81 FR 15384 - Principal Life Insurance Company, et al.,

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 81, Issue 55 (March 22, 2016)

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 Account to support variable annuity contracts (each, a ``Contract'' and collectively, the ``Contracts'') issued by PLIC.

[Federal Register Volume 81, Number 55 (Tuesday, March 22, 2016)]
[Notices]
[Pages 15384-15387]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2016-06410]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. IC-32029; File No. 812-14600]


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'') and 
Principal Life Insurance Company Separate Account B (``Separate 
Account'') (together, the ``Applicants'').
SUMMARY: 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 Account to support variable annuity contracts (each, a 
``Contract'' and collectively, the ``Contracts'') issued by PLIC.

DATES: Filing Dates: The application was filed on January 14, 2016 and 
amended on February 29, 2016, March 7, 2016, and March 14, 2016.
    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

[[Page 15385]]

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: 
Doug Hodgson, Principal Life Insurance Company, The Principal Financial 
Group, Des Moines, Iowa 50392-0300.

FOR FURTHER INFORMATION CONTACT: Rochelle Kauffman Plesset, Senior 
Counsel, at (202) 551-6840, or Nadya Roytblat, Assistant Chief Counsel 
at (202) 551-0825 (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. PLIC is the depositor and sponsor, as those terms 
have been interpreted by the Commission with respect to variable 
annuity separate accounts, of the Separate Account. PLIC established 
the Separate Account as a separate account under Iowa law on January 
12, 1970.
    2. The 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, PLIC 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 PLIC for the benefit of the owners of the Contracts 
and the persons entitled to payment under the Contracts. Consequently, 
the assets in the Separate Account are not chargeable with liabilities 
arising out of any other business that PLIC may conduct.
    3. The Separate Account is divided into subaccounts. Each 
subaccount invests exclusively in shares of a corresponding underlying 
registered open-end management investment company. The Separate Account 
supports the Contracts and interests in the Separate Account offered 
through such Contracts have been registered under the Securities Act of 
1933 on Form N-4. The application sets forth the registration file 
numbers for the Contracts under the Separate Account.
    4. The Contracts are either individual flexible premium deferred 
variable annuity contracts (``Retail Contracts'') or group variable 
annuity contracts for employer-sponsored qualified and non-qualified 
retirement plans (``Group Contracts''). The Retail Contracts are: 
Principal Freedom Variable Annuity, Principal Investment Plus Variable 
Annuity, Principal Variable Annuity (Flexible Variable Annuity), 
Principal Variable Annuity (Flexible Variable Annuity with Purchase 
Payment Credit), Principal Freedom 2 Variable Annuity, Principal 
Lifetime Income Solutions, Principal Investment Plus Variable Annuity, 
and Principal Pivot Series Variable Annuity (``Pivot''). The Group 
Contracts are: Premier Variable Annuity Contract, Personal Variable 
Annuity Contract and Pension Builder Plus-Group Variable Annuity 
Contract.
    5. Pursuant to the Contracts, Retail Contract owners and Group 
Contracts plan participants (together referred to as ``Contract 
Owners'') may select among several variable account investment options. 
Applicants state that, as disclosed in the prospectuses for the 
Contracts, PLIC reserves the right, subject to Commission approval and 
compliance with applicable law, to substitute shares of another 
registered open-end management investment company for shares of a 
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 serves as the only underlying money market investment 
option for all Group Contracts. The Existing Fund also served as the 
only underlying money market investment option for all Retail 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 the Applicants or PVC.
    8. With the exception of Pivot, Applicants propose to substitute 
Initial Class Shares of the Replacement Fund for Class 1 Shares of the 
Existing Fund. With respect to Pivot, Applicants propose to substitute 
Service Class 2 Shares of the Replacement Fund for Class 2 Shares of 
the Existing Fund (together, the ``Substitutions'').
    9. 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 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.
    10. Applicants represent that the Substitutions will result in a 
decrease in overall expenses, which benefits the Contract Owners. The 
application sets forth the fees and expenses of the

[[Page 15386]]

appropropriate class of the Existing Fund with the corresponding class 
of the Replacement Fund in greater detail.
    11. Applicants state that 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 Substitutions are necessary and in the 
best interests of Contract owners.
    12. Applicants represent that the Substitutions and the selection 
of the Replacement Fund were not motivated by any financial 
consideration paid or to be paid to PLIC or to its affiliates by the 
Replacement Fund, its adviser or underwriter, or their affiliates.
    13. 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. PLIC, on behalf of the 
Existing Fund subaccount of the 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.
    14. The Substitutions 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 
Separate Account. PLIC or its affiliates will pay all expenses and 
transaction costs of the Substitutions, including legal and accounting 
expenses, any applicable brokerage expenses and other fees and 
expenses.
    15. The rights or obligations of PLIC 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 
Substitutions 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 
Substitutions. The Substitutions 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.
    16. 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, PLIC will not 
exercise any right it 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.
    17. All Group Contract Owners were notified of this application by 
means of a supplement to the Contract prospectuses dated March 7, 2016. 
All Retail Contract Owners were notified of the intent to file this 
application by means of a supplement to the Contract prospectuses dated 
December 11, 2015. Among other information regarding the Substitutions, 
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.
    18. 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, PLIC delivered a prospectus for the 
Replacement Fund with the Pre-Substitution Notice.
    19. PLIC will deliver to each Affected Contract Owner within five 
(5) business days of the Substitution Date, a written confirmation, 
which will include a confirmation that the Substitutions were carried 
out as previously notified, a restatement of the information set forth 
in the Pre-Substitution Notice, and before and after account values.
    20. 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 proposed 
Substitutions, 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 Substitutions. 
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 Substitutions meet the standards set 
forth in Section 26(c) and that, if implemented, the Substitutions 
would not raise any of the concerns underlying that provision. 
Applicants represent that the Substitutions will provide Contract 
Owners with a comparable investment vehicle which will not circumvent 
Contract Owner-initiated decisions and PLIC's 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 
Substitutions will result in a decrease in overall expenses, thereby 
benefiting Contract Owners.
    3. Applicants state that, as disclosed in the prospectuses for the 
Contract, PLIC reserves the right, subject to Commission approval, to 
substitute shares of another registered open-end management investment 
company for shares of an open-end management investment company held by 
a subaccount of a Separate Account. Applicants determined that the 
Substitutions are 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.

[[Page 15387]]

    4. Applicants also assert that the Substitutions do 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 
Substitutions.

Applicants' Conditions

    Applicants agree that any order granting the requested relief will 
be subject to the following conditions:
    1. The Substitutions will not be effected unless the Applicants 
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 Substitutions 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 proposed Substitutions.
    2. Applicants or their affiliates will pay all expenses and 
transaction costs of the proposed Substitutions, 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 proposed Substitutions.
    3. The Substitutions 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 Substitutions will be effected 
without change in the amount or value of any Contracts held by Affected 
Contract Owners.
    4. The Substitutions 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 
proposed Substitutions.
    5. The rights or obligations of the PLIC under the Contracts of 
Affected Contract Owners will not be altered in any way. The 
Substitutions 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, PLIC 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 Applicants will deliver to 
all Affected Contract Owners, at least 30 days before the Substitution 
Date, a prospectus for the Replacement Fund.
    8. Applicants 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 proposed Substitutions 
were 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 Substitutions, 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. 2016-06410 Filed 3-21-16; 8:45 am]
 BILLING CODE 8011-01-P