[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]
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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'').
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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