shall be entitled to one vote, to
be cast by ballot signed by such member and mailed or personally delivered by
such member to the Home Office. The Secretary of the corporation will, during
any 60 consecutive regular business days immediately preceding the date of the
annual or any special meeting, give or mail to each member making a request
therefor a ballot, and shall if the Board of Directors so direct mail a ballot
to each member. No ballot received in any manner after the adjournment of any
such meeting, or which in not signed by a member, shall be counted upon matters
acted upon at the meeting. There will be no cumulative voting by proxy,
ARTICLE VIII.
This corporation shall have no capital stock, but shall be purely mutual as a
legal reserve company.
ARTICLE IX.
Except as otherwise provided in this Article, each person who, and each entity
which, is regarded as present owner under the provisions of an original contract
of insurance or annuity issued by this corporation, or, absent determination by
such provisions, under the By-Laws or rules of the corporation, shall be a
member of this corporation and entitled to the privileges of such member as
defined herein, in the By-Laws or in the contract of insurance or annuity, but
so long only as the said original contract of insurance or annuity has not
matured or been surrendered and remains in force. The membership privileges of
those issued an original contract of insurance or annuity on or before April 8,
1980, but not the owner on that date, shall be preserved.
ARTICLE X.
These Articles of Incorporation may be amended at any annual meeting, or any
special meeting called for that purpose, upon notice given as required by
Article VII, upon a majority vote in favor of the amendment cast by the members
voting at such meeting by ballot or in person. The amendment shall be binding
upon all members of the corporation. Any amendment will not affect contracts of
the members nor terminate rights, powers, privileges, and franchises of the
corporation existing as of the time of amendment.
BY-LAWS
PRINCIPAL MUTUAL LIFE INSURANCE COMPANY
711 HIGH STREET DES MOINES, IOWA 50392
Adopted and Effective April 8, 1969
As Amended through August 15, 1994
ARTICLE I
MEETINGS OF THE COMPANY, ELECTION OF
DIRECTORS AT ANNUAL MEETING
SECTION 1. Meetings of the Company. The annual meeting of the Company shall be
held in accordance with the provisions of the Articles at the hour of 9:00
o'clock A.M.., Des Moines time. Any special meeting of the Company shall be held
at the time and place specified in the notice of such special meeting. The
Chairman of the Board or the acting Chairman of the Board shall preside at
meetings of the Company. The Secretary of the Corporation shall act as the
Secretary of the meeting. If either person is unable to act in the designated
capacity, the members present shall elect a member to serve as chairman pro tem
or secretary pro tem.
SECTION 2. Notices and Ballots. The Secretary of the Corporation shall cause
notice of each meeting to be published and shall mail or make ballots available
to members as required by the Articles and shall if so directed by the Board
mail a ballot to each member. No name of a candidate for election to the Board
shall be included in the ballot unless the candidate has been nominated as
provided in these By-Laws.
SECTION 3. Election of Directors and Voting on Propositions; Failure of
Election. At each annual meeting the ballots cast for candidates for election to
the Board, and at each annual meeting or special meeting the ballots cast
concerning any proposition, shall be referred to the Board for canvass at the
first meeting of the Board following such meeting of the Company. In the event a
candidate for election to the Board, who is included in a class for which the
number of candidates nominated for election is greater than the number to be
elected, dies or withdraws before election, then there shall be no election of
Directors in that class and the vacancy or vacancies created may be filled by
the Board, to serve until the next following annual meeting of the Company, when
a new election shall be held for the unexpired term of such vacancy or
vacancies.
The candidate or candidates receiving the highest number of votes in each class
shall be declared elected Director or Directors, and any proposition or any
other matter submitted shall be declared carried or lost in accordance with the
majority of votes cast for or against it. No person other than a candidate may
be elected a Director.
ARTICLE II
NOMINATION OF DIRECTORS AND
ELECTION BY BOARD
SECTION 1. Nomination by Board. The Board shall each year nominate candidates
for election as Directors to succeed those whose terms are expiring.
SECTION 2. Nomination by Members. Members of the Company may nominate candidates
for election as Directors to succeed those whose terms are expiring, upon
delivery to the Secretary of the Corporation a certificate or certificates of
nomination signed by members residing in at least five states and numbering in
each such state not less than 1/25 of 1% of the total membership of the entire
Company as of a date one hundred eighty days prior to the date of the annual
meeting and including the address and policy or contract number of each member
so signing.
SECTION 3. Qualification of Candidates. To qualify as a candidate, whether
nominated by the Board or by members, written certificate or certificates of
nomination shall be filed with the Secretary of the Corporation not more than
one hundred eighty days nor less than ninety days before the date of the annual
meeting of the Company and shall be accompanied by a written statement of the
nominee of his willingness to serve.
SECTION 4. Assignment to Class. Each nomination of a candidate shall be to a
class to which one or more Directors are to be elected at the next annual
meeting of the Company. If any nomination made by the members of the Company
fails to assign the candidate to any class, the Board shall make such
assignment.
SECTION 5. Filling Vacancies. Any vacancy upon the Board (except vacancies
resulting from failure of election as provided in Article I, Section 3), whether
resulting from death or resignation of a Director, increase in number of
Directors, or for any other reason, may be filled by the Board at any regular or
special meeting, and each such newly elected Director shall be assigned by the
Board to a class.
ARTICLE III
BOARD OF DIRECTORS
SECTION 1. Number of Directors. The Board shall consist of thirteen Directors or
such larger or smaller number, within the limits specified by the Articles, as a
majority of the entire Board may determine at any regular or special meeting of
the Board.
SECTION 2. Meetings. Regular meetings of the Board shall be held without notice
once in each calendar quarter on such date and at such hour and place as may be
fixed by the Board, except that the meeting in the second quarter shall be held
in the Home Office of the Company in Des Moines on the date of the annual
meeting. The date, hour and place of any regular meeting other than the meeting
in the second quarter may be changed by the Chairman of the Board, if any, or
the President, by written notice to all Directors at least thirty days before
the regular meeting date, provided that the date to which any meeting is changed
shall not be more than fifteen days earlier or later than the date fixed by the
Board. Special meetings of the Board may be called at any time upon five days'
written notice given by the Chairman of the Board, if any, the President or any
two Directors. In the alternative, upon oral or written notice received prior to
the time of the meeting by at least two-thirds of the Directors, the Chairman of
the Board, or acting Chairman of the Board, may call a special meeting of the
Board to be held through communications equipment which permits all participants
to communicate with each other, with such participation constituting attendance
at such meeting. Any Director may waive call or notice required to be given
either before or after the time stated therein. Any meeting may be continued to
the succeeding day if the Board does not complete the business coming before it
on the meeting date.
At all meetings of the Board, regular or special, a majority of its number shall
constitute a quorum for the transaction of business. If at any meeting less than
a quorum is present, the meeting may be adjourned from time to time to a
subsequent date, at which date the meeting may be held without notice if a
quorum is then present.
SECTION 3. Officers of the Board; Duties. The Board shall elect from its number
a Chairman of the Board to serve at the pleasure of the Board. The Chairman of
the Board shall, if present, preside at each meeting of the Board and shall have
such powers and shall perform such duties as may be assigned to him by these
By-Laws or by or pursuant to authorization of the Board or, if the Chairman of
the Board is not the chief executive officer of the Company, by the chief
executive officer.
The Board may at any meeting of the Board elect a Secretary of the Board and
such other officers, assistants and committees of the Board as the Board may
deem necessary to serve during the pleasure of the Board, each of whom shall
have and perform such duties as may be assigned to him by the Board or by the
Chairman of the Board. The Secretary of the Board shall keep a record of all
proceedings of the Board.
The Board shall by resolution establish a procedure to provide for an acting
Chairman of the Board in the event the current Chairman of the Board is unable
to serve or act in that capacity.
SECTION 4. Compensation of Directors. Directors who are not officers of the
Company shall be entitled to an annual retainer and an additional amount for
attendance at each regular or special meeting of the Board or meetings of
committees of the Company, plus expense of attending such meetings, if any, as
may be fixed by the Board.
ARTICLE IV
OFFICERS OF THE COMPANY
SECTION 1. President. The Board shall, at the first meeting of the Board
following the annual meeting of the Company, or at any meeting thereafter to
fill a vacancy in the office, elect from its number a President of the Company
to serve for one year or until his successor is elected.
SECTION 2. Chief Executive Officer. The Board shall empower either the Chairman
of the Board, if one is elected, or the President to serve as the chief
executive officer of the Company.
SECTION 3. Other Officers Elected by Board. At any meeting of the Board it may
elect such officers of the Company, in addition to a President, as the Board may
deem necessary, to serve at the pleasure of the Board.
SECTION 4. Other Officers. The Board may authorize the Company to elect or
appoint other officers, each of whom shall serve at the pleasure of the Company.
SECTION 5. Duties of Officers. The chief executive officer shall supervise the
carrying out of policies adopted or approved by the Board, shall exercise a
general supervision and superintendence over all the business and affairs of the
Company, and shall possess such other powers and perform such other duties as
may be incident to his function.
The President, if not the chief executive officer, shall have such powers and
perform such duties as may be assigned to him by these By-Laws or by or pursuant
to authorization of the Board or by the chief executive officer.
Other officers elected by the Board shall have such powers and perform such
duties as may be assigned to them by or pursuant to authorization of the Board
or by the chief executive officer.
Officers elected or appointed by the Company shall have such powers and perform
such duties as may be assigned to them by the Company.
SECTION 6. Compensation of Officers. The compensation of all officers elected by
the Board shall be fixed by the Board. The compensation of officers elected or
appointed by the Company shall be fixed as provided by resolution of the Board
of Directors.
ARTICLE V
COMMITTEES
SECTION 1. Executive Committee. An Executive Committee is hereby created
composed of five Directors and shall include the Chairman of the Board and the
chief executive officer if other than the Chairman of the Board. Members of the
Executive Committee shall be appointed by and serve at the pleasure of the
Board. If the Board has elected a Chairman of the Board he shall, if present,
preside at each meeting of the Executive Committee. In the absence or vacancy in
the office of the Chairman of the Board, the chief executive officer shall
preside. If the Chairman of the Board is also the chief executive officer, any
other member of the Executive Committee, as determined by the members of the
Executive Committee present, shall preside at a meeting of the Committee in the
absence of the Chairman of the Board. The Secretary of the Board shall act as
secretary of the Executive Committee and shall keep a record of all proceedings.
A majority of the members of the Executive Committee shall constitute a quorum.
SECTION 2. Powers of Executive Committee. The Executive Committee shall have and
may exercise the powers of the Board in the management and affairs of the
Company except when the Board is in session and except the power to make, alter
or repeal By-Laws or to nominate candidates for election to, fill vacancies in
or change the number of members of the Board. Actions of the Executive
Committee, except when the rights or acts of third parties would be adversely
affected, shall be subject to the approval of the Board, which approval shall be
implied unless contrary action is taken by the Board.
SECTION 3. Other Committees. Other committees composed of members or directors,
officers, agents, or employees of the Company or of any subsidiary or affiliate
of the Company may be appointed and their respective functions, terms and duties
prescribed from time to time by the Board of Directors, by the chief executive
officer subject to the approval of the Board, or by the chief executive officer.
ARTICLE VI
EXECUTION AND SIGNING OF INSTRUMENTS
AND CHECKS: FACSIMILE SIGNATURES
SECTION 1. Execution of Instruments. Instruments affecting or relating to real
estate or the investment of funds of the Company may be executed as authorized
by resolution of the Board or as may be authorized by such officers of the
Company as the Board designates.
SECTION 2. Disposition of Funds. The funds of the Company shall be paid out,
transferred or otherwise disposed of only in such manner and under such controls
as may be authorized by resolution of the Board or as may be authorized by such
officers of the Company as the Board designates.
SECTION 3. Survival of Validity of Instrument Bearing Facsimile signature. If
any officer whose facsimile signature has been placed upon any form of
instrument shall have ceased to be such officer before an instrument in such
form is issued, such instrument may be issued with the same effect as if he had
been such officer at the time of its issue.
ARTICLE VII
INDEMNITY
The Board shall have the power to indemnify, or authorize the officers of the
Company to indemnify, directly and through insurance coverage, each person now
or hereafter a Director, officer, employee or other representative of the
Company, and that person's heirs and legal representatives, against all damages,
awards, costs and expenses, including counsel fees, reasonably incurred or
imposed in connection with or resulting from any action, suit or proceeding, or
the settlement thereof prior to final adjudication, to which such person is or
may be made a party by reason of being or having been a Director, officer,
employee or other representative of the Company or by reason of service at the
request of the Company in any capacity with another entity or organization. Such
rights or indemnification shall be in addition to any rights to which any
Director, officer, employee or other representative of the Company, former,
present or future, may otherwise be entitled as a matter of law and subject to
such limitations permitted by law as may be established by the Board.
ARTICLE VIII
AMENDMENT OF BY-LAWS
These By-Laws may be amended, altered or repealed by the Board at any regular or
special meeting of the Board, provided written notice expressing in substance
the proposed change shall have been given to each Director at least five days
prior to the date of such regular or special meeting to each Director who does
not waive notice. Notice may be waived by any Director by filing a written
waiver of notice with the Secretary of Board before, on or after the meeting
date.
ARTICLE IX
MEANINGS OF WORDS AND TERMS
When used in these By-Laws, the following words and terms shall have the meaning
assigned to them in this Article.
Company - Principal Mutual Life Insurance Company (which also may be
known as Bankers Life Company and Princor Mutual Life
Insurance Company)
Board - Board of Directors of the Company
By-Laws - these By-Laws of the Board, as from time to time amended
Articles - Articles of Incorporation of the Company, as from time to
time amended
member - a member of the Company, as defined in the Articles
Director - a person duly elected to the Board of the Company
class - that group of Directors whose terms expire on the date of the
same annual meeting of the Company.
candidate- a person duly nominated for election to the Board pursuant to the
provisions of the Articles and By-Laws
January 11, 1994
Board of Directors
Principal Mutual Life Insurance Company
711 High Street
Des Moines, IA 50392
Re Separate Account B
Gentlemen
The establishment of Separate Account B by the Board of Directors of Principal
Mutual Life Insurance Company as a separate account for assets applicable to
variable annuity contracts, pursuant to the then existing provisions of the Code
of Iowa applicable to the establishment of separate accounts by Iowa domiciled
life insurance companies, was supervised by the office of General Counsel of the
Company. I have supervised the preparation of the Registration Statement on Form
N-4 to be filed by Principal Mutual Life Insurance Company with the Securities
and Exchange Commission under the Securities Act of 1933 with respect to the
Flexible Variable Annuity Contract.
It is my opinion that:
1. Separate Account B is a separate account of the Company duly created and
validly existing pursuant to Iowa law, currently consisting of ten distinct
Divisions.
2. The Flexible Variable Annuity Contract, when issued in accordance with the
Prospectuses contained or referred to in the Registration Statement and
upon compliance with applicable local law, will be legal and binding
obligations of the Company enforceable in accordance with their terms.
3. All income and expenses and all gains and losses, whether or not realized,
of Separate Account B, shall be credited to or charged against those
assets, without regard to income and expenses or gains and losses of the
Company.
4. The assets of Separate Account B, equal to the reserves and other
liabilities arising under the contracts, shall not be charged with any
liabilities arising from any other business conducted by the Company.
In arriving at the foregoing opinion, I have made such examination of law and
examined such records and other documents as in my judgment are necessary or
appropriate.
I consent to the filing of this opinion as an exhibit to the Registration
Statement and to the use of my name under the caption "Legal Opinions" in the
prospectus contained in the Registration Statement.
Very truly yours
G. R. NARBER
G. R. Narber
Senior Vice President
and General Counsel
GRN/ka
Consent of Independent Auditors
We consent to the reference to our firm under the captions "Experts" in Part A
and "Independent Auditors" in Part B, and to the use of our reports dated
February 7, 1996 (with respect to Principal Mutual Life Insurance Company
Separate Account B) and January 31, 1996 (with respect to Principal Mutual Life
Insurance Company), in Post-Effective Amendment No. 2 to the Registration
Statement (Form N-4 No. 33-74232) and related Prospectus of Principal Mutual
Life Insurance Company Separate Account B Flexible Variable Annuity Contract.
ERNST & YOUNG LLP
Des Moines, Iowa
February 28, 1996
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director of Principal
Mutual Life Insurance Company, an Iowa corporation (the "Company"), hereby
constitutes and appoints D. J. Drury, G. D. Hurd, T. M. Hutchison and F. W.
Weitz, and each of them (with full power to each of them to act alone), the
undersigned's true and lawful attorney-in-fact and agent, with full power of
substitution to each, for and on behalf and in the name, place and stead of the
undersigned, to execute and file any of the documents referred to below relating
to registration under the Securities Act of 1933 with respect to flexible
premium variable life insurance contracts, with premiums received in connection
with such contracts held in the Principal Mutual Life Insurance Company Variable
Life Separate Account on Form S-6 or other forms under the Securities Act of
1933, and any and all amendments thereto and reports thereunder with all
exhibits and all instruments necessary or appropriate in connection therewith,
each of said attorneys-in-fact and agents and his or their substitutes being
empowered to act with or without the others or other, and to have full power and
authority to do or cause to be done in the name and on behalf of the undersigned
each and every act and thing requisite and necessary or appropriate with respect
thereto to be done in and about the premises in order to effectuate the same, as
fully to all intents and purposes as the undersigned might or could do in
person; hereby ratifying and confirming all that said attorneys-in-fact and
agents, or any of them, may do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned director has hereunto set his hand this 3rd
day of January, 1996.
M. Vermeer Andringa
_____________________________________________
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director of Principal
Mutual Life Insurance Company, an Iowa corporation (the "Company"), hereby
constitutes and appoints D. J. Drury, G. D. Hurd, T. M. Hutchison and F. W.
Weitz, and each of them (with full power to each of them to act alone), the
undersigned's true and lawful attorney-in-fact and agent, with full power of
substitution to each, for and on behalf and in the name, place and stead of the
undersigned, to execute and file any of the documents referred to below relating
to registration under the Securities Act of 1933 with respect to flexible
premium variable life insurance contracts, with premiums received in connection
with such contracts held in the Principal Mutual Life Insurance Company Variable
Life Separate Account on Form S-6 or other forms under the Securities Act of
1933, and any and all amendments thereto and reports thereunder with all
exhibits and all instruments necessary or appropriate in connection therewith,
each of said attorneys-in-fact and agents and his or their substitutes being
empowered to act with or without the others or other, and to have full power and
authority to do or cause to be done in the name and on behalf of the undersigned
each and every act and thing requisite and necessary or appropriate with respect
thereto to be done in and about the premises in order to effectuate the same, as
fully to all intents and purposes as the undersigned might or could do in
person; hereby ratifying and confirming all that said attorneys-in-fact and
agents, or any of them, may do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned director has hereunto set his hand this 3rd
day of January, 1996.
R. M. Davis
_____________________________________________
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director of Principal
Mutual Life Insurance Company, an Iowa corporation (the "Company"), hereby
constitutes and appoints D. J. Drury, G. D. Hurd, T. M. Hutchison and F. W.
Weitz, and each of them (with full power to each of them to act alone), the
undersigned's true and lawful attorney-in-fact and agent, with full power of
substitution to each, for and on behalf and in the name, place and stead of the
undersigned, to execute and file any of the documents referred to below relating
to registration under the Securities Act of 1933 with respect to flexible
premium variable life insurance contracts, with premiums received in connection
with such contracts held in the Principal Mutual Life Insurance Company Variable
Life Separate Account on Form S-6 or other forms under the Securities Act of
1933, and any and all amendments thereto and reports thereunder with all
exhibits and all instruments necessary or appropriate in connection therewith,
each of said attorneys-in-fact and agents and his or their substitutes being
empowered to act with or without the others or other, and to have full power and
authority to do or cause to be done in the name and on behalf of the undersigned
each and every act and thing requisite and necessary or appropriate with respect
thereto to be done in and about the premises in order to effectuate the same, as
fully to all intents and purposes as the undersigned might or could do in
person; hereby ratifying and confirming all that said attorneys-in-fact and
agents, or any of them, may do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned director has hereunto set his hand this 3rd
day of January, 1996.
D. J. Drury
_____________________________________________
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director of Principal
Mutual Life Insurance Company, an Iowa corporation (the "Company"), hereby
constitutes and appoints D. J. Drury, G. D. Hurd, T. M. Hutchison and F. W.
Weitz, and each of them (with full power to each of them to act alone), the
undersigned's true and lawful attorney-in-fact and agent, with full power of
substitution to each, for and on behalf and in the name, place and stead of the
undersigned, to execute and file any of the documents referred to below relating
to registration under the Securities Act of 1933 with respect to flexible
premium variable life insurance contracts, with premiums received in connection
with such contracts held in the Principal Mutual Life Insurance Company Variable
Life Separate Account on Form S-6 or other forms under the Securities Act of
1933, and any and all amendments thereto and reports thereunder with all
exhibits and all instruments necessary or appropriate in connection therewith,
each of said attorneys-in-fact and agents and his or their substitutes being
empowered to act with or without the others or other, and to have full power and
authority to do or cause to be done in the name and on behalf of the undersigned
each and every act and thing requisite and necessary or appropriate with respect
thereto to be done in and about the premises in order to effectuate the same, as
fully to all intents and purposes as the undersigned might or could do in
person; hereby ratifying and confirming all that said attorneys-in-fact and
agents, or any of them, may do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned director has hereunto set his hand this 3rd
day of January, 1996.
C. D. Gelatt, Jr.
_____________________________________________
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director of Principal
Mutual Life Insurance Company, an Iowa corporation (the "Company"), hereby
constitutes and appoints D. J. Drury, G. D. Hurd, T. M. Hutchison and F. W.
Weitz, and each of them (with full power to each of them to act alone), the
undersigned's true and lawful attorney-in-fact and agent, with full power of
substitution to each, for and on behalf and in the name, place and stead of the
undersigned, to execute and file any of the documents referred to below relating
to registration under the Securities Act of 1933 with respect to flexible
premium variable life insurance contracts, with premiums received in connection
with such contracts held in the Principal Mutual Life Insurance Company Variable
Life Separate Account on Form S-6 or other forms under the Securities Act of
1933, and any and all amendments thereto and reports thereunder with all
exhibits and all instruments necessary or appropriate in connection therewith,
each of said attorneys-in-fact and agents and his or their substitutes being
empowered to act with or without the others or other, and to have full power and
authority to do or cause to be done in the name and on behalf of the undersigned
each and every act and thing requisite and necessary or appropriate with respect
thereto to be done in and about the premises in order to effectuate the same, as
fully to all intents and purposes as the undersigned might or could do in
person; hereby ratifying and confirming all that said attorneys-in-fact and
agents, or any of them, may do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned director has hereunto set his hand this 3rd
day of January, 1996.
G. D. Hurd
_____________________________________________
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director of Principal
Mutual Life Insurance Company, an Iowa corporation (the "Company"), hereby
constitutes and appoints D. J. Drury, G. D. Hurd, T. M. Hutchison and F. W.
Weitz, and each of them (with full power to each of them to act alone), the
undersigned's true and lawful attorney-in-fact and agent, with full power of
substitution to each, for and on behalf and in the name, place and stead of the
undersigned, to execute and file any of the documents referred to below relating
to registration under the Securities Act of 1933 with respect to flexible
premium variable life insurance contracts, with premiums received in connection
with such contracts held in the Principal Mutual Life Insurance Company Variable
Life Separate Account on Form S-6 or other forms under the Securities Act of
1933, and any and all amendments thereto and reports thereunder with all
exhibits and all instruments necessary or appropriate in connection therewith,
each of said attorneys-in-fact and agents and his or their substitutes being
empowered to act with or without the others or other, and to have full power and
authority to do or cause to be done in the name and on behalf of the undersigned
each and every act and thing requisite and necessary or appropriate with respect
thereto to be done in and about the premises in order to effectuate the same, as
fully to all intents and purposes as the undersigned might or could do in
person; hereby ratifying and confirming all that said attorneys-in-fact and
agents, or any of them, may do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned director has hereunto set his hand this 3rd
day of January, 1996.
T. M. Hutchison
_____________________________________________
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director of Principal
Mutual Life Insurance Company, an Iowa corporation (the "Company"), hereby
constitutes and appoints D. J. Drury, G. D. Hurd, T. M. Hutchison and F. W.
Weitz, and each of them (with full power to each of them to act alone), the
undersigned's true and lawful attorney-in-fact and agent, with full power of
substitution to each, for and on behalf and in the name, place and stead of the
undersigned, to execute and file any of the documents referred to below relating
to registration under the Securities Act of 1933 with respect to flexible
premium variable life insurance contracts, with premiums received in connection
with such contracts held in the Principal Mutual Life Insurance Company Variable
Life Separate Account on Form S-6 or other forms under the Securities Act of
1933, and any and all amendments thereto and reports thereunder with all
exhibits and all instruments necessary or appropriate in connection therewith,
each of said attorneys-in-fact and agents and his or their substitutes being
empowered to act with or without the others or other, and to have full power and
authority to do or cause to be done in the name and on behalf of the undersigned
each and every act and thing requisite and necessary or appropriate with respect
thereto to be done in and about the premises in order to effectuate the same, as
fully to all intents and purposes as the undersigned might or could do in
person; hereby ratifying and confirming all that said attorneys-in-fact and
agents, or any of them, may do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned director has hereunto set his hand this 3rd
day of January, 1996.
C. S. Johnson
_____________________________________________
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director of Principal
Mutual Life Insurance Company, an Iowa corporation (the "Company"), hereby
constitutes and appoints D. J. Drury, G. D. Hurd, T. M. Hutchison and F. W.
Weitz, and each of them (with full power to each of them to act alone), the
undersigned's true and lawful attorney-in-fact and agent, with full power of
substitution to each, for and on behalf and in the name, place and stead of the
undersigned, to execute and file any of the documents referred to below relating
to registration under the Securities Act of 1933 with respect to flexible
premium variable life insurance contracts, with premiums received in connection
with such contracts held in the Principal Mutual Life Insurance Company Variable
Life Separate Account on Form S-6 or other forms under the Securities Act of
1933, and any and all amendments thereto and reports thereunder with all
exhibits and all instruments necessary or appropriate in connection therewith,
each of said attorneys-in-fact and agents and his or their substitutes being
empowered to act with or without the others or other, and to have full power and
authority to do or cause to be done in the name and on behalf of the undersigned
each and every act and thing requisite and necessary or appropriate with respect
thereto to be done in and about the premises in order to effectuate the same, as
fully to all intents and purposes as the undersigned might or could do in
person; hereby ratifying and confirming all that said attorneys-in-fact and
agents, or any of them, may do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned director has hereunto set his hand this 3rd
day of January, 1996.
W. T. Kerr
_____________________________________________
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director of Principal
Mutual Life Insurance Company, an Iowa corporation (the "Company"), hereby
constitutes and appoints D. J. Drury, G. D. Hurd, T. M. Hutchison and F. W.
Weitz, and each of them (with full power to each of them to act alone), the
undersigned's true and lawful attorney-in-fact and agent, with full power of
substitution to each, for and on behalf and in the name, place and stead of the
undersigned, to execute and file any of the documents referred to below relating
to registration under the Securities Act of 1933 with respect to flexible
premium variable life insurance contracts, with premiums received in connection
with such contracts held in the Principal Mutual Life Insurance Company Variable
Life Separate Account on Form S-6 or other forms under the Securities Act of
1933, and any and all amendments thereto and reports thereunder with all
exhibits and all instruments necessary or appropriate in connection therewith,
each of said attorneys-in-fact and agents and his or their substitutes being
empowered to act with or without the others or other, and to have full power and
authority to do or cause to be done in the name and on behalf of the undersigned
each and every act and thing requisite and necessary or appropriate with respect
thereto to be done in and about the premises in order to effectuate the same, as
fully to all intents and purposes as the undersigned might or could do in
person; hereby ratifying and confirming all that said attorneys-in-fact and
agents, or any of them, may do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned director has hereunto set his hand this 3rd
day of January, 1996.
L. Liu
_____________________________________________
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director of Principal
Mutual Life Insurance Company, an Iowa corporation (the "Company"), hereby
constitutes and appoints D. J. Drury, G. D. Hurd, T. M. Hutchison and F. W.
Weitz, and each of them (with full power to each of them to act alone), the
undersigned's true and lawful attorney-in-fact and agent, with full power of
substitution to each, for and on behalf and in the name, place and stead of the
undersigned, to execute and file any of the documents referred to below relating
to registration under the Securities Act of 1933 with respect to flexible
premium variable life insurance contracts, with premiums received in connection
with such contracts held in the Principal Mutual Life Insurance Company Variable
Life Separate Account on Form S-6 or other forms under the Securities Act of
1933, and any and all amendments thereto and reports thereunder with all
exhibits and all instruments necessary or appropriate in connection therewith,
each of said attorneys-in-fact and agents and his or their substitutes being
empowered to act with or without the others or other, and to have full power and
authority to do or cause to be done in the name and on behalf of the undersigned
each and every act and thing requisite and necessary or appropriate with respect
thereto to be done in and about the premises in order to effectuate the same, as
fully to all intents and purposes as the undersigned might or could do in
person; hereby ratifying and confirming all that said attorneys-in-fact and
agents, or any of them, may do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned director has hereunto set his hand this 3rd
day of January, 1996.
V. H. Loewestein
_____________________________________________
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director of Principal
Mutual Life Insurance Company, an Iowa corporation (the "Company"), hereby
constitutes and appoints D. J. Drury, G. D. Hurd, T. M. Hutchison and F. W.
Weitz, and each of them (with full power to each of them to act alone), the
undersigned's true and lawful attorney-in-fact and agent, with full power of
substitution to each, for and on behalf and in the name, place and stead of the
undersigned, to execute and file any of the documents referred to below relating
to registration under the Securities Act of 1933 with respect to flexible
premium variable life insurance contracts, with premiums received in connection
with such contracts held in the Principal Mutual Life Insurance Company Variable
Life Separate Account on Form S-6 or other forms under the Securities Act of
1933, and any and all amendments thereto and reports thereunder with all
exhibits and all instruments necessary or appropriate in connection therewith,
each of said attorneys-in-fact and agents and his or their substitutes being
empowered to act with or without the others or other, and to have full power and
authority to do or cause to be done in the name and on behalf of the undersigned
each and every act and thing requisite and necessary or appropriate with respect
thereto to be done in and about the premises in order to effectuate the same, as
fully to all intents and purposes as the undersigned might or could do in
person; hereby ratifying and confirming all that said attorneys-in-fact and
agents, or any of them, may do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned director has hereunto set his hand this 3rd
day of January, 1996.
J. R. Price, Jr.
_____________________________________________
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director of Principal
Mutual Life Insurance Company, an Iowa corporation (the "Company"), hereby
constitutes and appoints D. J. Drury, G. D. Hurd, T. M. Hutchison and F. W.
Weitz, and each of them (with full power to each of them to act alone), the
undersigned's true and lawful attorney-in-fact and agent, with full power of
substitution to each, for and on behalf and in the name, place and stead of the
undersigned, to execute and file any of the documents referred to below relating
to registration under the Securities Act of 1933 with respect to flexible
premium variable life insurance contracts, with premiums received in connection
with such contracts held in the Principal Mutual Life Insurance Company Variable
Life Separate Account on Form S-6 or other forms under the Securities Act of
1933, and any and all amendments thereto and reports thereunder with all
exhibits and all instruments necessary or appropriate in connection therewith,
each of said attorneys-in-fact and agents and his or their substitutes being
empowered to act with or without the others or other, and to have full power and
authority to do or cause to be done in the name and on behalf of the undersigned
each and every act and thing requisite and necessary or appropriate with respect
thereto to be done in and about the premises in order to effectuate the same, as
fully to all intents and purposes as the undersigned might or could do in
person; hereby ratifying and confirming all that said attorneys-in-fact and
agents, or any of them, may do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned director has hereunto set his hand this 3rd
day of January, 1996.
B. A. Rice
_____________________________________________
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director of Principal
Mutual Life Insurance Company, an Iowa corporation (the "Company"), hereby
constitutes and appoints D. J. Drury, G. D. Hurd, T. M. Hutchison and F. W.
Weitz, and each of them (with full power to each of them to act alone), the
undersigned's true and lawful attorney-in-fact and agent, with full power of
substitution to each, for and on behalf and in the name, place and stead of the
undersigned, to execute and file any of the documents referred to below relating
to registration under the Securities Act of 1933 with respect to flexible
premium variable life insurance contracts, with premiums received in connection
with such contracts held in the Principal Mutual Life Insurance Company Variable
Life Separate Account on Form S-6 or other forms under the Securities Act of
1933, and any and all amendments thereto and reports thereunder with all
exhibits and all instruments necessary or appropriate in connection therewith,
each of said attorneys-in-fact and agents and his or their substitutes being
empowered to act with or without the others or other, and to have full power and
authority to do or cause to be done in the name and on behalf of the undersigned
each and every act and thing requisite and necessary or appropriate with respect
thereto to be done in and about the premises in order to effectuate the same, as
fully to all intents and purposes as the undersigned might or could do in
person; hereby ratifying and confirming all that said attorneys-in-fact and
agents, or any of them, may do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned director has hereunto set his hand this 3rd
day of January, 1996.
J-P. C. Rosso
_____________________________________________
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director of Principal
Mutual Life Insurance Company, an Iowa corporation (the "Company"), hereby
constitutes and appoints D. J. Drury, G. D. Hurd, T. M. Hutchison and F. W.
Weitz, and each of them (with full power to each of them to act alone), the
undersigned's true and lawful attorney-in-fact and agent, with full power of
substitution to each, for and on behalf and in the name, place and stead of the
undersigned, to execute and file any of the documents referred to below relating
to registration under the Securities Act of 1933 with respect to flexible
premium variable life insurance contracts, with premiums received in connection
with such contracts held in the Principal Mutual Life Insurance Company Variable
Life Separate Account on Form S-6 or other forms under the Securities Act of
1933, and any and all amendments thereto and reports thereunder with all
exhibits and all instruments necessary or appropriate in connection therewith,
each of said attorneys-in-fact and agents and his or their substitutes being
empowered to act with or without the others or other, and to have full power and
authority to do or cause to be done in the name and on behalf of the undersigned
each and every act and thing requisite and necessary or appropriate with respect
thereto to be done in and about the premises in order to effectuate the same, as
fully to all intents and purposes as the undersigned might or could do in
person; hereby ratifying and confirming all that said attorneys-in-fact and
agents, or any of them, may do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned director has hereunto set his hand this 3rd
day of January, 1996.
D. M. Stewart
_____________________________________________
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director of Principal
Mutual Life Insurance Company, an Iowa corporation (the "Company"), hereby
constitutes and appoints D. J. Drury, G. D. Hurd, T. M. Hutchison and F. W.
Weitz, and each of them (with full power to each of them to act alone), the
undersigned's true and lawful attorney-in-fact and agent, with full power of
substitution to each, for and on behalf and in the name, place and stead of the
undersigned, to execute and file any of the documents referred to below relating
to registration under the Securities Act of 1933 with respect to flexible
premium variable life insurance contracts, with premiums received in connection
with such contracts held in the Principal Mutual Life Insurance Company Variable
Life Separate Account on Form S-6 or other forms under the Securities Act of
1933, and any and all amendments thereto and reports thereunder with all
exhibits and all instruments necessary or appropriate in connection therewith,
each of said attorneys-in-fact and agents and his or their substitutes being
empowered to act with or without the others or other, and to have full power and
authority to do or cause to be done in the name and on behalf of the undersigned
each and every act and thing requisite and necessary or appropriate with respect
thereto to be done in and about the premises in order to effectuate the same, as
fully to all intents and purposes as the undersigned might or could do in
person; hereby ratifying and confirming all that said attorneys-in-fact and
agents, or any of them, may do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned director has hereunto set his hand this 3rd
day of January, 1996.
E. E. Tallett
_____________________________________________
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director of Principal
Mutual Life Insurance Company, an Iowa corporation (the "Company"), hereby
constitutes and appoints D. J. Drury, G. D. Hurd, T. M. Hutchison and F. W.
Weitz, and each of them (with full power to each of them to act alone), the
undersigned's true and lawful attorney-in-fact and agent, with full power of
substitution to each, for and on behalf and in the name, place and stead of the
undersigned, to execute and file any of the documents referred to below relating
to registration under the Securities Act of 1933 with respect to flexible
premium variable life insurance contracts, with premiums received in connection
with such contracts held in the Principal Mutual Life Insurance Company Variable
Life Separate Account on Form S-6 or other forms under the Securities Act of
1933, and any and all amendments thereto and reports thereunder with all
exhibits and all instruments necessary or appropriate in connection therewith,
each of said attorneys-in-fact and agents and his or their substitutes being
empowered to act with or without the others or other, and to have full power and
authority to do or cause to be done in the name and on behalf of the undersigned
each and every act and thing requisite and necessary or appropriate with respect
thereto to be done in and about the premises in order to effectuate the same, as
fully to all intents and purposes as the undersigned might or could do in
person; hereby ratifying and confirming all that said attorneys-in-fact and
agents, or any of them, may do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned director has hereunto set his hand this 3rd
day of January, 1996.
D. D. Thornton
_____________________________________________
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director of Principal
Mutual Life Insurance Company, an Iowa corporation (the "Company"), hereby
constitutes and appoints D. J. Drury, G. D. Hurd, T. M. Hutchison and F. W.
Weitz, and each of them (with full power to each of them to act alone), the
undersigned's true and lawful attorney-in-fact and agent, with full power of
substitution to each, for and on behalf and in the name, place and stead of the
undersigned, to execute and file any of the documents referred to below relating
to registration under the Securities Act of 1933 with respect to flexible
premium variable life insurance contracts, with premiums received in connection
with such contracts held in the Principal Mutual Life Insurance Company Variable
Life Separate Account on Form S-6 or other forms under the Securities Act of
1933, and any and all amendments thereto and reports thereunder with all
exhibits and all instruments necessary or appropriate in connection therewith,
each of said attorneys-in-fact and agents and his or their substitutes being
empowered to act with or without the others or other, and to have full power and
authority to do or cause to be done in the name and on behalf of the undersigned
each and every act and thing requisite and necessary or appropriate with respect
thereto to be done in and about the premises in order to effectuate the same, as
fully to all intents and purposes as the undersigned might or could do in
person; hereby ratifying and confirming all that said attorneys-in-fact and
agents, or any of them, may do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned director has hereunto set his hand this 3rd
day of January, 1996.
F. W. Weitz
_____________________________________________
SCHEDULE FOR COMPUTING TOTAL RETURN
FVA BALANCED DIVISION
The hypothetical average annual total return quotations for 1
and 5 years ending on April 30, 1994 and from December 18,
1987 (hypothetical inception of the Division) to April 30,
1994 are computed by finding the average annual compounded
rates of return over the 1 and 5 years and period that would
equate the initial amount invested to the ending redeemable
value, according to the following formula:
P(1 + T)n = ERV
Where: P = a hypothetical initial payment of $1000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical
$1000 payment made at the beginning of the
1, 5, or 10 year periods at the end of the
1, 5, or 10 year periods (or fractional
portion thereof).
The above calculation includes all recurring fees that are
charged to all contractowner accounts and a contingent
deferred sales charge subtracted form the ending value.
The Division's average annual total returns for the 1 and 5
years ending April 30, 1994 and period December 18, 1987 to
April 30, 1994 are calculated as follows:
1 YEAR
1000(1 + T)1 = 1031.08
Solve for T
T = 2.82%
5 YEAR
1000(1 + T)5 = 1618.01
Solve for T
T = 9.81%
Period of December 18, 1987 -
April 30, 1994
1000(1 + T)2205/365 = 1896.86
Solve for T
T = 10.89%
<PAGE>
SCHEDULE FOR COMPUTING TOTAL RETURN
FVA BOND DIVISION
The hypothetical average annual total return quotations for 1 and 5 years ending
on April 30, 1994 and from December 18, 1987 (hypothetical inception of the
Division) to April 30, 1994 are computed by finding the average annual
compounded rates of return over the 1 and 5 years and period that would equate
the initial amount invested to the ending redeemable value, according to the
following formula:
P(1 + T)n = ERV
Where: P = a hypothetical initial payment of $1000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical
$1000 payment made at the beginning of the
1, 5, or 10 year periods at the end of the
1, 5, or 10 year periods (or fractional
portion thereof).
The above calculation includes all recurring fees that are
charged to all contractowner accounts and a contingent
deferred sales charge subtracted form the ending value.
The Division's average annual total returns for the 1 and 5
years ending April 30, 1994 and period December 18, 1987 to
April 30, 1994 are calculated as follows:
1 YEAR
1000(1 + T)1 = 1036.72
Solve for T
T = 3.38%
5 YEAR
1000(1 + T)5 = 1572.79
Solve for T
T = 9.19%
Period of December 18, 1987 -
April 30, 1994
1000(1 + T)2205/365 = 1741.43
Solver for T
T = 9.33%
<PAGE>
SCHEDULE FOR COMPUTING TOTAL RETURN
FVA CAPITAL ACCUMULATION DIVISION
The hypothetical average annual total return quotations for 1 and 5 years ending
on April 30, 1994 and from December 18, 1987 (hypothetical inception of the
Division) to April 30, 1994 are computed by finding the average annual
compounded rates of return over the 1 and 5 years and period that would equate
the initial amount invested to the ending redeemable value, according to the
following formula:
P(1 + T)n = ERV
Where: P = a hypothetical initial payment of $1000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical
$1000 payment made at the beginning of the
1, 5, or 10 year periods at the end of the
1, 5, or 10 year periods (or fractional
portion thereof).
The above calculation includes all recurring fees that are
charged to all contractowner accounts and a contingent
deferred sales charge subtracted form the ending value.
The Division's average annual total returns for the 1 and 5
years ending April 30, 1994 and period December 18, 1987 to
April 30, 1994 are calculated as follows:
1 YEAR
1000(1 + T)1 = 1000.71
Solve for T
T = 0.22%
5 YEAR
1000 (1 + T)5 = 1578.73
Solve for T
T = 9.27%
10 YEAR
1000 (1 + T)10 = 2725.79
Solve for T
T = 10.26%
<PAGE>
SCHEDULE FOR COMPUTING TOTAL RETURN
FVA EMERGING GROWTH DIVISION
The hypothetical average annual total return quotations for 1 and 5 years ending
on April 30, 1994 and from December 18, 1987 (hypothetical inception of the
Division) to April 30, 1994 are computed by finding the average annual
compounded rates of return over the 1 and 5 years and period that would equate
the initial amount invested to the ending redeemable value, according to the
following formula:
P(1 + T)n = ERV
Where: P = a hypothetical initial payment of $1000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical
$1000 payment made at the beginning of the
1, 5, or 10 year periods at the end of the
1, 5, or 10 year periods (or fractional
portion thereof).
The above calculation includes all recurring fees that are
charged to all contractowner accounts and a contingent
deferred sales charge subtracted form the ending value.
The Division's average annual total returns for the 1 and 5
years ending April 30, 1994 and period December 18, 1987 to
April 30, 1994 are calculated as follows:
1 YEAR
1000(1 + T)1 = 1107.49
Solve for T
T = 10.46%
5 YEAR
1000(1 + T)5 = 2066.59
Solve for T
T = 15.33%
Period of December 18, 1987 -
April 30, 1994
1000(1 + T)2205/365 = 2575.13
Solve for T
T = 16.66%
<PAGE>
SCHEDULE FOR COMPUTING TOTAL RETURN
FVA GOVERNMENT SECURITIES DIVISION
The hypothetical average annual total return quotations for 1 and 5 years ending
on April 30, 1994 and from December 18, 1987 (hypothetical inception of the
Division) to April 30, 1994 are computed by finding the average annual
compounded rates of return over the 1 and 5 years and period that would equate
the initial amount invested to the ending redeemable value, according to the
following formula:
P(1 + T)n = ERV
Where: P = a hypothetical initial payment of $1000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical
$1000 payment made at the beginning of the
1, 5, or 10 year periods at the end of the
1, 5, or 10 year periods (or fractional
portion thereof).
The above calculation includes all recurring fees that are
charged to all contractowner accounts and a contingent
deferred sales charge subtracted form the ending value.
The Division's average annual total returns for the 1 and 5
years ending April 30, 1994 and period December 18, 1987 to
April 30, 1994 are calculated as follows:
1 YEAR
1000(1 + T)1 = 1021.89
Solve for T
T = 1.90%
5 YEAR
1000(1 + T)5 = 1603.90
Solve for T
T = 9.62%
Period of April 9, 1987 -
April 30, 1994
1000(1 + T)2458/365 = 1752.22
Solve for T
T = 8.40%
<PAGE>
SCHEDULE FOR COMPUTING TOTAL RETURN
FVA MONEY MARKET DIVISION
The hypothetical average annual total return quotations for 1 and 5 years ending
on April 30, 1994 and from December 18, 1987 (hypothetical inception of the
Division) to April 30, 1994 are computed by finding the average annual
compounded rates of return over the 1 and 5 years and period that would equate
the initial amount invested to the ending redeemable value, according to the
following formula:
P(1 + T)n = ERV
Where: P = a hypothetical initial payment of $1000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical
$1000 payment made at the beginning of the
1, 5, or 10 year periods at the end of the
1, 5, or 10 year periods (or fractional
portion thereof).
The above calculation includes all recurring fees that are
charged to all contractowner accounts and a contingent
deferred sales charge subtracted form the ending value.
The Division's average annual total returns for the 1 and 5
years ending April 30, 1994 and period December 18, 1987 to
April 30, 1994 are calculated as follows:
1 YEAR
1000(1 + T)1 = 953.34
Solve for T
T = 4.96%
5 YEAR
1000(1 = T)5 = 1221.88
Solve for T
T = 3.80%
10 YEAR
1000(1 + T)10 = 1687.30
Solve for T
T = 5.08%
SCHEDULE FOR COMPUTING EFFECTIVE ANNUALIZED YIELD
FOR SEPARATE ACCOUNT B FLEX VARIABLE ANNUITY CONTRACT
MONEY MARKET DIVISION
The effective yield quotation based on the seven day period of 12/22/95
through 12/29/95 is computed by determining the net change, exclusive of capital
changes, in the value of a hypothetical pre-existing account having a balance of
one accumulation unit of the sub-account at the beginning of the period,
subtracting a hypothetical charge reflecting deductions from result, according
to the following formula:
a - b - c
EFFECTIVE YIELD = (----------------------+1) ^ 365/7 -1
b
Where:
a = ending unit value
b = beginning unit value
c = expense factor for 7-day period
Separate Account B Personal Contract's Effective Yield is as follows:
EFFECTIVE YIELD =
10.6278272 - 10.6195993 - 0.0000051815
(((-------------------------------------------) + 1) ^ 365/7) - 1 = 4.118387676
10.6195993
EFFECTIVE YIELD = 4.12%
<PAGE>
SCHEDULE FOR COMPUTING ANNUALIZED YIELD
FOR SEPARATE ACCOUNT B FLEX VARIABLE ANNUITY CONTRACT
MONEY MARKET DIVISION
The yield quotation based on the seven day period of 12/22/95 through
12/29/95 is computed by determining the net change, exclusive of capital
changes, in the value of a hypothetical pre-existing account having a balance of
one accumulation unit of the sub-account at the beginning of the period,
subtracting a hypothetical charge reflecting deductions from contractowner
accounts, and dividing the difference by the value of the account at the
beginning of the base period to obtain the base period return, and multiplying
the base period return by (365/7) according to the following formula:
a - b - c 365
EFFECTIVE YIELD = (-------------) x -----------
b 7
Where:
a = ending unit value
b = beginning unit value
c = expense factor for 7-day period
Separate Account B Personal Contract's Yield is as follows:
EFFECTIVE YIELD =
10.6278272 - 10.6195993 - 0.0000051815 365
(((-------------------------------------------) x ------- = 4.118387676
10.6195993 7
EFFECTIVE YIELD = 4.04%
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 18,325,213
<INVESTMENTS-AT-VALUE> 19,198,047
<RECEIVABLES> 0
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 19,198,047
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 0
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 1,483,620
<SHARES-COMMON-PRIOR> 364,441
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 19,198,047
<DIVIDEND-INCOME> 169,797
<INTEREST-INCOME> 0
<OTHER-INCOME> 1,879,337
<EXPENSES-NET> (136,907)
<NET-INVESTMENT-INCOME> 1,912,227
<REALIZED-GAINS-CURRENT> 448,426
<APPREC-INCREASE-CURRENT> 912,921
<NET-CHANGE-FROM-OPS> 3,273,574
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 12,239,971
<NUMBER-OF-SHARES-SOLD> 1,162,971
<NUMBER-OF-SHARES-REDEEMED> 201,095
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 15,513,545
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 136,907
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 10,437,689
<INVESTMENTS-AT-VALUE> 10,841,100
<RECEIVABLES> 0
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 10,841,100
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 0
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 975,797
<SHARES-COMMON-PRIOR> 309,032
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 10,841,100
<DIVIDEND-INCOME> 363,337
<INTEREST-INCOME> 0
<OTHER-INCOME> 270,245
<EXPENSES-NET> (84,020)
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
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<S> <C>
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<S> <C>
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<S> <C>
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<S> <C>
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<S> <C>
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<S> <C>
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