Document ID: SEC-2016-0507-0001
Agency: sec
Document Type: Notice
Title: Applications: Principal Life Insurance Co., et al.
Posted Date: 2016-03-22T04:00Z

[Federal Register Volume 81, Number 55 (Tuesday, March 22, 2016)]
[Notices]
[Pages 15360-15363]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-06411]

-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. IC-32030; File No. 812-14586]

Principal Life Insurance Company, et al., Notice of Application

March 17, 2016.
AGENCY: Securities and Exchange Commission (``Commission'').

ACTION: Notice of application for an order approving the substitution 
of certain securities pursuant to Section 26(c) of the Investment 
Company Act of 1940 (the ``Act'').

-----------------------------------------------------------------------

    Applicants: Principal Life Insurance Company (``PLIC''), Principal 
National Life Insurance Company (``PNL'') (PLIC and PNL are each an 
``Insurance Company'' and together, the ``Insurance Companies''), 
Principal Life Insurance Company Variable Life Separate Account (``PLIC 
Variable Life Separate Account''), and Principal National Life 
Insurance Company Variable Life Separate Account (``PNL Variable Life 
Separate Account'') (PLIC Variable Life Separate Account and PNL 
Variable Life Separate Account are each a ``Separate Account'' and 
together, the ``Separate Accounts'').
    Summary of Application: Applicants seek an order pursuant to 
Section 26(c) of the Act approving the substitution of shares of 
Fidelity Variable Insurance Products Fund V Government Money Market 
Portfolio (the ``Replacement Fund'') for shares of Principal Variable 
Contracts Funds, Inc. Money Market Account (the ``Existing Fund'') held 
by the Separate Accounts to support variable life insurance contracts 
(each, a ``Contract'' and collectively, the ``Contracts'') issued by 
the Insurance Companies.
    Filing Dates: The application was filed on December 9, 2015, and 
amended on February 29, 2016, March 8, 2016, and March 14, 2016.

[[Page 15361]]

    Hearing or Notification of Hearing: An order granting the requested 
relief will be issued unless the Commission orders a hearing. 
Interested persons may request a hearing by writing to the Commission's 
Secretary and serving applicants with a copy of the request, personally 
or by mail. Hearing requests should be received by the Commission by 
5:30 p.m. on April 7, 2016, and should be accompanied by proof of 
service on applicants, in the form of an affidavit or, for lawyers, a 
certificate of service. Pursuant to Rule 0-5 under the Act, hearing 
requests should state the nature of the writer's interest, any facts 
bearing upon the desirability of a hearing on the matter, the reason 
for the request, and the issues contested. Persons who wish to be 
notified of a hearing may request notification by writing to the 
Commission's Secretary.

ADDRESSES: Brent J. Fields, Secretary, U.S. Securities and Exchange 
Commission, 100 F Street NE., Washington, DC 20549-1090; Applicants: 
Britney Schnathorst, Principal Life Insurance Company, The Principal 
Financial Group, Des Moines, Iowa 50392-0300.

FOR FURTHER INFORMATION CONTACT: Laura J. Riegel, Senior Counsel, at 
(202) 551-6873, or Mary Kay Frech, Branch Chief at (202) 551-6821 
(Division of Investment Management, Chief Counsel's Office).

SUPPLEMENTARY INFORMATION: The following is a summary of the 
application. The complete application may be obtained via the 
Commission's Web site by searching for the file number, or an applicant 
using the Company name box, at http://www.sec.gov/search/search.htm or 
by calling (202) 551-8090.
    Applicants' Representations:
    1. PLIC is a stock life insurance company incorporated under the 
laws of the state of Iowa. PLIC is authorized to transact life 
insurance business in all states of the United States and the District 
of Columbia. PLIC is a wholly-owned indirect subsidiary of Principal 
Financial Group, Inc. (``PFGI''). PLIC is the depositor and sponsor, as 
those terms have been interpreted by the Commission with respect to 
variable life insurance separate accounts, of PLIC Variable Life 
Separate Account. PLIC established PLIC Variable Life Separate Account 
as a separate account under Iowa law on November 2, 1987.
    2. PNL is a stock life insurance company organized under the laws 
of the state of Ohio. PNL is authorized to transact life insurance 
business in the District of Columbia and in all states in the United 
States except New York. PNL is a wholly-owned indirect subsidiary of 
PFGI. PNL is the depositor and sponsor of PNL Variable Life Separate 
Account. PNL established PNL Variable Life Separate Account as a 
separate account under Iowa law on November 28, 2007.
    3. Each Separate Account is a ``separate account'' as defined in 
Rule 0-1(e) under the Act and is registered as a unit investment trust 
under the Act. Under Iowa law, the applicable Insurance Company owns 
the assets of the Separate Account attributable to the Contracts 
through which interests in the Separate Account are issued, but those 
assets are held separately from all other assets of the applicable 
Insurance Company for the benefit of the owners of the Contracts (each, 
a ``Contract Owner'') and the persons entitled to payment under the 
Contracts. Consequently, the assets in each Separate Account are not 
chargeable with liabilities arising out of any other business that the 
applicable Insurance Company may conduct.
    4. Each Separate Account is divided into subaccounts. Each 
subaccount invests exclusively in shares of a corresponding underlying 
registered open-end management investment company. The applicable 
Separate Account supports the respective Contracts, and interests in 
the Separate Account offered through such Contracts have been 
registered under the Securities Act of 1933 on Form N-6. The 
application sets forth the registration file numbers for the respective 
Contracts under the applicable Separate Account.
    5. The Contracts are individual flexible premium variable insurance 
policies. Applicants state that, as disclosed in the prospectuses for 
the Contracts, the Insurance Companies reserve the right, subject to 
Commission approval and compliance with applicable law, to substitute 
shares of one registered open-end management investment company for 
shares of another registered open-end management investment company 
held by a subaccount of a Separate Account.
    6. Principal Variable Contracts Funds, Inc. (``PVC'') is organized 
as a Maryland corporation and is registered as an open-end management 
investment company under the Act. PVC currently offers 37 series, 
including the Existing Fund. Principal Management Corporation 
(``PMC''), an investment adviser registered under the Investment 
Advisers Act of 1940 (the ``Advisers Act''), provides investment 
advisory services and certain corporate administrative services to PVC 
and the Existing Fund. Principal Global Investors, an affiliate of PMC, 
is the sub-adviser for the Existing Fund and has day-to-day 
responsibility for selecting investments for the Existing Fund. The 
Existing Fund served as the only underlying money market investment 
option for all of the Contracts until the addition of the Replacement 
Fund effective on February 6, 2016.
    7. Fidelity Variable Insurance Products Fund V (``Fidelity VIP Fund 
V'') was created under a declaration of trust under Massachusetts law 
and is registered as an open-end management investment company under 
the Act. Fidelity VIP Fund V currently offers 32 series, including the 
Replacement Fund. Fidelity Management & Research Company (``FMR''), an 
investment adviser registered under the Advisers Act, serves as the 
investment adviser of the Replacement Fund, with overall responsibility 
for directing portfolio investments and handling Fidelity VIP Fund V's 
business affairs. Fidelity Investments Money Management, Inc. 
(``FIMM'') and other affiliates of FMR serve as sub-advisers to the 
Replacement Fund, with FIMM having day-to-day responsibility of 
choosing investments for the Replacement Fund. Effective December 1, 
2015, the fundamental concentration policy of the Replacement Fund was 
modified in such a manner as to enable it to operate as a government 
money market fund. None of Fidelity VIP Fund V, FMR, FIMM, and other 
affiliates of FMR are affiliated persons (or affiliated persons of 
affiliated persons) of applicants or PVC.
    8. Applicants propose to substitute Service Class Shares of the 
Replacement Fund for Class 1 Shares of the Existing Fund (the 
``Substitution'') to support the Contracts. Applicants represent that 
the Replacement Fund is an appropriate alternative for Contract Owners. 
Applicants state that the Replacement Fund and the Existing Fund each 
has an investment objective to seek current income as is consistent 
with preservation of capital and liquidity. In addition, while the 
principal investment strategies of the Replacement Fund may differ from 
those of the Existing Fund, the goal of each fund is to maintain a net 
asset value of $1.00 per share. Applicants note that although the risk 
profiles of the Replacement Fund and the Existing Fund differ, 
applicants believe that the Replacement Fund entails less investment 
risk than the Existing Fund. Additional information about the Existing 
Fund and the Replacement Fund, including investment objectives, 
principal investment strategies, principal risks and performance 
history can be found in the application.

[[Page 15362]]

    9. Applicants represent that the proposed Substitution will result 
in a decrease in overall expenses, which benefits the Contract Owners. 
The application sets forth the fees and expenses of the appropriate 
class of the Existing Fund with the corresponding class of the 
Replacement Fund in greater detail.
    10. Applicants state the board of directors of PVC voted to 
terminate the Existing Fund and liquidate its assets effective April 8, 
2016. In light of the impending liquidation and the importance of 
offering a money market fund investment option for the Contracts, the 
applicants determined that the Substitution is necessary and in the 
best interest of Contract Owners.
    11. Applicants represent that the Substitution and the selection of 
the Replacement Fund were not motivated by any financial consideration 
paid or to be paid to the Insurance Companies or their affiliates by 
the Replacement Fund, its adviser or underwriter, or their affiliates.
    12. Applicants state that as of the effective date of the 
Substitution, April 8, 2016 (``Substitution Date''), shares of the 
Existing Fund will be redeemed for cash. The Insurance Companies, on 
behalf of the Existing Fund subaccount of the relevant Separate 
Account, will simultaneously place a redemption request with the 
Existing Fund and a purchase order with the Replacement Fund so that 
the purchase of Replacement Fund shares will be for the exact amount of 
the redemption proceeds. Thus, Contract values will remain fully 
invested at all times. The proceeds of such redemptions will then be 
used to purchase the appropriate number of shares of the Replacement 
Fund.
    13. The Substitution will take place at relative net asset value 
(in accordance with Rule 22c-1 under the Act) with no change in the 
amount of the Contract value, cash value, accumulation value, account 
value or death benefit or in dollar value of the investment in the 
applicable Separate Account. The Insurance Companies or their 
affiliates will pay all expenses and transaction costs of the 
Substitution, including legal and accounting expenses, any applicable 
brokerage expenses and other fees and expenses.
    14. The rights or obligations of the Insurance Companies under the 
Contracts of those Contract Owners with interests in the subaccount of 
the Existing Fund (``Affected Contract Owners'') will not be altered in 
any way. The Substitution will in no way alter the tax treatment of 
Affected Contract Owners in connection with their Contracts, and no tax 
liability will arise for Affected Contract Owners as a result of the 
Substitution. The Substitution also will not adversely affect any 
riders under the Contracts. To the extent a Contract offers living 
benefits, death benefits, or other guarantees, the value of any such 
guarantee will not materially decrease directly or indirectly as a 
result of the Substitution.
    15. Affected Contract Owners will be permitted to make at least one 
transfer of Contract value from the subaccount investing in the 
Existing Fund (before the Substitution Date) or the Replacement Fund 
(after the Substitution Date) to any other available investment option 
under the Contract without charge for a period beginning at least 30 
days before the Substitution Date through at least 30 days following 
the Substitution Date. Except as described in any market timing/short-
term trading provisions of the relevant prospectus, the Insurance 
Companies will not exercise any right they may have under the Contracts 
to impose restrictions on transfers between the subaccounts under the 
Contracts, including limitations on the future number of transfers, for 
a period beginning at least 30 days before the Substitution Date 
through at least 30 days following the Substitution Date.
    16. All Contract Owners were notified of this application by means 
of a supplement to the Contract prospectuses dated December 9, 2015. 
Among other information regarding the Substitution, the supplement 
informed Affected Contract Owners of the right to transfer Contract 
value from the subaccount investing in the Existing Fund (before the 
Substitution Date) or the Replacement Fund (after the Substitution 
Date) to any other available investment option under the Contract 
without charge. Additionally, a prospectus for the Replacement Fund was 
included with the supplement.
    17. On March 9, 2016 (30 days before the Substitution Date), 
Affected Contract Owners were provided a ``Pre-Substitution Notice,'' 
setting forth: (a) the intended substitution of the Existing Fund with 
the Replacement Fund; (b) the intended Substitution Date (subject to 
approval and order by the Commission); and (c) information with respect 
to transfers. In addition, the Insurance Companies delivered a 
prospectus for the Replacement Fund with the Pre-Substitution Notice.
    18. The Insurance Companies will deliver to each Affected Contract 
Owner within five (5) business days of the Substitution Date, a written 
confirmation, which will include confirmation that the Substitution was 
carried out as previously notified, a restatement of the information 
set forth in the Pre-Substitution Notice, and before and after account 
values.
    19. Applicants will not receive, for three years from the 
Substitution Date, any direct or indirect benefits from the Replacement 
Fund, its adviser or underwriter (or their affiliates), in connection 
with assets attributable to Contracts affected by the Substitution, at 
a higher rate than they had received from the Existing Fund, its 
adviser or underwriter (or their affiliates), including, without 
limitation, 12b-1 fees, shareholder service, administrative or other 
service fees, revenue sharing, or other arrangements.
Legal Analysis
    1. Applicants request that the Commission issue an order pursuant 
to Section 26(c) of the Act approving the proposed Substitution. 
Section 26(c) of the Act requires the depositor of a registered unit 
investment trust holding securities of a single issuer to receive 
Commission approval before substituting the securities held by the 
trust. Section 26(c) provides that such approval shall be granted by 
order of the Commission if the evidence establishes that the 
substitution is consistent with the protection of investors and the 
purposes of the Act.
    2. Applicants submit that the proposed Substitution meets the 
standards set forth in Section 26(c) and that, if implemented, the 
Substitution would not raise any of the concerns underlying that 
provision. Applicants represent that the Substitution will provide 
Contract Owners with a comparable investment vehicle which will not 
circumvent Contract Owner-initiated decisions and the Insurance 
Companies' obligations under the Contracts, and will enable Contract 
Owners to continue to use the full range of applicable Contract 
features as they use today. Applicants further state that the 
Replacement Fund and the Existing Fund have essentially the same 
investment objectives, the Replacement Fund entails less investment 
risk than the Existing Fund, and the proposed Substitution will result 
in a decrease in overall expenses, thereby benefiting Contract Owners.
    3. Applicants state that, as disclosed in the prospectuses for the 
Contracts, the Insurance Companies reserve the right, subject to 
Commission approval, to substitute shares of a registered open-end 
management investment company for shares of another registered open-end 
held by a subaccount of a Separate Account. Applicants determined that

[[Page 15363]]

the Substitution is necessary and in the best interests of Contract 
Owners in light of the impending liquidation of the Existing Fund and 
the importance of offering a money market fund investment option for 
the Contracts. Applicants state that the board of directors of PVC 
concluded that converting the Existing Fund to a government money 
market fund would not be a feasible option and voted to terminate the 
Existing Fund and liquidate its assets effective April 8, 2016. The 
Insurance Companies submit that the Replacement Fund should substituted 
for the Existing Fund to serve as the money market investment option 
for all of the Contracts, as well as for the Contract-related purposes 
for which the Existing Fund is currently used, so that Contract Owner-
initiated decisions and the Insurance Companies' obligations under the 
Contracts are less likely to be prevented.
    4. Applicants also assert that the Substitution does not entail any 
of the abuses that Section 26(c) was designed to prevent. Each Affected 
Contract Owner has been advised of his right, any time prior to the 
Substitution Date, and for at least 30 days after the Substitution 
Date, to reallocate account value under the affected Contract without 
any cost or limitation, or otherwise withdraw or terminate his interest 
in accordance with the terms and conditions of his Contract. 
Furthermore, Contract Owners will not incur any additional tax 
liability or any additional fees or expenses as a result of the 
Substitution.
Applicants' Conditions:
    Applicants agree that any order granting the requested relief will 
be subject to the following conditions:
    1. The Substitution will not be effected unless the Insurance 
Companies determine that: (a) The Contracts allow the substitution of 
shares of registered open-end investment companies in the manner 
contemplated by the application; (b) the Substitution can be 
consummated as described in the application under applicable insurance 
laws; and (c) any regulatory requirements in each jurisdiction where 
the Contracts are qualified for sale have been complied with to the 
extent necessary to complete the Substitution.
    2. The Insurance Companies or their affiliates will pay all 
expenses and transaction costs of the Substitution, including legal and 
accounting expenses, any applicable brokerage expenses and other fees 
and expenses. No fees or charges will be assessed to the Affected 
Contract Owners to effect the Substitution.
    3. The Substitution will be effected at the relative net asset 
values of the respective shares in conformity with Section 22(c) of the 
Act and Rule 22c-1 thereunder without the imposition of any transfer or 
similar charges by applicants. The Substitution will be effected 
without change in the amount or value of any Contracts held by Affected 
Contract Owners.
    4. The Substitution will in no way alter the tax treatment of 
Affected Contract Owners in connection with their Contracts, and no tax 
liability will arise for Affected Contract Owners as a result of the 
Substitution.
    5. The rights or obligations of the Insurance Companies under the 
Contracts of Affected Contract Owners will not be altered in any way. 
The Substitution will not adversely affect any riders under the 
Contracts.
    6. Affected Contract Owners will be permitted to make at least one 
transfer of Contract value from the subaccount investing in the 
Existing Fund (before the Substitution Date) or the Replacement Fund 
(after the Substitution Date) to any other available investment option 
under the Contract without charge for a period beginning at least 30 
days before the Substitution Date through at least 30 days following 
the Substitution Date. Except as described in any market timing/short-
term trading provisions of the relevant prospectus, the Insurance 
Companies will not exercise any right they may have under the Contracts 
to impose restrictions on transfers between the subaccounts under the 
Contracts, including limitations on the future number of transfers, for 
a period beginning at least 30 days before the Substitution Date 
through at least 30 days following the Substitution Date.
    7. All Affected Contract Owners will be notified, at least 30 days 
before the Substitution Date about: (a) The intended substitution of 
the Existing Fund with the Replacement Fund; (b) the intended 
Substitution Date; and (c) information with respect to transfers as set 
forth in Condition 6 above. In addition, the Insurance Companies will 
deliver to all Affected Contract Owners, at least thirty (30) days 
before the Substitution Date, a prospectus for the Replacement Fund.
    8. The Insurance Companies will deliver to each Affected Contract 
Owner within five (5) business days of the Substitution Date a written 
confirmation which will include: (a) A confirmation that the 
Substitution was carried out as previously notified; (b) a restatement 
of the information set forth in the Pre-Substitution Notice; and (c) 
before and after account values.
    9. Applicants will not receive, for three years from the 
Substitution Date, any direct or indirect benefits from the Replacement 
Fund, its adviser or underwriter (or their affiliates), in connection 
with assets attributable to Contracts affected by the Substitution, at 
a higher rate than they had received from the Existing Fund, its 
adviser or underwriter (or their affiliates), including without 
limitation 12b-1 fees, shareholder service, administrative or other 
service fees, revenue sharing, or other arrangements.

    For the Commission, by the Division of Investment Management, 
under delegated authority.
Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016-06411 Filed 3-21-16; 8:45 am]
 BILLING CODE 8011-01-P