SUPPLEMENT DATED JUNE 1, 1999
TO THE PROSPECTUS FOR
FLEXIBLE VARIABLE ANNUITY
DATED MAY 1, 1999
Effective June 1, 1999, the Prospectus for the Flexible Variable Annuity is
amended by replacing
1.) the table on pages 5 and 25 with the following:
Table of Surrender Charges
Number of completed contract years Surrender charge applied to all
since each purchase payment purchase payments received in
was made that contract year
0 (year of purchase payment) 6%
1 6%
2 6%
3 5%
4 4%
5 3%
6 2%
7 and later 0%
2.) the table on the bottom of page 5 with the following:
<TABLE>
<CAPTION>
Management Other Total Account
Account Fees Expenses Annual Expenses
<S> <C> <C> <C> <C>
Aggressive Growth 0.77% 0.01% 0.78%
Asset Allocation 0.80 0.09 0.89
Balanced 0.57 0.02 0.59
Bond 0.49 0.02 0.51
Capital Value 0.43 0.01 0.44
Government Securities 0.49 0.01 0.50
Growth 0.47 0.01 0.48
International 0.73 0.04 0.77
International SmallCap 1.21 0.13 1.34
MicroCap** 1.00 0.38 1.38
MidCap 0.61 0.01 0.62
MidCap Growth** 0.90 0.37 1.27
Money Market 0.50 0.02 0.52
Real Estate 0.90 0.10 1.00
SmallCap 0.85 0.13 0.98
SmallCap Growth** 1.00 0.31 1.31
SmallCap Value** 1.10 0.46 1.56
Utilities 0.60 0.09 0.69
</TABLE>
RF 581 S-7
Flexible Variable Annuity
Issued by Principal Life Insurance Company (the "Company")
This Prospectus is dated May 1, 1999.
The individual deferred annuity contract ("Contract") described in this
Prospectus is funded with the Principal Life Insurance Company Separate Account
B ("Separate Account") and a fixed account ("Fixed Account"). The assets of the
divisions of the Separate Account are invested in a corresponding Account of the
Principal Variable Contracts Fund, Inc. The Fixed Account is a part of the
General Account of the Company.
This prospectus provides information about the Contract and the Separate Account
that you should know before investing. It should be read and retained for future
reference. Additional information about the Contract is included in the
Statement of Additional Information ("SAI"), dated May 1, 1999, which has been
filed with the Securities and Exchange Commission (the "SEC"). The SAI is a part
of this prospectus. The table of contents of the SAI is on page ____ of this
prospectus. You may obtain a free copy of the SAI by writing or telephoning:
Flexible Variable Annuity
Principal Financial Group
P. O. Box 9382
Des Moines, Iowa 50306-9382
Telephone: 1-800-247-9988
An investment in the Contract is not a deposit nor obligation of any bank and is
not insured nor guaranteed by any bank, the Federal Deposit Insurance
Corporation nor any other government agency.
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. (the "Fund"). These prospectuses should
be kept for future reference.
TABLE OF CONTENTS
Glossary .....................................................................4
Summary of Expense Information................................................5
Summary .....................................................................7
Investment Limitations....................................................7
Separate Account Investment Options.......................................7
Transfers.................................................................8
Surrenders................................................................8
Charges and Deductions....................................................8
Annuity Payments..........................................................8
Death Benefit.............................................................8
Free-Look Provision.......................................................8
Condensed Financial Information...............................................9
The Principal Flexible Variable Annuity......................................10
The Company..................................................................10
The Separate Account.........................................................10
The Fund ....................................................................11
Manager and Sub-Advisors.....................................................14
Surplus Distributions........................................................15
The Contract.................................................................15
To Buy a Contract........................................................15
Purchase Payments............................................................15
Allocation of Purchase Payments and Free-Look Period................15
Right to Examine the Contract.......................................16
Exchange Credit.....................................................16
The Accumulation Period..................................................17
The Value of Your Contract..........................................17
Allocation of Purchase Payments.....................................18
Separate Account Division Transfers.................................18
Automatic Portfolio Rebalancing.....................................19
Telephone Services..................................................19
Separate Account Surrenders..............................................20
Total Surrender.....................................................20
Unscheduled Partial Surrender.......................................20
Scheduled Partial Surrender.........................................20
Death Benefit............................................................21
Standard Death Benefit..............................................21
Annual Enhanced Death Benefit.......................................21
Payment of Death Benefit............................................22
Death of Annuitant..................................................22
The Annuity Payment Period...............................................22
Annuity Payment Date................................................22
Annuity Payment Options.............................................23
Charges and Deductions.......................................................24
Annual Fee...............................................................24
Mortality and Expense Risks Charge.......................................24
Transaction Fee..........................................................25
Premium Taxes............................................................25
Surrender Charge.........................................................25
Waiver of Surrender Charge..........................................26
Administration Charge....................................................27
Special Provisions for Group or Sponsored Arrangements...................27
Fixed Account................................................................27
General Description......................................................28
Fixed Account Value..........................................................28
Fixed Account Transfers, Total and Partial Surrender.....................28
Single Unscheduled Transfer.........................................28
Scheduled Fixed Account Transfer....................................29
General Provisions...........................................................29
The Contract.............................................................29
Delay of Payments........................................................29
Misstatement of Age or Gender............................................30
Assignment...............................................................30
Change of Owner..........................................................30
Beneficiary..............................................................30
Contract Termination.....................................................30
Reinstatement............................................................30
Reports..................................................................31
Rights Reserved by the Company...............................................31
Distribution of the Contract.................................................31
Performance Calculation......................................................31
Voting Rights................................................................32
Federal Tax Matters..........................................................33
Non-Qualified Contracts..................................................33
Required Distributions for Non-Qualified Contracts.......................33
IRA, SEP and SIMPLE-IRA..................................................34
Withholding..............................................................34
Year 2000 Readiness Disclosure...............................................35
Mutual Fund Diversification..................................................36
State Regulation.............................................................36
Legal Opinions...............................................................36
Legal Proceedings............................................................36
Registration Statement.......................................................36
Other Variable Annuity Contracts.............................................36
Independent Auditors.........................................................37
Financial Statements.........................................................37
Customer Inquiries...........................................................37
Table of Contents of the Statement of Additional Information.................37
The Contract offered by this prospectus may not be available in all states. This
prospectus is not an offer to sell, or solicitation of an offer to buy, the
Contract in states in which the offer or solicitation may not be lawfully made.
No person is authorized to give any information or to make any representation in
connection with this Contract other than those contained in this prospectus.
GLOSSARY
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.
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.
Annuity payment date - the date the owner's accumulated value is applied, under
an annuity payment option, to make income payments.
Contract date - the date that the Contract is issued and which is used to
determine Contract years.
Contract year - the one-year period beginning on the contract date and ending
one day before the Contract anniversary and any subsequent one year period
beginning on a Contract anniversary.
Division - a part of the Separate Account which invests in shares of an account
of a mutual fund.
Fixed Account - an account which earns guaranteed interest.
Fixed Account Value - The amount of your accumulated value which is in the Fixed
Account.
Joint annuitant - additional annuitant. 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 owner - an owner who has an undivided interest with the right of
survivorship in this Contract with another owner. 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.
Mutual fund - a registered open-end investment company in which a division
invests.
Notice - any form of written communication received by us, at our home office
P.O. Box 9382, Des Moines, Iowa 50306-9382, or in another form approved by us in
advance.
Owner - the person, including joint owner, who owns all the rights and
privileges of this contract.
Purchase payments - the gross amount contributed to the contract. Fixed Account
purchase payments include transfers into the Fixed Account from any Separate
Account division.
Separate Account B - an account established by us under Iowa law to receive
purchase payments under the Contract and other contracts issued by us. It is
divided into divisions which invest in shares of an Account of a mutual fund.
Divisions can be added, eliminated or combined in the future.
Separate Account Value - the amount of your accumulated value in all divisions
of the Separate Account.
Surrender Charge - the charge deducted upon any partial or total surrender of
the Contract before the annuity payment date.
Unit - the accounting measure used to calculate the value of the Separate
Account prior to annuity payment 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 determination of asset value on
one valuation date and the next valuation date.
<PAGE>
SUMMARY OF EXPENSE INFORMATION
The purpose of these tables is to assist you in understanding the various costs
and expenses of the Contract. This information includes expenses of the Contract
as well as the Accounts but does not include any premium taxes that may apply.
For a more complete description of the Contract expenses, see CHARGES AND
DEDUCTIONS.
Contract owner transaction expenses:
o There is no sales charge imposed on purchase payments.
o Surrender charge (as a percentage of amounts surrendered):
Table of Surrender Charges
Number of completed contract years Surrender charge applied to all purchase
since each purchase payment 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 6 years 0%
o Transaction fee - a $30 fee is charged on each unscheduled partial
surrender after the 1st unscheduled partial surrender in a contract
year.
o Transfer fee - following the 12th unscheduled transfer among
divisions within a contract year each additional unscheduled transfer
results in a $30 fee.
o Annual contract fee - the lesser of $30 or 2% of the accumulated
value. Separate Account annual expenses (as a percentage of
average account value)
mortality and expense risks charge 1.25%
other Separate Account expenses 0
total Separate Account annual expenses 1.25%
Annual expense of Accounts (as a percentage of average net assets) as of
December 31, 1998.
<TABLE>
<CAPTION>
Management Other Total Account
Account Fees Expenses Annual Expenses
<S> <C> <C> <C>
Aggressive Growth 0.77% 0.01% 0.78%
Asset Allocation 0.80 0.09 0.89
Balanced 0.57 0.02 0.59
Bond 0.49 0.02 0.51
Capital Value 0.43 0.01 0.44
Government Securities 0.49 0.01 0.50
Growth 0.47 0.01 0.48
International 0.73 0.04 0.77
International SmallCap 1.21 0.13 1.34
MicroCap** 1.00 0.38 1.38
MidCap 0.61 0.01 0.62
MidCap Growth** 0.90 0.37 1.27
Money Market 0.50 0.02 0.52
Real Estate 0.90 0.10 1.00
SmallCap 0.85 0.40 0.40
SmallCap Growth** 1.01 0.13 0.98
SmallCap Value** 1.10 0.30 1.31
Utilities 0.60 0.09 0.69
AIM V.I. Growth
AIM V.I. Growth and Income
AIM V.I. Value
Fidelity VIP II Contrafund
Fidelity VIP Growth
<FN>
* Estimated
**Manager has agreed to reimburse expenses, if necessary, so that total
Account operating expenses for 1999 will be:
MicroCap 1.06% SmallCap Value 1.16%
MidCap Growth 0.96% Stock Index 500 0.40%
SmallCap Growth 1.06%
</FN>
</TABLE>
Example:
The purpose of the following examples is to assist you in understanding the
various costs and expenses that a contract owner bears directly or indirectly.
They reflect expenses of the Separate Account as well as the expenses of the
Account in which the Separate Account invests. In certain circumstances, state
premium taxes also apply.
The examples should not be considered representations of past or future
expenses. Actual expenses may be more or less than those shown.
If you surrender your Contract at the end of the applicable time period, you
would pay the following expenses on a $1,000 investment, assuming 5% annual
return on assets and that expenses were the same as Account expenses for the
last fiscal year.
<TABLE>
<CAPTION>
Separate Account Division 1 Year 3 Years 5 Years 10 Years
<S> <C> <C> <C> <C>
Aggressive Growth $83 $119 $146 $239
Asset Allocation 84 122 151 250
Balanced 81 114 136 219
Bond 80 111 132 211
Capital Value 79 109 129 203
Government Securities 80 111 132 210
Growth 80 110 131 207
International 83 119 145 238
International SmallCap 88 135 173 296
MicroCap 85 127 159 268
MidCap 81 115 138 222
MidCap Growth 84 124 154 258
Money Market 80 112 133 212
Real Estate 85 125 156 262
SmallCap 85 125 155 260
SmallCap Growth 85 127 159 268
SmallCap Value 86 130 164 278
Stock Index 500* 85 125 N/A N/A
Utilities 82 117 141 230
AIM V.I. Growth
AIM V.I. Growth and Income
AIM V.I. Value
Fidelity VIP II Contrafund
Fidelity VIP Growth
<FN>
* Estimated
</FN>
</TABLE>
If you annuitize at the end of the applicable time period or do not surrender
your Contract, you would pay the following expenses on a $1,000 investment,
assuming 5% annual return on assets and that expenses were the same as Account
expenses for the last fiscal year.
<TABLE>
<CAPTION>
Separate Account Division 1 Year 3 Years 5 Years 10 Years
<S> <C> <C> <C> <C>
Aggressive Growth $21 $65 $111 $239
Asset Allocation 22 68 117 250
Balanced 19 59 101 219
Bond 18 56 97 211
Capital Value 17 54 93 203
Government Securities 18 56 97 210
Growth 18 55 95 207
International 21 64 110 238
International SmallCap 27 81 139 296
MicroCap 24 73 125 268
MidCap 19 60 103 222
MidCap Growth 23 70 120 258
Money Market 18 57 98 212
Real Estate 23 71 122 262
SmallCap 23 71 121 260
SmallCap Growth 24 73 125 268
SmallCap Value 25 76 130 278
Stock Index 500* 23 71 N/A N/A
Utilities 20 62 106 230
AIM V.I. Growth
AIM V.I. Growth and Income
AIM V.I. Value
Fidelity VIP II Contrafund
Fidelity VIP Growth
<FN>
* Estimated
</FN>
</TABLE>
SUMMARY
This prospectus describes a flexible variable annuity offered by the Company.
The Contract is designed to provide individuals with retirement benefits,
including (1) Individual Retirement Annuity plans or programs ("IRA Plans"),
Simplified Employee Pension plans ("SEPs") and Savings Incentive Match Plan for
Employees ("SIMPLE") IRAs adopted according to Section 408 of the Internal
Revenue Code (the "Code") and (2) non-qualified retirement plans.
This is a brief summary of the Contract's features. More detailed information
follows later in this prospectus.
Investment Limitations
o Initial purchase payment must be $2,500 or more for non-qualified
retirement plan participants.
o Initial purchase payment must be $1,000 for all other contracts.
o Each subsequent payment must be at least $100.
o If you are a member of a retirement plan covering five or more persons and
payments are made through an automatic investment program, then the initial
and subsequent purchase payments for the contract must average at least
$100 and not be less than $50.
If purchase payments are not 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, then we reserve the right to
terminate a Contract and distribute the accumulated value, less any applicable
charges.
Separate Account Investment Options (see THE FUND):
Division invests in:
- ------------------ -----------
Aggressive Growth Aggressive Growth Account
Asset Allocation Asset Allocation Account
Balanced Balanced Account
Bond Bond Account
Capital Value Capital Value Account
Government Securities Government Securities Account
Growth Growth Account
International International Account
International SmallCap International SmallCap Account
MicroCap MicroCap Account
MidCap MidCap Account
MidCap Growth MidCap Growth Account
Money Market Money Market Account
Real Estate Real Estate Account
SmallCap SmallCap Account
SmallCap Growth SmallCap Growth Account
SmallCap Value SmallCap Value Account
Stock Index 500 Stock Index 500 Account
Utilities Utilities Account
AIM V.I. Growth AIM V.I. Growth Fund
AIM V.I. Growth and Income AIM V.I. Growth and Income Fund
AIM V.I. Value AIM V.I. Value Fund
Fidelity VIP II Contrafund Fidelity VIP II Contrafund Portfolio
Fidelity VIP Growth Fidelity VIP Growth Portfolio
You may allocate your net premium payments to divisions of the Separate Account
and/or the Fixed Account. Not all divisions are available in all states. A
current list of divisions available in your state may be obtained from a sales
representative or our home office.
Each division invests in shares of an underlying mutual fund. More detailed
information about the underlying mutual funds may be found in the current
prospectus for each underlying mutual fund.
The underlying mutual funds are NOT available to the general public directly.
The underlying mutual funds are available only as investment options in variable
life insurance policies or variable annuity contracts issued by life insurance
companies. Some of the underlying mutual funds have been established by
investment advisers that manage publicly traded mutual funds having similar
names and investment objectives. While some of the underlying mutual funds may
be similar to, and may in fact be modeled after publicly traded mutual funds,
you should understand that the underlying mutual funds are not otherwise
directly related to any publicly traded mutual fund. Consequently, the
investment performance of publicly traded mutual funds and of any underlying
mutual fund may differ substantially.
Transfers (see Separate Account Transfers for additional restrictions) During
the accumulation period from the Separate Account divisions:
o dollar amount or percentage of transfer must be specified; and
o transfer may occur on a scheduled or unscheduled basis (a $30 fee is
imposed on each unscheduled transfer after the 12th unscheduled transfer in
a contract year).
During the annuity payment period, transfers are not permitted (no
transfers once payments have begun).
Surrenders (total or partial) (see THE CONTRACT - Separate Account Surrenders
and FIXED ACCOUNT - Fixed Account Transfers, Total and Partial Surrenders)
During the accumulation period:
o a dollar amount must be specified;
o surrendered amounts may be subject to surrender charge;
o total surrenders are subject to an annual fee;
o during a contract year partial surrenders less than the Contract's earnings
or 10% of purchase payments are not subject to a surrender charge; and
o withdrawals before age 59 1/2 may involve an income tax penalty (see
Federal Tax Matters).
Charges and Deductions
o No sales charge on purchase payments.
o A contingent deferred surrender charge is imposed on certain total or
partial surrenders.
o A mortality and expense risks daily charge equal to 1.25% per year applies
to amounts in the Separate Account.
o Daily Separate Account administration charge is currently zero but we
reserve the right to assess a charge not to exceed 0.15% annually.
o Contracts with an accumulated value of less than $30,000 are subject to an
annual contract fee of the lesser of $30 or 2% of the accumulated value.
o Currently there is no annual contract fee for Contracts with an accumulated
value of $30,000 or more.
o Certain states and local governments impose a premium tax. The Company
reserves the right to deduct the amount of the tax from purchase payments
or accumulated values.
Annuity Payments
o You may choose from several fixed annuity payment options which start on
your selected annuity payment date.
o Payments are made to the owner (or beneficiary depending on annuity payment
option selected). You should carefully consider the tax implications of
each annuity option (see THE CONTRACT - Annuity Payment Options and FEDERAL
TAX MATTERS).
o Your Contract refers to annuity payments as "retirement benefit" payments.
Death Benefit
o If the annuitant or owner dies before the annuity payment date, then a
death benefit is payable to the beneficiary of the Contract.
o The death benefit may be paid as either a single sum cash benefit or under
a benefit option (see THE CONTRACT - Death Benefit).
o If the annuitant dies on or after the annuity payment date, then the
beneficiary will receive only any continuing payments which may be provided
by the annuity payment option in effect.
Free-Look Provision
o You may return the Contract during the free-look period which is generally
10 days from the date you receive the contract. The free-look period may be
longer in certain states.
o We return either all purchase payments made or the accumulated value,
whichever is required by applicable state law.
CONDENSED FINANCIAL INFORMATION
Financial statements are included in the Statement of Additional Information.
Following are unit values for the Contract for the periods ended December 31.
***TO BE FILED BY AMENDMENT.***
THE PRINCIPAL FLEXIBLE VARIABLE ANNUITY
The Principal Flexible Variable Annuity is significantly different from a fixed
annuity. As the owner of a variable annuity, you assume the risk of investment
gain or loss (as to amounts in the Separate Account divisions) rather than the
insurance company. The amount of the annuity payment under a variable annuity is
not guaranteed. Payments vary with the investment performance of the portfolio
securities of the underlying Account.
Based on your investment objectives, you direct the allocation of purchase
payments and accumulated values. There can be no assurance that your investment
objectives will be achieved.
THE COMPANY
The Company is a stock life insurance company with its home office at: Principal
Financial Group, Des Moines, Iowa 50306. It is authorized to transact life and
annuity business in all of the United States and the District of Columbia. The
Company is a wholly owned subsidiary of Principal Financial Services, Inc.
In 1879, the Company was incorporated under Iowa law as a mutual life insurance
company named Bankers Life Association. It changed its name to Bankers Life
Company in 1911 and then to Principal Mutual Life Insurance Company in 1986. The
name change to Principal Life Insurance Company and reorganization into a mutual
holding company structure took place in 1998.
THE SEPARATE ACCOUNT
Separate Account B was established under Iowa law on January 12, 1970. It was
registered as a unit investment trust with the SEC on July 17, 1970. This
registration does not involve SEC supervision of the investments or investment
policies of the Separate Account.
The income, gains, and losses, whether or not realized, of the Separate Account
are credited to or charged against the Separate Account without regard to other
income, gains, or losses of the Company. Obligations arising from the Contract,
including the promise to make annuity payments, are general corporate
obligations of the Company. However, the Contract provides that the portion of
the Separate Account's assets equal to the reserves and other liabilities under
the Contract are not charged with any liabilities arising out of any other
business of the Company.
There currently are nineteen divisions in the Separate Account available to you.
The assets of each division invest in a corresponding Account of a mutual fund.
New Accounts may be added and made available. Accounts may also be eliminated
from the Separate Account.
THE FUND
The Principal Variable Contracts Fund, Inc. is a mutual fund registered under
the Investment Company Act of 1940 as a diversified open-end investment
management company. The Fund provides the investment vehicle for the Separate
Account. A full description of the Fund, the investment objectives of its
Accounts, policies and restrictions, charges and expenses and other operational
information is contained in the accompanying prospectus (which should be read
carefully before investing) and the Statement of Additional Information.
Additional copies of these documents are available from a sales representative
or our home office.
Principal Management Corporation manages the Fund. Some of the Fund's Accounts
are used to fund the Company's variable life-insurance contracts. The Fund's
Board of Directors (the "Board") monitors events in order to identify any
material irreconcilable conflicts between the interests of the variable annuity
contract owners and life-insurance policyowners. The Board determines any
responsive action which may need to be taken. If it becomes necessary for any
separate account to replace shares of any Account with an alternate investment,
then the Account may have to liquidate securities on a disadvantageous basis.
The Company purchases and sells fund shares for the Separate Account at their
net asset value without any sales or redemption charge. Shares of the fund
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. An Account's
performance has no effect on the investment performance of any other Account.
The following is a brief summary of the investment objectives of each division:
<TABLE>
<CAPTION>
Division Division Invests In Investment Advisor Investment Objective
<S> <C> <C> <C>
Aggressive Growth Aggressive Growth Account Morgan Stanley through to provide long-term capital appreciation
a sub-advisory agreement by investing primarily in growth-oriented
common stocks of medium and large
capitalization U.S. corporations and, to a
limited extent, foreign corporations.
Asset Allocation Asset Allocation Account Morgan Stanley through to generate a total investment return
a sub-advisory agreement consistent with the preservation of
capital. The Account intends to pursue a
flexible investment policy in seeking to
achieve this investment objective.
Balanced Balanced Account Invista Capital Management, LLC to generate a total return consisting of
through a sub-advisory agreement current
income and capital appreciation
while assuming reasonable risks in
furtherance of this objective.
Bond Bond Account Principal Management Corporation to provide as high a level of income as is
consistent with preservation of capital
and prudent investment risk.
Capital Value Capital Value Account Invista Capital Management, LLC to provide long-term capital appreciation
through a sub-advisory agreement and secondarily is growth of investment
income. The Account seeks to achieve its
investment objectives through the purchase
primarily of common stocks, but the
Account may invest in other securities.
Government Securities Government Securities Account Invista Capital Management, LLC to seek a high level of current income,
through a sub-advisory agreement liquidity and safety of principal. The
Account seeks to achieve its objective
through the purchase of obligations
issued or guaranteed by the United States
Government or its agencies, with
emphasis on Government National
Mortgage Association Certificates
("GNMA Certificates"). Account shares
are not guaranteed by the United States
Government.
Growth Growth Account Invista Capital Management, LLC to seek growth of capital. The Account
through a sub-advisory agreement seeks to achieve its objective through the
purchase primarily of common stocks, but
the Account may invest in other
securities.
International International Account Invista Capital Management, LLC to seek long-term growth of capital by
through a sub-advisory agreement investing in a portfolio of equity
securities domiciled in any of the nations
of the world.
International SmallCap International SmallCap AccountInvista Capital Management, LLC seeks long-term growth of capital. The
through a sub-advisory agreement Account will attempt to achieve its
objective by investing primarily in equity
securities of non-United States companies
with comparatively smaller market
capitalizations.
MicroCap MicroCap Account Goldman Sachs Asset Management seeks long-term growth of capital. The
through a sub-advisory agreement Account will attempt to achieve its
objective by investing primarily in value
and growth oriented companies with
small market capitalizations, generally
less than $700 million.
MidCap MidCap Account Invista Capital Management, LLC to achieve capital appreciation by
through a sub-advisory agreement investing primarily in securities of
emerging and other growth-oriented
companies.
MidCap Growth MidCap Growth Account Dreyfus Corporation through seeks long-term growth of capital. The
a sub-advisory agreement Account will attempt to achieve its
objective by investing primarily in growth
stocks of companies with market
capitalizations in the $1 billion to $10
billion range.
Money Market Money Market Account Principal Management Corporation to seek as high a level of current income
available from short-term securities as is
considered consistent with preservation of
principal and maintenance of liquidity by
investing all of its assets in a portfolio
of money market instruments.
Real Estate Real Estate Account Principal Management Corporation seeks to generate a high total return. The
Account will attempt to achieve its
objective by investing primarily in equity
securities of companies principally
engaged in the real estate industry.
SmallCap SmallCap Account Invista Capital Management, LLC seeks long-term growth of capital. The
through a sub-advisory agreement Account will attempt to achieve its
objective by investing primarily in equity
securities of both growth and value
oriented companies with comparatively
smaller market capitalizations.
SmallCap Growth SmallCap Growth Account Berger Associates through seeks long-term growth of capital. The
a sub-advisory agreement Account will attempt to achieve its
objective by investing primarily in equity
securities of small growth companies with
market capitalization of less than $1
billion.
SmallCap Value SmallCap Value Account J.P. Morgan through seeks long-term growth of capital. The
a sub-advisory agreement Account will attempt to achieve its
objective by investing primarily in equity
securities of small companies with value
characteristics and market capitalizations
of less than $1 billion.
Stock Index 500 Stock Index 500 Account Invista Capital Management, LLC The Account attempts to mirror the
through a sub-advisory agreement investment results of the Standard &
Poor's 500 Stock Index.
Utilities Utilities Account Invista Capital Management, LLC seeks to provide current income and long-
through a sub-advisory agreement term growth of income and capital. The
Account will attempt to achieve its
objective by investing primarily in equity
and fixed-income securities of companies
in the public utilities industry.
AIM V.I. Growth AIM V.I. Growth Fund AIM Advisors, Inc. seeks growth of capital primarily by
investing in seasoned and better
capitalized companies considered to have
strong earnings momentum.
AIM V.I. Growth AIM V.I. Growth AIM Advisors, Inc. seeks growth of capital with a secondary
and Income and Income Fund objective of current income.
AIM V.I. Value AIM V.I. Value Fund AIM Advisors, Inc. seeks long-term growth of capital by
investing primarily in equity
securities judged by the fund's investment
advisor to be undervalued relative to the
investment advisor's appraisal of
the current or projected earnings of the
companies issuing the securities, or
relative to current market values
of assets owned by the companies issuing
the securities or relative to the equity
market generally. Income is a
secondary objective.
Fidelity VIP II Fidelity VIP II Fidelity Management seeks long-term capital appreciation.
Contrafund Contrafund Portfolio and Research Company
Fidelity VIP Growth Fidelity VIP Growth Portfolio Fidelity Managment seeks to maximize total return by
allocating it's and Research Company
assets among stocks, bonds, short-term
instruments, and other investments.
</TABLE>
MANAGER AND SUB-ADVISORS
Principal Management Corporation (the "Manager") has executed agreements with
various sub-advisors. Under those sub-advisory agreements, the sub-advisor
agrees to assume the obligations of the Manager to provide investment advisory
services for a specific Account. For these services, each sub-advisor is paid a
fee by the Manager.
Account: Balanced, Capital Value, Government Securities, Growth,
International, International SmallCap, MidCap, SmallCap, Stock Index 500
and Utilities
Sub-Advisor: Invista Capital Management, LLC. Invista is a subsidiary
of Principal Life Insurance Company and an affiliate of the Manager.
Invista has managed investments for institutional investors, including
Principal Life, since 1985. As of December 31, 1998, it managed assets
of approximately $31 billion. Invista's address is 1800 Hub Tower, 699
Walnut Avenue, Des Moines, Iowa 50309.
Account: Aggressive Growth, and Asset Allocation
Sub-Advisor: Morgan Stanley Asset Management Inc. ("MSAM"), with
principal offices at 1221 Avenue of the Americas, New York, NY 10020,
provides a broad range of portfolio management services to customers
in the U.S. and abroad. At December 31, 1998 MSAM managed investments
totaling approximately $163.4 billion. On December 31, 1998, MSAM
changed its name to Morgan Stanley Dean Witter Investment Management
Inc. but continues to do business in certain instances using the name
Morgan Stanley Asset Management.
Account: MidCap Growth
Sub-Advisor: The Dreyfus Corporation, located at 200 Park Avenue, New
York, NY 10166, was formed in 1947. The Dreyfus Corporation is a
wholly-owned subsidiary of Mellon Bank, N.A. which is a wholly-owned
subsidiary of Mellon Bank Corporation. As of December 31, 1998, the
Dreyfus Corporation managed or administered approximately $118.5
billion in assets for approximately 1.7 million investor accounts
nationwide.
Account: MicroCap
Sub-Advisor: Goldman Sachs Asset Management ("GSAM"), One New York
Plaza, New York, NY 10004, is a separate operating division of Goldman,
Sachs & Co. ("Goldman Sachs"). Goldman Sachs provides a wide range of
fully discretionary investment advisory services, quantitatively driven
and actively managed U.S. and international portfolios, commodity and
currency products, and money market mutual funds. As of December 31,
1998, GSAM, together with its affiliates, managed assets in excess of
$195 billion.
Account: SmallCap Value
Sub-Advisor: J.P. Morgan Investment Management Inc. J.P. Morgan
Investment, with principal offices at 522 Fifth Avenue, New York, NY
10036 is a wholly-owned subsidiary of J.P. Morgan & Co. Incorporated
("J.P. Morgan") a bank holding company. J.P. Morgan, through J.P.
Morgan investment and other subsidiaries, offers a wide range of
services to governmental, institutional, corporate and individual
customers and acts as investment advisor to individual and
institutional clients. As of December 31, 1998, J.P. Morgan and its
subsidiaries had total combined assets under management of
approximately $300 billion.
Account: SmallCap Growth
Sub-Advisor: Berger Associates. Berger's address is 210 University
Boulevard, Suite 900, Denver, CO 80206. It serves as investment
advisor, sub-advisor, administrator or sub-administrator to mutual
funds and institutional investors. Berger is a wholly owned subsidiary
of Kansas City Southern Industries, Inc. ("KCSI"). KCSI is a publicly
traded holding company with principal operations in rail
transportation, through its subsidiary the Kansas City Southern Railway
Company, and financial asset management businesses. Assets under
management for Berger as of December 31, 1998, were approximately $3.4
billion.
SURPLUS DISTRIBUTIONS
Divisible surplus distributions are not anticipated because the Contracts are
not expected to result in a contribution to the divisible surplus of the
Company. However, if any divisible surplus distribution is made, then it will be
made to the Owners in the form of cash.
THE CONTRACT
The following descriptions are based on provisions of the Contract offered by
this prospectus. You should refer to the actual Contract and the terms and
limitations of any tax qualified plan which is to be funded by the Contract. Tax
qualified plans are subject to several requirements and limitations which may
affect the terms of any particular Contract or the advisability of taking
certain action permitted by the Contract.
To Buy a Contract
If you want to buy a Contract, you must submit an application and make an
initial purchase payment. If you are buying the Contract to fund a SIMPLE-IRA or
SEP, an initial purchase payment is not required at the time you send in the
application. If the application is complete and the Contract applied for is
suitable, the Contract is issued subject to underwriting. If the completed
application is received in proper order, the initial purchase payment is
credited within two valuation days 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 is not credited within five valuation days, it is
refunded unless we have received your permission to retain the purchase payment
until we receive the information necessary to issue the Contract.
The date the Contract is issued is the contract date. The contract date is the
date used to determine contract years, regardless of when the Contract is
delivered. The crediting of investment experience in the Separate Account, or a
fixed rate of return in the Fixed Account, begins on the contract date (even if
that date is delayed due to underwriting or administrative requirements.)
Purchase Payments
o The initial purchase payment must be at least $2,500 for non-qualified
retirement plans.
o All other initial purchase payments must be at least $1,000.
o Subsequent payments must be at least $100 and can be made until the
annuity payment date and while the Annuitant is living.
o If you are a member of a retirement plan covering five or more
persons, then the initial and subsequent purchase payments for the
contract must average at least $100 and cannot be less than $50.
o The total of all purchase payments may not be greater than $2,000,000
without our prior approval.
o In New Jersey after the first contract year, purchase payments cannot
exceed $100,000 per contract year.
The Company reserves the right to:
o increase the minimum amount for each purchase payment to not more than
$1,000; and
o terminate* a Contract and send you the accumulated value if no
premiums are paid during two consecutive calendar years and the
accumulated value (or total purchase payments less partial surrenders
and applicable surrender charges and transfer fees) is less than
$2,000.
*The Company will first notify you of its intent to exercise this
right and give you 60 days to increase the accumulated value to at
least $2,000.
Allocation of Purchase Payments and Free-Look Period
Your purchase payments are allocated to the divisions of the Separate
Account and/or the Fixed Account according to your instructions. The
percentage allocation for future purchase payments may be changed, without
charge, at any time by sending a written request to us, telephoning the
Company at 1-800-247-9988 (if telephone privileges apply), or sending us a
fax (1-515-248-9800). The allocation changes are effective at the end of
the valuation period in which your new instructions are received. You may
not allocate your purchase payments to the Fixed Account if it causes the
value of the Fixed Account to be more than $1,000,000 (without our prior
approval). You may return the Contract for any reason during the free-look
period. Some states require us to return the initial purchase payment. If
your Contract is issued in one of those states, your initial purchase
payments are allocated to the Money Market Division for 15 days (20 days
for contracts issued in Idaho) after the contract date. After the 15-day
period (20 days in Idaho), the initial purchase payment is reallocated
according to your allocation instructions. The states in which purchase
payments are returned are:
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 canceled prior to its
delivery, otherwise the accumulated value is refunded.
If your Contract is issued in a state not listed above and if you return
the Contract during the free-look period, you will receive the accumulated
value.
Right to Examine the Contract
Under state law, you have the right to return the Contract for any reason
during the free-look period. The free-look period is 10 days after the
Contract is delivered to you in all states, unless your Contract is issued
in:
a. California and you are age 60 and over (your free-look period is
30 days);
b. Colorado (15 day free-look period); or
c. Idaho or North Dakota (20 day free-look period).
To return a Contract you must send it and a written request to the
Company's home office or to the sales representative who sold it to you
before the close of business on the last day of the free-look period. If
you send the request (properly addressed and postage prepaid) to the
Company, the date of the postmark is used to determine if the free-look
period has expired. If the purchase payments are allocated to the Money
Market Division, then the Company will return the greater of the Contract's
value or purchase payments paid if the Contract is canceled. Otherwise, the
accumulated value is returned.
If the purchase of this Contract is a replacement for another annuity
contract or a life insurance policy, different free-look periods may apply.
The Company reserves the right to keep the initial purchase payment in the
Money Market division longer than 15 days to correspond to the free-look
periods of a particular state's replacement requirements.
Exchange Credit
If you own a Single Premium Deferred Annuity ("SPDA") or a Single Premium
Deferred Annuity Plus ("SPDA+") issued by us and are within at least 8
months of the 8th Contract year, then you may transfer the accumulated
value, without charge, to the Contract described in this prospectus.
Additionally, we will add 1% of the current SPDA/SPDA+ surrender value to
the purchase payment. We reserve the right to change or terminate this
program.
Both SPDA and SPDA+ are annuities which provide a fixed rate of
accumulation. This Contract varies with the investment experience and
objectives of the various Separate Account divisions. Thus, the value of
your Contract may increase or decrease with the investment holdings of the
Account divisions.
When making an exchange decision, the owner should carefully review the SPDA
or SPDA+ Contract and this Prospectus because the charges and provisions of
the contracts differ. An existing SPDA or SPDA+ contract may be currently
eligible for waiver of surrender charge due to critical need, while similar
riders may not be available under this Contract.
To complete a transfer to this Contract, send
1) a Contract application,
2) a SPDA/SPDA+ surrender form,
3) a replacement form (based on state written), and
4) an Annuity Exchange Request and Release Form.
The exchange is effective when we receive the completed forms and accept the
application. The transaction is valued at the end of the valuation period in
which we receive the necessary documents.
(This "Exchange Credit" is not available in New York and may not be
available in other states as well. Specific information is available from
your registered representative or our home office (1-800-247-9988)).
The Exchange Credit is allocated among the Divisions of the Separate Account
or the Fixed Account, or both, in the same ratio as the allocation of 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, then the amount returned is reduced by any credit applied
(see THE CONTRACT - Right to Examine the Contract).
The Accumulation Period
The Value of Your Contract
The value of your Contract is the total of the Separate Account value plus
any Fixed Account value. The Fixed Account value is described in the
section titled FIXED ACCOUNT.
There is no guaranteed minimum Separate Account value. Its value reflects
the investment experience of the divisions of the Separate Account that you
choose. It also reflects your purchase payments, partial surrenders,
surrender charges and the Contract expenses deducted from the Separate
Account.
The Separate Account value changes from day to day. To the extent the
accumulated value is allocated to the Separate Account, you bear the
investment risk. At the end of any valuation period, your Contract's value
in a division is:
o the number of units you have in a division multiplied by
o the value of a unit in the division.
The number of units is the total of units purchased by allocations to the
division from:
o your initial purchase payment;
o subsequent investments; and
o transfers from another division or the Fixed Account.
minus units sold:
o for partial surrenders from the division;
o as part of a transfer to another division or the Fixed Account; and
o to pay contract charges and fees.
Unit values are calculated each valuation date at the close of the New York
Stock Exchange. To calculate the unit value of a division, the unit value
from the previous valuation date is multiplied by the division's net
investment factor for the current valuation period. The number of units
does not change due to a change in unit value.
The net investment factor measures the performance of each division. The
net investment factor for a valuation period is calculated as follows:
[{share price of the underlying mutual fund account at the end of the
valuation period
plus
per share amount of the dividend (or other distribution) made by the
mutual fund account during the valuation period}
divided by
share price of the underlying mutual fund account at the end of the
previous valuation period]
minus
{an administration charge (if any) and the mortality and expense risks charge}
The administration charge (if any) and the mortality and expense risks
charge are calculated by dividing the annual amount of the charge by 365
and multiplying by the number of days in the valuation period.
The charges and any taxes (currently none) are accrued daily and are
transferred from Separate Account B at the Company's discretion.
Allocation of Purchase Payments
o On your application for the Contract, you direct your purchase payments
to be allocated to divisions of the Separate Account, the Fixed Account
or both.
o Percentages must be in whole numbers and total 100%.
o Subsequent investments are made using the same allocation percentages
unless you change the allocations.
o Changes to the allocation percentages may be made without charge. A
change is effective on the next valuation period after we receive your
new instructions. You can change the allocations by mailing your
instructions to us, if telephone privileges apply, by calling us at
1-800-247-9988 or by faxing your instructions to us at 1-515-248-9800.
o Purchase payments are credited on the basis of accumulation unit value
next determined after receipt of a purchase payment.
Separate Account Division Transfers
o You may request an unscheduled transfer or set up a periodic transfer
by sending us a written request, calling us if telephone services apply
(1-800-247-9988) or sending us a fax (1-515-248-9800).
o You must specify the dollar amount or percentage to transfer from each
Separate Account division.
o The minimum amounts are $100 or 100% of your interest in the division
if your value in the division is less than $100.
o In states where allowed, we reserve the right to reject transfer
instructions from someone providing them for multiple Contracts for
which he or she is not the owner.
Unscheduled
o You may make unscheduled Separate Account division transfers from
a division to another division or to the Fixed Account.
o The transfer is made, and values determined, as of the end of the
valuation period in which we receive your request.
o A $30 fee is imposed on each unscheduled transfer after the 12th
unscheduled transfer in a contract year (for fee purposes, all
transfers based on a single instruction are considered to be a
single transfer).
You may not make a transfer to the Fixed Account if:
o a transfer has been made from the Fixed Account to a division
within six months, or
o after the transfer, the Fixed Account value would be more than
$1,000,000 (without our prior approval).
Scheduled
o You may elect to have automatic transfers made on a periodic
basis, if the value of the division is at least $5,000.
o You must specify the dollar amount of the transfer ($100 minimum).
o Transfers continue until your value in the division is zero or we
receive notice to stop them.
o You select the transfer date (other than the 29th, 30th or 31st)
and the transfer period (monthly, quarterly, semi-annual or
annual).
o We reserve the right to limit the number of Separate Account
divisions from which simultaneous transfers are made. In no event
will it ever be less than two.
o If the selected date is not a valuation date, the transfer is
completed on the next valuation date.
Automatic Portfolio Rebalancing (APR)
o Allows you to maintain a specific percentage of your contract values
in each account over time.
o You may elect APR at any time.
o APR is not available for values in the Fixed Account.
o APR is not available if you have arranged scheduled transfers from the
same division.
o APR will not begin until the "free-look" period has expired.
o There is no charge for APR transfers.
o APR transfers are not considered unscheduled transfers in determining
any transfer fee.
o APR can be selected for quarterly, semi-annual or annual rebalancing.
o You may rebalance once by completing and submitting a form to us, by
telephoning if you have telephone privileges (1-800-247-9988) or
faxing your instructions to us (1-515-248-9800). (Rebalanced at the
end of next valuation period following request.)
Example:
You elect APR to maintain your Contract values with 50% in the Capital
Value Division and 50% in the Money Market Division. At the end of the
specified period, 60% of the values are in the Capital Value Division,
with the remaining 40% in the Money Market Division. By rebalancing,
units from the Capital Value Division are sold and applied as purchase
payments to the Money Market Division so that 50% of the accumulated
value is once again in each division.
Telephone Services
Telephone services are permitted (unless prohibited by state law) for both
changes in the allocation of future purchase payments and transfers among
divisions. Telephone service may be declined on the Contract application or
at any later date by providing us with written notice. Telephone service is
used by calling us at 1-800-247-9988. Telephone transfer requests must be
made while we are open for business. They are effective when received by us
before the close of the New York Stock Exchange (generally 3 p.m. Central
Time). Requests received when we are not open for business or after the New
York Stock Exchange closes will be effective on the next business day.
Neither the Company nor the Separate Account are responsible for the
authenticity of telephone service transaction requests. We reserve the
right to refuse telephone service transaction requests. You assume the risk
of loss caused by fraudulent telephone service transactions we reasonably
believe to be genuine. We follow procedures in an attempt to assure genuine
telephone service transactions. If these procedures are not followed, then
we may be liable for loss caused by unauthorized or fraudulent
transactions. The procedures include recording telephone service
transactions, requesting personal identification (name, daytime telephone
number, social security number and/or birthdate) and sending written
confirmation to your address of record.
We reserve the right to modify or terminate telephone service transaction
procedures at any time.
Separate Account Surrenders
Surrenders from the Separate Account are generally paid within seven days of the
effective date of the request for surrender (or earlier if required by law).
However, certain delays in payment are permitted (see GENERAL
PROVISIONS - Delay of Payments). Surrenders before age 59 1/2 may involve an
income tax penalty (see FEDERAL TAX MATTERS). You must send us a written request
for any surrender.
You may specify surrender allocation percentages with each partial surrender
request. If you don't provide us with specific percentages, we will use your
purchase payment allocation percentages for the partial surrender.
Surrenders may be subject to a surrender charge (see Surrender Charge).
Total Surrender
o You may surrender the Contract during the life of the annuitant and
before the annuity payment date.
o You receive the cash surrender value at the end of the valuation
period during which we receive your surrender request.
o The cash surrender value is the total of the values of your accounts in
the Separate Account divisions plus any amount you have in the Fixed
Account minus any applicable surrender charge or transaction fee.
o The written consent of all collateral assignees and irrevocable
beneficiaries must be obtained prior to surrender.
o We reserve the right to require you to return the Contract to us prior
to making any payment though this does not affect the amount of the
cash surrender value.
Unscheduled Partial Surrender
o Prior to the annuity payment date and during the lifetime of the
annuitant, you may surrender a part of the Fixed Account and/or
Separate Account value by sending us a written request.
o You must specify the dollar amount of the surrender which must be $100
or more.
o The surrender is effective at the end of the valuation period during
which we receive your written request for surrender.
o The surrender is deducted from your Fixed Account value and/or your
account in any Separate Account division according to the surrender
allocation percentages you specify.
o If surrender allocation percentages are not specified, we use your
purchase payment allocation percentages.
o We surrender units from the Separate Account divisions and/or Fixed
Account to equal the dollar amount of the surrender request plus any
applicable surrender charge.
o The accumulated value after the unscheduled partial surrender must be
equal or greater than $5,000 (we reserve the right to change the
minimum remaining accumulated value but it will not be greater than
$10,000).
o A $30 fee is imposed on each unscheduled partial surrender after the
1st unscheduled partial surrender in a contract year. Surrenders from
multiple divisions made at the same time are considered to be one
surrender for purposes of calculating this fee.
Scheduled Partial Surrender
o You may elect partial surrenders from the Fixed Account and/or the
Separate Account on a periodic basis by sending us written notice.
o Your accumulated value must be at least $5,000 when the surrenders
begin.
o Surrenders are made from any of the Separate Account divisions and/or
the Fixed Account.
o You may specify monthly, quarterly, semi-annually or annually and pick
a surrender date (other than the 29th, 30th or 31st).
o If the selected date is not a valuation date, the transfer is
completed on the next valuation date.
o The surrenders continue until your value in the division is zero or we
receive written notice to stop them.
Death Benefit
If you or the annuitant die before the annuity payment date, then we will pay a
death benefit. Before the annuity payment date, you may give us written
instructions for payment under a death benefit option. If we do not receive your
instructions, the death benefit is paid according to instructions from the
beneficiary. No surrender charge applies when a death benefit is paid.
The beneficiary is the person or persons you name in the application to receive
benefits upon your death. If the owner is not a natural person, death benefits
are paid to the beneficiary upon the death of the annuitant.
Unless you have named an irrevocable beneficiary, you may change your
beneficiary by providing us with written notice. If a beneficiary dies before
you, on your death we will make equal payments to the surviving beneficiaries
unless you had provided us with other written instructions. If none of your
beneficiaries survive you, we will pay the death benefit to your estate in a
lump sum.
If you die before the annuitant and your beneficiary is your spouse, we will
continue the Contract with your spouse as the new owner unless your spouse
elects to receive the death benefit.
Alternatively, within 60 days of your death, your beneficiary may elect to:
o apply the death benefit under a benefit option, or
o receive the death benefit as a single payment.
If the owner of a Contract, not issued in connection with retirement plans
qualified under Section 408 of the Internal Revenue Code (the "Code"), dies
before the annuitant and before the annuity payment date, written notice of the
death must be sent to us so distribution arrangements can be made to avoid
adverse tax consequences.
Standard Death Benefit
The amount of the death benefit is the greater of:
o your accumulated value on the date we receive proof of death and all
required documents, or
o the total of purchase payments minus any partial surrenders, fees and
charges as of the date we receive all required documents and notice
(including proof) of death, or
o 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.
Annual Enhanced Death Benefit
This is an optional death benefit rider. Under this rider, if the original
annuitant or owner dies before the annuity payment date, then the death
benefit payable the beneficiary is the greater of:
1) The standard death benefit;
2) The annual increasing death benefit, based on purchase payments
(accumulated at 5%) minus any surrenders and surrender charges
(accumulated at 5%) until the later of the Contract anniversary
after the original owner's or original annuitant's 75th birthday
or five years from the effective date of the rider; or
3) The highest accumulated value on a Contract anniversary until the
Contract anniversary following the original owner's or original
annuitant's 75th birthday or five years from the effective date of
the rider, whichever comes last.
Lock-In Feature At the later of the Contract anniversary following the
original owner's or original annuitant's 75th birthday or five years after
issue ("lock-in date"), the annual enhanced death benefit amount is
locked-in and will only increase by purchase payments made after the
lock-in date, minus any surrenders and surrender charges. (i.e. On the
lock-in date, a snapshot is taken setting the floor as to the minimum
amount of death benefit, less any surrenders and surrender charges.) The
lock-in does not prevent the accumulated value from increasing further as
provided by the standard death benefit provision in your Contract. Once the
standard death benefit equals the annual enhanced death benefit after the
lock-in date, the rider will terminate. The annual cost of the rider is
0.20% of the annual accumulated value. The charge is equal to 0.05% of the
average accumulated value during the calendar quarter. The cost will be
deducted throughout the redemption of units from your Contract's
accumulated value in the same proportion as purchase payment allocation
between the Fixed and Separate Accounts. If the rider is purchased after
the beginning of a quarter, then the charge is prorated according to the
number of days it is in effect during the quarter. Upon termination of the
rider or upon death, you will be charged based on the number of days it is
in effect during the quarter. The enhanced death benefit rider is only
available at issuance. Thus, once a Contract has been purchased without the
rider, it may not be added at a later date.
If the enhanced death benefit rider is terminated, then it cannot be
reinstated (except in the state of Florida.)
Payment of Death Benefit
The death benefit is usually paid within seven days of our receiving all
documents (including proof of death) that we require to process the claim.
Payment is made according to benefit instructions provided by you. Some
states require this payment to be made in less than seven days. Under
certain circumstances, this payment may be delayed (see GENERAL PROVISIONS
- Delay of Payments). We pay interest (at least 3% or as required by state
law) on the death benefit from the date we receive all required documents
until payment is made or until the death benefit is applied under a benefit
option.
NOTE: Proof of death includes: a certified copy of a death certificate; a
certified copy of a court order; a written statement by a medical doctor; or
other satisfactory proof.
Death of Annuitant
If the owner or annuitant dies during the annuity payment period, remaining
payments are made to the beneficiary throughout the 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 annuity
payment option.
Additional rules apply to distributions under non-qualified contracts (see
FEDERAL TAX MATTERS - Required Distributions for Non-Qualified Contracts).
However, the rules do not apply to contracts issued in connection with
IRAs, SEPs or SIMPLE-IRAs.
The Annuity Payment Period
Annuity Payment Date
You may specify an annuity payment date in your application. If you do not
specify an annuity payment date, then the annuity payment date is the later
of the annuitant's 85th birthday or 10 years after issuance. If the
annuitant is living and the Contract is in force on that date, we will
notify you to begin taking payments under the Contract. You may not select
an annuity payment date which is on or after the Annuitant's 85th birthday
or 10 years after the contract date, whichever is the later. (No later than
age 88 in Pennsylvania, or age 90 in New York)
Depending on the type of annuity payment option selected when the Contract
is issued, payments that are initiated either before or after the annuity
payment date may be subject to penalty taxes (see FEDERAL TAX MATTERS). You
should consider this carefully when you select or change the annuity
payment date.
You may change the annuity payment date with our prior approval. The
request must be in writing and approved before we issue a supplementary
Contract which provides an annuity payment option. The new annuity payment
date must be any contract anniversary on or before the annuity payment
date.
Annuity Payment Options
We offer fixed annuity payments. If, however, the accumulated value on the
annuity payment date is less than $5,000 or if the amount applied under an
annuity payment option is less than the minimum requirement we may pay out
the entire amount. No surrender charge would be imposed. The Contract would
then be canceled.
You may choose from several fixed annuity payment options. Payments will be
made on the frequency you choose. You may elect to have your annuity
payments made on a monthly, quarterly, semiannual or annual basis. The
dollar amount of the payments is specified for the entire payment period
according to the option selected. There is no right to make any total or
partial surrender after the annuity payments start.
The amount of the annuity payment depends on:
o amount of accumulated value;
o annuity payment option selected; and
o age of annuitant (unless fixed income option is selected).
Annuity payments generally are higher for male annuitants than for female
annuitants with an otherwise identical Contract. This is because
statistically females have longer life expectancies than males. In certain
states, this difference may not be taken into consideration in fixing the
payment amount. Additionally, Contracts with no gender distinctions are
made available for certain employer-sponsored plans because under most such
plans, such Contract provisions are prohibited by law.
You may select an annuity payment option or change a previous selection by
written request. We must receive the request on or before the annuity
payment date. If an annuity payment option is not selected, then we will
automatically apply the Life Income option (see below). If you designate an
annuitant and joint annuitant, then payment will be made pursuant to a
joint and full survivor income (see below). Tax laws and regulations may
impose further restrictions on annuity payment options.
Payments under the annuity payment options are made as of the first day of
each payment period beginning with the annuity payment date. The available
annuity payment options are:
Fixed Income. Payments of a fixed amount or payments for a fixed
period of at least five years but not more than 30 years. Payments
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 annuity payment
date. No payments are made after the annuitant dies. It is possible
that you would only receive 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 on the first day of each payment period beginning on
the annuity payment date. Payments will continue until the annuitant
dies. If the annuitant dies before all of the guaranteed payments have
been made, then we will continue the guaranteed payments to the
beneficiary.
Joint and Full Survivor Life Income with Payments Guaranteed for a
Period of 10 Years. Payments continue as long as either the annuitant
or the joint annuitant is alive. If both die before all guaranteed
payments have been made, the guaranteed remaining payments are made to
the beneficiary.
Joint and Two-thirds Survivor Life Income. Payments continue as long as
either the annuitant or the joint annuitant is alive. If either the
annuitant or joint annuitant dies, payments continue to the survivor at
two-thirds the original amount. Payments stop when both the annuitant
and joint annuitant have died. It is possible that only one payment is
made under this option if both annuitants die before the second payment
is due.
Other benefit options may be available with our approval.
The mortality risk assumed by the Company is to make annuity payments for
the full life of all annuitants regardless of how long they or any
individual annuitant might live. Mortality risk does not apply to the Fixed
Income option. Annuity payments are determined in accordance with annuity
tables and other provisions contained in the Contract. This assures neither
an annuitant's own longevity, nor an improvement in life expectancy, will
have an adverse effect on the annuity payments received under this
Contract. The annuity payment tables contained in this Contract are based
on the Annuity Mortality 1983 Table a. These tables are guaranteed for the
life of the Contract.
If you own one or more qualified annuity contracts, in order to avoid tax
penalties, payments from at least one of your qualified contracts must
start no later than April 1 following the calendar year in which you turn
age 70 1/2. The required minimum payment is a distribution in equal (or
substantially equal) amounts over your life or over the joint lives of you
and your designated beneficiary. In addition, payments must be made at
least once a year. Tax penalties may also apply at your death on certain
excess accumulations. You should consider potential tax penalties with your
tax advisor when selecting an annuity payment option or taking other
distributions from the Contract.
CHARGES AND DEDUCTIONS
An annual fee, a mortality and expense risks charge, in some circumstances a
transaction fee and state premium taxes are deducted under the Contract. A
surrender charge (on surrenders) may also be deducted from certain withdrawals
made before the annuity payment date. We reserve the right to assess a daily
Separate Account administration charge. There are also deductions from and
expenses paid out of the assets of the Accounts which are described in the
Fund's prospectus.
Annual Fee
An annual fee exists which is the lesser of $30 or 2% of your accumulated value
(subject to any applicable state law limitations). The fee is deducted from
either the Fixed Account or your interest in a Separate Account Division,
whichever has the greatest value. The fee is deducted on each contract
anniversary and upon total surrender of the Contract. This fee is currently
waived for Contracts having an accumulated value on the last day of the Contract
year of $30,000 or more. The fee assists in covering administrative costs. The
Company does not anticipate any profit from this fee.
The administrative costs include costs associated with:
o the issuance of Contracts;
o establishing and maintaining the records which relate to Contracts;
o making regulatory filings and furnishing confirmation notices;
o preparing, distributing and tabulating voting materials and other
communications;
o providing computer, actuarial and accounting services; and
o processing Contract transactions.
Mortality and Expense Risks Charge
We assess each division of the Separate Account with a daily charge for
mortality and expense risks. The annual rate of the charge is 1.25% of the
average daily net assets of the Separate Account. We agree not to increase this
charge for the duration of the Contract. This charge is assessed only prior to
the annuity payment date. This charge is assessed daily when the value of an
accumulation unit is calculated.
We have a mortality risk in that we guarantee payment of a death benefit in a
single sum or under an annuity payment option upon the death of an annuitant or
owner prior to the annuity payment date. No surrender charge is imposed on a
death benefit payment which gives us an additional mortality risk.
The expense risk that we assume is that the actual expenses incurred in issuing
and administering the Contract exceed the Contract limits on administrative
charges.
If the mortality and expense risks charge is not enough to cover the costs, we
bear the loss. If the amount of mortality and expense risks charge deducted is
more than our costs, the excess is profit to the Company. We expect a profit
from the mortality and expense risks charge.
Transaction Fee
A transaction fee of $30 applies to each unscheduled partial surrender after the
first unscheduled partial surrender in a contract year. A $30 transaction fee is
also charged to each unscheduled transfer from a division after the twelfth such
transfer in a contract year. The transaction fee is deducted from the Fixed
Account and/or your interest in a Separate Account division from which the
amount is surrendered or transferred, on a pro rata basis.
Premium Taxes
We reserve the right to deduct an amount to cover any premium taxes imposed by
states or other jurisdictions. Any deduction is made from either a purchase
payment when we receive it, or the accumulated value when you request a
surrender (total or partial) or it is applied under a benefit option. Premium
taxes range from 0% in most states to as high as 3.50%.
Surrender Charge
No sales charge is collected or deducted when purchase payments are applied
under the Contract. A surrender charge is assessed on certain total or partial
surrenders. The amounts we receive from the surrender charge are used to cover
some of the expenses of the sale of the Contract (commissions and other
promotional or distribution expenses). If the surrender charge collected is not
enough to cover the actual costs of distribution, the costs are paid from the
Company's General Account assets which includes profit, if any, from the
mortality and expense risks charge.
The surrender charge for any total or partial surrender is a percentage of the
purchase payments withdrawn or surrendered which were received by us during the
seven contract years 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 by the following table.
Table of Surrender Charges
Number of completed contract years Surrender charge applied to all
since each Purchase Payment* Purchase Payments received
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 6 years 0%
* Each purchase payment begins in year 0 for
purposes of calculating the percentage applied to
that payment.
We assume that surrenders and transfers are made in the following order:
o first from purchase payments we received more than seven completed contract
years prior to the surrender (or transfer);
o then from the free surrender privilege (first from the earnings, then from
the oldest purchase payments (first-in, first-out)) described below; and
o then from purchase payments we received within the seven completed contract
years before the surrender on a first-in, first-out basis.
A surrender charge is not imposed in states where it is prohibited, including:
o New Jersey- no surrender charge for total surrender on or after the later
of the annuitant's 64th birthday or 4 years after the contract date.
o Washington- no surrender charge for total surrender on or after the later
of the annuitant's 70th birthday or 10 years after the contract date.
Waiver of Surrender Charge
The surrender charge does not apply to:
o amounts applied under an annuity payment; or
o payment of any death benefit, however, the surrender charge does apply to
purchase payments made by the participant's surviving spouse after the
participant's date of death; or
o amounts distributed to satisfy the minimum distribution requirement of Section
401(a)9 of the Code; or o The Free Surrender Privilege, which is an amount
surrendered during a contract year which is not to exceed
the greater of:
o earnings in the contract (earnings = accumulated value less
unsurrendered purchase payments as of the surrender date); or
o 10% of the purchase payments still subject to the surrender charge,
decreased by any partial surrenders since the last anniversary; or
o an amount transferred from the Contract to a single premium immediate
annuity issued by the Company after the seventh contract year; or.
o an amount transferred from a Contract used to fund an IRA to another
annuity contract issued by the Company to fund an IRA of the participant's
spouse when the distribution is made pursuant to a divorce decree; or
o if permitted by state law, withdrawals made after the first Contract
anniversary if the original owner or original annuitant has a critical
need.
Waiver of the surrender charge is available for critical need if the following
conditions are met if: o original owner or original annuitant has a critical
need; and o the critical need did not exist before the Contract date.
For the purposes of this section, the following definitions apply:
o critical need - owner's or annuitant's confinement to a health care
facility, terminal illness diagnosis or total and permanent disability. If
the critical need is confinement to a health care facility, the confinement
must continue for at least 60 consecutive days after the Contract date and
the withdrawal must occur within 90 days of the confinement's end.
o health care facility - a licensed hospital or inpatient nursing facility
providing daily medical treatment and keeping daily medical records for
each patient (not primarily providing just residency or retirement care).
This does not include a facility primarily providing drug or alcohol
treatment, or a facility owned or operated by the owner, annuitant or a
member of their immediate families.
o terminal illness - sickness or injury that results in the owner's or
annuitant's life expectancy being 12 months or less from the date notice to
receive a distribution from the Contract is received by the Company.
o total and permanent disability - a disability that occurs after the
contract date and that qualifies the owner or annuitant to receive social
security disability payments. In New York and West Virginia, different
definitions of total and permanent disability apply. Contact us at
1-800-247-9988 for additional information.
This waiver of surrender charge rider is not available in New Jersey or
Pennsylvania. In New York, the rider only applies if the original owner or
original annuitant suffers a total and permanent disability.
Administration Charge
We reserve the right to assess each division of the Separate Account with a
daily charge at the annual rate of 0.15% of the average daily net assets of the
division. This charge would only be imposed before the annuity payment date.
This charge would be assessed to help cover administrative expenses.
Administrative expenses include the cost of issuing the Contract, clerical,
recordkeeping and bookkeeping services, keeping the required financial and
accounting records, communicating with Contract owners and making regulatory
filings.
Special Provisions for Group or Sponsored Arrangements
Where permitted by state law, Contracts may be purchased under group or
sponsored arrangements as well as on an individual basis.
group arrangement - program under which a trustee, employer or similar
entity purchases Contracts covering a group of individuals on a group
basis. sponsored arrangement - program under which an employer permits
group solicitation of its employees or an association permits group
solicitation of its members for the purchase of Contracts on an individual
basis.
The charges and deductions described above may be reduced for Contracts issued
in connection with group or sponsored arrangements. The rules in effect at the
time the application is approved will determine if reductions apply. Reductions
may include sales of Contracts without, or with reduced, mortality and expense
risks charges, annual fees or surrender charges.
Availability of the reduction and the size of the reduction (if any) is based on
factors such as: o size of group; o expected number of participants; and o
anticipated purchase payments from the group.
Reductions reflect the reduced sales efforts and administrative costs resulting
from these arrangements. We may modify the criteria for and the amount of the
reduction in the future. Modifications will not unfairly discriminate against
any person, including affected Contract owners and other contract owners with
contracts funded by the Separate Account.
FIXED ACCOUNT
You may allocate purchase payments and transfer amounts from the Separate
Account to the Fixed Account. Assets in the Fixed Account are held in the
General Account of the Company. Because of exemptive and exclusionary
provisions, interests in the Fixed Account are not registered under the
Securities Act of 1933 and the General Account is not registered as an
investment company under the Investment Company Act of 1940. The Fixed Account
is not subject to these Acts. The staff of the SEC does not review the
prospectus disclosures relating to the Fixed Account. However, these disclosures
are subject to certain generally applicable provisions of the federal securities
laws relating to the accuracy and completeness of statements made in the
prospectus.
This prospectus is intended to serve as a disclosure document only for the
Contract as it relates to the Separate Account. It only contains selected
information regarding the Fixed Account. More information concerning the Fixed
Account is available from our home office or from a sales representative.
General Description
Our obligations with respect to the Fixed Account are supported by the Company's
General Account. The General Account is the assets of the Company other than
those allocated to any of the Company's Separate Accounts. Subject to applicable
law, the Company has sole discretion over the assets in the General Account.
The Company guarantees that purchase payments allocated to the Fixed Account
earn interest at a guaranteed interest rate. In no event will the guaranteed
interest rate be less than 3% compounded annually.
Each purchase payment allocated or amount transferred to the Fixed Account earns
interest at the guaranteed rate in effect on the date it is received or
transferred. This rate applies to each purchase payment or amount transferred
through the end of the contract year.
Each contract anniversary, we declare a renewal interest rate that is guaranteed
and applies to the Fixed Account value in existence at that time. This rate
applies until the end of the contract year. Interest is earned daily and
compounded annually at the end of each contract year. Once credited, the
interest is guaranteed and becomes part of the accumulated value in the Fixed
Account from which deductions for fees and charges may be made. Mortality and
expense risk charge and administration charges are not assessed against Fixed
Account values.
Fixed Account Value
Your Contract's Fixed Account value on any valuation date is the sum of: o
purchase payments allocated to the Fixed Account; o plus any transfers to the
Fixed Account from the Separate Account; o plus interest credited to the Fixed
Account; o minus any surrenders, surrender charges, or transaction fees
allocated to the Fixed Account; o minus any transfers to the Separate Account.
Fixed Account Transfers, Total and Partial Surrenders
Transfers and surrenders from your investment in the Fixed Account are subject
to certain limitations. In addition, surrenders from the Fixed Account may be
subject to a charge (see THE CONTRACT - Surrender Charge).
You may transfer amounts from the Fixed Account to the Separate Account
divisions before the annuity payment date and as provided below. Transfer occurs
within one business day of our receiving your instructions. You may transfer
amounts by making either a scheduled or unscheduled Fixed Account transfer. You
may not make both a scheduled and unscheduled Fixed Account transfer in the same
contract year.
Single Unscheduled Transfer
Once per Contract year, within the 30 days following the Contract date or
anniversary, you can transfer an amount not to exceed 25% of your Fixed
Account Value. If your Fixed Account value is less than $1,000 or the
renewal interest rate declared for your Fixed Account is more than one
percentage point lower than the average of your total Fixed Account value
earnings for the preceding year, then you may transfer your entire Fixed
Account value. We will inform you if the renewal interest rate falls to
that level. Minimum transfer amount of $100 (or less if entire Fixed
Account value).
Scheduled Fixed Account Transfer (Dollar Cost Averaging) You may make
scheduled transfers on a periodic basis from the Fixed Account as follows:
o You may establish scheduled transfers by sending a written request or by
telephone. o Transfers occur on a date you specify (other than the 29th,
30th or 31st of any month). o If the selected date is not a valuation date,
the transfer is completed on the next valuation date. o Scheduled transfers
are only available if the fixed account value is $5,000 or more at the time
the
scheduled transfers begin.
o Scheduled monthly transfers of an amount not to exceed 2% of your Fixed
Account's value at the beginning of the Contract year or the current
value and will continue until the Fixed Account value is zero or until
you notify us to discontinue them.
o The minimum transfer amount is $100.
o If the Fixed Account value is less than $100 at the time of transfer,
then the entire Fixed Account value will be transferred.
o If you stop the transfers, you may not start them again without our
prior approval.
GENERAL PROVISIONS
The Contract
The entire Contract is made up of: the contract, copies of any applications,
amendments, riders and endorsements attached to the Contract; current data page;
copies of any supplemental applications, amendments, endorsements and revised
Contract pages or data pages which are mailed to you. Only our corporate
officers can agree to change or waive any provisions of a Contract. Any change
or waiver must be in writing and signed by an officer of the Company.
Delay of Payments
Surrenders are generally made within seven days after we receive your
instruction for a surrender in a form acceptable to us. This period may be
shorter where required by law. However, payment of any amount upon total or
partial surrender, death or the transfer to or from a division of the Separate
Account may be deferred during any period when the right to sell Fund shares is
suspended as permitted under provisions of the Investment Company Act of 1940
(as amended).
The right to sell shares may be suspended during any period when:
o trading on the New York Stock Exchange is restricted as determined by the
SEC or when the Exchange is closed for other than weekends and holidays, or
o an emergency exists, as determined by the SEC, as a result of which: o
disposal by a fund of securities owned by it is not reasonably practicable;
o it is not reasonably practicable for a fund to fairly determine the value
of its net assets; or o the SEC permits suspension for the protection of
security holders.
If payments are delayed and your surrender or transfer is not canceled by your
written instruction, the amount to be surrendered or transferred will be
determined the first valuation date following the expiration of the permitted
delay. The surrender or transfer will be made within seven days thereafter.
In addition, payments on surrenders attributable to a purchase payment made by
check may be delayed up to 15 days. This permits payment to be collected on the
check. We may also defer payment of surrender proceeds payable out of the Fixed
Account for a period of up to six months.
Misstatement of Age or Gender
If the age or, where applicable, gender of the annuitant has been misstated, we
adjust the income payable under your Contract to reflect the amount that would
have been payable at the correct age and gender. If we make any overpayment
because of incorrect information about age or gender, or any error or
miscalculation, we deduct the overpayment from the next payment or payments due.
Underpayments are added to the next payment.
Assignment
You may assign ownership of your non-qualified Contract. Each assignment is
subject to any payments made or action taken by the Company prior to our
notification of the assignment. We assume no responsibility for the validity of
any assignment. An assignment or pledge of a Contract may have adverse tax
consequences.
An assignment must be made in writing and filed with us at our home office. The
irrevocable beneficiary(ies), if any, must authorize any assignment in writing.
Your rights, as well as those of the annuitant and beneficiary, are subject to
any assignment on file with us. Any amount paid to an assignee is treated as a
partial surrender and is paid in a single lump sum.
Change of Owner
You may change your non-qualified contract ownership designation at any time.
Your request must be in writing and approved by us. After approval, the change
is effective as of the date you signed the request for change. If ownership is
changed, then the waiver of the sales charge for withdrawals made because of
critical need of the owner, is not available. We reserve the right to require
that you send us the Contract so that we can record the change.
Beneficiary
Before the annuity payment date and while the annuitant is alive, you have the
right to name or change a beneficiary. This may be done as part of the
application process or by sending us a written request. Under certain retirement
programs, however, spousal consent may be required to name or change a
beneficiary. Unless you have named an irrevocable beneficiary, you may change
your beneficiary designation by sending us a written request. If a beneficiary
has not been named at the time of the annuitant's death, then the benefit will
be paid to the owner, if living, otherwise, to the annuitant's estate. If the
beneficiary dies during the annuity payment period, and no other beneficiary is
alive, then any remaining benefits will be paid to the beneficiary's estate.
Contract Termination
We reserve the right to terminate the Contract and make a single sum payment
(without imposing any charges) to you if your accumulated value at the end of
the accumulation period is less than $2,000. Before the Contract is terminated,
we will send you a notice to increase the accumulated value to $2,000 within 60
days.
Reinstatement
If you have replaced this Annuity Contract with an annuity contract from another
company and want to reinstate this Contract, then the following applies; o we
reinstate the Contract effective on the original surrender date, o we apply the
amount received from the other company and the amount of the surrender charge
you paid when you
surrendered the Contract,
o these amounts are priced on the valuation day the money from the other company
is received by us, o commissions are not paid on the reinstatement amounts, and
o new data pages are sent to your address of record.
If you purchase this Contract as a replacement for another company's life
insurance policy or annuity contract, different free-look periods may apply. We
reserve the right to keep the initial purchase payment in the Money Market
division longer than 20 days to correspond to the free-look periods of a
particular state's replacement requirements.
Reports
We will mail to you a statement, along with any reports required b3y state law,
of your current accumulated value at least once per year prior to the annuity
payment date. After the annuity payment date, any reports will be mailed to the
person receiving the benefit option payments.
Quarterly statements reflect purchases and surrenders occurring during the
quarter as well as the balance of units owned and account values.
RIGHTS RESERVED BY THE COMPANY
We reserve the right to make certain changes if, in our judgment, they best
serve the interests of you and the annuitant or are 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, we will
obtain your approval of the changes and approval from any appropriate regulatory
authority. Approvals may not be required in all cases. Examples of the changes
the Company may make include: o transfer assets in any division to another
division or to the Fixed Account; o add, combine or eliminate divisions in the
Separate Account; o substitute the shares of an Account for the Account shares
in any division;
o if shares of an Account are no longer available for investment; or
o if in our judgment, investment in an Account becomes inappropriate
considering the purposes of the Separate Account.
DISTRIBUTION OF THE CONTRACT
The individuals who sell the Contract are authorized to sell life and other
forms of personal insurance and variable annuities. These people will usually be
representatives of Princor Financial Services Corporation, Principal Financial
Group, Des Moines, Iowa 50392-0200 which is a broker-dealer registered under the
Securities Exchange Act of 1934 and a member of the National Association of
Securities Dealers, Inc. As the principal underwriter, Princor is paid 6.5% of
purchase payments by the Company for the distribution of the Contract. The
contract may also be sold through other selected broker-dealers registered under
the Securities and Exchange Act of 1933 or firms that are exempt from such
registration. Princor is also the principal underwriter for various registered
investment companies organized by the Company. Princor is a subsidiary of
Principal Financial Services, Inc.
PERFORMANCE CALCULATION
The Separate Account may publish advertisements containing information
(including graphs, charts, tables and examples) about the performance of one or
more of its divisions. The Contract was not offered prior to June 16, 1994.
However, shares of Accounts in which the Aggressive Growth, Asset Allocation,
Balanced, Bond, Capital Value, Government Securities, Growth, International,
MidCap, and Money Market divisions of the Separate Account invest were offered
prior to that date. The Separate Account may publish advertisements containing
information about the hypothetical performance of one or more of its divisions
for this Contract as if the Contract had been issued on or after the date the
Account in which the division invests was first offered. The hypothetical
performance from the date of the inception of the Account in which the division
invests is calculated by reducing the actual performance of the underlying
Account by the fees and charges of this Contract as if it had been in existence.
The International SmallCap, MicroCap, MidCap Growth, Real Estate, SmallCap,
Small Cap Growth, SmallCap Value and Utilities divisions of the Separate Account
were not offered until May 1, 1998. The Stock Index 500 division was not offered
until May 1, 1999. Performance data for these divisions are calculated utilizing
standardized performance formulas and show performance since the inception date
of the division.
The yield and total return figures described below vary depending upon market
conditions, 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 SAI.
From time to time the Separate Account advertises its Money Market division's
"yield" and "effective yield" for these Contracts. Both yield figures are based
on historical earnings and are not intended to indicate future performance. The
"yield" of the division refers to the income generated by an investment in the
division over a 7-day period (which period is stated in the advertisement). This
income is then "annualized." That is, the amount of income generated by the
investment during that week is assumed to be generated each week over a 52-week
period and is shown as a percentage of the investment. The "effective yield" is
calculated similarly but, when annualized, the income earned by an investment in
the division is assumed to be reinvested. The "effective yield" is slightly
higher than the "yield" because of the compounding effect of the assumed
reinvestment.
In addition, the Separate Account advertises the "yield" for 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.
The Separate Account also advertises the average annual total return of its
various divisions. The average annual total return for any of the divisions is
computed by calculating the average annual compounded rate of return over the
stated period that would equate an initial $1,000 investment to the ending
redeemable Contract value.
VOTING RIGHTS
The Company votes Account shares of the Principal Variable Contracts Fund, Inc.
held in the Separate Account at meetings of shareholders of those Accounts. It
follows your voting instructions if you have an investment in the corresponding
division of the Separate Account.
The number of Account shares in which you have a voting interest is determined
by your investments in an Account as of a "record date." The record date is set
by the Company within the requirements of the laws of the state which govern the
various Accounts. The record date for the Accounts of the Principal Variable
Contracts Fund, Inc. will be not more than 90 days before the meeting of the
shareholders of those Accounts. Your voting instructions are solicited by
written communication at least ten days prior to the meeting. The number of
Account shares held in Separate Account B attributable to your interest in each
division is determined by dividing the value of your 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 are voted in the
same proportion as the total shares for which voting instructions have been
received.
Proxy materials are provided to you along with an appropriate form that may be
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 our opinion are currently in effect.
These rules are based on laws, regulations and interpretations which are subject
to change at any time. This summary is not comprehensive and is not intended as
tax advice. Federal estate and gift tax considerations, as well as state and
local taxes, may also be material. You should consult a qualified tax adviser
about the tax implications of taking action under a Contract or related
retirement plan.
Non-Qualified Contracts
Section 72 of the Code governs the income taxation of annuities in general.
o Purchase payments made under non-qualified Contracts are not excludable or
deductible from your gross income or any other person's gross income.
o An increase in the accumulated value of a non-qualified Contract resulting
from the investment performance of the Separate Account or interest
credited to the Fixed Account is generally not taxable until paid out as
surrender proceeds, death benefit proceeds, or otherwise.
o Generally, owners who are not natural persons are immediately taxed on any
increase in the accumulated value.
The following discussion applies generally to Contracts owned by natural
persons.
o Surrenders or partial surrenders are taxed as ordinary income to the extent
of the accumulated income or gain under the Contract.
o The value of the Contract pledged or assigned is taxed as ordinary income
to the same extent as a partial withdrawal.
o Annuity payments:
o The investment in the Contract is generally the total of the purchase
payments made.
o The portion of the annuity payment that represents the amount by which
the accumulated value exceeds the investment in the Contract is taxed
as ordinary income. The remainder of each annuity payment is not taxed.
o After the investment in the Contract is paid out, the full amount of
any annuity payment is taxable.
For purposes of determining the amount of taxable income resulting from
distributions, all Contracts and other annuity contracts issued by us or our
affiliates to the same owner within the same calendar year are treated as if
they are a single contract.
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. If you are contemplating any transfer or assignment
of a Contract, you 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, the Code requires: o If the person receiving
payments dies on or after the annuity payment date but prior to the time the
entire
interest in the Contract has been distributed, the remaining portion of the
interest is distributed at least as rapidly as under the method of
distribution being used as of the date of that person's death.
o If you die prior to the annuity payment date, the entire interest in the
Contract will be distributed: o within five years after the date of your
death, or o as annuity payments which begin within one year of your death
and which are made over the life of your
designated beneficiary or over a period not extending beyond the life
expectancy of that beneficiary. o If you take a distribution from the Contract
before you are 59 1/2, you may incur an income tax penalty.
If your designated beneficiary is your surviving spouse, the Contract may be
continued with your spouse deemed to be the new owner for purposes of the Code.
Where the owner or other person receiving payments is not a natural person, the
required distributions provided for in the Code apply upon the death of the
primary annuitant.
Generally, unless the beneficiary elects otherwise, the above requirements are
satisfied prior to the annuity payment date by paying the death benefit in a
single sum, subject to proof of your death. The beneficiary may elect by written
request to receive an annuity payment option instead of a lump sum payment.
However, if the election is not made within 60 days of the date the single sum
death benefit otherwise becomes payable, the IRS may disregard the election for
tax purposes and tax the beneficiary as if a single sum payment had been made.
IRA, SEP, and SIMPLE-IRA
The Contract may be used to fund IRAs, SEPs, and SIMPLE-IRAs.
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 are
excluded from the participant's gross income for tax purposes prior to the
annuity payment date. The portion, if any, of any purchase payment made that is
not excluded from their gross income is their investment in the Contract.
Aggregate deferrals under all plans at the employee's option may be subject to
limitations.
The tax implications of these plans are further discussed in the SAI under the
heading Taxation Under Certain Retirement Plans. Check with your tax advisor for
the rules which apply to your specific situation.
With respect to IRAs, IRA rollovers and SIMPLE-IRAs 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:
o made on or after you reach age 59 1/2,
o made to a beneficiary on or after your death,
o made upon your disability,
o part of a series of substantially equal periodic payments for the life or
life expectancy of you or you and the beneficiary,
o made to pay medical expenses,
o for certain unemployment expenses,
o for first home purchases (up to $10,000), or
o for higher education expenses.
Rollover IRAs. If you receive a lump-sum distribution from a pension or profit
sharing plan, you may maintain the tax deferred status of the money by rolling
it into a "Rollover Individual Retirement Annuity." You have 60 days from
receipt of the money to complete this transaction. If you choose not to reinvest
or go beyond the 60 day limit and are under age 59 1/2, you will incur a 10% IRS
penalty as well as income tax expenses.
Withholding
Annuity payments and other amounts received under the Contract are subject to
income tax withholding unless the recipient elects not to have taxes withheld.
The amounts withheld vary among recipients depending on the tax status of the
individual and the type of payments from which taxes are withheld.
Notwithstanding the recipient's election, withholding may be required on
payments delivered outside the United States. Moreover, special "backup
withholding" rules may require us to disregard the recipient's election if the
recipient fails to supply us with a "TIN" or taxpayer identification number
(social security number for individuals), or if the Internal Revenue Service
notifies us that the TIN provided by the recipient is incorrect.
YEAR 2000 READINESS DISCLOSURE
Starting in early 1995, as a corporate effort, the Company recognized the Year
2000 could have a significant impact on our operations. With the strong
commitment from the Board of Directors, Chief Executive Officer and Chief
Information Officer, we initiated a comprehensive plan to ensure our systems and
facilities would function correctly regardless of the date on the calendar.
Assessments of our computer systems were completed in 1996. We identified 35,000
programs comprising 40 million lines of mainframe code, 1,300 PC software
packages, and 400,000+ end-user PC applications that could be affected by the
Year 2000.
Our analysis didn't stop there. We requested Year 2000 compliance status
information from hardware and software vendors of over 1,000 PC systems and 450
mainframe systems. New purchase agreements, along with renewal agreements, have
included a "Year 2000" warranty clause since 1997.
In 1997, we contacted critical service and product suppliers such as banks and
utility companies regarding their Year 2000 readiness. To further assess the
stability of our external supply chain, we conducted another survey in 1998, and
a third evaluation of our most critical suppliers will take place in 1999.
As of December 31, 1998, 100 percent of our identified mission critical system
renovations were completed, tested and in production. We expect to complete the
remaining identified changes by June 30, 1999 (when we receive and install
updated software releases from our outside vendors).
Full-scale testing of our systems began in March 1998 using an in-house,
isolated testing facility. We include "system date manipulation" and "file
aging" processes to verify a wide variety of dates before, on, and after January
1, 2000, including February 29, 2000 (leap day).
Our objective is to complete full-scale testing of all identified mission
critical systems in second quarter 1999, with significant attentions to year-end
and leap-year processing. Verification will continue through 1999, and into the
early part of 2000, to ensure no new date related problems are introduced into
previously tested or newly developed systems.
We believe our thorough systems testing process should eliminate significant
date related problems that could affect our systems. We will have staff on site
during critical times to ensure a timely and accurate response to unforeseen
issues which may arise.
Contingency plan development began July 1998. The methodology was documented in
November 1998. Initial plans were completed as of March 31, 1999. These plans
are being developed to address external systems and non-systems events that
could affect our operations. Many of those scenarios are beyond our control, so
we are identifying possible options, which will minimize their impact. We are
also communicating with other entities involved to encourage their Year 2000
preparedness. We will re-evaluate our contingency plans throughout the Year 2000
experience.
The cost associated with completing our Year 2000 readiness for the business
unit of the Company which issues the Contract is estimated to be $1.3 - $1.6
million.
Additional corporate Y2K information can be found on our website at
www.principal.com/general/faqy2k.htm.
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
investments underlying the Contracts. Under this Code Section, Separate Account
investments must be adequately diversified in order for the increase in the
value of non-qualified Contracts to receive tax-deferred treatment. In order to
be adequately diversified, the portfolio of each underlying 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 Contract holders.
The investment opportunities of the Accounts could conceivably be limited by
adhering to the above diversification requirements. This would affect all
owners, including owners of Contracts for whom diversification is not a
requirement for tax-deferred treatment.
STATE REGULATION
The Company is subject to the laws of the State of Iowa governing insurance
companies and to regulation by the Insurance Department of the State of Iowa. An
annual statement in a prescribed form must be filed by March 1 in each year
covering our operations for the preceding year and our financial condition on
December 31 of the prior year. Our books and assets are subject to examination
by the Commissioner of Insurance of the State of Iowa or her representatives at
all times. A full examination of our operations is conducted periodically by the
National Association of Insurance Commissioners. Iowa law and regulations also
prescribe permissible investments, but this does not involve supervision of the
investment management or policy of the Company.
In addition, we are subject to the insurance laws and regulations of other
states and jurisdictions where we are licensed to operate. Generally, the
insurance departments of these states and jurisdictions apply the laws of the
state of domicile in determining the field of permissible investments.
LEGAL OPINIONS
Legal matters applicable to the issue and sale of the Contracts, including our
right to issue Contracts under Iowa Insurance Law, have been passed upon by
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 SAI (Part B of the
Registration Statement) and Part C of the Registration Statement which the
Company has filed with the SEC. The SAI is hereby incorporated by reference into
this Prospectus. You may request a free copy of the SAI by writing or
telephoning Princor. You may obtain a copy of Part C of the Registration
Statement from the SEC, Washington, D.C. by paying the prescribed fees.
OTHER VARIABLE ANNUITY CONTRACTS
The Company currently offers other variable annuity contracts that participate
in Separate Account B. In the future, we may designate additional group or
individual variable annuity contracts as participating in Separate Account B.
INDEPENDENT AUDITORS
The financial statements of Principal Life Insurance Company Separate Account B
and the financial statements of Principal Life Insurance Company are included in
the SAI. Those statements have been audited by Ernst & Young LLP, independent
auditors, for the periods indicated in their reports which also appear in the
SAI.
FINANCIAL STATEMENTS
The financial statements of Principal Life Insurance Company which are included
in the SAI should be considered only as they relate to our ability to meet our
obligations under the Contract. They do not relate to investment performance of
the assets held in the Separate Account.
CUSTOMER INQUIRIES
Your questions should be directed to: Principal Flexible Variable Annuity,
Principal Financial Group, P.O. Box 9382, Des Moines, Iowa 50306-9382, 1-800-
247-9988.
TABLE OF CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION
Independent Auditors ............................................. 4
Calculation of Yield and Total Return ............................ 4
Taxation Under Certain Retirement Plans............................. 5
Principal Life Insurance Company Separate Account B
Report of Independent Auditors ................................ 9
Financial Statements........................................... 10
Principal Life Insurance Company
Report of Independent Auditors ................................ 33
Financial Statements........................................... 34
To obtain a free copy of the SAI write or telephone:
Principal Flexible Variable Annuity
The Principal Financial Group
P.O. Box 9382
Des Moines, Iowa 50306-9382
Telephone: 1-800-247-9988
<PAGE>
PART B
PRINCIPAL 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
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: 1800247-9988
TABLE OF CONTENTS
Independent Auditors...................................................... 4
Calculation of Yield and Total Return..................................... 4
Taxation Under Certain Retirement Plans................................... 5
Principal Life Insurance Company Separate Account B
Report of Independent Auditors........................................ 9
Financial Statements.................................................. 10
Principal Life Insurance Company
Report of Independent Auditors........................................ 33
Financial Statements.................................................. 34
INDEPENDENT AUDITORS
Ernst & Young LLP, Des Moines, Iowa, serve as independent auditors for Principal
Life Insurance Company Separate Account B and Principal Life Insurance Company
and perform audit and accounting services for Separate Account B and Principal
Life Insurance Company.
CALCULATION OF YIELD AND TOTAL RETURN
The Separate Account may publish advertisements containing information
(including graphs, charts, tables and examples) about the performance of one or
more of its Divisions.
The Contract was not offered prior to June 16, 1994. However, the Divisions
invest in Accounts of the Principal Variable Contracts Fund, Inc. These Accounts
correspond to open-end investment companies (mutual funds) which, effective
January1, 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 Accounts 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 sevenday 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 52week 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, 1998 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 11.38 24.67* N/A 17.38 24.97* N/A
Asset Allocation Division 1.79 11.33* N/A 7.79 11.77* N/A
Balanced Division 4.50 10.88 10.87 10.50 11.27 10.87
Bond Division 0.32 5.78 8.04 6.32 6.25 8.04
Capital Value Division 6.14 17.18 13.65 12.14 17.50 13.65
Government Securities Division 0.90 5.13 7.93 6.90 5.62 7.93
Growth Division 13.82 17.61** N/A 19.82 17.97** N/A
International Division 2.59 10.21** N/A 2.59 10.21** N/A
International SmallCap (17.14)*** N/A N/A (11.14)*** N/A N/A
MicroCap Division (25.12)*** N/A N/A (19.12)*** N/A N/A
MidCap Division (3.63) 13.06 14.72 2.37 13.43 14.72
MidCap Growth Division (10.43)*** N/A N/A (4.43)*** N/A N/A
Money Market Division (2.11) 3.10 4.02 3.89 3.62 4.02
Real Estate Division (13.36)*** N/A N/A (7.36)*** N/A N/A
SmallCap Division (27.20)*** N/A N/A (21.20)*** N/A N/A
SmallCap Growth Division (3.93)*** N/A N/A (2.07)*** N/A N/A
SmallCap Value Division (21.80)*** N/A N/A (15.80)*** N/A N/A
Utilities Division 8.38*** N/A N/A 14.38*** N/A N/A
<FN>
* Partial period beginning June 1, 1994.
** Partial period beginning May 2, 1994.
*** Partial period beginning May 1, 1998.
</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 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 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, 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 1999, which is indexed for inflation.
Employees of tax-exempt organizations and state and local government agencies
are not eligible for SAR/SEPs.
Taxation of Distributions. Generally, distribution payments from SEPs and
SAR/SEPs are subject to the same distribution rules described above for IRAs.
Required Distributions. 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 1999, 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
employees compensation, or (3) $6,000, if the employer contributes on a matching
basis; or the lesser of: (1) 2% of the employees 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 employees 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 employees 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 1999, 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 incometax 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, dies, becomes disabled, or uses the funds for firsttime
home buyer expenses at the time of distribution. The five year period for
converted amounts begins from the year of the conversion.
*****FINANCIAL STATEMENTS TO BE FILED BY AMENDMENT*****
