[Federal Register Volume 68, Number 223 (Wednesday, November 19, 2003)]
[Notices]
[Pages 65323-65328]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-28849]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. IC-26253; File No. 812-12962]
Principal Life Insurance Company, et al., Notice of Application
November 13, 2003.
AGENCY: Securities and Exchange Commission (``SEC'' or ``Commission'').
ACTION: Notice of application for an order pursuant to section 26(c) of
the Investment Company Act of 1940 (the ``Act'') approving the
substitution of securities.
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Applicants: Principal Life Insurance Company (``Principal Life''),
Principal Life Insurance Company Variable Life VL Separate Account
(``VL Separate Account''), and Principal Life Insurance Company
Separate Account B (``Separate Account B'').
Summary of Application: Applicants seek an order to permit, under the
specific circumstances identified in the application, the substitution
of shares of the LargeCap Growth Equity Account of Principal Variable
Contracts Fund, Inc. (``Principal Fund'') for shares of the LargeCap
Growth Account of Principal Fund; shares of the LargeCap Stock Index
Account of Principal Fund for shares of the Blue Chip Account of
Principal Fund; shares of the MidCap Growth Account of Principal Fund
for shares of the MidCap Growth Equity Account of Principal Fund;
shares of the Asset Allocation Account of Principal Fund for shares of
the Putnam VT Global Asset Allocation Fund of Putnam Variable Trust
(``Putnam Trust''); and shares of the Equity Growth Account of
Principal Fund for shares of the Putnam VT Vista Fund of Putnam Trust.
The shares are currently held by VL Separate Account and Separate
Account B.
Filing Date: The application was filed on April 18, 2003, and amended
on November 10, 2003.
Hearing or Notification of Hearing: An order granting the application
will be issued unless the SEC orders a hearing. Interested persons may
request a hearing by writing to the SEC's Secretary and serving
Applicants with a copy of the request, personally or by mail. Hearing
requests should be received by the SEC by 5:30 on December 4, 2003 and
should be accompanied by proof of service on Applicants, in the form of
an affidavit or, for lawyers, a certificate of service. Hearing
requests should state the nature of the writer's interest, 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 SEC's
Secretary.
ADDRESSES: Secretary, SEC, 450 5th Street, NW., Washington, DC 20549.
Applicants, c/o John W. Blouch, Esq., Jones & Blouch LLP, 1025 Thomas
Jefferson Street, NW., Washington, DC 20007-5254; copy to Michael D.
Roughton, Esq., Principal Financial Group, Inc., 711 High Street, Des
Moines, Iowa 50392-0200.
FOR FURTHER INFORMATION CONTACT: Rebecca A. Marquigny, Senior Counsel,
or Zandra Y. Bailes, Branch Chief, Office of Insurance Products,
Division of Investment Management, at (202) 942-0670.
SUPPLEMENTARY INFORMATION: Following is a summary of the application;
the complete application is available for a fee from the SEC's Public
Reference Branch, 450 Fifth Street, NW., Washington, DC 20549-0102
(telephone (202) 942-8090).
Applicants' Representations
1. Principal Life is a stock life insurance company organized under
the laws of Iowa in 1879. It is authorized to transact life insurance
and annuity business in all of the United States and the District of
Columbia.
2. VL Separate Account was established in 1987 by Principal Life as
a separate account under Iowa law for the purpose of funding variable
life contracts issued by Principal Life (File No. 811-05118). Separate
Account B was established in 1970 by Principal Life as a separate
account under Iowa law for the purpose of funding variable annuity
contracts issued by Principal Life (File No. 811-02091).
3. There are nine variable insurance contracts affected by the
application (the ``Contracts''). Six of the Contracts are flexible
premium variable life insurance policies (collectively, the ``VL
Contracts''); three are variable annuity contracts, two individual
deferred contracts and one group annuity contract (collectively, the
``VA Contracts''). Purchase payments for the VL Contracts are allocated
to VL Separate Account. Purchase payments for the VA Contracts are
allocated to Separate Account B.
4. Purchase payments for the Contracts are allocated to one or more
subaccounts (``Divisions'') of VL Separate Account or Separate Account
B. Each Division invests in shares of an underlying mutual fund
(``Underlying Fund''), including Principal Fund, an open-end management
investment company registered under the Act (File Nos. 811-1944 and
002-35570), and Putnam Trust, an open-end management investment company
registered under the Act (File Nos. 811-05346 and 033-17486). The
Contracts permit transfers of accumulated value from one Division to
another.
5. The following table (i) identifies each Contract affected by the
application, (ii) sets forth the total number of Divisions available
under each Contract and the number of those Divisions that invest in
either the Principal Fund or the Putnam Trust, and (iii) summarizes the
transfer rights under each Contract.
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Divisions Transfers
---------------------------------------------
Contracts/File Nos. Total Principal Putnam Minimum
fund trust amount Fee
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VL Contracts:
Flex Variable Life (File No. 33-13481)............. 49 27 3 $250 \1\ $25
Prinflex Life (File No. 333-00101)................. 49 27 3 100 None
Survivorship Variable Life (File No. 333-71521).... 49 27 3 100 None
Principal Variable Universal Life Accumulator (File 49 27 3 100 None
No. 333-65690)....................................
Principal Executive Variable Universal Minimum Life 73 21 0 (\3\) None
(File No. 333-81714)..............................
Principal Benefit Variable Universal Minimum Life 73 21 0 (\3\) None
(File No. 333-89446)..............................
[[Page 65324]]
VA Contracts:
Flexible Variable Annuity (File No. 33-74232)...... 42 27 0 100 \2\ 30
Freedom Variable Annuity (File No. 333-63401)...... 17 15 0 50 None
Premier Variable Annuity (File No. 33-44670)....... 25 25 0 (\3\) None
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\1\ Imposed on each transfer exceeding four per policy year.
\2\ Imposed on each transfer exceeding twelve per policy year.
\3\ No minimum.
6. The only Divisions affected by the application are those
identified in the following table. Each of those Divisions invests
solely in the Principal Fund Account or the Putnam Trust Fund as
indicated in this table.
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Division of each of VL separate account
and separate account B Principal fund
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LargeCap Growth........................ LargeCap Growth Account
LargeCap Growth Equity................. LargeCap Growth Equity Account
Blue Chip \4\.......................... Blue Chip Account
LargeCap Stock Index................... LargeCap Stock Index Account
MidCap Growth Equity................... MidCap Growth Equity Account
MidCap Growth.......................... MidCap Growth Account
Asset Allocation....................... Asset Allocation Account
Equity Growth.......................... Equity Growth Account
--------------------------------
Putnam Trust
--------------------------------
Putnam VT Global Asset Allocation...... Putnam VT Global Asset
Allocation Fund
Putnam VT Vista........................ Putnam VT Vista Fund
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\4\ Separate Account B has a Blue Chip Division; VL Separate Account
does not have a Blue Chip Division.
The Principal Fund Accounts and the Putnam Trust Funds indicated in
the table above are referred to herein collectively as the ``Principal
Funds'' and the ``Putnam Funds,'' respectively. Principal Funds and
Putnam Funds are referred to herein collectively as the ``Funds.''
7. Principal Funds are managed by Principal Management Corporation
(``PMC''), a registered investment adviser under the Investment
Advisers Act of 1940, as amended (``Advisers Act'') and an indirect,
wholly-owned subsidiary of Principal Financial Group, Inc. The
following table identifies the sub-adviser for each of the Principal
Funds and indicates its affiliation, if any, with Principal Financial
Group, Inc.
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Fund Sub-adviser
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LargeCap Growth Account..................... Janus Capital Management LLC (``Janus''), a registered investment
adviser under the Advisers Act (File No. 801-13991).
LargeCap Growth Equity Account.............. Putnam Investment Management LLC (``Putnam''), a registered
investment adviser under the Advisers Act (File No. 801-7974).
Blue Chip Account........................... Principal Global Investors, LLC (``PGI''), an indirect, wholly-
owned subsidiary of Principal Life and a registered investment
adviser under the Advisers Act (File No. 801-55959)
LargeCap Stock Index Account................ PGI.
MidCap Growth Equity Account................ Turner Investment Partners, Inc. (``Turner''), a registered
investment adviser under the Advisers Act (File No. 801-36220).
MidCap Growth Account....................... The Dreyfus Service Corporation (``Dreyfus''), a registered
investment adviser under the Advisers Act (File No. 801-54739).
Asset Allocation Account.................... Morgan Stanley Investment Management, Inc. (``Morgan Stanley''), a
registered investment adviser under the Advisers Act (File No.
801-15757).
Equity Growth Account....................... Morgan Stanley.
----------------------------------------------------------------------------------------------------------------
8. Putnam Funds are managed by Putnam.
9. Applicants seek an order permitting each the following
substitutions (``Substitutions''):
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Replaced fund/sub- Substituted fund/sub-
Substitution adviser adviser
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One......................... LargeCap Growth LargeCap Growth
Account (Janus). Equity Account
(Putnam).
Two......................... Blue Chip Account LargeCap Stock Index
(PGI). Account (PGI).
Three....................... MidCap Growth Equity MidCap Growth
Account (Turner). Account (Dreyfus).
Four........................ Putnam VT Global Asset Allocation
Asset Allocation (Morgan Stanley).
Fund Account
(Putnam).
[[Page 65325]]
Five........................ Putnam VT Vista Fund Equity Growth
(Putnam). Account (Morgan
Stanley)
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10. The investment objective of LargeCap Growth Account (``LargeCap
Growth'') is to seek long-term growth of capital. It invests primarily
in equity securities of growth companies. Under normal market
conditions, LargeCap Growth invests at least 80% of its assets in
equity securities of companies with large market capitalizations (those
with market capitalizations similar to companies in the Russell 1000
Growth Index) at the time of purchase. (The market capitalization of
companies included in the Russell 1000 Growth Index as of June 30,
2003, ranged approximately from $1.3 billion to $310 billion.) The
Account may invest up to 25% of its assets in securities of foreign
companies. The investment objective of LargeCap Growth Equity Account
(``LCGE'') is to seek long-term growth of capital. It invests primarily
in common stocks of U.S. companies, with a focus on growth stocks.
Under normal market conditions, LCGE invests at least 80% of its assets
in common stocks of companies with large market capitalizations (those
with market capitalizations similar to companies in the Russell 1000
Growth Index) at the time of purchase. LCGE may invest up to 25% of its
assets in securities of foreign issuers. Applicants believe that the
substitution will serve the interests of the owners of the contracts
because it will permit them to continue to pursue their current
investment objective (long-term growth of capital) through investments
in the same kinds of securities while paying a lower advisory fee and
lower overall expense ratio.
11. The investment objective of Blue Chip Account (``BC Account'')
is to seek long-term growth of capital. BC Account invests primarily by
investing in common stocks of well-established large capitalization
companies. Under normal market conditions, BC Account invests at least
80% of its assets in common stocks of companies with large market
capitalizations (similar to companies in the S&P 500 Index) at the time
of purchase. Blue chip companies have market capitalizations of at
least $1 billion. BC Account may invest up to 20% of its Account assets
in foreign securities. The investment objective of LargeCap Stock Index
Account (``LCSI'') is to seek long-term growth of capital. Under normal
market conditions, LCSI invests at least 80% of its assets in common
stocks of companies that compose the S&P 500 Index, an unmanaged index
of 500 common stocks chosen to reflect the industries of the U.S.
economy. Applicants believe that the substitution will serve the
interest of owners of the contracts because it will provide those
owners with an investment option that is comparable in terms of
pursuing long-term investment goals and has a lower expense ratio.
12. The investment objective of MidCap Growth Equity Account
(``MCGE'') is to seek long-term growth of capital by investing
primarily in medium capitalization U.S. companies with strong earnings
growth potential. Under normal market conditions, MCGE invests at least
80% of its assets in common stocks of companies with medium market
capitalizations (those with market capitalizations similar to companies
in the Russell MidCap Growth Index) at the time of purchase. (The
market capitalization of companies included in the Russell MidCap
Growth Index as of June 30, 2003 ranged approximately from $1.3 billion
to $10.8 billion.) MCGE may invest up to 10% of its assets in
securities of foreign issuers. The investment objective of MidCap
Growth Account (``MidCap Growth'') is to seek long-term growth of
capital. Under normal market conditions, MidCap Growth invests at least
80% of its assets in common stocks of companies with medium market
capitalizations (those with market capitalizations similar to companies
in the Russell MidCap Growth Index) at the time of purchase. MidCap
Growth may invest up to 10% of its assets in securities of foreign
issuers. Applicants believe that the substitution will serve the
interests of owners of the contracts because it will provide those
owners with an investment option that is comparable in terms of
pursuing long-term investment goals and has a lower expense ratio.
13. The investment objective of Putnam VT Global Asset Allocation
Fund (``Putnam GAAF'') is to seek a high level of long-term total
return consistent with preservation of capital. Putnam GAAF invests in
a wide variety of equity and fixed-income securities of both U.S. and
foreign issuers of any size. Putnam GAAF invests in growth and value
stocks of domestic and foreign corporations and in domestic and foreign
fixed income securities. The investment objective of Asset Allocation
Account (``AAA'') is to generate a total investment return consistent
with preservation of capital. AAA invests in a wide variety of equity
and fixed-income securities of both U.S. and foreign issuers of any
size. AAA invests in growth and value stocks of domestic and foreign
corporations and in domestic fixed-income securities and may invest in
foreign fixed-income securities. Applicants believe that the
substitution will serve the interest of owners of the contracts because
it will provide those owners with an investment option that is
comparable in terms of pursuing long-term investment goals and has a
lower expense ratio.
14. The investment objective of Putnam VT Vista Fund (``Vista'') is
to seek capital appreciation. Vista invests mainly in common stocks of
U.S. companies, with a focus on growth stocks. Vista invests mainly in
mid-sized companies. The Fund uses the Russell MidCap Growth Index for
comparison purposes. The investment objective of Equity Growth Account
(``Equity Growth'') is to provide long-term capital appreciation by
investing primarily in equity securities. Equity Growth seeks to
maximize long-term capital appreciation by investing primarily in
growth-oriented equity securities of U.S. and, to a limited extent,
foreign companies that are listed on U.S. exchanges or traded in U.S.
markets. It invests at least 80% of its assets in equity securities and
invests primarily in companies with market capitalizations of $10
billion or more. Although Equity Growth may invest up to 25% of its
assets in investments in foreign companies that are traded in foreign
markets, it is considered to be a domestic stock fund and, therefore,
will generally limit its foreign stock holdings to 10% of its assets
and generally invests only in securities of foreign companies that are
traded in the U.S. Applicants represent that the substitution will
serve the interest of owners of the contracts because it will provide
those owners with an investment option that is comparable in terms of
pursuing long-term investment goals and has a lower expense ratio.
15. The annual operating expenses of each replaced fund and each
substituting fund as a percentage of average daily net assets are as
follows:
[[Page 65326]]
[In percent]
----------------------------------------------------------------------------------------------------------------
Total
Total expenses
expenses (after fee
Management Distribution Other (before waivers and/
fee and service expenses reimbursement or
fee (12b-1) and/or fee reimbursement
waivers if if
applicable) applicable)
----------------------------------------------------------------------------------------------------------------
Replaced Fund: LargeCap Growth.............. 1.10 N/A 0.04 1.14 1.14
Substituting Fund: LCGE..................... 1.00 N/A 0.09 1.09 1.09
Replaced Fund: BC Account................... 0.60 N/A 0.23 0.83 0.83
Substituting Fund: LCSI..................... 0.35 N/A 0.04 0.39 0.39
Replaced Fund: MCGE......................... 1.00 N/A 0.13 1.13 1.10
Substituting Fund: MidCap Growth............ 0.90 N/A 0.02 0.92 0.92
Replaced Fund: Putnam GAAF.................. 0.67 0.25 0.17 1.09 1.09
Substituting Fund: AAA...................... 0.80 N/A 0.04 0.84 0.84
Replaced Fund: Vista........................ 0.61 0.25 0.06 0.92 0.92
Substituting Fund: Equity Growth............ 0.75 N/A 0.02 0.77 0.77
----------------------------------------------------------------------------------------------------------------
Note: The expenses shown above are for the year ended December 31, 2002.
16. Applicants represent that the Substitutions will take place at
the relative net asset values determined on the date of the
Substitution in accordance with section 22 of the Act and Rule 22c-1
thereunder. Applicants represent that there will be no financial impact
to any contractowner.
17. Each of the Substitutions will be effected by having each
Division that invests in a Replaced Fund redeem its shares of that fund
for cash at the net asset value calculated on the date of the
Substitution and purchase shares of the Substituted Fund for cash at
net asset value on the same date. In connection with the completion of
each of the Substitutions, Principal Life will withdraw its seed money
from each of the Principal Funds in which it has seed money (LargeCap
Growth, BC Account, and MCGE) and terminate those funds. In addition,
Principal Life will combine each Division of each of the Separate
Accounts that invests in a Replaced Fund with the Division of that
Separate Account that invests in the Substituted Fund.
18. Applicants agree that: (a) For each fiscal period (not to
exceed a fiscal quarter) during the 24 months following the date of
Substitution into LCSI, AAA and Equity Growth, Principal Life will
adjust the Contract values invested in the Substituted Fund as a result
of the Substitution, to the extent necessary to effectively reimburse
the affected owners for their proportionate share of any amount by
which the annual rate of the Substituted Fund's total operating
expenses (after any expense waivers or reimbursements) for that fiscal
period, as a percentage of the Fund's average daily net assets, plus
the annual rate of any asset-based charges (excluding any such charges
that are for premium taxes) deducted under the terms of the owner's
Contract for that fiscal period, exceed the sum of: the annualized rate
of the corresponding Replaced Fund's total operating expenses, as a
percentage of such replaced Fund's average daily net assets, for the
twelve months ended December 31, 2002; plus the annual rate of any
asset-based charges (excluding any such charges that are for premium
taxes) deducted under that Contract for such twelve months; and (b) for
each fiscal period (not to exceed a fiscal quarter) during the 24
months following the date of Substitution into LCGE and MidCap Growth,
Principal Life will, with respect to all Contracts outstanding on the
date of the Substitution, adjust the Contract values invested in the
Substituted Fund, to the extent necessary to effectively reimburse the
owners of those Contracts for their proportionate share of any amount
by which the annual rate of the Substituted Fund's total operating
expenses (after any expense waivers or reimbursements) for that fiscal
period, as a percentage of the Fund's average daily net assets, plus
the annual rate of any asset-based charges (excluding any such charges
that are for premium taxes) deducted under the terms of the owner's
Contract for that fiscal period, exceed the sum of: the annualized rate
of the corresponding Replaced Fund's total operating expenses, as a
percentage of such replaced Fund's average daily net assets, for the
twelve months ended December 31, 2002; plus the annual rate of any
asset-based charges (excluding any such charges that are for premium
taxes) deducted under that Contract for such twelve months.
19. Applicants represent that each of the Substitutions has been
described in the annual post-effective amendments to the registration
statements for the Contracts which became effective on May 1, 2003. The
post-effective amendments mailed to contractowners gave them notice of
each of the Substitutions and described the reasons for engaging in
each of the Substitutions. The post-effective amendments also informed
existing contractowners that no amounts may be transferred to the
Replaced Funds on or after May 19, 2003. In addition, the post-
effective amendments informed affected contractowners that they will
have an opportunity to reallocate accumulation value prior to each
Substitution or for 60 days after each Substitution (``Free Transfer
Right'') from each Division investing in a Replaced Fund to another
Division available under the Contracts, without the imposition of any
transfer charge or limitation and without counting the transfer as one
of the annual free transfers.
20. Each contractowner has been provided a prospectus for each of
the Substituted Funds. Applicants represent that, within five days
after a Substitution, Principal Life will send to affected
contractowners written confirmation that the Substitution has occurred.
21. Applicants represent that the cost of each of the
Substitutions, including legal, accounting, brokerage commissions and
other fees and expenses, will be borne by Principal Life and will not
be borne by the Funds or the contractowners either directly or
indirectly. Applicants represent that each of the Substitutions will
have no impact on the insurance benefits that Principal Life is
obligated to provide under the Contracts or on the other rights of
contractowners and other obligations of Principal Life under the
Contracts. Applicants represent that each of the Substitutions will not
cause
[[Page 65327]]
the fees and charges under the Contracts currently being paid by
contractowners to be greater after the Substitution than before the
Substitution. Applicants also represent that each of the Substitutions
will not have a tax impact on contractowners.
Applicants' Legal Analysis
1. Applicants request an order pursuant to section 26(c) of the Act
approving each of the Substitutions. Section 26(c) of the Act makes it
unlawful for any depositor or trustee of a registered unit investment
trust holding the security of a single issuer to substitute another
security for such security unless the Commission approves the
substitution. The Commission will approve such a substitution if the
evidence establishes that it is consistent with the protection of
investors and the purposes fairly intended by the policy and provisions
of the Act.
2. Applicants assert that the purposes, terms and conditions of
each of the Substitutions are consistent with the principles and
purposes of section 26(c) and do not entail any of the abuses that
section 26(c) is designed to prevent. Substitution is an appropriate
solution to the lack of contractowner interest in and higher relative
expense of the Replaced Funds. Applicants represent that they do not
expect that any Substitution will have a significant impact on the
expense ratio of the Substituted Fund and believe that because of lower
expense ratios each Substituted Fund will serve contractowner interests
better than the current fund Applicants seek to replace. Moreover,
Principal Life has reserved the right to effect substitutions in the
Contracts and disclosed this reserved right in the prospectuses for the
Contracts.
3. Applicants represent that each of the Substitutions will not
result in the type of costly forced redemption that section 26(c) was
intended to guard against and, for the following reasons, is consistent
with the protection of investors and the purposes fairly intended by
the Act:
(a) Each of the proposed Substitutions permits contractowners
continuity of investment objectives and expectations.
(1) Both LCGE and LargeCap Growth seek long term growth of capital
primarily by investing in common stocks of companies with large market
capitalizations. LCGE, with its emphasis on investing in companies with
large market capitalizations, will afford shareholders of LargeCap
Growth an opportunity for continued investment exposure to companies
with market capitalizations within an equivalent large market
capitalization range.
(2) BC Account seeks long-term growth of capital and growth of
income primarily by investing in common stocks of well established
large capitalization companies (similar to companies in the S&P 500
Index), and LCSI seeks long-term growth of capital by investing
primarily in common stocks of companies that compose the S&P 500 Index.
LCSI, with its emphasis of investing in companies that are components
of the S&P 500 Index, will afford shareholders of BC Account an
opportunity for continued investment exposure to the kinds of companies
in which BC Account may invest.
(3) Both MidCap Growth and MCGE seek long-term growth of capital
primarily by investing in common stocks of companies with medium market
capitalizations. MidCap Growth, with its emphasis on investing in
companies with medium market capitalizations, will afford shareholders
of MCGE an opportunity for continued investment exposure to companies
within the same medium market capitalization range.
(4) Both AAA and Putnam GAAF seek a high long-term return
consistent with preservation of capital. AAA, with its emphasis on
investing in equity and fixed-income securities of domestic and foreign
issuers, will afford shareholders of Putnam GAAF an opportunity for
continued investment exposure to equity and fixed-income securities of
domestic and foreign issuers.
(5) Both Equity Growth and Vista seek capital appreciation by
investing primarily in growth stocks of U.S. companies. Equity Growth,
with its emphasis on investing in growth-oriented equity securities of
U.S. companies, will afford shareholders of Vista an opportunity for
continued investment exposure to growth stocks of domestic
corporations.
(b) The contractowners will have ample opportunity to consider
their investment options because they will be given notice prior to the
Substitutions and will have an opportunity to reallocate accumulation
value among other available Divisions without the imposition of any
transfer charge or limitation as a result of the Free Transfer Right.
(c) The costs of each of the Substitutions, including legal,
accounting, brokerage commissions and other fees and expenses, will be
borne by Principal Life and will not be borne by the Funds or the
contractowners directly or indirectly.
(d) Each Substitution will be at net asset values of the respective
shares, without the imposition of any transfer or similar charge and
with no change in the amount of any contractowner's accumulation value
under the Contracts.
(e) The Substitutions will not cause the fees and charges under the
Contracts currently being paid by contractowners to be greater after
the Substitutions than before the Substitutions.
(f) Within five days after a Substitution, Principal Life will send
to contractowners written confirmation that the Substitution has
occurred.
(g) The Substitutions will have no impact on the insurance benefits
that Principal Life is obligated to provide under the Contracts or on
the other rights of contractowners and other obligations of Principal
Life under the Contracts.
(h) The Substitutions will in no way alter the tax benefits to
contractowners.
(j) For each fiscal period (not to exceed a fiscal quarter) during
the 24 months following the date of Substitution into LCSI, AAA and
Equity Growth, Principal Life will adjust the Contract values invested
in the Substituted Fund as a result of the Substitution, to the extent
necessary to effectively reimburse the affected owners for their
proportionate share of any amount by which the annual rate of the
Substituted Fund's total operating expenses (after any expense waivers
or reimbursements) for that fiscal period, as a percentage of the
Fund's average daily net assets, plus the annual rate of any asset-
based charges (excluding any such charges that are for premium taxes)
deducted under the terms of the owner's Contract for that fiscal
period, exceed the sum of: The annualized rate of the corresponding
Replaced Fund's total operating expenses, as a percentage of such
Replaced Fund's average daily net assets, for the twelve months ended
December 31, 2002; plus the annual rate of any asset-based charges
(excluding any such charges that are for premium taxes) deducted under
that Contract for such twelve months; and
(k) For each fiscal period (not to exceed a fiscal quarter) during
the 24 months following the date of Substitution into LCGE and MidCap
Growth, Principal Life will, with respect to all Contracts outstanding
on the date of the Substitution, adjust the Contract values invested in
the Substituted Fund, to the extent necessary to effectively reimburse
the owners of those Contracts for their proportionate share of any
amount by which the annual rate of the Substituted Fund's total
operating expenses (after any expense waivers or reimbursements ) for
that fiscal period, as a percentage of the Fund's average daily net
assets, plus the annual rate of
[[Page 65328]]
any asset-based charges (excluding any such charges that are for
premium taxes) deducted under the terms of the owner's Contract for
that fiscal period, exceed the sum of: The annualized rate of the
corresponding Replaced Fund's total operating expenses, as a percentage
of such replaced Fund's average daily net assets, for the twelve months
ended December 31, 2002; plus the annual rate of any asset-based
charges (excluding any such charges that are for premium taxes)
deducted under that Contract for such twelve months.
4. Applicants request an order of the Commission pursuant to
section 26(c) of the Act approving each of the Substitutions. Section
26(c), in pertinent part, provides that the Commission shall issue an
order approving a substitution of securities if the evidence
establishes that it is consistent with the protection of investors and
the purposes fairly intended by the policy and provisions of the Act.
Conclusion
Section 6(c) of the Act, in pertinent part, provides that the
Commission, by order upon application, may conditionally or
unconditionally exempt any persons, security or transaction, or any
class or classes of persons, securities or transactions, from any
provision or provisions of the Act, or any rule or regulation
thereunder, to the extent that such exemption is necessary or
appropriate in the public interest and consistent with the protection
of investors and the purposes fairly intended by the policy and
provisions of the Act. Applicants submit that, for the reasons stated
in the application, their exemptive requests meet the standards set out
in Section 6(c) and that an order should, therefore, be granted.
For the Commission, by the Division of Investment Management,
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 03-28849 Filed 11-18-03; 8:45 am]
BILLING CODE 8010-01-P