SUPPLEMENT DATED MARCH 4, 1998
TO THE
PRINCIPAL VARIABLE ANNUITY PROSPECTUS DATED DECEMBER 29, 1997
The prospectus dated December 29, 1997 for the above referenced contract is
amended by deleting the last paragraph on page 20 and inserting the following in
lieu thereof:
No surrender charge will be imposed where prohibited by state law, including:
a) State of New Jersey - no surrender charge will be imposed upon full
surrender on or after the later of the Annuitant's age 64 or 4 years
after the Contract Date.
b) State of Washington - no surrender charge will be imposed upon full
surrender on or after the later of the Annuitant's age 70 or 10 years
after the Contract Date.
RF 581 S-4
PRINCIPAL MUTUAL LIFE INSURANCE COMPANY
SEPARATE ACCOUNT B
FLEXIBLE VARIABLE ANNUITY ("FVA") CONTRACT
Issued by Principal Mutual Life Insurance Company (the "Company")
Prospectus dated ______________
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 ________, 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 __ 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: 1-800-247-9988
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 the
Principal Variable Contracts Fund, Inc. These prospectuses should be kept for
future reference.
<PAGE>
TABLE OF CONTENTS
Page
Glossary of Special Terms .............................................. 3
Expense Table and Example............................................... 5
Summary .............................................................. 6
Condensed Financial Information......................................... 9
Description of Principal Mutual Life Insurance Company ................. 10
Principal Mutual Life Insurance Company Separate Account B ............. 11
Mutual Funds............................................................ 11
Surplus Distribution at Sole Discretion of the Company ................. 12
The Contract ........................................................... 12
Purchasing a Contract................................................ 12
Purchase Payment Limitations....................................... 12
Allocation of Purchase Payments.................................... 13
Right to Examine the Contract...................................... 13
Exchange Credit.................................................... 13
Prior to the Retirement Date......................................... 14
Determining the Accumulated Value of the Contract.................. 14
Allocation of Purchase Payments.................................... 15
Transfers.......................................................... 15
Automatic Portfolio Rebalancing.................................... 15
Telephone Services................................................. 16
Total and Partial Surrenders....................................... 16
Benefit Payable on Death of Annuitant or Owner..................... 17
After the Retirement Date............................................ 19
Retirement Date ................................................... 19
Benefit Options ................................................... 19
Death of Annuitant or Other Payee.................................. 20
Charges and Deductions ................................................. 20
Annual Fee........................................................... 20
Mortality and Expense Risks Charge .................................. 21
Transaction Fee...................................................... 21
Premium Taxes ....................................................... 21
Surrender Charge..................................................... 21
Administrative Expense Charge........................................ 23
Special Provisions for Group or Sponsored Arrangements............... 23
Fixed Account........................................................... 23
General Description ................................................. 24
Fixed Account Value ................................................. 24
Fixed Account Transfers, Total and Partial Surrenders................ 24
General Provisions ..................................................... 25
The Contract......................................................... 25
Postponement of Payments............................................. 25
Misstatement of Age or Sex and Other Errors.......................... 25
Assignment .......................................................... 25
Change of Owner...................................................... 25
Beneficiary.......................................................... 25
Reports ............................................................. 26
Rights Reserved by the Company.......................................... 26
Distribution of the Contract............................................ 26
Performance Calculation................................................. 26
Voting Rights........................................................... 27
Federal Tax Matters..................................................... 28
Non-Qualified Contracts.............................................. 28
Required Distributions for Non-Qualified Contracts................... 29
IRA, SEP, SAR/SEP, SIMPLE-IRA and ROTH IRA........................... 29
Withholding.......................................................... 29
Mutual Fund Diversification.......................................... 29
State Regulation........................................................ 30
Legal Opinions.......................................................... 30
Legal Proceedings....................................................... 30
Registration Statement.................................................. 30
Other Variable Annuity Contracts........................................ 30
Independent Auditors.................................................... 30
Financial Statements.................................................... 30
Contractholders' Inquiries.............................................. 30
Table of Contents of the Statement of Additional Information.......... 31
Appendix A............................................................ 32
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
Account -- Series or portfolio of a Mutual Fund in which a Separate Account
Division invests.
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 an account of a 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 -- 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
Annuitants are not permitted in New Jersey, New York or Pennsylvania.)
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 New
Jersey, 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 -- An account established by the Company under Iowa law to
receive Purchase Payments under the Contract and other contracts issued by the
Company. It is divided into Divisions, each of which invests in shares of an
Account of a Mutual Fund.
Divisions may be added, eliminated or combined in the future.
Separate Account Value -- The amount of an Owner's Accumulated Value in all the
Divisions of the Separate Account.
Surrender Charge -- The charge deducted upon any partial or total surrender of
the Contract before the Retirement Date.
Terminal Illness -- A sickness or injury that results in the Owner's or
Annuitant's life expectancy being 12 months or less from the date notice to
receive a distribution from the Contract is provided to the Company.
Total and Permanent Disability -- A disability that occurs after the Contract
Date and that qualifies the Owner or Annuitant to receive Social Security
disability benefits.
Transaction Fee -- A charge deducted due to unscheduled partial surrenders from
the Contract after the first such surrender in a Contract Year and from
unscheduled transfers from a Separate Account Division after the twelfth such
transfer in a Contract Year.
Unit -- The accounting measure used to calculate the value of the Separate
Account Value prior to the Retirement Date.
Unit Value -- A measure used to determine the value of an investment in a
Division.
Valuation Date -- The date as of which the net asset value of a Mutual Fund is
determined.
Valuation Period -- The period of time between when the net asset value of a
Mutual Fund is determined on one Valuation Date and when such value is
determined on the next following Valuation Date.
<PAGE>
EXPENSE TABLE AND EXAMPLE
The following tables depict fees and expenses applicable to the Contract.
The example below should not be considered a representation of past or future
expenses; actual expenses may be greater or less than those shown. See "Charges
and Deductions."
<TABLE>
EXPENSE TABLE
<CAPTION>
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) Purchase Payment was made Payments Received in that Contract Year
<S> <C>
0 (year of Purchase Payment) 6%
1 6%
2 6%
3 5%
4 4%
5 3%
6 2%
7 and later 0%
</TABLE>
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 Risks Fees 1.25%
Other Separate Account Expenses 0
Total Separate Account Annual
Expenses 1.25%
<TABLE>
Annual Expenses of Accounts
(as a percentage of average net assets)
<CAPTION>
Management Total Account
Fees Other Expenses Annual Expenses
<S> <C> <C> <C>
Aggressive Growth Account .80% .02% .82%
Asset Allocation Account .80% .09% .89%
Balanced Account .59% .02% .61%
Bond Account .50% .02% .52%
Capital Value Account .46% .01% .47%
Government Securities Account .50% .02% .52%
Growth Account .49% .01% .50%
International Account .74% .13% .87%
International SmallCap Account 1.20% .06% 1.26%(c)
MicroCap Account 1.00% .06% 1.06%(c)
MidCap Account .62% .02% .64%
MidCap Growth Account .90% .06% .96%(c)
Money Market Account .50% .05% .55%
Real Estate Account .90% .06% .96%(c)
SmallCap Account .85% .06% .91%(c)
SmallCap Growth Account 1.00% .06% 1.06%(c)
SmallCap Value Account 1.10% .06% 1.16%(c)
Utilities Account .60% .06% .66%(c)
</TABLE>
(a) $30 transaction fee will be assessed on each unscheduled transfer
after the twelfth such transfer during a Contract Year.
(b) The Company has reserved the right to assess a daily administrative
charge at a nominal annual rate of .15% of the average daily net assets
of each Division of the Separate Account.
(c) Estimated Expenses.
<PAGE>
<TABLE>
EXAMPLE
<CAPTION>
Separate Account Division 1 Year 3 Years 5 Years 10 Years
<S> <C> <C> <C> <C> <C>
If you surrender your contract at the Aggressive Growth Division $83 $120 $148 $243
end of the applicable time period: Asset Allocation Division $84 $122 $151 $251
Balanced Division $81 $114 $137 $221
You would pay the following Bond Division $80 $112 $133 $212
expenses on a $1,000 investment, Capital Value Division $80 $110 $130 $207
assuming 5% annual return on assets: Government Securities Division $80 $112 $133 $212
Growth Division $80 $111 $132 $210
International Division $84 $122 $150 $249
International SmallCap Division $87 $133 N\A N\A
MicroCap Division $85 $127 N\A N\A
MidCap Division $81 $115 $139 $225
MidCap Growth Division $84 $124 N\A N\A
Money Market Division $81 $113 $134 $215
Real Estate Division $84 $124 N\A N\A
SmallCap Division $84 $123 N\A N\A
SmallCap Growth Division $85 $127 N\A N\A
SmallCap Value Division $82 $130 N\A N\A
Utilities Division $82 $116 N\A N\A
If you annuitize at the end of the Aggressive Growth Division $21 $66 $113 $243
applicable time period or do not Asset Allocation Division $22 $68 $117 $251
surrender your contract: Balanced Division $19 $59 $102 $221
Bond Division $18 $57 $98 $212
Capital Value Division $18 $55 $95 $207
You would pay the following Government Securities Division $18 $57 $98 $212
expenses on a $1,000 investment, Growth Division $18 $56 $97 $210
assuming 5% annual return on assets: International Division $22 $67 $116 $249
International SmallCap Division $26 $79 N\A N\A
MicroCap Division $24 $73 N\A N\A
MidCap Division $20 $60 $104 $225
MidCap Growth Division $23 $70 N\A N\A
Money Market Division $19 $58 $99 $215
Real Estate Division $23 $70 N\A N\A
SmallCap Division $22 $69 N\A N\A
SmallCap Growth Division $24 $73 N\A N\A
SmallCap Value Division $25 $76 N\A N\A
Utilities Division $20 $61 N\A N\A
</TABLE>
The purpose of the above table is to assist the Owner in understanding the
various costs and expenses that an Owner will bear directly or indirectly. The
table reflects expenses of the Separate Account as well as the expenses of the
Accounts in which the Separate Account invests. In certain circumstances, state
premium taxes will also be applicable. See "Charges and Deductions."
<PAGE>
SUMMARY
The following summary should be read in conjunction with the detailed
information in this Prospectus. This Prospectus generally describes only the
portion of the Contract involving the Separate Account. For a brief description
of the Fixed Account, please refer to the heading "Fixed Account" in this
Prospectus.
The Flexible Variable Annuity Contract (also known as the Principal Variable
Annuity Contract) (the "Contract") described in this Prospectus is designed to
provide individuals with retirement benefits in connection with (1) Individual
Retirement Annuity plans or programs ("IRA Plans"), Roth IRA Plans, Simplified
Employee Pension Plans ("SEPs"), Salary Reduction Simplified Employee Pension
Plans ("SAR/SEPs") and Savings Incentive Match Plan for Employees ("SIMPLE")
IRAs 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 Divisions of the Separate Account invests in shares of a
corresponding Account in the Principal Variable Contracts Fund, Inc. The
Accumulated Value in each of the Divisions of the Separate Account will vary to
reflect the investment experience of each of the corresponding Accounts as well
as deductions for certain charges.
Each Account has a separate and distinct investment objective and is managed by
Principal Management Corporation, ("Manager"). For providing investment
management services to the Accounts of the Principal Variable Contracts Fund,
Inc.(the "Fund"), the Manager receives fees from each Account based on the
average daily net assets of the Account. Each Account also bears most of its
other expenses. A full description of Accounts and their investment objectives,
policies and risks can be found in the current Prospectus for the Principal
Variable Contracts Fund, Inc., 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 year 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 year 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; 1-800-247-9988.
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."
<PAGE>
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.
<TABLE>
<CAPTION>
Accumulation Unit Value Number of Accumulation Units
Beginning End Outstanding at End of Period
of Period of Period (in thousands)
<S> <C> <C> <C>
Aggressive Growth Division
Year Ended December 31
1997 18.340 23.689 6,077
1996 14.503 18.340 3,971
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
1997 13.260 15.478 3,134
1996 11.891 13.260 2,264
1995 9.978 11.891 912
Period Ended December 31, 1994 (1) 10.075 9.978 303
Balanced Division
Year Ended December 31
1997 13.708 15.966 6,717
1996 12.270 13.708 4,661
1995 9.972 12.270 1,373
Period Ended December 31, 1994 (1) 10.266 9.972 370
Bond Division
Year Ended December 31
1997 12.275 13.408 5,017
1996 12.143 12.275 3,872
1995 10.064 12.143 1,401
Period Ended December 31, 1994 (1) 10.050 10.064 301
Capital Value Division
Year Ended December 31
1997 16.261 20.642 9,320
1996 13.333 16.261 6,267
1995 10.234 13.333 2,232
Period Ended December 31, 1994 (1) 10.328 10.234 699
Government Securities Division
Year Ended December 31
1997 11.969 13.049 5,946
1996 11.728 11.969 5,443
1995 9.973 11.728 2,023
Period Ended December 31, 1994 (1) 10.133 9.973 572
Growth Division
Year Ended December 31
1997 14.411 18.070 7,898
1996 12.970 14.411 6,089
1995 10.454 12.970 2,619
Period Ended December 31, 1994 (1) 10.336 10.454 764
International Division
Year Ended December 31
1997 13.347 14.795 7,316
1996 10.804 13.347 4,797
1995 9.582 10.804 2,146
Period Ended December 31, 1994 (1) 9.624 9.582 936
MidCap Division
Year Ended December 31
1997 15.405 18.676 9,820
1996 12.880 15.405 7,285
1995 10.108 12.880 3,059
Period Ended December 31, 1994 (1) 10.157 10.108 973
Money Market Division
Year Ended December 31
1997 11.027 11.463 2,752
1996 10.628 11.027 2,929
1995 10.194 10.628 1,370
Period Ended December 31, 1994 (1) 10.027 10.194 702
</TABLE>
(1) Commenced operations on June 16, 1994.
<PAGE>
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.
The Board of Directors of the Company has approved a Plan of Reorganization (the
"Plan") pursuant to which the Company will adopt a mutual insurance holding
company structure. The Plan was approved by the owners of annuity contracts and
life insurance policies issued by the Company and has been submitted to the
Commissioner of Insurance of the State of Iowa (the "Iowa Commissioner") for
approval.
Under the Plan, the Company will form a mutual insurance holding company named
"Principal Mutual Holding Company" and will convert to a stock life insurance
company. As part of such conversion, the Company will change its name to
"Principal Life Insurance Company" ("Principal Life"). Principal Mutual Holding
Company will be the ultimate parent company in the family of companies known as
the Principal Financial Group(R).
Because the Company currently is a mutual life insurance company, Owners have,
in addition to contract rights related to the Contract, certain membership
interests in the Company, consisting principally of the right to vote on the
election of directors of the Company and on other matters and the right to
receive distributions of the Company's surplus upon liquidation or dissolution
of the Company. The Plan will preserve but separate these contract rights and
membership interests. Contract rights will remain with Principal Life, and
Owners on the date the Plan becomes effective (the "Effective Date") will
automatically become members of Principal Mutual Holding Company and such
Owner's membership interests in the Company will be extinguished. Under the
terms of the Plan, the membership interests of members of Principal Mutual
Holding Company will consist principally of the right to vote on the election of
directors of Principal Mutual Holding Company and on other matters and to
receive distributions of Principal Mutual Holding Company's assets upon
liquidation or dissolution of Principal Mutual Holding Company. Owners of
Contracts issued by Principal Life after the Effective Date also will
automatically become members of Principal Mutual Holding Company. The Plan will
not, in any way, increase premium payments or reduce Contract benefits, values,
guarantees or other Contract obligations owed to Owners.
The Company believes that adoption of the Plan will result in a corporate
structure that, among other things, will provide the Company with flexibility in
raising capital through various means that are not currently available to it,
including stock offerings. Any initial offering of voting stock to third parties
will be subject to the approval of the Iowa Commissioner. Although there are no
current plans to offer voting stock, in the event voting stock was sold to third
parties, it is possible that the interests of such third party shareholders and
Owners could diverge on certain issues. The Company, however, believes that such
shareholders and Owners will generally have a greater commonality of interests
than the potential for conflict and will endeavor to minimize the occurrence of
such conflicts and to operate the companies in the best interests of all
constituencies.
The Effective Date is scheduled to be July 1, 1998, but the Iowa Commissioner
must first approve the Plan. In addition, insurance regulatory authorities in
each state must issue an amendment to the Company's Certificate of Authority (to
reflect the name change from Principal Mutual Life Insurance Company to
Principal Life Insurance Company) and must approve the forms which support the
Contract. Should the Effective Date be other than July 1, 1998 or if states
other than Iowa have not completed action by that date, the Company will notify
existing Owners and others by supplementing this prospectus. Contracts issued on
or after the Effective Date will be issued by Principal Life, will not be
participating and will not be eligible to participate in any distribution of
divisible surplus (see "Surplus Distribution at Sole Discretion of the
Company"). As Owner of a Contract issued after the Effective Date, you will be a
member of Principal Mutual Holding Company as described above.
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 $___ billion in assets under management
and serves more than ___ 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 nineteen Divisions in Separate Account B. The assets of
Divisions are invested exclusively in shares of a corresponding Account of the
Principal Variable Contracts Fund, Inc. New Divisions may be added and made
available to Owners of the Contract. Divisions may also be eliminated from the
Separate Account. Some of these Accounts also offer their shares to variable
annuity separate accounts of the Company and to variable annuity and variable
life separate accounts of unaffiliated insurance companies.
MUTUAL FUNDS
The Divisions of Separate Account B currently invest exclusively in shares of an
Account of the Fund. The eighteen Accounts available for investment are as
follows: Aggressive Growth, Asset Allocation, Balanced , Bond, Capital Value,
Government Securities, Growth, International, International SmallCap, MicroCap,
MidCap, MidCap Growth, Money Market, Real Estate, SmallCap, SmallCap Growth,
SmallCap Value and Utilities. Not all Accounts are available in all states. A
current list of which Accounts are available in your state may be obtained from
an authorized agent of the Company. A full description of the Accounts, 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 Fund accompanying this Prospectus and in the Statement of
Additional Information for the Fund referred to therein. Additional copies of
these documents may be obtained from a sales representative or from the
Company's home office.
The Principal Variable Contracts Fund, Inc. is a diversified, open-end
investment management company, typically known as a Mutual Fund. The Manager for
the Fund is Principal Management Corporation. Some of the Accounts of the Fund
are also used to fund variable life insurance contracts issued by the Company.
The 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 Account with
another investment, the Account may have to liquidate securities on a
disadvantageous basis. See "Eligible Purchasers and Purchase of Shares" in the
Fund prospectus for a discussion of the potential risks associated with "mixed
funding."
The Company purchases and redeems shares of the Accounts for the Separate
Account at their net asset value without the imposition of any sales or
redemption charges. Such shares represent interests in the Accounts available
for investment by the Separate Account. Each Account corresponds to one of the
Divisions of the Separate Account. The assets of each Account are separate from
the others and each Account's performance has no effect on the investment
performance of any other Account.
Any dividend or capital gain distributions attributable to the Contract are
automatically reinvested in shares of the Account from which they are received
at that Account'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 Account and increasing, by an equivalent value, the number
of shares outstanding of that Account. 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"), Roth IRA Plans, Simplified Employee Pension
Plans ("SEPs") and Salary Reduction Simplified Employee Pension Plans
("SAR/SEPs") and Savings Incentive Match Plan for Employees ("SIMPLE") IRAs
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. Receipt of the Initial Purchase Payment
at the time of application is not required in connection with SEPs. 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 $2,000,000 without
the Company's prior approval. In New Jersey, after the first Contract
Year, the total of Purchase Payments made during a Contract Year may
not exceed $100,000.
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."
Initial Purchase Payments for a Contract issued in one of the states in
the following 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.
States in Which Purchase Payments are Returned
Colorado Kentucky North Carolina
Connecticut* Louisiana Oklahoma
Georgia Maryland Rhode Island
Hawaii Michigan South Carolina
Idaho Missouri Utah
Indiana Nebraska Washington
* Purchase Payments are refunded if the Contract is cancelled prior
to its delivery, otherwise the account value is refunded.
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 Owners 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.
4. Exchange Credit
Owners of Single Premium Deferred Annuities ("SPDA") and Single Premium
Deferred Annuity Plus ("SPDA+") contracts that have been issued by the
Company and are within at least eight months of the eighth Contract
Year may transfer the accumulated value, free of surrender charge, to
the Contract described in this Prospectus. In addition, the Company
will add an amount as an Exchange Credit. Currently, the amount of the
Exchange Credit is one percent (1%) of the SPDA or SPDA+ surrender
value. The amount of the Exchange Credit is subject to change. The
Company reserves the right to terminate this Exchange Credit program.
In making the decision as to whether to make an exchange, the Owner
should carefully review the SPDA contract or the SPDA+ contract and
this Prospectus as the charges and provisions of the contracts differ.
If the existing SPDA or SPDA+ contract is currently eligible for waiver
of Surrender Charge due to critical need, similar riders may not be
available under this Contract.
To initiate an exchange, the Company must receive 1) an application
for the Contract; 2) a surrender form for the existing SPDA/SPDA+
contract; 3) a replacement form (based on state written) and 4) an
Annuity Exchange Request and Release Form. The exchange will become
effective upon receipt of completed items listed above and acceptance
of the application. The transaction will be valued at the end of the
Valuation Period in which the Company receives all the necessary
documentation at its home office.
The Exchange Credit is allocated among the Divisions of the Separate
Account or to the Fixed Account, or both, in the same ratio as the
Purchase Payment. The credit is treated as additional income for income
tax purposes. If the Owner exercises the right to return the Contract
during the "free look" period, the amount returned is reduced by any
credit applied. See "Right to Examine 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 Account as of the end of the Valuation
Period, plus the per share amount of any dividend or other
distribution made by the Account during the Valuation Period
(less an adjustment for taxes, if any) by (ii) the net asset
value of a share of the Account 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
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.
3. Transfers
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 a $30 charge
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.
4. Automatic Portfolio Rebalancing
Automatic Portfolio Rebalancing (APR) allows you to maintain a specific
percentage of your contract values in each account over time. You may
elect APR at the time of application or after the Contract has been
issued.
For example, a customer may elect APR and choose to rebalance so 50% of
policy values are in the Capital Value Division and 50% are in the
Money Market Division. At the end of the specified period, 60% of the
values may be invested in the Capital Value Division, with the
remaining 40% invested in the Money Market Division. By rebalancing,
units from the Capital Value Division are redeemed and applied as
purchase payments to the Money Market Division so 50% of the contract
values are once again invested in each division.
APR is not available for values in the Fixed Account. You may elect APR
only if you have not arranged for scheduled transfers from the same
divisions.
APR transfers will not begin until the expiration of the "free look"
period (see "Right to Examine the Contract"). There will be no charge
for APR transfers. These transfers will not be considered as
unscheduled transfers in determining any transfer fee.
You may rebalance through APR quarterly, semi-annually, or annually
based on a calendar year or contract year. In addition, you may
rebalance on a one-time basis by completing a form and submitting it to
the Company home office or by calling 1-800-247-9988 (if telephone
privileges apply). The transfers will be made at the end of the next
Valuation Period after the APR instruction is received by the Company.
5. Telephone Services
Unless telephone transaction services (where allowed by state law) 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 1-800-247-9988. 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.
Telephone instructions received from any joint contract owner will be
binding on all contract owners. The Company may modify or terminate
telephone transfer procedures at any time.
You may obtain contract information from our Direct Dial system between
7:00 am and 9:00 pm, Central time, Monday through Saturday. Through
this automated telephone system, you can obtain information about unit
values and contract values, initiate certain changes to your contract,
change your Personal Identification Number (PIN), or speak directly to
a customer service representative. The telephone number is
1-800-247-9988. As with other telephone services, instructions received
via our Direct Dial system will be binding on all contractowners.
6. 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."
7. Benefit Payable on Death of Annuitant or Owner
The death benefit paid to the deceased's Beneficiary will be the
greater of the standard death benefit or the annual enhanced death
benefit, if elected.
a. Standard Death Benefit
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) Highest Accumulated Value 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.
b. Annual Enhanced Death Benefit
Definition The Company also offers an optional death benefit, the
Annual Enhanced Death Benefit Rider. Under this rider, if the
original annuitant or original owner dies prior to the Retirement
date, the death benefit payable to the deceased's Beneficiary is
the greater of:
(1) The Standard Death Benefit (described above); OR
(2) An annual increasing death benefit, based on Purchase
Payments accumulated at 5% (less any partial surrenders
and Surrender Charges incurred) until the later of either
the Contract Anniversary following the original Owner's or
original Annuitant's age 75 birthday or five years from
the effective date of the rider; OR
(3) The highest Accumulated Value on a Contract Anniversary
(increased for subsequent Purchase Payments and decreased
for partial surrenders and Surrender Charges incurred)
until the later of the Contract Anniversary following the
original Owner's or original Annuitant's age 75 birthday
or five years from the effective date of the rider.
Lock-In Feature At the later of the Contract Anniversary following
the original Owner's or original Annuitant's age 75 birthday or
five years after issue ("Lock-In Date"), the Annual Enhanced Death
Benefit amount will be locked-in and will only increase by
Purchase Payments made since the Lock-In Date, less any partial
surrenders and Surrender Charges incurred since the Lock-In Date.
The Lock-In will not prevent the death benefit from increasing
further as provided under the Standard Death Benefit provision in
your Contract.
Ridercharges will continue to be deducted on a quarterly basis to
keep the Annual Enhanced Death Benefit locked in.
After the Lock-In Date, once the Standard Death Benefit equals the
Annual Enhanced Death Benefit, this Rider will terminate. You will
be charged for the Annual Enhanced Death Benefit Rider based on
the number of days from the beginning of the calendar quarter
until the Rider is terminated.
Charges The current charge for the Annual Enhanced Death Benefit
Rider is deducted through the redemption of units from your
Contract's Accumulated Value at the end of each calendar quarter.
The redemption of units from the Owner's Fixed Account value
and/or interest in a Division will be made in the same ratio as
each Account bears to the Owner's Accumulated Value.
Once terminated, the Annual Enhanced Death Benefit Rider cannot
be reinstated.
c. Payment of Death Benefit
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 or, after July 1, 1998, age
90 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.
Except for the Fixed Income Benefit Option, the mortality risk borne by
the Company is 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 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, SAR/SEPs or SIMPLE-IRAs, 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
Accounts which are described in the Fund 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. 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 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 risks 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
will charge a $30 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
Surrender Charge Applied to all Purchase
Years since Purchase Payment made Payments Received in that Contract Year
2 years or less 6%
more than 2 years, up to 3 years 5%
more than 3 years, up to 4 years 4%
more than 4 years, up to 5 years 3%
more than 5 years, up to 6 years 2%
more than 7 years 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.
No surrender charge will be imposed where prohibited by state law,
including:
a) State of New Jersey - no surrender charge will be imposed upon full
surrender on or after Annuitant's age 64 or 4 years after the Contract
Date.
b) State of Washington - no surrender charge will be imposed upon full
surrender on or after the Annuitant's age 70 or 10 years after the
Contract date.
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.
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.
G. Special Provisions for Group or Sponsored Arrangements
Where permitted by state insurance laws, Contracts may be purchased under
group or sponsored arrangements, as well as on an individual basis. A
"group arrangement" includes a program under which a trustee, employer or
similar entity purchases Contracts covering a group of individuals on a
group basis. A "sponsored arrangement" includes a program under which an
employer permits group solicitation of its employees or an association
permits group solicitation of its members for the purchase of Contracts on
an individual basis.
The charges and deductions described above may be reduced for Contracts
issued in connection with group or sponsored arrangements. Such
arrangements may include sales without or reduced mortality and expense
risk charges and/or without annual fees and/or Surrender Charges. The
Company will reduce the above charges and deductions in accordance with its
rules in effect as of the date an application for a Contract is approved.
To qualify for such a reduction, a group or sponsored arrangement must
satisfy certain criteria as to, for example, size of the group, expected
number of participants and anticipated purchase payments from the group.
Generally, the sales contacts and effort, administrative costs and
mortality cost per Contract vary based on such factors as the size of the
group or sponsored arrangements, the purposes for which Contracts are
purchased and certain characteristics of its members. The amount of
reduction and the criteria for qualification will reflect the reduced sales
effort and administrative costs resulting from, and the different mortality
experience expected as a result of, sales to qualifying groups and
sponsored arrangements.
The Company may modify from time to time, on a uniform basis, both the
amounts of reductions and the criteria for qualification. Reductions in
these charges will not be unfairly discriminatory against any person,
including the affected contract owners and all other contract owners with
contracts funded by the Separate Account.
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 year charged for mortality and expense risks
and, if applicable, the .15% per year 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. 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 not to exceed 2% of the Owner's Fixed
Account Value at the beginning of the Contract Year or current value
will continue until the Fixed Account Value is exhausted or until the
Owner notifies the Company to discontinue the scheduled transfers. The
minimum transfer amount is $100 (or, if less, the entire amount of the
Fixed Account Value). The beginning of the Contract Year value will be
used to calculate the 2% unless the Owner specifies current value. 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 total or 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, payment of any amount upon
total surrender, partial surrender, death, or the transfer to or from a Division
of the Separate Account 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.
Quarterly statements reflecting purchases and surrenders occurring during the
quarter as wall as balance of units owned and account values.
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 the shares of an Account for the Account shares held in
any Division:
1) if shares of an Account are no longer available for investment;
or
2) if in the Company's judgement, investment in an Account 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 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 Account in which such Division invests was first offered. The hypothetical
performance from the date of inception of the Account in which the Division
invests is derived by reducing the actual performance of the underlying Account
by the fees and charges of the Contract as if it had been in existence. The
yield and total return figures described below will vary depending upon market
conditions, the composition of the underlying Account's portfolios and operating
expenses. These factors and possible differences in the methods used in
calculating yield and total return should be considered when comparing the
Separate Account performance figures to performance figures published for other
investment vehicles. The Separate Account may also quote rankings, yields or
returns as published by independent statistical services or publishers and
information regarding performance of certain market indices. Any performance
data quoted for the Separate Account represents only historical performance and
is not intended to indicate future performance. For further information on how
the Separate Account calculates yield and total return figures, see the
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 Account shares held in Separate Account B at regular and
special meetings of shareholders of each Account, 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 Account 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 Account, and voting instructions will be
solicited by written communication at least ten days prior to the meeting. The
number of Account 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 Account. Account shares for which Owners are entitled to give voting
instructions, but for which none are received, and shares of the Account 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 Account shares held in
Separate Account B need not be voted pursuant to instructions received from
Owners, then the Company may vote Account 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.
With respect to IRAs or IRA rollovers, 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, (4) part of a series of
substantially equal periodic payments for the life or life expectancy of the
Owner or the Owner and Beneficiary (5) made to pay medical expenses, (6) for
certain unemployment expenses, (7) for first home purchases (up to $10,000) or
8) for higher education expenses. 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.
With respect to SIMPLE-IRAs, in place of the above 10% penalty on premature
distributions, there is a 25% penalty on distributions made within two years of
the initial contribution unless the distribution is made for one or more of the
reasons listed in the preceding paragraph.
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, SAR/SEP, SIMPLE-IRA and ROTH-IRA
The Contract may be used to fund IRAs, SEPs, SAR/SEPs , SIMPLE-IRAs and
ROTH-IRAs. In addition, in certain states the Contract may be used for
conversion of an existing IRA funded with a fixed annuity contract issued by the
Company into a ROTH-IRA. The surrender charge that would otherwise be imposed on
surrenders from the fixed annuity will be waived. The number of years that
assets were in the fixed annuity contract will be credited to the new Contract
for calculation of Surrender Charge. If an existing IRA is funded with this
Contract is surrendered and the proceeds converted into ROTH-IRA funded with a
fixed annuity contract issued by the Company, the surrender charges which would
otherwise be imposed under this Contract will be waived. This conversion
privilege is not available in New Jersey.
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 Account must, as of
the end of each calendar quarter or within 30 days thereafter, have no more than
55% of its assets invested in any one investment, 70% in any two investments,
80% in any three investments and 90% in any four investments. Failure of an
Account to meet the diversification requirements could result in tax liability
to non-qualified contractholders.
The investment opportunities of the Accounts 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.
INDEPENDENT AUDITORS
The financial statements of Principal Mutual Life Insurance Company Separate
Account B and the consolidated financial statements of The Principal Financial
Group(R) (comprised of Principal Mutual Life Insurance Company and its
subsidiaries) 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 consolidated financial statements of The Principal Financial Group(R)
(comprised of the Company and its subsidiaries) 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,
1-800-247-9988.
<PAGE>
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
Principal Mutual Life Insurance Company Separate Account B
Report of Independent Auditors ................................... 7
Financial Statements.............................................. 8
The Principal Financial Group(R)
Report of Independent Auditors ................................... 25
Financial Statements.............................................. 26
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: 1-800-247-9988
APPENDIX A
The Company hereby offers to exchange the Contract described in this Prospectus
("PVA Contract") for certain outstanding Pension Builder Plus Variable Annuity
Contracts ("Pension Builder Plus Contracts") issued in connection with
Individual Retirement Annuity ("IRA") plans or programs, including SEPs and
SAR-SEPs (but excluding employer-sponsored IRAs) adopted pursuant to Section 408
of the Internal Revenue Code or for such Pension Builder Plus Contracts the
withdrawals from which may be transferred to the Contract described in this
prospectus to fund an IRA. 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 Rollover 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 ____________________
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 _________________.
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: 1-800-247-9988
TABLE OF CONTENTS
Independent Auditors ..................................................... 3
Calculation of Yield and Total Return..................................... 3
Taxation Under Certain Retirement Plans................................... 4
Principal Mutual Life Insurance Company Separate Account B
Report of Independent Auditors.................................... 6
Financial Statements.............................................. 7
The Principal Financial Group(R)
Report of Independent Auditors.................................... 24
Financial Statements.............................................. 25
INDEPENDENT AUDITORS
Ernst & Young LLP, Des Moines, Iowa, serve as independent auditors for Principal
Mutual Life Insurance Company Separate Account B and The Principal Financial
Group and perform audit and accounting services for Separate Account B and the
The Principal Financial Group.
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, the Divisions
invest in Accounts of the Principal Variable Contracts Fund, Inc. These Accounts
correspond to open-end investment companies ("mutual funds") which, effective
January 1, 1998, were reorganized into the Accounts of the Principal Variable
Contracts Fund, Inc. as follows:
Old Mutual Fund Name New Corresponding Account Name
-------------------- ------------------------------
Principal Aggressive Growth Fund, Inc. Aggressive Growth Account
Principal Asset Allocation Fund, Inc. Asset Allocation Account
Principal Balanced Fund, Inc. Balanced Account
Principal Bond Fund, Inc. Bond Account
Principal Capital Accumulation Fund, Inc. Capital Value Account
Principal Emerging Growth Fund, Inc. MidCap Account
Principal Government Securities Fund, Inc. Government Securities Account
Principal Growth Fund, Inc. Growth Account
Principal Money Market Fund, Inc. Money Market Account
Principal World Fund, Inc. International Account
The Accounts (under their former names) were offered prior to the date the
Contract was available. Thus, the Separate Account may publish advertisements
containing information about the hypothetical performance of one or more of its
Divisions for this Contract had the contract been issued on or after the date
the Account in which such Division invests was first offered. The hypothetical
performance from the date of inception of the Account in which the Division
invests is derived by reducing the actual performance of the underlying Account
by the fees and charges of the Contract as if it had been in existence. The
yield and total return figures described below will vary depending upon market
conditions, the composition of the underlying Account's portfolios and operating
expenses. These factors and possible differences in the methods used in
calculating yield and total return should be considered when comparing the
Separate Account performance figures to performance figures published for other
investment vehicles. The Separate Account may also quote rankings, yields or
returns as published by independent statistical services or publishers and
information regarding performance of certain market indices. Any performance
data quoted for the Separate Account represents only historical performance and
is not intended to indicate future performance.
From time to time the 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.
Following are the hypothetical average annual total returns for the period
ending December 31, 1997 assuming the contract had been offered as of the
effective dates of the underlying Accounts in which the Divisions invest:
<TABLE>
<CAPTION>
With Contingent Deferred Without Contingent
Sales Charge Deferred Sales Charge
------------------------ ---------------------
Division One Year Five Year Ten Year One Year Five Year Ten Year
-------- -------- --------- -------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Aggressive Growth Division 23.16 26.45(1) 26.45(1) 29.16 27.21(1) 27.21(1)
Asset Allocation Division 10.72 11.93(1) 11.93(1) 16.72 12.96(1) 12.96(1)
Balanced Division 10.46 10.64 11.56 16.46 11.17 11.56
Bond Division 3.27 6.46 8.25 9.23 7.08 8.25
Capital Value Division 20.94 15.89 13.80 26.94 16.33 13.80
Government Securities Division 3.08 5.38 8.00 9.02 6.02 8.00
Growth Division 19.39 16.62(2) 16.62(2) 25.39 17.52(2) 17.52(2)
International Division 4.85 10.24(2) 10.24(2) 10.85 11.28(2) 11.28(2)
MidCap Division 15.23 16.28 16.83 21.23 16.72 16.83
Money Market Division -1.69 2.48 4.28 3.95 3.19 4.28
<FN>
(1) Period from June 1, 1994 through December 31, 1997.
(2) Period from May 2, 1994 through December 31, 1997.
</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
active participants in another retirement plan, (2) are unmarried and have
adjusted gross income of $40,000 or less, or (3) are married and have adjusted
gross income of $60,000 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 $4,000 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 ($40,000 for unmarried,
$60,000 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. Individuals whose
spouse is an active participant in other retirement plans and whose combined
adjusted gross income exceeds the cutoff point of $150,000 by less than $10,000
are entitled to make deductible IRA contributions in proportionately reduced
amounts.
An individual may make non-deductible IRA contributions to the extent of the
excess of (1) the lesser of $2,000 ($4,000 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; distributions to pay medical expenses; distributions for certain
unemployment expenses; distributions for first home purchases (up to $10,000)
and distributions for higher education expenses.
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 $24,000 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 $10,000 in 1998, which is indexed for inflation.
Employees of tax-exempt organizations and state and local government agencies
are not eligible for SAR/SEPs. SAR/SEPs may not be established after December
31, 1996.
Taxation of Distributions. Generally, distribution payments from SEPs and
SAR/SEPs are subject to the same distribution rules described above for IRAs.
Required Distributions. SEPs and SAR/SEPs are subject to the same minimum
required distribution rules described above for IRAs.
Tax-Free Rollovers. Generally, rollovers and direct transfers may be made to and
from SEPs and SAR/SEPs in the same manner as described above for IRAs, subject
to the same conditions and limitations.
SAVINGS INCENTIVE MATCH PLANS FOR EMPLOYEES (SIMPLE IRA)
Purchase Payments. Under Section 408(p) of the Code, employers may establish a
type of IRA plan known as a Simple IRA. Employees may have contributions made to
the SIMPLE IRA on a salary reduction basis. These salary reduction contributions
may not exceed $6,000 in 1998, which is indexed for inflation. Total salary
reduction contributions are limited to $10,000 per year for any employee who
makes salary reduction contributions to more than one plan. Employers are
required to contribute to the SIMPLE IRA, which contributions may not exceed the
lesser of: (1) The amount of salary deferred by the employee, (2) 3% of the
employee's compensation, or (3) $6,000, if the employer contributes on a
matching basis; or the lesser of: (1) 2% of the employee's compensation, or (2)
$3,200, if the employer makes non-elective contributions. An employer may not
make contributions to both a SIMPLE IRA and another retirement plan for the same
calendar year.
Taxation of Distributions. Generally, distribution payments from SIMPLE IRAs are
subject to the same distribution rules described above for IRAs, except that
distributions made within two years of the date of an employee's first
participation in a SIMPLE IRA of an employer are subject to a 25% penalty tax
instead of the 10% penalty tax discussed previously.
Required Distributions. SIMPLE IRAs are subject to the same minimum required
distribution rules described above for IRAs.
Tax-Free Rollovers. Direct transfers may be made among SIMPLE IRAs in the same
manner as described above for IRAs, subject to the same conditions and
limitations. Rollovers from SIMPLE IRAs are permitted after two years have
elapsed from the date of an employee's first participation in a SIMPLE IRA of
the employer. Rollovers to SIMPLE IRAs from other plans are not permitted.
ROTH INDIVIDUAL RETIREMENT ANNUITIES (ROTH IRA)
Purchase Payments. Under Section 408A of the Code, Individuals may make
nondeductible contributions to Roth IRA contracts up to $2,000. This
contribution amount must be reduced by the amount of any contributions made to
other IRAs for the benefit of the Roth IRA owner. The maximum $2,000
contribution is phased out for single taxpayers with adjusted gross income
between $95,000 and $110,000 and for joint filers with adjusted gross income
between $150,000 and $160,000. If taxable income is recognized on the regular
IRA, an IRA owner with adjusted gross income of less than $100,000 may convert a
regular IRA into a Roth IRA. If the conversion is made in 1998, IRA income
recognized may be spread over four years. Otherwise, all IRA income will need to
be recognized in the year of conversion. No IRS 10% tax penalty will apply to
the conversion.
Taxation of Distribution. Qualified distributions are received income-tax free
by the Roth IRA owner, or beneficiary in case of the Roth IRA owner's death. A
qualified distribution is any distribution made after five years if the IRA
owner is over age 59 1/2, dies, becomes disabled, or uses the funds for
first-time home buyer expenses at the time of distribution. The five year period
for converted amounts begins from the year of the conversion.
RF 581 B-7
