Registration No. 333-71521
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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Pre-effective Amendment No. 1 to
FORM S-6
FOR REGISTRATION UNDER THE SECURITIES ACT OF 1933
OF SECURITIES OF UNIT INVESTMENT TRUST REGISTERED ON
FORM N-8B-2
PRINCIPAL LIFE INSURANCE COMPANY VARIABLE LIFE SEPARATE ACCOUNT
711 High Street
Des Moines, Iowa 50309
(Address of Depositor's Principal Executive Offices)
Traci L. Weldon
Principal Life Insurance Company
711 High Street
Des Moines, Iowa 50309
(Name and Address of agent for service
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Telephone Number, Including Area Code: (515) 247-5111
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Please send copies of all communications to
J. SUMNER JONES
Jones & Blouch
1025 Thomas Jefferson Street, N.W.
Washington, DC 20007-0805
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Title and Amount of Securities: Survivorship Flexible Premium Variable Universal
Life Insurance Policy. (Pursuant to Rule 24F-2 under the Investment Company Act
of 1940, the Registrant elects to register an indefinite amount of securities
being registered.)
Amount of Filing Fee: No fee required.
Approximate date of proposed public offering: As soon as practicable after the
effective date of the Registration Statement.
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The Registrant hereby amends its Registration Statement under the Securities Act
of 1933 on such date or dates as may be necessary to delay its effective date
until the Registrant shall file a further amendment which specifically states
that this Registration Statement shall thereafter become effective in accordance
with Section 8(a) of the Securities Act of 1933 or until this Registration
Statement shall become effective on such date as the Commission, acting pursuant
to said Section 8(a), may determine.
<PAGE>
PRINCIPAL LIFE INSURANCE COMPANY
VARIABLE LIFE SEPARATE ACCOUNT
Registration Statement on Form S-6
Cross Reference Sheet
Items of
Form N-8B-2 Captions in Prospectus
1.............. Cover Page
2.............. Cover Page
3.............. Not Applicable
4.............. Distribution of the Policy
5.............. Principal Life Insurance Company Variable Life
Separate Account
6(a)........... Not Applicable
6(b)........... Not Applicable
7.............. Not Required
8.............. Not Required
9.............. Legal Proceedings
10(a).......... Ownership, Beneficiary, Assignment
10(b).......... Calculation of Accumulated Value; Unit Values; Net
Investment Factor; Valuations in Connection with a
Policy; Participating Policy
10(c), 10(d)... Summary (Transfers; Policy Loans; Loan Accounts;
Surrenders, Charges and Deductions; Death Benefits and
Proceeds; Maturity Proceeds)
10(e).......... Summary (Premiums, Termination and Reinstatement);
Policy Termination and Reinstatement (Policy
Termination; Reinstatement)
10(f).......... Other Matters (Voting Rights)
10(g)(1),
10(g)(2),
10(h)(1),
10(h)(2)....... Principal Life Insurance Company Variable Life
Separate Account; General Provisions (Addition,
Deletion or Substitution of Investments)
10(g)(3),
10(g)(4),
10(h)(3),
10(h)(4)....... Not Applicable
10(i).......... Principal Life Insurance Company Variable Life
Separate Account, The Policy (Policy Values); General
Provisions (Addition, Deletion or Substitution of
Investments); General Provisions (Optional Insurance
Benefits); Federal Tax Matters
11............. Principal Life Insurance Company Variable Life
Separate Account; General Provisions (Addition,
Deletion or Substitution of Investments)
12(a).......... Cover page
12(b).......... Not Applicable
12(c).......... Principal Life Insurance Company Variable Life
Separate Account; The Funds
12(d).......... Distribution of the Policy
12(e).......... Principal Life Insurance Company Variable Life
Separate Account
13(a).......... Principal Life Insurance Company Variable Life
Separate Account; Charges and Deductions
13(b), 13(c),
13(d), 13(e),
13(f), 13(g)... Summary (Charges and Deductions); Charges and
Deductions
14............. The Policy (To buy a Policy); Distribution of the
Policy
15............. Summary (Premiums); The Policy (Payment of Premiums;
Premium Limitations; Allocation of Premiums)
16............. Summary (The Policy); Principal Life Insurance Company
Variable Life Separate Account; The Policy (Policy
Values); General Provisions (Addition, Deletion or
Substitution of Investments)
17(a), 17(b),
17(c).......... Captions referenced under Items 10(c), 10(d), 10(e),
and 10(i) above
18(a).......... Summary (Policy Value); The Policy (Policy Values)
18(b).......... Summary (Policy Value); The Policy (Policy Values)
18(c).......... Summary (Policy Loans); The Policy (Policy Values;
Policy Loans; Loan Account)
18(d).......... Not Applicable
19............. Other Matters (Voting Rights; Statement of Values)
20(a), 20(b)... Principal Life Insurance Company Variable Life
Separate Account; General Provisions (Addition,
Deletion or Substitution of Investments); Other
Matters (Voting Rights)
20(c), 20(d),
20(e), 20(f)... Not Applicable
21(a), 21(b)... Summary (Policy Loans); The Policy (Policy Values;
Policy Loans)
21(c).......... Summary (Policy Value; Policy Loans); The Policy
(Policy Values; Policy Loans)
22............. General Provisions (The Contract; Incontestability)
23............. Not Applicable
24............. Summary
25............. The Company
26............. Summary (Investment Account); The Policy (Investment
Account Transfers)
27............. The Company
28............. Officers and Directors of Principal Life
Insurance Company
29............. The Company
30............. Not Applicable
31............. Not Applicable
32............. Not Applicable
33............. Not Applicable
<PAGE>
Survivorship Flexible Premium Variable Universal Life Insurance Policy
The Survivorship Flexible Premium Variable Universal Life Insurance Policy (the
"Policy") is issued by Principal Life Insurance Company (the "Company"). The
Policy provides:
o a death benefit payable on the death of the surviving insured;
o policy loans; and
o a net surrender value which may be accessed by a partial or total surrender
of the Policy.
This prospectus provides information that you should know before buying a
Policy. It is accompanied by a current prospectus for the underlying mutual
funds that are available under the Policy. Please read these prospectuses
carefully and keep them for future reference.
The investment options available under the Policy are:
Principal Variable Contracts Fund, Inc.
Aggressive Growth Account
Asset Allocation Account
Balanced Account
Bond Account
Capital Value Account
Government Securities Account
Growth Account
International Account
International SmallCap Account
MicroCap Account
MidCap Account
MidCap Growth Account
Money Market Account
Real Estate Account
SmallCap Account
SmallCap Growth Account
SmallCap Value Account
Stock Index 500 Account
Utilities Account
Fidelity Variable Insurance Products Fund II
Contrafund Portfolio
Fidelity Variable Insurance Products Fund:
Equity-Income Portfolio
High Income Portfolio
Putnam Variable Trust
Global Asset Allocation Fund
Vista Fund
Voyager Fund
As in the case of other life insurance policies, it may not be in your best
interest to buy this Policy as a replacement for, or in addition to, existing
insurance coverage.
This Policy is NOT:
o a bank deposit
o endorsed by a bank or government agency
o federally insured
The Policy involves investment risk, including possible loss of principal.
You should be aware that the Securities and Exchange Commission ("SEC") has not
reviewed the Policy for its investment merit, and does not guarantee that the
information in this prospectus is accurate or complete. It is a criminal offense
to say otherwise.
This prospectus is dated __________.
<PAGE>
TABLE OF CONTENTS
GLOSSARY............................................................... 4
SUMMARY................................................................ 6
The Policy........................................................ 6
Premiums.......................................................... 7
Policy Value...................................................... 7
Investment Account................................................ 7
Fixed Account..................................................... 7
Transfers......................................................... 7
Policy Loans...................................................... 7
Loan Account...................................................... 7
Surrenders........................................................ 7
Charges and Deductions............................................ 8
Death Benefits and Proceeds....................................... 9
Maturity Proceeds................................................. 9
Adjustment Options................................................ 9
Termination and Reinstatement..................................... 9
Ten Day Examination Offer......................................... 9
THE COMPANY............................................................ 10
PRINCIPAL LIFE INSURANCE COMPANY VARIABLE LIFE SEPARATE ACCOUNT........ 10
THE FUNDS.............................................................. 11
THE POLICY............................................................. 16
To Buy a Policy................................................... 16
Payment of Premiums............................................... 17
Premium Limitations............................................... 17
Allocation of Premiums............................................ 17
Ten Day Examination Offer......................................... 18
Policy Values..................................................... 18
Investment Account Transfers...................................... 19
Fixed Account Transfers........................................... 20
Automatic Portfolio Rebalancing (APR)............................. 20
Policy Loans...................................................... 21
Loan Account...................................................... 21
Surrenders........................................................ 22
DEATH BENEFITS AND RIGHTS.............................................. 23
Death Proceeds.................................................... 23
Death Benefit Options............................................. 23
Change in Death Benefit Option.................................... 25
Adjustment Options................................................ 25
CHARGES AND DEDUCTIONS................................................. 26
Premium Expense Charge............................................ 26
Monthly Policy Charge............................................. 26
Cost of Insurance Charge.......................................... 27
Administration Charge............................................. 27
Mortality and Expense Risk Charge................................. 27
Transaction Charge................................................ 28
Surrender Charge.................................................. 28
Other Charges..................................................... 28
THE FIXED ACCOUNT...................................................... 29
POLICY TERMINATION AND REINSTATEMENT................................... 30
Policy Termination ................................................ 30
Reinstatement .................................................... 31
OTHER MATTERS.......................................................... 32
Voting Rights..................................................... 32
Statement of Values............................................... 32
Services Available by Telephone................................... 33
GENERAL PROVISIONS..................................................... 34
The Contract...................................................... 34
Optional Insurance Benefits....................................... 34
Misstatement of Age or Gender..................................... 35
Assignment........................................................ 35
Ownership......................................................... 35
Beneficiary....................................................... 35
Benefit Instructions.............................................. 35
Benefit Payment Options........................................... 36
Rights to Exchange Policy......................................... 36
Non-Participating Policy.......................................... 36
Incontestability.................................................. 36
Suicide........................................................... 36
Delay of Payments................................................. 37
Addition, Deletion or Substitution of Investments................. 37
OFFICERS AND DIRECTORS OF PRINCIPAL MANAGEMENT CORPORATION............. 38
OFFICERS AND DIRECTORS OF PRINCIPAL LIFE INSURANCE COMPANY............. 38
DISTRIBUTION OF THE POLICY............................................. 40
STATE REGULATION....................................................... 40
FEDERAL TAX MATTERS.................................................... 41
Tax Status of the Company and the Separate Account................ 41
Charges for Taxes................................................. 41
Diversification Standards......................................... 41
IRS Definition of Life Insurance.................................. 41
Modified Endowment Contract Status................................ 41
Policy Surrenders and Partial Surrenders.......................... 42
Policy Loans and Loan Interest.................................... 42
Corporate Alternative Minimum Taxes............................... 42
Exchange or Assignment of Policies................................ 42
Withholding....................................................... 42
Other Tax Issues.................................................. 42
EMPLOYEE BENEFIT PLANS................................................. 43
LEGAL OPINIONS......................................................... 43
LEGAL PROCEEDINGS...................................................... 43
REGISTRATION STATEMENT................................................. 43
OTHER VARIABLE INSURANCE CONTRACTS..................................... 43
RESERVATION OF RIGHTS.................................................. 43
YEAR 2000 READINESS DISCLOSURE......................................... 43
CUSTOMER INQUIRIES..................................................... 44
INDEPENDENT AUDITORS................................................... 44
FINANCIAL STATEMENTS................................................... 44
APPENDIX A............................................................. 115
APPENDIX B TARGET PREMIUMS............................................. 120
The Policy offered by this prospectus may not be available in all states. This
prospectus is not an offer to sell, or solicitation of an offer to buy, the
Policy in states in which the offer or solicitation may not be lawfully made. No
person is authorized to give any information or to make any representation in
connection with this Policy other than those contained in this prospectus.
GLOSSARY
adjustment - change to your policy resulting from an increase or decrease in
policy face amount or a change in: smoking status; death benefit option; rating
or riders.
adjustment date - the monthly date on or next following the Company's approval
of a requested adjustment.
attained age - for each insured, it is the insured's age on the birthday on or
preceding the last policy anniversary.
business day - any date that the New York Stock Exchange is open for trading and
trading is not restricted.
division - a part of the Separate Account which invests in shares of a mutual
fund.
effective date - the date on which all requirements for issuance of a Policy
have been satisfied.
Fixed Account - that part of the dollar amount in the policy that reflects value
in the General Account of the Company.
General Account - assets of the Company other than those allocated to any of our
Separate Accounts.
insureds - the persons named as the "insureds" on the application for the
Policy. The insureds may or may not be the owners.
Investment Account - that part of the dollar amount in the policy that reflects
your investment in one of the divisions of the Separate Account.
Loan Account - that part of the dollar amount in the policy that reflects the
value transferred from the Investment Account(s) and/or Fixed Account as
collateral for a policy loan.
monthly date - the day of the month which is the same day as the policy date.
Example: If the policy date is September 5, 1999, the first monthly date is
October 5, 1999.
monthly policy charge - the amount subtracted from the policy value on each
monthly date equal to the sum of the cost of insurance and of additional
benefits provided by any rider plus the monthly administration charge and
mortality and expense risks charge in effect on the monthly date.
mutual fund - a registered open-end investment company, or a separate investment
account or portfolio thereof, in which a division of the Separate Account
invests.
net premium - the gross premium less the deductions for the premium expense
charge. It is the amount of premium allocated to the Investment Accounts and/or
Fixed Account.
net surrender value - policy value minus any surrender charge minus any policy
loans and unpaid loan interest.
notice - any form of communication received in our home office which provides
the information we need which may be in writing or another manner which we
approve in advance.
owner - the person, including joint owner, who owns all the rights and
privileges of this Policy.
policy date - the date from which monthly dates, policy years and policy
anniversaries are determined.
policy value - an amount equal to the Fixed Account value plus the Investment
Account value(s) plus the Loan Account value.
policy year - the one-year period beginning on the policy date and ending one
day before the policy anniversary and any subsequent one year period beginning
on a policy anniversary.
Example: If the policy date is September 5, 1999, the first policy year
ends on September 4, 2000. The first policy anniversary falls on
September 5, 2000.
premium expense charge - the charge deducted from premium payments to cover a
sales charge, state and local premium taxes and federal taxes.
prorated basis - in the proportion that the value of a particular Investment
Account or the Fixed Account bears to the total value of all Investment Accounts
and the Fixed Account.
surrender value - policy value minus any surrender charge.
surviving insured - the insured who is living at the death of the other insured.
If both insureds die simultaneously, then the term "surviving insured" means the
younger of the two insureds.
target premium - a premium amount which is used to determine the maximum sales
charge that is included as part of the premium expense charge and any applicable
surrender charge under a Policy. Target premiums are provided in Appendix B.
unit - the accounting measure used to calculate the value of the Separate
Account divisions.
valuation date - the date as of which the net asset value of a mutual fund is
determined.
valuation period - the period of time between determination of net asset value
on one valuation date and the next valuation date.
written request - actual delivery to the Company at our home office of a written
notice or request, signed and dated, on a form we supply or approve.
Your notices may be mailed to us at:
Principal Life Insurance Company
P O Box 9296
Des Moines, Iowa 50306-9296
SUMMARY
This prospectus describes a survivorship flexible variable universal life policy
offered by the Company. This is a brief summary of the Policy's features. More
detailed information follows later in this prospectus.
The Policy
The Policy is designed to provide you with:
o insurance protection covering two individuals,
o a death benefit payable at the death of the surviving insured, and
o flexibility in:
o the amount and frequency of premium payments (subject to certain
limitations), and
o the amount of life insurance proceeds payable under
the Policy.
You may allocate your net premium payments to divisions of the Separate Account
and/or the Fixed Account. Not all divisions are available in all states. A
current list of divisions available in your state may be obtained from a sales
representative or our home office.
Each division invests in shares of an underlying mutual fund. More detailed
information about the underlying mutual funds may be found in the current
prospectus for each underlying mutual fund.
The underlying mutual funds are NOT available to the general public directly.
The underlying mutual funds are available only as investment options in variable
life insurance policies or variable annuity contracts issued by life insurance
companies. Some of the underlying mutual funds have been established by
investment advisers that manage publicly traded mutual funds having similar
names and investment objectives. While some of the underlying mutual funds may
be similar to, and may in fact be modeled after publicly traded mutual funds,
you should understand that the underlying mutual funds are not otherwise
directly related to any publicly traded mutual fund. Consequently, the
investment performance of publicly traded mutual funds and of any underlying
mutual fund may differ substantially.
Division: the division invests in:
Principal Variable Contracts Fund, Inc.
Aggressive Growth Aggressive Growth Account
Asset Allocation Asset Allocation Account
Balanced Balanced Account
Bond Bond Account
Capital Value Capital Value Account
Government Securities Government Securities Account
Growth Growth Account
International International Account
International SmallCap International SmallCap Account
MicroCap MicroCap Account
MidCap MidCap Account
MidCap Growth MidCap Growth Account
Money Market Money Market Account
Real Estate Real Estate Account
SmallCap SmallCap Account
SmallCap Growth SmallCap Growth Account
SmallCap Value SmallCap Value Account
Stock Index 500 Stock Index 500 Account
Utilities Utilities Account
Fidelity Contrafund Fidelity VIP II Contrafund Portfolio
Fidelity Equity-Income Fidelity VIP Equity-Income Portfolio
Fidelity High Income Fidelity VIP High Income Portfolio
Putnam Global Asset Allocation Putnam VT Global Asset Allocation Fund
Putnam Vista Putnam VT Vista Fund
Putnam Voyager Putnam VT Voyager Fund
Premiums
The Company guarantees that the Policy will stay in force if you have paid
enough premium to meet the grace period provision (see THE POLICY - Payment of
Premiums).
Your net premiums are allocated to divisions of the Separate Account and/or the
Fixed Account. Your initial net premium is allocated to the Money Market
division at the end of the valuation date we receive the premium. Twenty-one
days after the effective date of the Policy, the money is reallocated using your
allocation instructions (see THE POLICY - Allocation of Premiums).
Policy Value
Your Policy value is:
o the value(s) of your Investment Account(s)
o plus the value of your Fixed Account
o plus the value of your Loan Account.
Investment Account
An Investment Account is set up for each division to which you allocate a
portion of your net premium. The value of an Investment Account reflects the
investment experience of the division that you choose.
Fixed Account
The Company guarantees that net premiums allocated to the Fixed Account earn
interest at a guaranteed rate. In no event will the guaranteed interest rate be
less than 3% compounded annually.
Transfers
You may transfer amounts between the Investment Accounts and/or the Fixed
Account subject to certain limitations. Transfers in and out of the Fixed
Account are subject to specific limitations described in THE POLICY - Fixed
Account Transfers.
We reserve the right to charge a transfer fee on each unscheduled transfer after
the 12th such transfer in a policy year. The fee will not be more than $25 per
unscheduled transfer.
Policy Loans
You may borrow against your policy value any time the Policy has a net surrender
value. The minimum amount of a loan is $500.
Loan Account
When you take a policy loan, we establish a Loan Account. An amount equal to the
amount of the policy loan is transferred to the Loan Account from your
Investment Accounts and/or Fixed Account. Interest is paid on the amount in the
Loan Account.
Surrenders (total and partial)
Total Surrender
o You may surrender your Policy and receive the net surrender value.
o We calculate the net surrender value as of the date we receive your
written request.
o A surrender charge is imposed on total surrenders within ten years of
the policy date (another date may apply if the Policy has been
reinstated or the face amount increased).
Partial Surrender
o After the second policy year, you may request a partial surrender of
the net surrender value.
o The minimum amount of partial surrender is $500.
o The total of your partial surrenders during a policy year may not be
greater than 75% of the net surrender value (as of the date of the
request for the first partial surrender in that policy year).
o Surrenders are taken from premiums paid into the Policy on a last-in,
first-out basis.
o Partial surrenders are limited to no more than two in each policy year.
Charges and Deductions
Premium Expense Charge
Deductions from premiums during each of the first ten years (and with respect to
premiums made because of a face amount increase, during the first ten years
after the increase) equal:
o sales load of 5.0% of premiums paid which are less than or equal to
target premiums (2.0% of premiums in excess of target
premiums)
o plus 2.20% for state and local taxes
o plus 1.25% for federal taxes.
Deductions after the first ten policy years (and after ten years of a face
amount increase) include:
o sales load of 2.0% of premiums paid
o plus 2.20% for state and local taxes
o plus 1.25% for federal taxes.
Surrender Charges
A surrender charge is imposed on Policy termination or total surrender during
the first ten policy years (and ten years after an increase in the face amount)
(see CHARGES AND DEDUCTIONS - Surrender Charge).
Surrender charge percentage. The surrender charge during any policy year is
equal to the number of target premiums from the table below multiplied by the
applicable surrender charge percentage also shown below:
Joint Equivalent Age (JEA)
on policy or Number of
adjustment date target premiums
75 or less 1.00
76 through 85 0.90
86 or greater 0.75
Surrender Charge Percentage Table
Number of years since policy date The following percentage of
and/or the adjustment date surrender charge is payable
1 through 5 100.00%
6 95.24
7 85.71
8 71.43
9 52.38
10 28.57
11 and later 00.00
The surrender charge on a face amount increase is calculated by multiplying the
increase in target premium due to the face increase by the applicable number of
target premiums from the table above. This result is multiplied by the
applicable surrender charge percentage from the above table to get the increase
in surrender charges for all years.
Monthly Policy Charges
o Administration charge:
o The current monthly administration charge is $8.00 per month.
o An additional monthly administration charge is imposed in the
first ten policy years (and ten years after an increase in the
face amount) of $.07 per $1,000 of face amount. The charge of $.07
per $1,000 of face amount is increased by $.005 per $1,000 for
each insured that is classified as a smoker.
o Cost of insurance charge.
o Mortality and expense risks charge:
o in the first nine policy years, 0.80% of your Investment Accounts per
year;
o after the ninth policy year, 0.30% of your Investment Accounts
per year.
o Supplemental benefit rider(s) charge(s).
Other Charges
o Transaction charge of the lesser of $25 or 2% of the amount surrendered
for each partial surrender.
o Investment management fees and other
operating expenses for the fund underlying an Investment Account.
Death Benefits and Proceeds
The death proceeds are paid to the beneficiary(ies) when the surviving insured
dies. Death proceeds are calculated as of the date of death of the surviving
insured. The amount of the death proceeds is:
o the death benefit plus interest (as explained in DEATH BENEFITS AND
RIGHTS - Death Proceeds);
o plus proceeds from any benefit riders on the
life of the surviving insured;
o minus policy loans and unpaid loan
interest;
o minus any overdue monthly policy charges.
The Policy provides for two death benefit options - a level amount and a
variable amount. You choose an option on your application. Subject to certain
conditions, you may change your option after the Policy has been issued.
Death proceeds are paid in cash or applied under a benefit payment option. We
pay interest on the death proceeds from the date of death of the surviving
insured until the date of payment or application under a benefit payment option.
Maturity Proceeds
If either insured is living on the maturity date, we will pay you (the owner) an
amount equal to the death proceeds as described above. The Policy then
terminates. Maturity proceeds are paid in cash lump sum or applied under a
benefit payment option.
Adjustment Options
You may send us a written request to increase or decrease the face amount of the
Policy. No request is approved if the Policy is in a grace period or if monthly
policy charges are being waived under a rider.
The minimum amount of a face amount increase is $100,000 and is subject to our
underwriting guidelines in effect at the time you request the increase.
You may only request a decrease in face amount:
o after the second policy anniversary, and
o if the request does not decrease the face amount below $100,000.
Termination and Reinstatement
The Policy terminates when:
o you make a total policy surrender;
o death proceeds are paid;
o maturity proceeds are paid; or
o you do not make additional premium payments (after the expiration of
a 61-day grace period).
Subject to certain conditions, you may reinstate a Policy that terminated
because insufficient values.
Ten Day Examination Offer (Free-look Provision)
o You may return the Policy during the free-look period that is generally
10 days but may be longer in certain states.
o We return either all premiums paid or the policy value, whichever
is required by applicable state law.
THE COMPANY
The Company is a stock life insurance company with its home office at: Principal
Financial Group, Des Moines, Iowa 50306. It is authorized to transact life and
annuity business in all of the United States and the District of Columbia. The
Company is a wholly owned subsidiary of Principal Financial Services, Inc.
On June 24, 1879, the Company was incorporated under Iowa law as a mutual life
insurance company named Bankers Life Association. It changed its name to Bankers
Life Company in 1911 and then to Principal Mutual Life Insurance Company in
1986. The name change to Principal Life Insurance Company and reorganization
into a mutual holding company structure took place in 1998.
PRINCIPAL LIFE INSURANCE COMPANY VARIABLE LIFE SEPARATE ACCOUNT
The Separate Account was established under Iowa law on November 2, 1987. It was
then registered as a unit investment trust with the Securities and Exchange
Commission ("SEC"). This registration does not involve SEC supervision of the
investments or investment policies of the Separate Account.
The income, gains, and losses, whether or not realized, of the Separate Account
are credited to or charged against the Separate Account without regard to other
income, gains, or losses of the Company. Obligations arising from the Policy,
including the promise to make benefit option payments, are our general corporate
obligations. However, the Policy provides that the portion of the Separate
Account's assets equal to the reserves and other liabilities under the Policy
are not charged with any liabilities arising out of any other business of the
Company.
There currently are twenty-five divisions in the Separate Account available to
you. The assets of each division invest in a corresponding account of a mutual
fund. New accounts may be added and made available. Accounts may also be
eliminated from the Separate Account.
THE FUNDS
The funds are mutual funds registered under the Investment Company Act of 1940
as open-end diversified management investment companies. The funds provide the
investment vehicle for the Separate Account. A full description of the funds,
their investment objectives, policies and restrictions, charges and expenses and
other operational information is contained in the attached prospectuses (which
should be read carefully before investing). Additional copies of these documents
are available from a sales representative or our home office.
The following is a brief summary of the investment objectives of each division:
<TABLE>
<CAPTION>
Division Division Invests In Investment Advisor Investment Objective
Principal Variable Contracts
Fund, Inc.
<S> <C> <C> <C>
Aggressive Growth Aggressive Growth Account Morgan Stanley through a to provide long-term capital appreciation
sub-advisory agreement by investing primarily in growth-oriented
common stocks of medium and large
capitalization U.S. corporations and, to
a limited extent, foreign corporations.
Asset Allocation Asset Allocation Account Morgan Stanley through a to generate a total investment return
sub-advisory agreement consistent with the preservation of capital.
The Account intends to pursue a flexible
investment policy in seeking to achieve this
investment objective.
Balanced Balanced Account Invista Capital Management, LLC to generate a total return consisting of
through a sub-advisory agreement current income and capital appreciation
while assuming reasonable risks in
furtherance of this objective.
Bond Bond Account Principal Management Corporation to provide as high a level of income as
is consistent with preservation of
capital and prudent investment risk.
Capital Value Capital Value Account Invista Capital Management, LLC to provide long-term capital appreciation
through a sub-advisory agreement and secondarily is growth of investment
income. The Account seeks to achieve its
investment objectives through the purchase
primarily of common stocks, but the Account
may invest in other securities.
Government Securities Government Securities Invista Capital Management, LLC to seek a high level of current income,
Account through a sub-advisory agreement liquidity and safety of principal. The
Account seeks to achieve its objective
through the purchase of obligations issued
or guaranteed by the United States
Government or its agencies, with emphasis on
Government National Mortgage Association
Certificates ("GNMA Certificates"). Account
shares are not guaranteed by the United
States Government.
Growth Growth Account Invista Capital Management, LLC to seek growth of capital. The Account
through a sub-advisory agreement seeks to achieve its objective through the
purchase primarily of common stocks, but the
Account may invest in other securities.
International International Account Invista Capital Management, LLC to seek long-term growth of capital by
through a sub-advisory agreement investing in a portfolio of equity
securities domiciled in any of the nations
of the world.
International SmallCap International SmallCap Invista Capital Management, LLC seeks long-term growth of capital. The
Account through a sub-advisory agreement Account will attempt to achieve its
objective by investing primarily in equity
securities of non-United States companies
with comparatively smaller market
capitalizations.
MicroCap MicroCap Account Goldman Sachs Asset seeks long-term growth of capital. The
Management through a Account will attempt to achieve its
sub-advisory agreement objective by investing primarily in value
and growth oriented companies with small
market capitalizations, generally less than
$700 million.
MidCap MidCap Account Invista Capital Management, LLC to achieve capital appreciation by
investing through a sub-advisory agreement
primarily in securities of emerging and
other growth-oriented companies.
MidCap Growth MidCap Growth Account Dreyfus Corporation through a seeks long-term growth of capital. The
sub-advisory agreement Account will attempt to achieve its
objective by investing primarily in growth
stocks of companies with market
capitalizations in the $1 billion to $10
billion range.
Money Market Money Market Account Principal Management Corporation to seek as high a level of current income
available from short-term securities as is
considered consistent with preservation of
principal and maintenance of liquidity by
investing all of its assets in a portfolio
of money market instruments.
Real Estate Real Estate Account Principal Management Corporation seeks to generate a high total return.
The Account will attempt to achieve its
objective by investing primarily in equity
securities of companies principally engaged
in the real estate industry.
SmallCap SmallCap Account Invista Capital Management, LLC seeks long-term growth of capital. The
through a sub-advisory agreement Account will attempt to achieve its
objective by investing primarily in equity
securities of both growth and value oriented
companies with comparatively smaller market
capitalizations.
SmallCap Growth SmallCap Growth Account Berger Associates through a seeks long-term growth of capital. The
sub-advisory agreement Account will attempt to achieve its
objective by investing primarily in equity
securities of small growth companies with
market capitalization of less than $1
billion.
SmallCap Value SmallCap Value Account J.P. Morgan Investment seeks long-term growth of capital. The
Account Management, Inc. will attempt to achieve its objective by
investing through a sub-advisory agreement
primarily in equity securities of small
growth companies with value characteristics
and market capitalizations of less than
$1 billion.
Stock Index 500 Stock Index 500 Invista Capital Management, LLC seeks long-term growth of capital. The
Account through a sub-advisory agreement Account attempts to mirror the investment
results of the Standard & Poor's Stock
Index.
Utilities Utilities Account; Invista Capital Management, LLC seeks to provide current income and
long-term through a sub-advisory agreement
growth of income and capital. The Account
will attempt to achieve its objective by
investing primarily in equity and
fixed-income securities of companies in
the public utilities industry.
Fidelity Contrafund Fidelity VIP II Contrafund Fidelity Management and seeks long-term capital appreciation.
Portfolio Research Company
Fidelity Fidelity VIP Equity-Income Fidelity Management and seeks reasonable income by investing
Equity-Income Portfolio Research Company primarily in income-producing equity
securities.
Fidelity High Income Fidelity VIP High Income Fidelity Management and seeks a high level of current income by
Portfolio Research Company investing primarily in high yielding,
lower quality, fixed income securities,
while also considering growth of capital.
Putnam Global Asset Putnam VT Global Asset Putnam Investment seeks a high level of long-term total
Allocation Allocation Fund Management, Inc. return consistent with preservation of
capital.
Putnam Vista Putnam VT Vista Fund Putnam Investment seeks capital appreciation.
Management, Inc.
Putnam Voyager Putnam VT Voyager Fund Putnam Investment seeks capital appreciation.
Management, Inc.
</TABLE>
Principal Management Corporation (the "Manager") has executed agreements with
various sub-advisors. Under those sub-advisory agreements, the sub-advisor
agrees to assume the obligations of the Manager to provide investment advisory
services for a specific Account. For these services, each sub-advisor is paid a
fee by the Manager.
Accounts: Aggressive Growth and Asset Allocation
Sub-Advisor: Morgan Stanley Asset Management ("Morgan Stanley"), with
principal offices at 1221 Avenue of the Americas, New York, NY 10020,
provides a broad range of portfolio management services to customers in
the U.S. and abroad. As of December 31, 1998, Morgan Stanley managed
investments totaling approximately $163.4 billion as named fiduciary or
fiduciary adviser. On December 1, 1998 Morgan Stanley Asset Management
Inc. changed its name to Morgan Stanley Dean Witter Investment
Management Inc. but continues to do business in certain instances using
the name Morgan Stanley Asset Management.
Accounts: Balanced, Capital Value, Government Securities, Growth,
International, International SmallCap, MidCap, SmallCap, Stock Index
500, and Utilities
Sub-Advisor: Invista Capital Management, LLC
("Invista"), an indirectly wholly-owned subsidiary of Principal Life
Insurance Company and an affiliate of the Manager, was founded in 1985.
It manages investments for institutional investors, including Principal
Life. Assets under management as of December 31, 1998 were
approximately $31 billion. Invista's address is 1800 Hub Tower, 699
Walnut, Des Moines, Iowa 50309.
Account: MicroCap
Sub-Advisor: Goldman Sachs Assets Management ("Goldman"), One New York
Plaza, New York, NY 10004, is a separate operating division of Goldman,
Sachs & Co. ("Goldman Sachs"). Goldman Sachs provides a wide range of
fully discretionary investment advisory services for quantitatively
driven and actively managed U.S. and international equity portfolios,
U.S. and global fixed income portfolios, commodity and currency
products, and money market mutual funds. As of December 31, 1998,
Goldman, together with its affiliates, managed assets in excess of $195
billion.
Account: MidCap Growth
Sub-Advisor: The Dreyfus Corporation, located at 200 Park Avenue, New
York, NY 10166, was formed in 1947. The Dreyfus Corporation is a wholly
owned subsidiary of Mellon Bank, N.A., which is a wholly owned
subsidiary of Mellon Bank Corporation (Mellon). As of December 31,
1998, The Dreyfus Corporation managed or administered approximately
$118.5 billion in assets for approximately 1.7 million investor
accounts nationwide.
Account: SmallCap Growth
Sub-Advisor: Berger Associates. Berger's address is 210 University
Boulevard, Suite 900, Denver, CO 80206. It serves as investment
advisor, sub-advisor, administrator or sub-administrator to mutual
funds and institutional investors. Berger is a wholly owned subsidiary
of Kansas City Southern Industries, Inc. ("KCSI"). KCSI is a publicly
traded holding company with principal operations in rail
transportation, through its subsidiary the Kansas City Southern
Railway Company, and financial asset management businesses. Assets
under management for Berger as of December 31, 1998 were approximately
$3.4 billion.
Account: SmallCap Value
Sub-Advisor: J.P. Morgan Investment Management, Inc. Morgan, with
principal offices at 522 Fifth Avenue, New York, NY 10036 is a
wholly-owned subsidiary of J.P. Morgan & Co. Incorporated (J.P.
Morgan) a bank holding company. J.P. Morgan, through Morgan and its
other subsidiaries, offers a wide range of services to governmental,
institutional, corporate and individual customers and acts as
investment advisor to individual and institutional clients. As of
December 31, 1998, J.P. Morgan and its subsidiaries had total combined
assets under management of approximately $300 billion.
The Company purchases and sells fund shares for the Separate Account at their
net asset value without any sales or redemption charge. The Separate Account has
divisions that correspond to interests in the Investment Accounts. The assets of
each Investment Account are separate from the others. An Investment Account's
performance has no effect on the investment performance of any other Investment
Account.
The annual expenses of Investment Accounts (as a percentage of average net
assets) as of December 31, 1998 were:
<TABLE>
<CAPTION>
Management 12b-1 Other Total Account
Account Fees Fees Expenses Annual Expenses
<S> <C> <C> <C> <C>
Principal Variable Contracts Fund
Aggressive Growth 0.77% N/A 0.01% 0.78%
Asset Allocation 0.80 N/A 0.09 0.89
Balanced 0.57 N/A 0.02 0.59
Bond 0.49 N/A 0.02 0.51
Capital Value 0.43 N/A 0.01 0.44
Government Securities 0.49 N/A 0.01 0.50
Growth 0.47 N/A 0.01 0.48
International 0.73 N/A 0.04 0.77
International SmallCap 1.21 N/A 0.13 1.34
MicroCap(1) 1.00 N/A 0.38 1.38*
MidCap 0.61 N/A 0.01 0.62
MidCap Growth(2) 0.90 N/A 0.37 1.27*
Money Market 0.50 N/A 0.02 0.52
Real Estate 0.90 N/A 0.10 1.00
SmallCap 0.85 N/A 0.13 0.98
SmallCap Growth(3) 1.01 N/A 0.30 1.31*
SmallCap Value(4) 1.10 N/A 0.46 1.56*
Utilities 0.60 N/A 0.09 0.69
Fidelity
Fidelity Contrafund 0.59 N/A 0.11 0.70
Fidelity Equity-Income 0.49 N/A 0.09 0.58
Fidelity High Income 0.58 N/A 0.12 0.70
Putnam Class IB Shares
Putnam Global Asset Allocation 0.44 0.10% 0.09 0.63*(5)
Putnam Vista 0.44 0.10 0.08 0.62*(6)
Putnam Voyager 0.36 0.10 0.03 0.49*(7)
<FN>
* Expenses for the period from May 1, 1998 through December 31, 1998.
(1) For the calendar year ending December 31, 1999, the Manager has agreed
to cap expenses if necessary so that total Account annual expenses for
the MicroCap Account will not be more than 1.06%.
(2) For the calendar year ending December 31, 1999, the Manager has agreed
to cap expenses if necessary so that total Account annual expenses for
the MidCap Growth Account will not be more than 0.96%.
(3) For the calendar year ending December 31, 1999, the Manager has agreed
to cap expenses if necessary so that total Account annual expenses for
the SmallCap Growth Account will not be more than 1.06%.
(4) For the calendar year ending December 31, 1999, the Manager has agreed
to cap expenses if necessary so that total Account annual expenses for
the SmallCap Value Account will not be more than 1.16%
(5) Based on performance of Class IA shares, estimated annualized expenses
are 0.93%
(6) Based on performance of Class IA shares, estimated annualized
expenses are 0.92%
(7) Based on performance of Class IA shares, estimated
annualized expenses are 0.73%
</FN>
</TABLE>
THE POLICY
The descriptions that follow are based on provisions of the Policy offered by
this prospectus.
To Buy a Policy
A completed application and required supplements must be submitted to us through
an agent or broker selling the Policy.
The minimum face amount of a Policy when originally issued is $100,000. We
reserve the right to increase or decrease the minimum face amount.
To issue a Policy, we require at least one insured to be age 85 or younger as of
the policy date. Neither insured may be older than age 90 as of the policy date.
Other underwriting restrictions may apply.
Applicants for the Policy must:
o furnish satisfactory evidence of insurability of both insureds, and
o meet our insurance underwriting guidelines and suitability rules.
If you want insurance coverage to start at the time the application is
submitted, you must send a payment of at least the required minimum initial
premium amount with your completed application. The required minimum initial
premium amount is shown on the policy illustration. If this amount is submitted
with the application, a conditional receipt is given to you. The receipt
acknowledges the initial payment and details any interim conditional insurance
coverage.
We reserve the right to reject any application or related premium if we
determine that our underwriting guidelines, suitability rules or procedures have
not been met.
Policy Date
If we issue a Policy, a policy date is determined. Policies will not be dated on
the 29th, 30th or 31st of any month. Policies that would otherwise be dated on
these dates are dated on the 28th of the same month. Effective October 1, 1999,
policies that are issued on a COD basis and that would otherwise be dated on the
29th, 30th or 31st of a month will be dated on the first day of the following
month. Your policy date is shown on the current data pages.
Upon specific request and our approval, your Policy may be backdated. The policy
date may not be more than six months prior to the date of application (or
shorter period if required by state law). Payment of minimum monthly premium is
required for the backdated period. Monthly policy charges are deducted from the
policy value for the backdated period.
Effective Date
The policy date and the effective date are the same unless:
o a backdated policy date is requested, or
o a Policy is applied for on a COD basis or the application was not
accompanied by a payment of at least the minimum monthly premium, or
o additional premiums are required (the effective date is the date we
receive, review and accept the required premium), or
o application amendments are required (the effective date is the date
we receive, review and accept amendments).
The insurance coverage does not take effect until you actually receive the
Policy. If both insureds were to die before the owner actually receives the
Policy, there is no coverage under the Policy (coverage is determined solely
under the terms of conditional receipt, if any).
Payment of Premiums
The amount and frequency of your premium payments affects the policy value, the
net surrender value and how long the Policy remains in force. After the initial
premium, you may determine the amount and timing of subsequent premium payments
within certain restrictions. The minimum monthly premium is shown on the current
data pages for your Policy. You must pay premiums to us at our home office.
If the net surrender value on any monthly date is less than the monthly policy
charge, a 61-day grace period begins. However, during the first 60 policy
months, the Policy will stay in force if (a minus b) is greater than or equal to
(c) where:
o (a) is the sum of the premiums paid;
o (b) is the sum of all existing policy loans, unpaid loan interest,
partial surrenders and transaction charges; and
o (c) is the sum of the minimum monthly premiums since the policy date to
the most recent monthly date.
After the first 60 policy months, making premium payments under your planned
periodic premium schedule does not guarantee that your Policy will stay in force
unless:
o your Policy's net surrender value is at least equal to the monthly policy
charge on the current monthly date, or
o the death benefit guarantee rider
is in effect.
We send premium reminder notices to you if you establish an annual, semiannual
or quarterly premium payment schedule. Preauthorized withdrawals may be set up
on a monthly basis (to allow us to automatically deduct premium payments from
your checking or other financial institution account). You may also make
unscheduled payments to us at our home office or by payroll deduction (where
permitted by state law and approved by us).
Premium Limitations
In no event may the total of all premiums paid, both scheduled and unscheduled,
be more than the current maximum premium payments allowed for life insurance
under the Internal Revenue Code (the "Code"). If you make a premium payment that
would result in total premiums exceeding the current maximum limitation, we only
accept that portion of the payment that makes total premiums equal the maximum.
Any excess will be returned and no further premiums are accepted until allowed
by the current maximum premium limitations.
Allocation of Premiums
Your initial net premium (and other net premiums we receive prior to the
effective date and twenty days after the effective date) are allocated to the
Money Market division at the end of the valuation date we receive the premium.
Twenty-one days after the effective date, the money is reallocated to the
divisions of the Separate Account and/or to the Fixed Account according to your
instructions. If the twenty-first day is not a business day, the transfer will
occur on the first business day following the twenty-first day from the
effective date.
Example: The effective date of your policy is February 1st. Your net
premium is allocated to the Money Market division at the
end of the valuation period we receive the premium. At the
close of business on February 21st, the net premium is
reallocated to the Investment Account and/or Fixed Account
that you selected.
Net premium payments received after the twenty-day period are allocated to the
Investment Accounts or to the Fixed Account according to your instructions. For
each Investment Account and the Fixed Account, the allocation percentage must be
zero or a whole number not less than 10. The total of all the percentages for
the Investment Account and the Fixed Account must equal 100. The percentage
allocation for future premium payments may be changed, without charge, at any
time by sending a written request to us or, if telephone privileges apply,
calling us at 1-800-247-9988. The allocation changes are effective at the end of
the valuation period in which your new instructions are received.
Ten Day Examination Offer (Free-Look Provision)
Under state law, you have the right to return the Policy for any reason during
the free-look period and receive your premiums paid. (If you apply for your
Policy in California, the amount refunded is described below.) Your request to
return the Policy must be in writing. The request and the Policy must be mailed
to us or returned to the agent (as determined by the postmark) no later than the
last day of the free-look period as shown below.
The free-look period is the later of:
o 10 days* after the Policy is delivered to you,
o 10 days* after a written notice is delivered or mailed to you which tells
about the cancellation right, or
o 45 days after you complete the application.
*Different free-look periods apply if your Policy is issued in:
o California and you are age 60 and over (30 day free-look period);
o Colorado (15 day free-look period); or
o Idaho or North Dakota (20 day free-look period).
If you applied for your Policy in California, the amount refunded is:
o the policy value as of the date we receive your written request for
cancellation,
o plus the premium expense charge(s) deducted from the
premium,
o plus the monthly policy charge(s) deducted from the policy
value.
NOTE:
o See GENERAL PROVISIONS - Delay of Payments.
o If the purchase of this Policy is a replacement for another life
insurance policy or an annuity contract, different free-look periods
may apply. We reserve the right to keep the initial premium payment in
the Money Market division longer than 20 days to correspond to the
free-look periods of a particular state's replacement requirements.
Policy Values
Your policy value is equal to the sum of the values in your Investment Accounts,
Fixed Account and Loan Account (see THE FIXED ACCOUNT and THE POLICY - Loan
Account). The policy value also reflects your premium payments, partial
surrenders, policy loans and the Policy expenses deducted from the Separate
Account.
There is no guaranteed minimum Investment Account value. Its value reflects the
investment experience of the Investment Accounts that you choose. It is possible
that the investment performance could cause a loss of the entire amount
allocated to the Investment Accounts. Without additional premium payments or
investments in the Fixed Account or a death benefit guarantee rider, this could
result in no death benefit upon the surviving insured's death.
At the end of any valuation period, your value in an Investment Account is:
o the number of units you have in a division
o multiplied by the value of a unit in the division.
The number of units is the total of units purchased by allocations to the
division from:
o your initial premium payment (less premium expense
charges);
o plus subsequent premium payments (less premium expense
charges);
o plus transfers from another division or the Fixed Account
minus units sold:
o for partial surrenders from the division;
o as part of a transfer to another division, the Fixed Account or the Loan
Account; and
o to pay monthly policy charges and fees.
Unit values are calculated each valuation date. To calculate the unit value of a
division, the unit value from the previous valuation date is multiplied by the
division's net investment factor for the current valuation period. The number of
units does not change due to a change in unit value.
The net investment factor measures the performance of each division. The net
investment factor for a valuation period is calculated as follows:
[{the share price of the underlying mutual fund account at the end of
the valuation period before that day's transactions
plus
the per share amount of the dividend (or other distribution) made by
the mutual fund account during the valuation period}
divided by
the share price of the underlying mutual fund account at the end of the
previous valuation period after that day's transactions].
When an investment owned by an Account pays a dividend, the dividend increases
the net asset value of a share of the Account as of the date the dividend is
recorded. As the net asset value of a share of an Account increases, the unit
value of the corresponding division also reflects an increase. Payment of a
dividend under these circumstances does not increase the number of units you own
in the Account.
Investment Account Transfers
You may request an unscheduled transfer or set up a periodic transfer by sending
us a written request or calling us if telephone privileges apply
(1-800-247-9988)(see OTHER MATTERS - Services Available by Telephone). You must
specify the dollar amount or percentage to transfer from each Investment
Account. In states where allowed, we reserve the right to reject transfer
instructions from someone providing them for multiple Policies for which he or
she is not the owner.
You may not make a transfer to the Fixed Account if:
o a transfer has been made from the Fixed Account to an Investment
Account within six months, or
o immediately after the transfer, the Fixed Account value would be more
than $1,000,000 (without our prior approval).
Unscheduled Transfers You may make unscheduled transfers from an Investment
Account to another Investment Account or to the Fixed Account. The transfer is
made, and values determined, as of the end of the valuation period in which we
receive your request.
o The transfer amount must be at least $100 or the value of your Investment
Acount(s), which ever is less.
o We reserve the right to charge a transfer fee on each unscheduled
transfer after the 12th such transfer in a policy year.
o The fee will not be more than $25 per unscheduled transfer.
o Unscheduled transfers from the Fixed Account to an Investment
Account would count in determining any transfer fee.
Scheduled Transfers (dollar cost averaging (DCA)) You may elect to have
automatic transfers made on a periodic basis.
o The amount of the transfer is:
o the dollar amount you select (the minimum is the lesser of $100 or
the value of the Investment Account), or
o a percentage of the Investment Account value as of the date you
specify (other than the 29th, 30th or 31st).
o You select the transfer date (other than the 29th, 30th or 31st) and
the transfer frequency (annually, semi-annually, quarterly or monthly).
o If the selected date is not a valuation date, the transfer is completed
on the next valuation date.
o The value of the Investment Account must be equal to or more than
$2,500 when your scheduled transfers begin.
o Transfers continue until your interest in the Investment Account has a
zero balance or we receive notice to stop them.
o We reserve the right to limit the number of Separate Account divisions
from which simultaneous transfers are made. In no event will it ever be
less than two.
Fixed Account Transfers
Transfers from your investment in the Fixed Account to your Investment
Account(s) are subject to certain limitations. You may transfer amounts by
making either a scheduled or unscheduled Fixed Account transfer. You may not
make both a scheduled and unscheduled Fixed Account transfer in the same policy
year. In states where allowed, we reserve the right to reject transfer
instructions from someone providing them for multiple Policies for which he or
she is not the owner.
Unscheduled Transfers You may make one unscheduled Fixed Account transfer to an
Investment Account(s) within the 30 day period following the policy date and
each policy anniversary. The transfer is made, and values determined, as of the
end of the valuation period in which we receive your request.
o You must specify the dollar amount or percentage to be transferred (not
to exceed 25% of the Fixed Account value as of the
latter of the policy date or the most recent policy anniversary).
o The minimum transfer amount must be at least $100 (or the entire value
of your Fixed Account if less).
Scheduled Transfers (dollar cost averaging (DCA)) You may make scheduled
transfers on a monthly basis from the Fixed Account to your Investment
Account(s) as follows:
o The value of your Fixed Account must be equal to or more than $2,500
when your scheduled transfers begin. We reserve the right to change
this amount but it will never be more than $10,000.
o The amount of the transfer is:
o the dollar amount you select (minimum of $50), or
o a percentage of the Fixed Account value (the maximum amount of the
transfer is 2% of the Fixed Account value as of the
specified date) as of the date you specify which may be:
o the later of the policy date or most recent policy anniversary
date, or
o the date the Company receives your request.
o Transfers occur on a date you specify (other than the 29th, 30th or 31st
of any month).
o If the selected date is not a valuation date, the transfer
is completed on the next valuation date.
Scheduled transfers continue until your value in the Fixed Account has a zero
balance or we receive your notice to stop them. You may change the amount of the
transfer once each policy year by sending us a written request or calling us if
telephone privileges apply (1-800-247-9988). If you stop the transfers, you may
not start them again until six months after the last scheduled transfer.
Automatic Portfolio Rebalancing (APR)
APR allows you to maintain a specific percentage of your policy value in your
Investment Accounts over time.
EXAMPLE: You may choose to rebalance so that 50% of your policy values
are in the Bond division and 50% in the Capital Value
division. At the end of the specified period, market changes
may have caused 60% of your value to be in the Bond division
and 40% in the Capital Value division. By rebalancing, units
from the Bond division are sold and applied to purchase units
in the Capital Value division so that 50% of the policy values
are once again invested in each division.
o You may elect APR at the time of application or after the Policy has
been issued.
o APR transfers:
o do not begin until the expiration of the free-look period;
o are done without charge (and are not counted as unscheduled
transfers when determining any transfer fee);
o may be done on the frequency you specify:
o quarterly APR transfers may be done on a calendar year or policy
year basis,
o semiannual or annual APR transfers may only be done
on a policy year basis.
o may be done, if telephone privileges apply, by calling us at
1-800-247-9988, mailing us your written request or faxing your
request to us.
o The transfers are made at the end of the next valuation period after
we receive your instruction.
o APR is not available for values in the Fixed Account. If you have
scheduled transfers from Investment Accounts, APR is not available for
those Investment Accounts.
Policy Loans
While your Policy is in effect and has a net surrender value, you may borrow
money from us with the Policy as the security for the policy loan.
o The minimum policy loan is $500.
o The maximum amount you may borrow is 90% of the net surrender value as
of the date we process the policy loan.
o If telephone privileges apply, you may request a policy loan of $5,000
or less by calling us at 1-800-247-9988. If you do not have telephone
privileges or are requesting a policy loan of more than $5,000, your
request must be made in writing.
o Generally, policy loan proceeds are sent within five business days
from the date we receive your request (see GENERAL PROVISIONS - Delay
of Payments).
o Requests for policy loans from any joint owner are binding on all
joint owners.
Loan Account
When a policy loan is taken, an amount equal to the loan is transferred from
your Investment Account(s) and Fixed Account to your Loan Account. Loan Accounts
are part of our General Account. You may instruct us on the proportions to be
taken from your accounts. If you do not provide such instruction, the loan
amount is withdrawn in the same proportion as the allocation used for the most
recent monthly policy charge. Any loan interest due and unpaid is transferred in
the same manner.
Your Loan Account earns interest from the date of transfer. During the first ten
policy years, the loan account interest rate is 6% per year. After the tenth
policy year, the loan account interest rate is 7.75% per year.
You pay interest on your policy loan at the annual rate of 8%. Interest accrues
daily and is due and payable at the end of the policy year. If interest is not
paid when due, it is added to the loan amount. Adding unpaid interest to the
policy loan amount causes additional amounts to be withdrawn from your Fixed
Account and/or Investment Account(s) and transferred to the Loan Account.
Withdrawals are made in the same proportions as described above.
Policy loans and unpaid loan interest reduce your net surrender value. If the
net surrender value is less than the monthly policy charges on a monthly date,
the 61-day grace period provision applies (see POLICY TERMINATION AND
REINSTATEMENT - Policy Termination).
While the Policy is in force and before the surviving insured dies, policy loans
and loan interest may be repaid as follows:
o policy loans may be repaid totally or in part;
o repayments are allocated to the Investment Account(s)
and Fixed Account in the proportions used for allocation of premium
payments; and
o payments that we receive that are not designated as premium payments
are applied as loan repayments if a policy loan is outstanding.
A policy loan generally has a permanent effect on policy values. If a policy
loan had not been made, the policy value would reflect the investment experience
of the Investment Account(s) and the interest credited to the Fixed Account. In
addition, policy loans and unpaid loan interest are subtracted from:
o death proceeds at the death of the surviving insured;
o surrender value upon total surrender or termination of a Policy; and
o maturity proceeds payable at maturity.
Surrenders
You must send us a written request for any surrender. The request must be signed
by all owners, irrevocable beneficiary(ies) if any and any assignees.
Total surrender You may surrender the Policy on or before the maturity date
while the Policy is in effect. You receive the net surrender value at the end of
the valuation period during which we receive your surrender request. The net
surrender value is the total of the values of your Investment Accounts plus your
Fixed Account plus your Loan Account minus any applicable surrender charge,
policy loans and unpaid loan interest (see CHARGES AND DEDUCTIONS - Surrender
Charge).
o The written consent of all collateral assignees and irrevocable
beneficiaries must be obtained prior to surrender.
o We reserve the right to require you to return the Policy to us prior
to making any payment though this does not affect the amount of the
cash surrender value.
o If the total surrender is within ten years of the policy date or a face
amount increase a surrender charge is imposed.
Partial surrender After the second policy anniversary and prior to the maturity
date, you may surrender a part of the Fixed Account and/or Investment Account
value by sending us a written request. The surrender is effective at the end of
the valuation period during which we receive your written request for surrender.
You may not request more than two partial surrenders in each policy year.
The minimum amount of a partial surrender is $500. The total of your two partial
surrenders during a policy year may not be greater than 75% of the net surrender
value (as of the date of the request for the first partial surrender in that
policy year).
You pay a transaction fee on each partial surrender. The fee is the lesser of
$25 or two percent of the amount surrendered. It is withdrawn in the same
proportion as your monthly policy charge allocation.
Your policy value is reduced by the amount of the surrender and the transaction
fee. We surrender units from the Investment Account divisions and/or values from
the Fixed Account to equal the dollar amount of the surrender request and
transaction fee. The surrender is deducted from your Fixed Account value and/or
your Investment Account(s) according to the surrender allocation percentages you
specify. If surrender allocation percentages are not specified, we use your
monthly policy charge allocation percentages. The amount surrendered is taken
from the premiums paid on a last-in, first-out basis. No surrender charge is
imposed on a partial surrender.
If Option 1 death benefit is in effect and a partial surrender is made, the face
amount of the policy is also reduced by the amount of the surrender and the
transaction fee. Total and partial surrenders from the Policy are generally paid
within five business days of our receipt of your written request for surrender.
Certain delays in payment are permitted (see GENERAL PROVISIONS - Delay of
Payments).
DEATH BENEFITS AND RIGHTS
Death Proceeds
While the Policy remains in force and before the maturity date, we pay death
proceeds upon the death of the surviving insured. If both insureds die
simultaneously, then surviving insured shall mean the younger of the two
insureds. No benefit is paid on the first death of an insured unless such
benefit exists under a rider.
o You must notify us of the first death of an insured as soon as possible
after it occurs. (This facilitates the timely payment of death proceeds
at the death of the surviving insured and may affect the status of any
riders.)
o We must receive proof of the deaths of both insureds and all other
required documents.
o Payments are made to your named beneficiary(ies) under your designated
death benefit option (see GENERAL PROVISIONS Beneficiary).
The payments are made in cash lump sum or under a benefit payment option
selected by the beneficiary(ies). Death proceeds are calculated as of the date
of the surviving insured's death and include:
o the death benefit described below;
o plus proceeds from any benefit rider on the surviving insured's life;
o minus policy loans and unpaid loan interest;
o minus any overdue monthly policy charges if the surviving insured died
during a grace period;
o plus interest on the death proceeds from date of death of the surviving
insured until date of payment or application under a benefit payment
option. (We determine the interest rate which will not be less than the
rate required by state law.)
Death Benefit Options
You choose death benefit Option 1 or Option 2 at the time of application.
Option 1 (level amount option). The death benefit is the greater of 1) the
Policy's current face amount or 2) the policy value on the date of death of the
surviving insured multiplied by the applicable percentage. The applicable
percentage is 250% if the younger insured is age 40 or below and the percentage
declines with increasing ages. The death benefit remains level unless the
applicable percentage of policy value exceeds the current face amount (in which
case the death benefit varies as the policy value varies).
Illustration of Option 1. Assume that the younger insured is under age 40 and
that there is no loan amount and that the policy face amount is $500,000.
Under Option 1, the death benefit must be equal or greater than 250% of the
policy value. If the policy value is more than $200,000, the death benefit is
greater than $500,000. Each additional dollar added to the policy value above
$200,000 increases the death benefit by $2.50. If the policy value exceeds
$200,000 and increases by $100 because of investment performance or premium
payments, the death benefit increases by $250.
Similarly, if the policy value exceeds $200,000, each dollar taken out of the
policy value reduces the death benefit by $2.50. For example, if the policy
value is reduced from $500,000 to $450,000 because of partial surrenders,
charges or negative investment performance, the death benefit is reduced from
$1,250,000 to $1,125,000. However, if at any time the policy value multiplied by
the applicable percentage is less than the face amount, the death benefit equals
the current face amount of the Policy.
The applicable percentage lowers as the younger insured's age increases. If the
current age of the younger insured in the illustration is 50 (rather than age
40), the applicable percentage would be 185%. The death benefit would not be
greater than the $500,000 face amount unless the policy value exceeded $270,270
rather than $200,000. Each dollar added to or taken from the policy value
changes the death benefit by $1.85 (rather than $2.50).
Option 2 (variable amount option). The death benefit is equal to 1) the greater
of the current face amount plus the policy value on the date of death of the
surviving insured or 2) the policy value on the date of death of the surviving
insured multiplied by the applicable percentage.
Illustration of Option 2. Assume that the younger insured is under age 40 and
that there is no loan amount and that the policy face amount is $500,000.
A policy with a policy value of $100,000 has a death benefit of $600,000
($500,000 plus $100,000); a policy value of $300,000 has a death benefit of
$800,000 ($500,000 plus $300,000). The death benefit however must be at least
250% of the policy value. As a result, if the policy value exceeds $333,334, the
death benefit is greater than the face amount plus policy value. Each additional
dollar of policy value above $333,334 increases the death benefit by $2.50. If
the policy value exceeds $333,334 and increases by $100 because of investment
performance or premium payments, the death benefit increases by $250.
If the policy value exceeds $333,334, each dollar taken out of the policy value
reduces the death benefit by $2.50. For example, the policy value is reduced
from $400,000 to $340,000 because of partial surrenders, charges or negative
investment performance, the death benefit is reduced from $1,000,000 to
$850,000. However, if the policy value multiplied by the applicable percentage
is less than the policy face amount plus the policy value, then the death
benefit is the current face amount plus the policy value on the date of death of
the surviving insured.
The applicable percentage lowers as the younger insured's age increases. If the
current age of the younger insured in the illustration is 50 (rather than age
40), the applicable percentage would be 185%. The death benefit would be the sum
of the policy value plus $500,000 unless the policy value exceeded $588,237
rather than $333,334. Each dollar added to or taken from the policy value
changes the death benefit by $1.85 (rather than $2.50).
APPLICABLE PERCENTAGES*
(For ages not shown, the applicable percentages decrease by a pro rata
portion for each full year.)
Younger insured's attained age percentage
40 and under 250
45 215
50 185
55 150
60 130
65 120
70 115
75 through 90 105
95 and older 101
*We reserve the right, where allowed by law, to change or delete the
percentages as required by changes to the Code.
Change in Death Benefit Option
You may change the death benefit option on or after the second policy
anniversary. Up to two changes are allowed per policy year. Your request must be
made in writing and approved by us. The effective date of the change will be the
monthly date that coincides with or next follows our approval. Changing the
death benefit option changes the future cost of insurance.
If you change from Option 1 to Option 2, the new face amount is the old face
amount decreased by the policy value (as of the effective date of the change).
The change is not allowed if it would result in a face amount of less than
$100,000. A change from Option 1 to Option 2 may require evidence of
insurability for the new death benefit if required by our underwriting
guidelines in place at the time of your request.
If you change from Option 2 to Option 1, the new face amount is the old face
amount increased by the policy value (as of the effective date of the change). A
change from Option 2 to Option 1 does not require evidence of insurability.
Adjustment Options
Increase in policy face amount. You may request an increase at any time provided
that the policy is not in a grace period, and monthly policy charges are not
being waived under a rider. The minimum increase in face amount is $100,000. A
face amount increase request made in the first 60 policy months will increase
the minimum monthly premium for the remainder of the 60 months.
The request must be made on an adjustment application. The application must be
signed by the owner(s) and the insureds. If your request is not approved, no
changes are made to your Policy.
We will approve your request if:
o both insureds are alive at the time of your request; and
o the attained age of the older insured is age 90 or less and of the
younger insured is 85 or less at the time of the request;
and
o we receive evidence satisfactory to us that at least one of the
insureds is insurable under our underwriting guidelines in place at the
time of your request.
The increase in face amount is in a risk classification determined by us. The
adjustment is effective on the monthly date on or next following our approval of
your request. No free-look period applies to an increase in face amount.
We calculate an "adjustment conditional receipt premium deposit" based on your
request for an increase. If you make a payment with your adjustment application
of at least as much as the adjustment conditional receipt premium deposit, we
issue a conditional receipt. The conditional receipt shows receipt of the
payment and outlines any interim insurance coverage.
Any payment made with the adjustment application is held in our General Account
without interest. If we approve the adjustment, on the effective date of the
adjustment, the amount of the premium payment being held minus the premium
expense charge, is moved to the Investment Accounts and/or Fixed Account. Your
current premium allocation percentages are used to make this allocation.
Decrease in policy face amount. After the first two policy years, you may
request a decrease in the policy face amount. No transaction fee is imposed on
decreases in the policy face amount. A decrease is requested as follows:
o the request must be made on an adjustment application;
o the application must be signed by both the owner(s) and the insured(s);
o the policy is not in a grace period;
o monthly policy charges are not being waived under a waiver rider; and
o the decrease may not reduce the policy face amount below $100,000.
CHARGES AND DEDUCTIONS
We make certain charges and deductions to support operation of the Policy and
the Separate Account. Some charges are deducted from premium payments when they
are received. Other charges are deducted on a monthly basis while others are
deducted at the time a Policy is surrendered or terminated. Fees for
administrative expenses are also charged on certain transfers and all partial
surrenders.
Premium Expense Charge
When we receive your premium payment, we deduct a premium expense charge.
Deductions from premiums during each of the first ten years and with respect to
premiums made because of a face amount increase, during the first ten years
after the increase equal:
o sales load of 5.0% of premiums paid which are less than or equal to
target premiums (2.0% of premiums in excess of target premiums) (See
Appendix B for additional information on target premiums.)
o plus 2.20% for state and local taxes
o plus 1.25% for federal taxes.
Deductions from premiums after the tenth policy year (and after ten years of a
face amount increase) equal:
o sales load of 2.0% of premiums made
o plus 2.20% for state and local taxes
o plus 1.25% for federal taxes.
The sales load is intended to pay us for distribution expenses. These expenses
include commissions paid to registered representatives, printing of prospectuses
and sales literature, and advertising. Sales loads charged in any policy year
are not necessarily related to actual distribution expenses incurred in that
year. We expect that the majority of these expenses are incurred in the early
years of a Policy and that any deficit is made up during the life of the Policy.
If distribution expenses are more than the sales load (including the sales load
portion of the surrender charge), the deficit is made up from our other assets
or surplus in our General Account.
Monthly Policy Charge
The monthly policy charge is intended to cover certain charges and expenses
incurred in connection with the Policy. Deductions are made up of:
o a charge for the cost of insurance;
o a charge for any optional benefit added by rider(s);
o a monthly administration charge; and
o a mortality and expense risks charge
(applies only to the Investment Accounts).
On the policy date and each monthly date thereafter, we deduct the charge from
your policy value in the Investment Accounts and/or Fixed Account (but not your
Loan Account). The deduction is made using your current monthly policy charge
allocation percentages.
Your allocation percentages may be:
o the same as allocation percentages for premium payments;
o determined on a prorated basis; or
o determined by any other allocation method which we agree upon.
The allocation percentage for each Investment Account and/or the Fixed Account
must be zero or a whole number not less than 10. The total of the allocation
percentages must equal 100. Allocation percentages may be changed without
charge. A request for an allocation change is effective on the date we receive
the request. If we cannot follow your instructions because of insufficient value
in any Investment Account and/or the Fixed Account, the monthly policy charge is
deducted on a prorated basis.
Cost of Insurance Charge
Your monthly cost of insurance charge is (a) multiplied by (b minus c) where:
o (a) is the cost of insurance rate described below divided by 1,000;
o (b) is the death benefit at the beginning of the policy month, divided
by 1.0024663 (the sum of one plus the monthly guaranteed fixed account
interest rate); and
o (c) is the policy value at the beginning of the policy month calculated
as if the monthly policy charge was zero.
The cost of insurance rate is based on the gender*, issue age, duration since
issue, smoking status, and risk classification of each insured. We determine the
rate based on our expectation as to mortality experience. Changes in the cost of
insurance rates apply to all individuals of the same age, gender* and risk
classification. The rate will never exceed the rate shown in the Table of
Guaranteed Maximum Cost of Insurance Rates in the Policy. The guaranteed maximum
cost of insurance rate is based on the gender*, attained age and risk
classification of each insured.
Different cost of insurance rates may apply to face amount increases. The cost
of insurance for the increase is based on each insured's gender*, issue age,
duration since issue, smoking status, and risk classification at the time of the
increase. The guaranteed maximum cost of insurance rate for the increase is
based on each insured's gender*, attained age and risk classification at the
time of the increase.
* The cost of insurance rate for Policies issued in states which require
unisex pricing or in connection with employment related insurance and
benefit plans is not based on the gender of the insured.
Administration Charge
1) Current charges
o The current monthly administration charge is $8.00 per month.
o An additional monthly administration charge is imposed in the first ten
policy years (and ten years after an increase in the face amount) of
$.07 per $1,000 of face amount. The charge of $.07 per $1,000 of face
amount is increased by $.005 per $1,000 for each insured that is
classified as a smoker.
2) Guaranteed administration charges
In all policy years, the guaranteed maximum monthly administration charge is
$8.00 per month plus ($.08 per $1,000 of face amount). The charge of $.08 per
$1,000 of face amount is increased by $.005 per $1,000 for each insured that is
classified as a smoker.
The monthly administration charge reimburses us for the administrative expenses
of the Policy and the Separate Account. Administration expenses do not include
the cost of selling the Policy. They do include the costs of: processing
applications; conducting medical examinations; determining insurability;
establishing and maintaining records; processing death benefit claims and policy
changes, reporting and overhead. We do not expect to collect more from the
administration charges than our actual accumulated expenses.
Mortality and Expense Risks Charge
The mortality risk we assume is that insureds may live for a shorter period of
time than we estimate. As a result, we would have to pay a greater amount in
death benefits than we collect in premium payments. The expense risk we assume
is that expenses incurred in issuing and administering the policy are greater
than we estimated. The Company expects to make a profit from this charge to the
extent it is not needed to provide benefits and pay expenses under the Policies.
Each month during the first nine policy years, we deduct a charge for these
risks at an annual rate of 0.80% of your Investment Account(s). Each month
thereafter, we deduct a charge at an annual rate of 0.30% of your Investment
Account(s).
We reserve the right to increase the annual rate but guarantee that the maximum
annual rate will not exceed 0.80%. If we increase the annual rate, the increase
will only apply to policies issued on or after the date of the increase.
Transaction Charge
A transaction fee of the lesser of $25 or 2% of the surrender amount applies to
each partial surrender. The fee is withdrawn in the same proportion as the
allocation used for the most recent monthly policy charge.
We reserve the right to charge a transfer fee on each unscheduled transfer after
the 12th such transfer in a policy year. The fee will not be more than $25 per
unscheduled transfer.
Surrender Charge
Surrender charges vary based on the target premium of the policy and the
premiums paid. The charge applies only during the first ten policy years unless
there is a face amount increase. A face amount increase has its own surrender
charge period that begins on the adjustment date. The total surrender charge on
the policy is the sum of the surrender charges for the face amount at issue and
each face amount increase. The surrender charge is not affected by any decrease
in face amount or any change in face amount resulting from a change of death
benefit options.
The surrender charge compensates us for expenses relating to the sale of the
Policy. These include commissions, advertising and printing of prospectuses and
sales literature. The surrender charge also reimburses us for expenses incurred
in issuing the Policy. These expenses include processing the application
(primarily underwriting) and setting up records. This charge is intended to
cover the average anticipated issue expenses for all Policies. There may not be
a direct relationship between the amount of the charge for any given Policy and
the amount of expenses attributable to that Policy.
The surrender charge on an early surrender or Policy lapse is significant. As a
result, you should purchase a Policy only if you have the financial capacity to
keep it in force for a substantial period of time.
Surrender charge percentage. The surrender charge during any policy year is
equal to the number of target premiums from the table below multiplied by the
applicable surrender charge percentage also shown below:
Joint Equivalent Age (JEA)
on policy or Number of
adjustment date target premiums
75 or less 1.00
76 through 85 0.90
86 or greater 0.75
Surrender Charge Percentage Table
Number of years since policy date The following percentage of
and/or the adjustment date surrender charge is payable
1 through 5 100.00%
6 95.24
7 85.71
8 71.43
9 52.38
10 28.57
11 and later 00.00
The surrender charge on a face amount increase is calculated by multiplying the
increase in target premium due to the face increase by the applicable number of
target premiums from the table above. This result is multiplied by the
applicable surrender charge percentage from the above table to get the increase
in surrender charges for all years.
Other Charges
The Investment Accounts represent shares of divisions of the Separate Account.
The assets of each division are used to purchase shares in a corresponding
mutual fund at net asset value. The net asset value of the mutual fund reflects
management fees and operating expenses already deducted from the assets of the
fund. Current management fees and operating expenses for each mutual fund are
shown in the section entitled THE FUNDS.
THE FIXED ACCOUNT
You may allocate net premiums and transfers from your Investment Account(s) to
the Fixed Account. The Fixed Account is part of our General Account. Because of
exemptions and exclusions contained in the Securities Act of 1933 and the
Investment Company Act of 1940, the Fixed Account has not been registered under
these acts. Neither the Fixed Account nor any interest in it is subject to the
provisions of these acts. As a result the SEC has not reviewed the disclosures
in this prospectus relating to the Fixed Account. However, disclosures relating
to the Fixed Account are subject to generally applicable provisions of the
federal securities laws relating to the accuracy and completeness of statements
made in prospectuses. You may obtain more information regarding the Fixed
Account from our home office or from a sales representative.
Our obligations with respect to the Fixed Account are supported by our General
Account. Subject to applicable law, we have sole discretion over the investment
of assets in the General Account.
We guarantee that net premiums allocated to the Fixed Account accrue interest
daily at an effective annual rate of 3% compounded annually. We may, in our sole
discretion, credit interest at a higher rate.
The mortality and expense risks charge is not imposed on amounts in the Fixed
Account. The value of your Fixed Account on any valuation day is:
o net premiums allocated to the Fixed Account
o plus transfers from the Investment Account(s)
o plus interest credited to the Fixed Account
o minus surrenders, surrender charges and monthly policy charges
o minus transaction fees allocated to the Fixed Account
o minus transfers to the Loan Account
o minus transfers to the Separate Account.
POLICY TERMINATION AND REINSTATEMENT
Policy Termination
You must make an initial minimum premium payment to have coverage under the
Policy.
If the net surrender value on any monthly date is less than the monthly policy
charge, a 61-day grace period begins. However, during the first 60 policy
months, the Policy will stay in force if (a minus b) is greater than or equal to
(c) where:
(a) is the sum of the premiums paid;
(b) is the sum of all existing policy loans, unpaid loan interest, partial
surrenders and transactions charges; and
(c) is the sum of the minimum
monthly premiums since the policy date to the most recent monthly date.
After the first 60 policy months, making premium payments under your planned
periodic premium schedule does not guarantee that your Policy will stay in force
unless:
o your Policy's net surrender value is at least equal to the monthly policy
charge on the current monthly date, or
o the death benefit guarantee rider is in effect.
Grace Period. The grace period begins when we send you a notice of pending
lapse. The notice:
o is mailed to your last known post office address;
o shows the minimum payment required to keep the Policy in force; and
o shows the 61-day period during which we will accept the required payment.
If you are in a grace period, the minimum payment is equal to (a) plus (b)
divided by (c) where:
(a) is the amount by which the surrender charge is more than the policy
value on the monthly date at the start of the grace period before the
monthly policy charge is deducted,
(b) is three monthly policy charges, and
(c) is one minus the maximum premium expense charge percentage (see CHARGES
AND DEDUCTIONS - Premium Expense Charge).
This payment is intended to a) reimburse us for the monthly policy charges
during the grace period, and b) provide enough policy value to pay the monthly
policy charge on the first monthly date after the grace period. To cover past
due policy charges, if the grace period ends before we receive the minimum
payment, we keep any remaining value in the Policy.
Due to possible adverse market fluctuations, there is no guarantee that the
amount requested at the beginning of the grace period is enough to pay the
monthly policy charges as they are processed. If the net surrender value is not
at least as much as the monthly policy charge on any monthly date, a new 61-day
grace period starts.
The Policy is in force during a grace period. If we do not receive the required
payment, the Policy terminates as of the monthly date on or immediately
preceding the start of the grace period. If the surviving insured dies during a
grace period, policy proceeds are reduced by:
o all monthly policy charges due and unpaid at the death of the surviving
insured, and
o any policy loans and unpaid loan interest.
The Policy also terminates when:
o you make a total policy surrender;
o death proceeds are paid; and
o maturity proceeds are paid.
When the Policy terminates, all of the owners' policy rights and privileges end.
Reinstatement
Subject to certain conditions, you may reinstate a Policy that terminated
because of insufficient value. The Policy may only be reinstated:
o prior to the maturity date and while at least one insured is alive;
o upon our receipt of satisfactory evidence of insurability (according to
our underwriting guidelines then in effect);
o if you make a payment of a reinstatement premium which is equal to
(a) plus (b) divided by (c) where:
(a) is the amount by which the surrender charge is more than the
policy value on the monthly date at the start of the grace period
before the monthly policy charge is deducted,
(b) is three monthly policy charges, and
(c) is one minus the maximum premium expense charge percentage (see
CHARGES AND DEDUCTIONS - Premium Expense Charge); and
o if the application for reinstatement is mailed to us within three years
of the Policy termination (in some states, we must provide a longer
period of time for Policy reinstatement).
If a policy loan or loan interest was unpaid when the Policy terminated, the
policy loan must be reinstated or repaid (loan interest is not collected for the
period the Policy was terminated).
We do not require payment of monthly policy charges during the period the Policy
was terminated. Reinstatement is effective on the next monthly date following
our approval of the reinstatement application. Premiums received with your
reinstatement application are held without interest until the reinstatement
date. They are allocated to your selected Investment Accounts and/or Fixed
Account on the reinstatement date. We will use the premium allocation
percentages in effect at the time of termination of the Policy unless you
provide new allocation instructions. The reinstated Policy has the same policy
date as the original Policy. Your rights and privileges as owner(s) are restored
upon reinstatement.
If you reinstate your Policy and then it is totally surrendered, a surrender
charge may be imposed. The charge, if any, is calculated based on the number of
years the Policy was in force. The period of time during which the Policy was
terminated is not credited toward the number of policy years to make this
calculation.
OTHER MATTERS
Voting Rights
We vote Investment Account shares held in the Separate Account at shareholder
meetings. We follow the voting instructions received from people having the
voting interest in the Account shares.
You have a voting interest under a Policy. You have one vote for each $100 of
policy value in the Investment Accounts. Fractional votes are allocated for
amounts less than $100. The number of votes on which you have the right to
instruct us is determined as of a date established by the mutual fund for
setting the shareholders eligible to vote.
According to procedures adopted by the mutual fund, voting instructions are
solicited by a written proxy statement before a shareholder meeting. We vote
other Account shares, for which no voting instructions are received, in the same
proportion as the shares for which we receive voting instructions. Account
shares held in our General Account are voted in proportion to instructions that
are received with respect to the participating contracts.
If we determine, under applicable law, that Account shares need not be voted
according to the instructions received, we may vote Account shares held in the
Separate Account in our own right.
We may, when required by state insurance regulatory authorities, disregard
voting instructions. This may be done if the instructions would require shares
to be voted to:
o change a subclassification or investment objective of the Account, or
o disapprove an investment advisory contract of the fund or Account, or
o approve changes initiated by an owner in the investment policy or
investment advisor of the Account or mutual fund if we reasonably
disapprove of the changes.
The change would be disapproved only if:
o the proposed change is contrary to state law;
o prohibited by state regulatory authorities; or
o we determine the change is inconsistent with the investment objectives
of the mutual fund.
If we disregard voting instructions, a summary of the action and the reason for
the actions will be included in the next semiannual report from the underlying
fund to owners.
Statement of Values
You receive an annual statement at the end of each policy year. The statement
will show:
o current death benefit;
o current policy value and surrender value;
o all premiums paid since the last statement;
o all charges since the last statement;
o any policy loans and unpaid loan interest;
o any partial surrenders since the last statement;
o the number of units and unit value;
o total value of each of your Investment Accounts and the Fixed Account;
o designated beneficiary(ies); and
o all riders included in the Policy.
You will also receive a statement as of the end of each calendar quarter. At any
time, you may request a current statement by telephoning 1-800-247-9988.
We also send you the reports required by the Investment Company Act of 1940.
Services Available by Telephone
Telephone Instructions. Unless you decline telephone privileges, instructions
for the following transactions may be given to us via the telephone:
o policy loans (loan proceeds are only mailed to the owner's address of
record);
o changes in allocations of future premium payments;
o changes in allocation of the monthly policy charge;
o changes to your APR instructions;
o changes to your DCA instructions; and
o provide instructions for unscheduled Investment Account and/or Fixed
Account transfers.
Instructions:
o may be given by calling us at 1-800-247-9988 between 7 a.m. and 9 p.m.
Central Time on any day that the New York Stock Exchange is open;
o must be received by us before the close of the New York Stock Exchange
(generally 3:00 p.m. Central Time) to be effective the day you call;
o are effective the next valuation day if not received until after the
close of the New York Stock Exchange; and
o from one joint owner are binding on all joint owners.
Although neither the Separate Account nor the Company is responsible for the
authenticity of telephone transaction requests, the Separate Account and the
Company reserve the right to refuse telephone orders. You are liable for a loss
resulting from a fraudulent telephone order that we reasonably believe is
genuine. We use reasonable procedures to assure instructions are genuine. If the
procedures are not followed, we may be liable for loss due to unauthorized or
fraudulent transactions. The procedures include: recording all telephone
instructions, requesting personal identification information (name, phone
number, social security number, birth date, etc.) and sending written
confirmation to the owner's address of record.
Direct Dial. You may receive information about your policy from our Direct Dial
system between 7 a.m. and 9 p.m. Central Time, Monday through Saturday.
The Direct Dial number is 1-800-247-9988. Through this automated system,
you can:
o obtain information about unit values and policy values,
o initiate certain changes to your policy, and
o change your personal identification number.
Instructions from one joint owner are binding on all joint owners.
GENERAL PROVISIONS
The Contract
The entire contract is made up of applications, amendments, riders and
endorsements attached to the Policy, current data pages, copies of any
supplemental applications, amendments, endorsements and revised Policy or data
pages which are mailed to you. No statement, unless made in an application, is
used to void a Policy (or void an adjustment in the case of an adjustment
application). Only our corporate officers can agree to change or waive any
provisions of a Policy. Any change or waiver must be in writing and signed by an
officer of the Company.
Optional Insurance Benefits
Subject to certain conditions, you may add one or more supplemental benefits to
your Policy. These include:
o four year term insurance rider
o policy split option rider
o single life term insurance rider
o enhanced death benefit rider
o extended coverage rider
o death benefit guarantee rider
Detailed information concerning supplemental benefits may be obtained from an
authorized agent or our home office. Not all supplemental benefits are available
in all states. The cost, if any, of an optional insurance benefit is deducted as
part of your monthly policy charge.
Death Benefit Guarantee Rider (also known as the "no lapse guarantee"). This
rider provides that if the rider premium is paid, the Policy does not lapse even
if the net surrender value is not enough to pay the monthly policy charges on a
monthly date. This rider is automatically made a part of the policy if the
planned periodic premium is equal to or greater than the death benefit guarantee
premium.
The death benefit (no lapse) guarantee premium requirement is met if:
o the sum of all premiums paid
o minus any partial surrenders
o minus any policy loans and unpaid loan interest
is at least as much as the sum of death benefit guarantee monthly premiums from
the policy date to the most recent monthly date. Your most recent death benefit
(no lapse) guarantee premium is shown on your current data page.
The death benefit (no lapse) guarantee premium is based on the issue age, gender
(where permitted by law) and risk classification of each insured. The monthly
death benefit (no lapse) guarantee premium is considered to be zero for any
month that deductions are being waived. This premium may change if:
o the Policy face amount is changed,
o the death benefit option is changed,
o a rider is added or deleted, or
o an adjustment is made to your Policy.
As a result of a change, an additional premium may be required to satisfy the
new death benefit (no lapse) guarantee premium.
If on any monthly date, the death benefit (no lapse) guarantee premium
requirement is not met, we send you a notice stating the premium required to
reinstate the rider. If the premium required to maintain the guarantee is not
received in our home office before the expiration of the 61-day grace period
(which begins when the notice is mailed), the death benefit (no lapse) guarantee
is no longer in effect and the rider is terminated. If the rider terminates, it
may not be reinstated.
Extended Coverage Rider. This rider allows, under certain conditions, the Policy
to remain in force until the death of the surviving insured - with a death
benefit being paid rather than maturing the Policy.
Misstatement of Age or Gender
If the age or, where applicable, gender of either of the insureds has been
misstated, we adjust the death benefit payable under your Policy to reflect the
amount that would have been payable at the correct ages and gender.
Assignment
You may assign your Policy. Each assignment is subject to any payments made or
action taken by the Company prior to our notification of the assignment. We
assume no responsibility for the validity of any assignment.
An assignment must be made in writing and filed with us at our home office. The
irrevocable beneficiary(ies), if any, must authorize any assignment in writing.
Your rights, as well as those of the beneficiary(ies), are subject to any
assignment on file with us.
Ownership
You may change your ownership designation at any time. Your request must be in
writing and approved by us. After approval, the change is effective as of the
date you signed the request for change. We reserve the right to require that you
send us the Policy so that we can record the change.
Unless changed, the owner(s) is as named in the application. The owner(s) may
exercise every right and privilege of the Policy, subject to the rights of any
irrevocable beneficiary(ies) and any assignee(s).
All rights and privileges of ownership of a Policy end if the Policy is
surrendered, death or maturity proceeds are paid, or if the grace period ends
without our receiving the payment required to keep the Policy in force. The
rights and privileges end as of the monthly date on or immediately preceding the
start of the grace period.
If an owner dies before the Policy terminates, the surviving owner(s), if any,
succeed to that person's ownership interest, unless otherwise specified. If all
owners die before the policy terminates, the Policy passes to the estate of the
last surviving owner. With our consent, you may specify a different arrangement
for contingent ownership.
Beneficiary
You have the right to name a beneficiary(ies) and contingent beneficiary(ies).
This may be done as part of the application process or by sending us a written
request. Unless you have named an irrevocable beneficiary, you may change your
beneficiary designation by sending us a written request. After approval, the
change is effective as of the date you signed the request for change. We reserve
the right to require that you send us the Policy so that we can record the
change.
If no beneficiary(ies) survives the death of the surviving insured, the death
proceeds are paid to the owner(s) or the estate of the owner(s) in equal
percentages unless otherwise specified.
Benefit Instructions
While either insured is alive, you may give us instructions for payment of death
proceeds under one of the benefit options of the Policy. The instructions or
changes to the instructions must be in writing. If you change the
beneficiary(ies), prior benefit instructions are revoked.
Benefit Payment Options
While the surviving insured is alive, you may arrange for death proceeds to be
paid in a lump sum or under one of several fixed benefit payment options. These
choices are also available if the Policy is surrendered or matures.
o Option A - Special Benefit Arrangement
A specially designed benefit option may be arranged with our approval.
o Option B - Proceeds left at interest
We hold the amount of the benefit on deposit. Interest payments are
made annually, semiannually, quarterly or monthly as selected.
o Option C - Fixed Income
We pay income of a fixed amount for a fixed period (not exceeding 30
years).
o Option D - Life Income
We pay income during a person's lifetime. A minimum guaranteed period
may be used.
o Option E - Joint and Survivor Life Income
We pay income during the lifetime of two people and continue until the
death of the survivor. This option includes a minimum guaranteed period
of 10 years.
o Option F - Joint and Two-thirds Survivor Life Income
We pay an income during the lifetime of two people and two-thirds of
the original amount during the remaining lifetime of the survivor.
Interest at a rate set by us, but never less than required by state law, will be
applied to calculate the above benefit payment options.
Right to Exchange Policy
During the first 24 months after the policy date (except during a grace period),
you have the right to make an irrevocable, one-time election to transfer all of
your Investment Account values to the Fixed Account. No charge is imposed on
this transfer.
Your request must be in writing and be signed by the owner(s). The request must
be postmarked or delivered to our home office before the end of the 24-month
period. The transfer is effective when we receive your written request.
Non-Participating Policy
The Policies do not share in any divisible surplus of the Company.
Incontestability
We will not contest the insurance coverage provided by the Policy, except for
any increases in face amount, after the Policy has been in force during the
lifetime of either insured for a period of two years from the policy date. Any
face amount increase has its own two-year contestability period that begins on
the effective date of the adjustment. In many states, the time limit in the
incontestability period does not apply to fraudulent mistrepresentations.
Suicide
Death proceeds are not paid if either insured dies by suicide, while sane or
insane, within two years of the policy date (or two years from the date of face
amount increase with respect to such increase). In the event of the suicide of
either insured within two years of the policy date, our only liability is a
refund of premiums paid, without interest, minus any policy loans and unpaid
loan interest and partial surrenders. In the event of suicide within two years
of a face amount increase, our only liability with respect to that increase is a
refund of the cost of insurance for the increase. If the suicide occurs at the
death of the first insured, this amount will be paid to the owner(s) of the
Policy. If the suicide occurs at the death of the surviving insured, this amount
will be paid to the beneficiary(ies).
Delay of Payments
Payment due to exercise of your rights under the free-look provision,
surrenders, policy loans, death or maturity proceeds, and transfers to or from
an Investment Account are generally made within five days after we receive your
instructions in a form acceptable to us. This period may be shorter where
required by law. However, payment of any amount upon return of the Policy, total
or partial surrender, policy loan, death, maturity or the transfer to or from a
division of the Separate Account may be deferred during any period when the
right to sell mutual fund shares is suspended as permitted under provisions of
the Investment Company Act of 1940 (as amended).
The right to sell shares may be suspended during any period when:
o trading on the New York Stock Exchange is restricted as determined by
the SEC or when the Exchange is closed for other than weekends and
holidays, or
o an emergency exists, as determined by the SEC, as a result of which:
o disposal by a fund of securities owned by it is not
reasonably practicable;
o it is not reasonably practicable for a fund to fairly
determine the value of its net assets; or
o the SEC permits suspension for the protection of security holders.
If payments are delayed and your instruction is not canceled by your written
instruction, the amount of the transaction is determined the first valuation
date following the expiration of the permitted delay. The transaction is made
within five days thereafter.
In addition, payments on surrenders attributable to a premium payment made by
check may be delayed up to 15 days. This permits payment to be collected on the
check.
Addition, Deletion or Substitution of Investments
We reserve the right to make certain changes if, in our judgement, they best
serve your interests or are appropriate in carrying out the purpose of the
Policy. Any changes are made only to the extent and in the manner permitted by
applicable laws. Also, when required by law, we will obtain your approval of the
changes and approval from any appropriate regulatory authority. Approvals may
not be required in all cases. Examples of the changes we may make include:
o transfer assets in any division to another division or to the Fixed
Account;
o add, combine or eliminate divisions in the Separate Account; or
o substitute the shares of an Investment Account for the Investment Account
shares in any division:
o if shares of an Investment Account are no longer available for
investment; or
o if in our judgement, investment in an Investment Account becomes
inappropriate considering the purposes of the Separate Account.
If we eliminate or combine existing divisions or transfer assets from one
division to another, you may change allocation percentages and transfer any
value in an affected division to another Investment Account(s) and/or the Fixed
Account without charge. You may exercise this exchange privilege until the
latter of 60 days after a) the effective date of the change, or b) the date you
receive notice of the options available. You may only exercise this right if you
have an interest in the affected division(s).
OFFICERS AND DIRECTORS OF PRINCIPAL MANAGEMENT CORPORATION
The officers and directors of the investment advisor, Principal Management
Corporation, are shown below. This list includes some of the same people
(designated by *), who are serving in the same capacities as officers and
directors of the underwriter, Princor Financial Services Corporation. The
principal business address for each officer and director is: Principal Financial
Group, Des Moines, Iowa 50392.
*JOHN E. ASCHENBRENNER Director
CRAIG R. BARNES Vice President
*CRAIG L. BASSETT Treasurer
*MICHAEL J. BEER Executive Vice President
*MARY L. BRICKER Assistant Corporate Secretary
*DAVID J. DRURY Director
*RALPH C. EUCHER Director and President
*ARTHUR S. FILEAN Vice President
*DENNIS P. FRANCIS Director
*PAUL N. GERMAIN Vice President - Mutual Fund Operations
*ERNEST H. GILLUM Vice President - Compliance and Product
Development
*THOMAS J. GRAF Director
*J. BARRY GRISWELL Chairman of the Board and Director
*JOYCE N. HOFFMAN Vice President and Corporate Secretary
*ELLEN Z. LAMALE Director
*JULIA M. LAWLER Director
*GREGG R. NARBER Director
*RICHARD L. PREY Director
*LAYNE A. RASMUSSEN Controller - Mutual Funds
*ELIZABETH R. RING Controller
*MICHAEL J. ROUGHTON Counsel
*JEAN B. SCHUSTEK Product Compliance Officer - Registered
Products
DEWAIN A. SPARRGROVE Vice President
OFFICERS AND DIRECTORS OF PRINCIPAL LIFE INSURANCE COMPANY
Principal Life Insurance Company is managed by a Board of Directors. The
directors and executive officers of the Company, their positions with the
Company, including Board Committee memberships, and their principal occupation
during the last five years, are as follows:
EXECUTIVE OFFICERS (OTHER THAN DIRECTORS):
JOHN EDWARD ASCHENBRENNER Senior Vice President
PAUL FRANCIS BOGNANNO Senior Vice President
CHARLES ROBERT DUNCAN Senior Vice President
DENNIS PAUL FRANCIS Senior Vice President
THOMAS JEFFERSON GAARD Senior Vice President
MICHAEL HARRY GERSIE Senior Vice President
THOMAS JOHN GRAF Senior Vice President
ROBB BRYAN HILL Senior Vice President
GREGG ROSS NARBER Senior Vice President and General Counsel
MARY AGNES O'KEEFE Senior Vice President
RICHARD LEO PREY Senior Vice President
ROBERT ALLEN SLEPICKA Senior Vice President
NORMAN RAUL SORENSEN Senior Vice President
CARL CHANSON WILLIAMS Senior Vice President and Chief
Information Officer
<TABLE>
<CAPTION>
DIRECTORS:
Name, Positions and Offices Principal Occupation During Last 5 Years
- ----------------------------------------------------------------------------------------
<S> <C>
BETSY JEAN BERNARD Executive Vice President, U.S. West since 1998. President and Chief Executive Officer,
Director since 1998. President and Chief Executive Officer, AVIRNEX Communications Group
since 1997. President and Chief Executive Officer, Pacific Bell Communications since
1995.
JOCELYN CARTER-MILLER Corporate Vice President and Chief Marketing Officer, Motorola, Inc. since 1999. Vice
President, Director 1998-1999. Vice President and General Manager, since 1997.
Prior thereto, Vice President of Latin American and Caribbean Operations of Motorola.
RUTH MARGARET DAVIS President and Chief Executive Officer, The Pymatuning Group, Inc.
Director
Member, Nominating Committee
DAVID JAMES DRURY Chairman and Chief Executive Officer, Principal Life Insurance Company since 1995.
Director President and Chief Executive Officer from 1994-1995; President from 1993-1994;
Chairman of the Board Executive Vice President from 1992-1993.
Chair, Executive Committee
CHARLES DANIEL GELATT, JR. President, NMT Corporation.
Director
Member, Executive Committee
Chair, Human Resources Committee
JOHN BARRY GRISWELL President, Principal Life Insurance Company since 1998. Executive Vice President
Director 1996-1998. Senior Vice President 1988-1996.
GERALD DAVID HURD Retired. Chairman and Chief Executive Officer, Principal Life Insurance Company 1989-1994.
Director
Member, Executive and
Nominating Committees
CHARLES SAMUEL JOHNSON Chairman, President and Chief Executive Officer, Pioneer Hi-Bred International, Inc.
Director since 1996. President and Chief Executive Officer 1995-1996. President and Chief
Member, Audit Committee Operating Officer 1995. Executive Vice President 1993-1995.
WILLIAM TURNBALL KERR Chairman, President & Chief Executive Officer, Meredith Corporation since 1998.
Director President and Chief Executive Officer, 1997-1998. President and Chief Operating Officer
Member, Executive Committee and 1994-1997. Prior thereto, Executive Vice President.
Chair, Nominating Committee
LEE LIU Chairman Alliant Energy Corporation since 1998. Chairman and Chief Executive Officer, IES
Director Industries, Inc., 1996-1998. Prior thereto, Chairman, President and Chief
Member, Executive and Human Executive Officer.
Resources Committees
VICTOR HENDRIK LOEWENSTEIN Managing Partner, Egon Zehnder International
Director
Member, Audit Committee
RONALD DALE PEARSON Chairman, President and Chief Executive Officer, Hy-Vee, Inc.
Director
Member, Human Resources Committee
JOHN ROY PRICE Managing Director, The Chase Manhattan Corporation since 1996. Prior thereto,
Director Managing Director, Chemical Banking Corporation.
Member, Nominating Committee
DONALD MITCHELL STEWART President, The College Board.
Director
Member, Human Resources Committee
ELIZABETH EDITH TALLETT President & CEO of Dioscor, Inc. & Serex, Inc. since 1996. President and
Director Chief Executive Officer, Transcell Technologies, Inc. 1992-1996.
Chair, Audit Committee
DEAN DICKSON THORNTON Retired since 1993. Prior thereto President, Boeing Commercial Airplane Group.
Director
Member, Audit Committee
FRED WILLIAM WEITZ President, Chairman of the Board and Chief Executive Officer, Essex Meadows, Inc. since
Director 1995. Prior thereto, President, Chairman of the Board, and Chief Executive Officer, The
Member, Human Resources Committee Weitz Corporation and its subsidiaries.
</TABLE>
DISTRIBUTION OF THE POLICY
We intend to sell the Policies in all jurisdictions where we are licensed. The
Policies will be sold by licensed insurance agents who are also registered
representatives of broker-dealers registered with the SEC under the Securities
Exchange Act of 1934 who are members of the National Association of Securities
Dealers, Inc. (NASD).
The Policies will be distributed by the general distributor, Princor Financial
Services Corporation (Princor), which is an affiliate of ours. Princor is a
securities broker-dealer registered with the SEC and a member of the NASD. The
Policies may also be sold through other broker-dealers authorized by Princor and
applicable law to do so. Registered representatives of such broker-dealers may
be paid on a different basis than described below.
For Policies sold through Princor, commissions generally will be no more than
50% of premium received in the first policy year or the first year following an
adjustment up to the planned periodic premium (not to exceed target premium). In
addition, a commission of up to 3% of premium above the lesser of planned
periodic or target premium received in the first policy year (or first year
following an adjustment) may be paid. In the second through tenth years
following the policy date (or adjustment date), commissions range from 0% to 2%
of premiums received. A service fee of up to 2% is paid on premiums received
after the second policy year. Expense allowances may be paid to agents and
brokers based on premiums received.
STATE REGULATION
The Company is subject to the laws of the State of Iowa governing insurance
companies and to regulation by the Insurance Department of the State of Iowa. An
annual statement in a prescribed form must be filed by March 1 in each year
covering our operations for the preceding year and our financial condition on
December 31 of the prior year. Our books and assets are subject to examination
by the Commissioner of Insurance of the State of Iowa or her representatives at
all times. A full examination of our operations is conducted periodically by the
National Association of Insurance Commissioners. Iowa law and regulations also
prescribe permissible investments, but this does not involve supervision of the
investment management or policy of the Company.
In addition, we are subject to the insurance laws and regulations of other
states and jurisdictions where we are licensed to operate. Generally, the
insurance departments of these states and jurisdictions apply the laws of the
state of domicile in determining the field of permissible investments.
FEDERAL TAX MATTERS
The following description is a general summary of the tax rules, primarily
related to federal income taxes, which in our opinion are currently in effect.
These rules are based on laws, regulations and interpretations that are subject
to change at any time. This summary is not comprehensive and is not intended as
tax advice. While we reserve the right to change the Policy to assure it
continues to qualify as life insurance for tax purposes, we cannot make any
guarantee regarding the future tax treatment of any Policy. You should consult a
qualified tax adviser about the tax implications of taking action under a
Policy.
Tax Status of the Company and the Separate Account
We are taxed as an insurance company under subchapter L of the Code. The
Separate Account is not a separate taxable entity. Its operations are taken into
account by us in determining our tax liability. All Separate Account investment
income and realized net capital gains are reinvested and taken into account in
determining policy values and are automatically applied to increase the book
reserves associated with the Policies.
Charges for Taxes
We impose a federal tax charge equal to 1.25% of premiums received under the
Policy to compensate us for the federal income tax liability we incur by reason
of receiving those premiums. We believe that this charge is reasonable in
relation to the increased tax burden the Company incurs as a result of Section
848 of the Code. No other charge is currently made to the Separate Account for
federal income taxes of the Company that may be attributable to the Separate
Account. Periodically, we review the appropriateness of charges to the Separate
Account for federal income taxes. In the future, a charge may be made for
federal income taxes incurred by us and attributable to the Separate Account. In
addition, depending on the method of calculating interest on policy values
allocated to the Fixed Account, a charge may be imposed for the Policy's share
of our federal income taxes attributable to the Fixed Account.
Under current law, we may incur state or local taxes (in addition to premium
taxes) in several states. At present, these taxes are not significant. If there
is a material change attributable to state or local taxes, we reserve the right
to charge the Separate Account for the portion of taxes, if any, attributable to
the Separate Account.
Diversification Standards
The Policy should qualify as a life insurance contract as long as the underlying
investments for the Policy satisfy diversification requirements of Section
817(h) of the Code.
IRS Definition of Life Insurance
The Policy should qualify as a life insurance contract as long as it satisfies
certain tests under Section 7702 of the Code.
o The Policy qualifies if it satisfies a cash value accumulation test or
a guideline premium requirement and falls within a cash value corridor.
o If at any time a premium is paid which would result in total premiums
exceeding the current maximum premium allowed, we only accept that
portion of the premium which would make the total premiums equal the
maximum.
Modified Endowment Contract Status
Section 7702A of the Code sets forth a classification of life insurance policies
known as "Modified Endowment Contracts." Policy loans and partial surrenders
from a policy that is classified as a modified endowment contract are taxable as
ordinary income to the owner in an amount equal to the lesser of the amount of
the loan/partial surrender or the excess of policy value over the owner's
investment in the Policy. Additionally, taxable distributions are subject to a
federal income tax penalty of 10% unless the payment is:
o made after the owner attains age 59 1/2;
o attributable to the taxpayer becoming disabled; or
o part of a series of substantially equal periodic payments (made not
less frequently than annually) made for the life or life expectancy of
the taxpayer.
Modified endowment contract classification may be avoided by limiting the amount
of premiums paid under the Policy. If you contemplate a large premium payment
under this Policy, and you wish to avoid modified endowment contract status, you
may contact us before making the payment and we will tell you the maximum amount
which can be paid into the Policy before it would become a modified endowment
contract.
Policy Surrenders and Partial Surrenders
A surrender or lapse of the Policy may have income tax consequences. Upon
surrender, the owner(s) is not taxed on the cash surrender value except for the
amount, if any, that exceeds the gross premiums paid less the untaxed portion of
any prior surrenders. The amount of any policy loan, upon surrender or lapse, is
added to the cash surrender value and treated, for this purpose, as if it had
been received. A loss incurred upon surrender is generally not deductible. The
tax consequences of a surrender may differ if the proceeds are received under
any income payment settlement option.
A total surrender of the Policy will, and a partial surrender may, be included
in your gross income to the extent that the distribution exceeds your investment
in the Policy. Partial surrenders generally are not taxable unless the total of
such surrenders exceeds total premiums paid to the date of partial surrender
less the untaxed portion of any prior partial surrenders. During the first 15
policy years, an amount may be taxable prior to your tax-free recovery of your
investment in the Policy if the partial surrender results in or is necessitated
by a reduction in death benefits. A qualified tax advisor should be consulted
regarding the tax consequences of any partial surrender during the first 15
policy years.
The increase in policy value of the Policy is not included in gross income
unless and until there is a total surrender or partial surrender under the
Policy. A complete surrender of the Policy will, and a partial surrender may, be
included in your gross income to the extent the distribution exceeds your
investment in the Policy. Transfers between the Investment Accounts and/or the
Fixed Account are not considered as distributions from the Policy and would not
be considered taxable income.
Policy Loans and Loan Interest
Loans received under the Policy are generally recognized as loans for tax
purposes and are not considered to be distributions subject to tax. Interest
paid to us as a result of a policy loan may or may not be deductible depending
on a number of factors. Due to the complexity of these factors, you should
consult a competent tax advisor as to the deductibility of interest paid on
policy loans. If the Policy is a modified endowment contract, a policy loan is
taxable to an amount equal to the lesser of the amount of the loan or the excess
of policy value over the owner's investment in the Policy.
Corporate Alternative Minimum Tax
Ownership of a Policy by certain corporations may affect the owner's exposure to
the corporate alternative minimum tax. In determining whether it is subject to
alternative minimum tax, the corporate owner must make two computations. First,
the corporation must take into account a portion of the current year's increase
in the built-in gain in its corporate owned policies. Second, the corporation
must take into account a portion of the amount by which the death benefits
received under any Policy exceed the sum of a) the premiums paid on that Policy
in the year of death, and b) the corporation's basis in the Policy (as measured
for alternative minimum tax purposes) as of the end of the corporation's tax
year immediately preceding the year of death. The corporate alternative minimum
tax does not apply to S Corporations. Such tax also does not apply to "Small
Corporations" as defined by Section 55(c) of the Code. Corporations with gross
receipts of $5,000,000 or less for their first taxable year after 1996, with
gross receipts not exceeding $7,500,000 after the first taxable year, will meet
this definition.
Exchange or Assignment of Policies
A change of policy, or an exchange or assignment of a Policy may have tax
consequences. An assignment or exchange may result in taxable income to the
transferring owner. For complete information with respect to policy assignments
and exchanges, a qualified tax advisor should be consulted.
Withholding
Withholding is generally required on certain taxable distributions under
insurance contracts. In the case of periodic payments, the withholding is at
graduated rates. With respect to non-periodic distributions, withholding is a
flat rate of 10%. You may elect to have either non-periodic or periodic payments
made without withholding except if your tax identification number has not been
furnished to us or if the IRS has notified us that the number you furnished is
incorrect.
Other Tax Issues
Federal estate taxes and state and local estate, inheritance and other taxes may
become due depending on applicable law and your circumstances or the
circumstances of the policy beneficiary(ies) if you or the insured dies. Any
person concerned about the estate implications of the Policy should consult a
competent tax advisor.
EMPLOYEE BENEFIT PLANS
The United States Supreme Court has held that optional annuity benefits under a
qualified deferred compensation plan cannot vary on the basis of gender. Polices
are available for use in connection with employment related insurance or benefit
plans which do not vary between male and female insured of a particular age and
underwriting classification. A competent tax advisor should be consulted on
these matters.
LEGAL OPINIONS
Legal matters applicable to the issue and sale of the Policies, including our
right to issue Policies under Iowa Insurance Law, have been passed upon by Gregg
R. Narber, Senior Vice President and General Counsel.
LEGAL PROCEEDINGS
There are no legal proceedings pending to which the Separate Account is a party
or which would materially affect the Separate Account.
REGISTRATION STATEMENT
This prospectus omits some information contained in the registration statement
that we have filed with the SEC. Statements contained in this prospectus are
summaries of the contents of the Policy and other legal documents.
OTHER VARIABLE INSURANCE CONTRACTS
The Company currently offers other variable life contracts that participate in
the Separate Account. In the future, we may designate additional group or
individual variable annuity contracts as participating in the Separate Account.
RESERVATION OF RIGHTS
The Company reserves the right to amend or terminate the special plans described
in this prospectus. Such plans include preauthorized premium payments, dollar
cost averaging (DCA) and automatic portfolio rebalancing (APR). In addition, we
reserve the right to charge a transfer fee of no more than $25 for each
unscheduled transfer after the 12th such transfer in a policy year. You would be
notified of any such action to the extent required by law.
YEAR 2000 READINESS DISCLOSURE
Starting in early 1995, as a corporate effort, the Company recognized the Year
2000 could have a significant impact on our operations. With the strong
commitment from the Board of Directors, Chief Executive Officer and Chief
Information Officer, we initiated a comprehensive plan to ensure our systems and
facilities would function correctly regardless of the date on the calendar.
Assessments of our computer systems were completed in 1996. We identified 35,000
programs comprising 40 million lines of mainframe code, 1,300 PC software
packages, and 400,000+ end-user PC applications that could be affected by the
Year 2000.
Our analysis didn't stop there. We requested Year 2000 compliance status
information from hardware and software vendors of over 1,000 PC systems and 450
mainframe systems. New purchase agreements, along with renewal agreements, have
included a "Year 2000" warranty clause since 1997.
In 1997, we contacted critical service and product suppliers such as banks and
utility companies regarding their Year 2000 readiness. To further assess the
stability of our external supply chain, we conducted another survey in 1998, and
a third evaluation of our most critical suppliers will take place in 1999.
As of December 31, 1998, 100 percent of our identified mission critical system
renovations were completed, tested and in production. We expect to complete the
remaining identified changes by June 30, 1999 (when we receive and install
updated software releases from our outside vendors).
Full-scale testing of our systems began in March 1998 using an in-house,
isolated testing facility. We include "system date manipulation" and "file
aging" processes to verify a wide variety of dates before, on, and after January
1, 2000, including February 29, 2000 (leap day).
Our objective is to complete full-scale testing of all identified mission
critical systems in second quarter 1999, with significant attentions to year-end
and leap-year processing. Verification will continue through 1999, and into the
early part of 2000, to ensure no new date related problems are introduced into
previously tested or newly developed systems.
We believe our thorough systems testing process should eliminate significant
date related problems that could affect our systems. We will have staff onsite
during critical times to ensure a timely and accurate response to unforeseen
issues which may arise.
Contingency plan development began July 1998. The methodology was documented in
November 1998. We expect initial plans to be completed by March 31, 1999. These
plans are being developed to address external systems and non-systems events
that could affect our operations. Many of those scenarios are beyond our
control, so we are identifying possible options, which will minimize their
impact. We are also communicating with other entities involved to encourage
their Year 2000 preparedness. We will re-evaluate our contingency plans
throughout the Year 2000 experience.
The cost associated with completing our Year 2000 readiness for the business
unit of the Company which issues the Policy is estimated to be $1.3 - $1.6
million.
Additional corporate Y2K information can be found on our website at
www.principal.com/general/faqy2k.htm
CUSTOMER INQUIRIES
Your questions should be directed to: Survivorship Flexible Premium Variable
Universal Life, Principal Financial Group, P.O. Box 9296, Des Moines, Iowa
50306-9296, 1-800-247-9988.
INDEPENDENT AUDITORS
The financial statements of the Principal Life Insurance Company Variable Life
Separate Account and the financial statements of the Principal Life Insurance
Company are included in this prospectus. Those statements have been audited by
Ernst & Young LLP, independent auditors, 801 Grand Avenue, Des Moines, Iowa
50309, for the periods indicated in their reports.
FINANCIAL STATEMENTS
The consolidated financial statements of Principal Life Insurance Company which
are included in this prospectus should be considered only as it relates to our
ability to meet our obligations under the Policy. They do not relate to
investment performance of the assets held in the Separate Account.
<PAGE>
Report of Independent Auditors
Board of Directors and Participants
Principal Life Insurance Company
We have audited the accompanying statement of net assets of Principal Life
Insurance Company Variable Life Separate Account (comprising, respectively, the
Balanced, Bond, Capital Value [formerly Capital Accumulation], High Yield,
MidCap [formerly Emerging Growth], and Money Market Divisions; and, beginning
February 1, 1997 [date operations commenced], the Aggressive Growth, Asset
Allocation, Fidelity Contrafund, Fidelity Equity Income, Fidelity High Income,
Government Securities, Growth and International [formerly World] Divisions; and,
beginning May 1, 1998 [date operations commenced], the International SmallCap,
MicroCap, MidCap Growth, Putnam Global Asset Allocation, Putnam Vista, Putnam
Voyager, Real Estate, SmallCap, SmallCap Growth, SmallCap Value and Utilities
Divisions) as of December 31, 1998, and the related statements of operations and
changes in net assets for each of the three years in the period then ended.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our procedures included
confirmation of securities owned as of December 31, 1998, by correspondence with
the transfer agent. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Principal Life Insurance
Company Variable Life Separate Account at December 31, 1998, and the results of
its operations and the changes in its net assets for each of the three years in
the period then ended, in conformity with generally accepted accounting
principles.
/s/ Ernst & Young LLP
Des Moines, Iowa
January 29, 1999
<PAGE>
Principal Life Insurance Company
Variable Life Separate Account
Statement of Net Assets
December 31, 1998
Assets
Investments:
Aggressive Growth Division:
Aggressive Growth Account - 777,089 shares at net asset value of $18.33
per share (cost - $13,352,172)
$14,244,041
Asset Allocation Division:
Asset Allocation Account - 129,498 shares at net asset value of $12.30
per share (cost - $1,606,648)
1,592,829
Balanced Division:
Balanced Account - 607,950 shares at net asset value of $16.25 per share
(cost - $9,341,735)
9,879,189
Bond Division:
Bond Account - 328,889 shares at net asset value of $12.02 per share
(cost - $3,926,791)
3,953,245
Capital Value Division:
Capital Value Account - 617,691 shares at net asset value of $37.19 per
share (cost - $21,049,295)
22,971,942
Fidelity Contrafund Division:
Fidelity Variable Insurance Products Fund II: Contrafund Portfolio.
- 328,273 shares at net asset value of $24.44 per share
(cost - $6,667,740)
8,023,001
Fidelity Equity Income Division:
Fidelity Variable Insurance Products Fund: Equity Income Portfolio -
192,980 shares at net asset value of $25.42 per share
(cost - $4,613,703)
4,905,541
Fidelity High Income Division:
Fidelity Variable Insurance Products Fund: High Income Portfolio -
92,350 shares at net asset value of $11.53 per share
(cost - $1,125,224)
1,064,791
Government Securities Division:
Government Securities Account - 296,704 shares at net asset value
of $11.01 per share (cost - $3,276,232)
3,266,712
Growth Division:
Growth Account - 232,690 shares at net asset value of $20.46 per share
(cost - $4,292,826)
4,760,835
High Yield Division:
Principal High Yield Account - 281,526 shares at net asset value of
$8.06 per share (cost - $2,513,399)
2,269,099
International Division:
International Account - 537,577 shares at net asset value of $14.51
per share (cost - $7,973,977)
7,800,249
See accompanying notes.
<PAGE>
Assets (continued)
Investments (continued):
International SmallCap Division:
International SmallCap Account - 35,132 shares at net asset value of $9.00
per share (cost - $301,178)
$ 316,190
MicroCap Division:
MicroCap Account - 18,284 shares at net asset value of $8.17 per share
(cost - $148,285)
149,378
MidCap Division:
MidCap Account - 740,867 shares at net asset value of $34.37 per share
(cost - $23,362,591)
25,463,610
MidCap Growth Division:
MidCap Growth Account - 32,736 shares at net asset value of $9.65 per share
(cost - $287,894)
315,903
Money Market Division:
Money Market Account - 8,335,116 shares at net asset value (cost) of $1.00
per share
8,335,116
Putnam Global Asset Allocation Division:
Putnam VT Global Asset Allocation Fund - 3,968 shares at net asset value of
$18.96 per share (cost - $70,918)
75,231
Putnam Vista Division:
Putnam VT Vista Fund - 8,354 shares at net asset value of $14.73 per share
(cost - $102,314)
123,051
Putnam Voyager Division:
Putnam VT Voyager Fund - 19,636 shares at net asset value of $45.81 per
share (cost - $793,947)
899,548
Real Estate Division:
Real Estate Account - 3,496 shares at net asset value of $9.07 per share
(cost - $32,029)
31,709
SmallCap Division:
SmallCap Account - 30,528 shares at net asset value of $8.21 per share
(cost - $238,669)
250,636
SmallCap Growth Division:
SmallCap Growth Account - 20,762 shares at net asset value of $10.10 per
share (cost - $177,725)
209,695
SmallCap Value Division:
SmallCap Value Account - 17,283 shares at net asset value of $8.34 per
share (cost - $138,722)
144,138
Utilities Division:
Utilities Account - 4,172 shares at net asset value of $10.93 per share
(cost - $43,259)
45,596
-----------------
Net assets $121,091,275
=================
<PAGE>
Principal Life Insurance Company
Variable Life Separate Account
Statement of Net Assets (continued)
December 31, 1998
<TABLE>
<CAPTION>
Unit
Units Value
------------------------
------------------------
<S> <C> <C> <C>
Net assets are represented by:
Aggressive Growth Division - PrinFlex Life 966,076 $14.74 $14,244,041
Asset Allocation Division - PrinFlex Life 126,757 12.57 1,592,829
Balanced Division:
Flex Variable Life 128,004 29.66 3,796,104
PrinFlex Life 470,384 12.93 6,083,085
-----------
9,879,189
Bond Division:
Flex Variable Life 81,499 23.91 1,948,335
PrinFlex Life 169,676 11.82 2,004,910
-----------
3,953,245
Capital Value Division:
Flex Variable Life 230,405 37.92 8,736,005
PrinFlex Life 1,001,214 14.22 14,235,937
-----------
22,971,942
Fidelity Contrafund Division - PrinFlex Life 509,526 15.75 8,023,001
Fidelity Equity Income Division - PrinFlex Life 358,372 13.69 4,905,541
Fidelity High Income Division - PrinFlex Life 96,628 11.02 1,064,791
Government Securities Division - PrinFlex Life 276,130 11.83 3,266,712
Growth Division - PrinFlex Life 323,329 14.72 4,760,835
High Yield Division - Flex Variable Life 106,040 21.40 2,269,099
International Division - PrinFlex Life 647,156 12.05 7,800,249
International SmallCap Division - PrinFlex Life 34,925 9.05 316,190
MicroCap Division - PrinFlex Life 18,274 8.17 149,378
MidCap Division:
Flex Variable Life 279,181 41.05 11,460,175
PrinFlex Life 1,122,974 12.47 14,003,435
-----------
25,463,610
MidCap Growth Division - PrinFlex Life 32,540 9.71 315,903
See accompanying notes.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Unit
Units Value
-----------------------
-----------------------
<S> <C> <C> <C>
Net assets are represented by (continued):
Money Market Division:
Flex Variable Life 22,133 $16.40 $ 362,873
PrinFlex Life 723,761 11.02 7,972,243
------------
8,335,116
Putnam Global Asset Allocation Division - PrinFlex Life
7,305 10.30 75,231
Putnam Vista Division - PrinFlex Life 11,712 10.51 123,051
Putnam Voyager Division - PrinFlex Life 82,965 10.84 899,548
Real Estate Division - PrinFlex Life 3,390 9.35 31,709
SmallCap Division - PrinFlex Life 31,352 7.99 250,636
SmallCap Growth Division - PrinFlex Life 20,430 10.26 209,695
SmallCap Value Division - PrinFlex Life 16,935 8.51 144,138
Utilities Division - PrinFlex Life 3,944 11.56 45,596
------------
Net assets $121,091,275
============
</TABLE>
<PAGE>
Principal Life Insurance Company
Variable Life Separate Account
Statements of Operations
Years ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
Aggressive
Growth
Combined Division (1)
-------------- --------------
<S> <C> <C>
Year ended December 31, 1998 Investment income (loss) Income:
Dividends $1,927,629 $ 25,269
Capital gains distributions 3,545,632 576,813
-------------- --------------
5,473,261 602,082
Expenses:
Mortality and expense risks 736,803 74,911
-------------- --------------
Net investment income (loss) 4,736,458 527,171
Realized and unrealized gains (losses) on investments
Net realized gains (losses) on investments 1,677,430 11,214
Change in net unrealized appreciation/depreciation of investments 1,393,781 947,122
============== ==============
Net increase (decrease) in net assets resulting from operations $7,807,669 $1,485,507
============== ==============
Year ended December 31, 1997 Investment income (loss) Income:
Dividends $ 980,811 $ 8,174
Capital gains distributions 2,062,456 410,207
-------------- --------------
3,043,267 418,381
Expenses:
Mortality and expense risks 323,452 12,033
-------------- --------------
Net investment income (loss) 2,719,815 406,348
Realized and unrealized gains (losses) on investments
Net realized gains on investments 1,992,490 2,207
Change in net unrealized appreciation/depreciation of investments 2,414,101 (55,253)
-------------- --------------
Net increase (decrease) in net assets resulting from operations $7,126,406 $ 353,302
============== ==============
Year ended December 31, 1996 Investment income Income:
Dividends $ 576,069 $ -
Capital gains distributions 1,240,739 -
-------------- --------------
1,816,808 -
Expenses:
Mortality and expense risks 160,075 -
-------------- --------------
Net investment income 1,656,733 -
Realized and unrealized gains (losses) on investments
Net realized gains on investments 196,669 -
Change in net unrealized appreciation/depreciation of investments 1,785,917 -
-------------- --------------
Net increase in net assets resulting from operations $3,639,319 $ -
============== ==============
(1) Commenced operations February 1, 1997.
(2) Commenced operations May 1, 1998.
See accompanying notes.
</TABLE>
<TABLE>
<CAPTION>
Asset Capital
Allocation Balanced Bond Value
Division (1) Division Division Division
-------------------------------------------------------
-------------------------------------------------------
<S> <C> <C> <C> <C>
Year ended December 31, 1998 Investment income (loss) Income:
Dividends $37,595 $278,168 $200,418 $ 398,541
Capital gains distributions 39,061 298,323 2,083 748,100
-------------------------------------------------------
76,656 576,491 202,501 1,146,641
Expenses:
Mortality and expense risks 9,173 63,126 24,494 136,738
-------------------------------------------------------
Net investment income (loss) 67,483 513,365 178,007 1,009,903
Realized and unrealized gains (losses) on investments
Net realized gains (losses) on investments (1,770) 161,523 33,503 281,655
Change in net unrealized appreciation/depreciation of investments 10,057 118,060 (19,726) 461,090
=======================================================
Net increase (decrease) in net assets resulting from operations $75,770 $792,948 $191,784 $1,752,648
=======================================================
Year ended December 31, 1997 Investment income (loss) Income:
Dividends $11,857 $150,137 $136,267 $ 211,818
Capital gains distributions 42,154 346,134 - 794,643
-------------------------------------------------------
54,011 496,271 136,267 1,006,461
Expenses:
Mortality and expense risks 1,700 38,702 14,802 69,600
-------------------------------------------------------
Net investment income (loss) 52,311 457,569 121,465 936,861
Realized and unrealized gains (losses) on investments
Net realized gains on investments 549 236,637 18,598 342,684
Change in net unrealized appreciation/depreciation of investments (23,876) 104,396 55,567 895,157
=======================================================
Net increase (decrease) in net assets resulting from operations $28,984 $798,602 $195,630 $2,174,702
=======================================================
Year ended December 31, 1996 Investment income Income:
Dividends $ - $110,439 $ 92,610 $ 118,875
Capital gains distributions - 244,144 - 745,903
-------------------------------------------------------
- 354,583 92,610 864,778
Expenses:
Mortality and expense risks - 25,360 8,256 36,169
-------------------------------------------------------
Net investment income - 329,223 84,354 828,609
Realized and unrealized gains (losses) on investments
Net realized gains on investments - 20,387 2,798 36,486
Change in net unrealized appreciation/depreciation of investments - 77,334 (53,168) 247,560
=======================================================
Net increase in net assets resulting from operations $ - $426,944 $ 33,984 $1,112,655
=======================================================
(1) Commenced operations February 1, 1997.
(2) Commenced operations May 1, 1998.
See accompanying notes.
</TABLE>
<TABLE>
<CAPTION>
Fidelity Fidelity Equity Fidelity High
Contrafund Income Income
Division (1) Division(1) Division (1)
------------------------------------------------------
------------------------------------------------------
<S> <C> <C> <C>
Year ended December 31, 1998 Investment income (loss) Income:
Dividends $ 17,790 $ 18,251 $ 31,106
Capital gains distributions 130,883 64,952 19,765
------------------------------------------------------
148,673 83,203 50,871
Expenses:
Mortality and expense risks 37,872 24,478 7,171
------------------------------------------------------
Net investment income (loss) 110,801 58,725 43,700
Realized and unrealized gains (losses) on investments
Net realized gains (losses) on investments 12,594 5,628 (11,177)
Change in net unrealized appreciation/depreciation of investments 1,240,221 219,300 (81,364)
======================================================
Net increase (decrease) in net assets resulting from operations $1,363,616 $283,653 $(48,841)
======================================================
Year ended December 31, 1997 Investment income (loss) Income:
Dividends $ - $ - $ -
Capital gains distributions - - -
------------------------------------------------------
- - -
Expenses:
Mortality and expense risks 6,014 3,260 1,353
------------------------------------------------------
Net investment income (loss) (6,014) (3,260) (1,353)
Realized and unrealized gains (losses) on investments
Net realized gains on investments 850 630 3,224
Change in net unrealized appreciation/depreciation of investments 115,040 72,538 20,931
======================================================
Net increase (decrease) in net assets resulting from operations $ 109,876 $ 69,908 $ 22,802
======================================================
Year ended December 31, 1996 Investment income Income:
Dividends $ - $ - $ -
Capital gains distributions - - -
Expenses: ------------------------------------------------------
- - -
Mortality and expense risks - - -
------------------------------------------------------
Net investment income - - -
Realized and unrealized gains (losses) on investments
Net realized gains on investments - - -
Change in net unrealized appreciation/depreciation of investments - - -
======================================================
Net increase in net assets resulting from operations $ - $ - $ -
======================================================
(1) Commenced operations February 1, 1997.
(2) Commenced operations May 1, 1998.
See accompanying notes.
</TABLE>
<PAGE>
Principal Life Insurance Company
Variable Life Separate Account
Statements of Operations (continued)
Years ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
Government
Securities Growth
Division (1) Division (1)
---------------- --------------
<S> <C> <C>
Year ended December 31, 1998 Investment income (loss) Income:
Dividends $111,671 $ 46,962
Capital gains distributions - 44,586
---------------- --------------
111,671 91,548
Expenses:
Mortality and expense risks 14,161 22,163
---------------- --------------
Net investment income (loss) 97,510 69,385
Realized and unrealized gains (losses) on investments
Net realized gains (losses) on investments 1,370 8,386
Change in net unrealized appreciation/depreciation of investments (6,358) 437,013
================ ==============
Net increase (decrease) in net assets resulting from operations $ 92,522 $514,784
================ ==============
Year ended December 31, 1997 Investment income (loss) Income:
Dividends $ 5,365 $ 9,349
Capital gains distributions - 5,271
---------------- --------------
5,365 14,620
Expenses:
Mortality and expense risks 138 2,499
---------------- --------------
Net investment income (loss) 5,227 12,121
Realized and unrealized gains (losses) on investments
Net realized gains on investments 15 299
Change in net unrealized appreciation/depreciation of investments (3,162) 30,996
---------------- ----------------
Net increase (decrease) in net assets resulting from operations $ 2,080 $ 43,416
================ ==============
Year ended December 31, 1996 Investment income Income:
Dividends $ - $ -
Capital gains distributions - -
---------------- --------------
- -
Expenses:
Mortality and expense risks - -
---------------- --------------
Net investment income - -
Realized and unrealized gains (losses) on investments
Net realized gains on investments - -
Change in net unrealized appreciation/depreciation of investments - -
---------------- --------------
Net increase in net assets resulting from operations $ - $ -
================ ==============
(1) Commenced operations February 1, 1997.
(2) Commenced operations May 1, 1998.
See accompanying notes.
</TABLE>
<TABLE>
<CAPTION>
High International
Yield International SmallCap
Division Division(1) Division(2)
-----------------------------------------------------
-----------------------------------------------------
<S> <C> <C> <C>
Year ended December 31, 1998 Investment income (loss) Income:
Dividends $202,766 $118,274 $ 851
Capital gains distributions - 238,049 -
-----------------------------------------------------
202,766 356,323 851
Expenses:
Mortality and expense risks 16,917 47,404 732
-----------------------------------------------------
Net investment income (loss) 185,849 308,919 119
Realized and unrealized gains (losses) on investments
Net realized gains (losses) on investments (1,713) 5,582 (148)
Change in net unrealized appreciation/depreciation of investments (222,572) (8,068) 15,012
=====================================================
Net increase (decrease) in net assets resulting from operations $(38,436) $306,433 $14,983
=====================================================
Year ended December 31, 1997 Investment income (loss) Income:
Dividends $162,794 $ 44,308 $ -
Capital gains distributions - 73,919 -
-----------------------------------------------------
162,794 118,227 -
Expenses:
Mortality and expense risks 11,434 9,278 -
-----------------------------------------------------
Net investment income (loss) 151,360 108,949 -
Realized and unrealized gains (losses) on investments
Net realized gains on investments 19,548 678 -
Change in net unrealized appreciation/depreciation of investments (27,928) (165,660) -
=====================================================
Net increase (decrease) in net assets resulting from operations $142,980 $(56,033) $ -
=====================================================
Year ended December 31, 1996 Investment income Income:
Dividends $107,701 $ - $ -
Capital gains distributions - - -
-----------------------------------------------------
107,701 - -
Expenses:
Mortality and expense risks 7,858 - -
-----------------------------------------------------
Net investment income 99,843 - -
Realized and unrealized gains (losses) on investments
Net realized gains on investments 70 - -
Change in net unrealized appreciation/depreciation of investments 34,507 - -
=====================================================
Net increase in net assets resulting from operations $134,420 $ - $ -
=====================================================
(1) Commenced operations February 1, 1997.
(2) Commenced operations May 1, 1998.
See accompanying notes.
</TABLE>
<TABLE>
<CAPTION>
MidCap Money
MicroCap MidCap Growth Market
Division(2) Division Division(2) Division
------------------------------------------------------
------------------------------------------------------
<S> <C> <C> <C> <C>
Year ended December 31, 1998 Investment income (loss) Income:
Dividends $ 620 $ 146,679 $ - $290,641
Capital gains distributions - 1,383,017 - -
------------------------------------------------------
620 1,529,696 - 290,641
Expenses:
Mortality and expense risks 326 185,626 637 67,849
------------------------------------------------------
Net investment income (loss) 294 1,344,070 (637) 222,792
Realized and unrealized gains (losses) on investments
Net realized gains (losses) on investments (681) 1,170,701 249 -
Change in net unrealized appreciation/depreciation of investments 1,093 (1,927,129) 28,009 -
======================================================
Net increase (decrease) in net assets resulting from operations $ 706 $ 587,642 $27,621 $222,792
======================================================
Year ended December 31, 1997 Investment income (loss) Income:
Dividends $ - $ 121,340 $ - $119,402
Capital gains distributions - 390,128 - -
------------------------------------------------------
- 511,468 - 119,402
Expenses:
Mortality and expense risks - 127,942 - 24,697
------------------------------------------------------
Net investment income (loss) - 383,526 - 94,705
Realized and unrealized gains (losses) on investments
Net realized gains on investments - 1,366,571 - -
Change in net unrealized appreciation/depreciation of investments - 1,395,355 - -
======================================================
Net increase (decrease) in net assets resulting from operations $ - $3,145,452 $ - $ 94,705
======================================================
Year ended December 31, 1996 Investment income Income:
Dividends $ - $ 99,423 $ - $ 47,021
Capital gains distributions - 250,692 - -
------------------------------------------------------
- 350,115 - 47,021
Expenses:
Mortality and expense risks - 74,424 - 8,008
------------------------------------------------------
Net investment income - 275,691 - 39,013
Realized and unrealized gains (losses) on investments
Net realized gains on investments - 136,928 - -
Change in net unrealized appreciation/depreciation of investments - 1,479,684 - -
======================================================
Net increase in net assets resulting from operations $ - $1,892,303 $ - $ 39,013
======================================================
(1) Commenced operations February 1, 1997.
(2) Commenced operations May 1, 1998.
See accompanying notes.
</TABLE>
<PAGE>
Principal Life Insurance Company
Variable Life Separate Account
Statements of Operations (continued)
Year ended December 31, 1998
<TABLE>
<CAPTION>
Putnam Global Putnam
Asset Allocation Vista
Division(2) Division(2)
----------------- -----------
<S> <C> <C>
Year ended December 31, 1998 Investment income (loss) Income:
Dividends $ - $ -
Capital gains distributions - -
----------------- -----------
- -
Expenses:
Mortality and expense risks 120 174
----------------- -----------
Net investment income (loss) (120) (174)
Realized and unrealized gains (losses) on investments
Net realized gains (losses) on investments 140 252
Change in net unrealized appreciation/depreciation of investments 4,313 20,737
================= ===========
Net increase (decrease) in net assets resulting from operations $4,333 $20,815
================= ===========
(2) Commenced operations May 1, 1998.
See accompanying notes.
</TABLE>
<TABLE>
<CAPTION>
Putnam
Voyager Real Estate SmallCap
Division (2) Division (2) Division (2)
--------------------------------------------------
--------------------------------------------------
<S> <C> <C> <C>
Year ended December 31, 1998 Investment income (loss) Income:
Dividends $ - $867 $ 24
Capital gains distributions - - -
--------------------------------------------------
- 867 24
Expenses:
Mortality and expense risks 1,414 56 557
--------------------------------------------------
Net investment income (loss) (1,414) 811 (533)
Realized and unrealized gains (losses) on investments
Net realized gains (losses) on investments 45 (64) (75)
Change in net unrealized appreciation/depreciation of investments 105,601 (320) 11,967
==================================================
Net increase (decrease) in net assets resulting from operations $104,232 $427 $11,359
==================================================
(2) Commenced operations May 1, 1998.
See accompanying notes.
</TABLE>
<TABLE>
<CAPTION>
SmallCap SmallCap
Growth Value Utilities
Division(2) Division(2) Division(2)
---------------------------------------------
---------------------------------------------
<S> <C> <C> <C>
Year ended December 31, 1998 Investment income (loss) Income:
Dividends $ - $ 512 $ 624
Capital gains distributions - - -
---------------------------------------------
- 512 624
Expenses:
Mortality and expense risks 385 255 64
---------------------------------------------
Net investment income (loss) (385) 257 560
Realized and unrealized gains (losses) on investments
Net realized gains (losses) on investments (20) (136) 372
Change in net unrealized appreciation/depreciation of investments 31,970 5,416 2,337
=============================================
Net increase (decrease) in net assets resulting from operations $31,565 $5,537 $3,269
=============================================
(2) Commenced operations May 1, 1998.
See accompanying notes.
</TABLE>
<PAGE>
Principal Life Insurance Company
Variable Life Separate Account
Statements of Changes in Net Assets
Year ended December 31, 1998
<TABLE>
<CAPTION>
Aggressive
Growth
Combined Division (1)
---------------------------------
<S> <C> <C>
Net assets at January 1, 1998 $ 57,094,676 $ 3,915,455
Increase (decrease) in net assets
Operations:
Net investment income (loss) 4,736,458 527,171
Net realized gains (losses) on investments 1,677,430 11,214
Change in net unrealized appreciation/depreciation of investments 1,393,781 947,122
---------------------------------
Net increase (decrease) in net assets resulting from operations 7,807,669 1,485,507
Policy related transactions:
Net premium payments, less sales charges and applicable
premium taxes 120,735,689 11,625,624
Contract terminations and surrenders (9,524,969) (103,562)
Death benefit payments (30,033) (2,799)
Policy loan transfers (1,569,958) (179,094)
Transfers to other contracts (42,264,927) (1,075,297)
Cost of insurance and administration charges (10,698,734) (1,364,250)
Surrender charges (458,138) (57,543)
---------------------------------
Increase in net assets from policy related transactions 56,188,930 8,843,079
---------------------------------
Total increase 63,996,599 10,328,586
---------------------------------
Net assets at December 31, 1998 $121,091,275 $14,244,041
=================================
(1) Commenced operations February 1, 1997.
(2) Commenced operations May 1, 1998.
See accompanying notes.
</TABLE>
<TABLE>
<CAPTION>
Asset Capital
Allocation Balanced Bond Value
Division(1) Division Division Division
-------------------------------------------------------
<S> <C> <C> <C> <C>
Net assets at January 1, 1998 $ 561,781 $5,707,028 $2,270,847 $11,822,941
Increase (decrease) in net assets
Operations:
Net investment income (loss) 67,483 513,365 178,007 1,009,903
Net realized gains (losses) on investments (1,770) 161,523 33,503 281,655
Change in net unrealized appreciation/depreciation of investments 10,057 118,060 (19,726) 461,090
----------------------------------------------------------
Net increase (decrease) in net assets resulting from operations 75,770 792,948 191,784 1,752,648
Policy related transactions:
Net premium payments, less sales charges and applicable
premium taxes 1,591,693 7,040,409 3,302,871 16,284,235
Contract terminations and surrenders (4,085) (1,368,274) (302,397) (2,480,693)
Death benefit payments - (517) (1,856) (6,646)
Policy loan transfers (10,991) (244,822) (81,085) (170,516)
Transfers to other contracts (480,701) (1,287,295) (1,034,053) (2,543,349)
Cost of insurance and administration charges (138,368) (718,018) (377,536) (1,611,497)
Surrender charges (2,270) (42,270) (15,330) (75,181)
----------------------------------------------------------
Increase in net assets from policy related transactions 955,278 3,379,213 1,490,614 9,396,353
----------------------------------------------------------
Total increase 1,031,048 4,172,161 1,682,398 11,149,001
----------------------------------------------------------
Net assets at December 31, 1998 $1,592,829 $9,879,189 $3,953,245 $22,971,942
==========================================================
(1) Commenced operations February 1, 1997.
(2) Commenced operations May 1, 1998.
See accompanying notes.
</TABLE>
<TABLE>
<CAPTION>
Fidelity Fidelity Equity Fidelity High
Contrafund Income Income
Division (1) Division(1) Division (1)
-----------------------------------------------------
<S> <C> <C> <C>
Net assets at January 1, 1998 $2,089,509 $1,018,314 $ 329,510
Increase (decrease) in net assets
Operations:
Net investment income (loss) 110,801 58,725 43,700
Net realized gains (losses) on investments 12,594 5,628 (11,177)
Change in net unrealized appreciation/depreciation of investments 1,240,221 219,300 (81,364)
--------------------------------------------------
Net increase (decrease) in net assets resulting from operations 1,363,616 283,653 (48,841)
Policy related transactions:
Net premium payments, less sales charges and applicable
premium taxes 6,142,338 4,698,442 1,259,486
Contract terminations and surrenders (74,844) (17,461) (4,697)
Death benefit payments (402) (3,431) (1,170)
Policy loan transfers (145,298) (69,698) (53,013)
Transfers to other contracts (678,221) (572,136) (318,315)
Cost of insurance and administration charges (632,111) (422,440) (95,559)
Surrender charges (41,586) (9,702) (2,610)
--------------------------------------------------
Increase in net assets from policy related transactions 4,569,876 3,603,574 784,122
--------------------------------------------------
Total increase 5,933,492 3,887,227 735,281
--------------------------------------------------
Net assets at December 31, 1998 $8,023,001 $4,905,541 $1,064,791
==================================================
(1) Commenced operations February 1, 1997.
(2) Commenced operations May 1, 1998.
See accompanying notes.
</TABLE>
<PAGE>
Principal Life Insurance Company
Variable Life Separate Account
Statements of Changes in Net Assets (continued)
Year ended December 31, 1998
<TABLE>
<CAPTION>
Government
Securities Growth Division
Division (1) (1)
---------------------------------
<S> <C> <C>
Net assets at January 1, 1998 $ 104,221 $ 921,533
Increase (decrease) in net assets
Operations:
Net investment income (loss) 97,510 69,385
Net realized gains (losses) on investments 1,370 8,386
Change in net unrealized appreciation/depreciation of investments (6,358) 437,013
---------------------------------
Net increase (decrease) in net assets resulting from operations 92,522 514,784
Policy related transactions:
Net premium payments, less sales charges and applicable premium taxes
3,283,931 4,050,726
Contract terminations and surrenders (1,547) (24,252)
Death benefit payments - -
Policy loan transfers (9,130) (33,585)
Transfers to other contracts (93,010) (235,746)
Cost of insurance and administration charges (109,416) (419,150)
Surrender charges (859) (13,475)
---------------------------------
Increase in net assets from policy related transactions 3,069,969 3,324,518
---------------------------------
Total increase 3,162,491 3,839,302
=================================
Net assets at December 31, 1998 $3,266,712 $4,760,835
=================================
(1) Commenced operations February 1, 1997.
(2) Commenced operations May 1, 1998.
See accompanying notes.
</TABLE>
<TABLE>
<CAPTION>
International
High Yield International SmallCap
Division Division (1) Division (2)
--------------------------------------------------
<S> <C> <C> <C>
Net assets at January 1, 1998 $2,092,182 $2,716,270 $ -
Increase (decrease) in net assets
Operations:
Net investment income (loss) 185,849 308,919 119
Net realized gains (losses) on investments (1,713) 5,582 (148)
Change in net unrealized appreciation/depreciation of investments (222,572) (8,068) 15,012
--------------------------------------------------
Net increase (decrease) in net assets resulting from operations (38,436) 306,433 14,983
Policy related transactions:
Net premium payments, less sales charges and applicable
premium taxes 654,374 6,275,718 334,028
Contract terminations and surrenders (223,218) (52,096) (509)
Death benefit payments - (2,388) -
Policy loan transfers (2,756) (93,812) -
Transfers to other contracts (82,650) (623,489) (18,167)
Cost of insurance and administration charges (126,865) (697,441) (13,862)
Surrender charges (3,532) (28,946) (283)
--------------------------------------------------
Increase in net assets from policy related transactions 215,353 4,777,546 301,207
--------------------------------------------------
Total increase 176,917 5,083,979 316,190
--------------------------------------------------
Net assets at December 31, 1998 $2,269,099 $7,800,249 $316,190
==================================================
(1) Commenced operations February 1, 1997.
(2) Commenced operations May 1, 1998.
See accompanying notes.
</TABLE>
<TABLE>
<CAPTION>
MidCap Growth Money Market
MicroCap MidCap Division Division (2) Division
Division (2)
-----------------------------------------------------------
<S> <C> <C> <C> <C>
Net assets at January 1, 1998 $ - $19,216,629 $ - $ 4,328,456
Increase (decrease) in net assets
Operations:
Net investment income (loss) 294 1,344,070 (637) 222,792
Net realized gains (losses) on investments (681) 1,170,701 249 -
Change in net unrealized appreciation/depreciation of investments 1,093 (1,927,129) 28,009 -
-----------------------------------------------------------
Net increase (decrease) in net assets resulting from operations 706 587,642 27,621 222,792
Policy related transactions:
Net premium payments, less sales charges and applicable
premium taxes 158,559 15,747,739 306,597 36,243,366
Contract terminations and surrenders - (4,608,554) (24) (258,565)
Death benefit payments - (9,498) - (1,326)
Policy loan transfers (2,410) (462,004) - (8,878)
Transfers to other contracts (2,484) (2,445,385) (4,378) (30,709,128)
Cost of insurance and administration charges (4,993) (2,424,710) (13,899) (1,455,420)
Surrender charges - (138,249) (14) (26,181)
-----------------------------------------------------------
Increase in net assets from policy related transactions 148,672 5,659,339 288,282 3,783,868
-----------------------------------------------------------
Total increase 149,378 6,246,981 315,903 4,006,660
-----------------------------------------------------------
Net assets at December 31, 1998 $149,378 $25,463,610 $315,903 $ 8,335,116
===========================================================
(1) Commenced operations February 1, 1997.
(2) Commenced operations May 1, 1998.
See accompanying notes.
</TABLE>
<PAGE>
Principal Life Insurance Company
Variable Life Separate Account
Statements of Changes in Net Assets (continued)
Year ended December 31, 1998
<TABLE>
<CAPTION>
Putnam Global Putnam Vista
Asset Allocation Division (2)
Division (2)
------------------------ ----------
<S> <C> <C>
Net assets at January 1, 1998 $ - $ -
Increase (decrease) in net assets
Operations:
Net investment income (loss) (120) (174)
Net realized gains (losses) on investments 140 252
Change in net unrealized appreciation/depreciation of investments 4,313 20,737
------------------------ ----------
Net increase (decrease) in net assets resulting from operations 4,333 20,815
Policy related transactions:
Net premium payments, less sales charges and applicable
premium taxes 76,196 114,287
Contract terminations and surrenders - -
Death benefit payments - -
Policy loan transfers - -
Transfers to other contracts (1,426) (7,306)
Cost of insurance and administration charges (3,872) (4,745)
Surrender charges - -
------------------------ ----------
Increase in net assets from policy related transactions 70,898 102,236
------------------------ ----------
Total increase 75,231 123,051
------------------------ ----------
Net assets at December 31, 1998 $75,231 $123,051
======================== ==========
(2) Commenced operations May 1, 1998.
See accompanying notes.
</TABLE>
<TABLE>
<CAPTION>
Putnam Voyager Real Estate SmallCap
Division (2) Division (2) Division (2)
--------------------------------------------------------
<S> <C> <C> <C>
Net assets at January 1, 1998 $ - $ - $ -
Increase (decrease) in net assets
Operations:
Net investment income (loss) (1,414) 811 (533)
Net realized gains (losses) on investments 45 (64) (75)
Change in net unrealized appreciation/depreciation of investments 105,601 (320) 11,967
--------------------------------------------------------
Net increase (decrease) in net assets resulting from operations 104,232 427 11,359
Policy related transactions:
Net premium payments, less sales charges and applicable
premium taxes 868,001 33,346 251,162
Contract terminations and surrenders (93) (23) (25)
Death benefit payments - - -
Policy loan transfers (2,429) - (241)
Transfers to other contracts (32,669) (406) (3,354)
Cost of insurance and administration charges (37,442) (1,622) (8,251)
Surrender charges (52) (13) (14)
--------------------------------------------------------
Increase in net assets from policy related transactions 795,316 31,282 239,277
--------------------------------------------------------
Total increase 899,548 31,709 250,636
--------------------------------------------------------
Net assets at December 31, 1998 $899,548 $31,709 $250,636
========================================================
(2) Commenced operations May 1, 1998.
See accompanying notes.
</TABLE>
<TABLE>
<CAPTION>
SmallCap Growth SmallCap Value Utilities
Division (2) Division (2) Division (2)
----------------------------------------------------
<S> <C> <C> <C>
Net assets at January 1, 1998 $ - $ - $ -
Increase (decrease) in net assets
Operations:
Net investment income (loss) (385) 257 560
Net realized gains (losses) on investments (20) (136) 372
Change in net unrealized appreciation/depreciation of investments 31,970 5,416 2,337
----------------------------------------------------
Net increase (decrease) in net assets resulting from operations 31,565 5,537 3,269
Policy related transactions:
Net premium payments, less sales charges and applicable
premium taxes 193,803 145,362 53,396
Contract terminations and surrenders (22) (28) -
Death benefit payments - - -
Policy loan transfers - - (196)
Transfers to other contracts (6,641) (828) (8,493)
Cost of insurance and administration charges (8,998) (5,889) (2,380)
Surrender charges (12) (16) -
----------------------------------------------------
Increase in net assets from policy related transactions 178,130 138,601 42,327
----------------------------------------------------
Total increase 209,695 144,138 45,596
----------------------------------------------------
Net assets at December 31, 1998 $209,695 $144,138 $45,596
====================================================
(2) Commenced operations May 1, 1998.
See accompanying notes.
</TABLE>
<PAGE>
Principal Life Insurance Company
Variable Life Separate Account
Statements of Changes in Net Assets (continued)
Years ended December 31, 1997 and 1996
<TABLE>
<CAPTION>
Aggressive
Growth
Combined Division (1)
--------------------------------
<S> <C> <C>
Net assets at January 1, 1996 $16,678,135 $ -
Increase (decrease) in net assets
Operations:
Net investment income 1,656,733 -
Net realized gains on investments 196,669 -
Change in net unrealized appreciation/depreciation of investments 1,785,917 -
--------------------------------
Net increase in net assets resulting from operations 3,639,319 -
Policy related transactions:
Net premium payments, less sales charges and applicable premium taxes 18,395,810 -
Contract terminations and surrenders (722,867) -
Death benefit payments (37,233) -
Policy loan transfers (473,677) -
Transfers to other contracts (5,580,579) -
Cost of insurance and administration charges (2,456,536) -
Surrender charges (97,354) -
--------------------------------
Increase in net assets from policy related transactions 9,027,564 -
--------------------------------
Total increase 12,666,883 -
--------------------------------
Net assets at December 31, 1996 29,345,018 -
Increase (decrease) in net assets
Operations:
Net investment income (loss) 2,719,814 406,348
Net realized gains on investments 1,992,490 2,207
Change in net unrealized appreciation/depreciation of investments 2,414,102 (55,253)
--------------------------------
Net increase (decrease) in net assets resulting from operations 7,126,406 353,302
Policy related transactions:
Net premium payments, less sales charges and applicable premium taxes 51,193,569 3,869,959
Contract terminations and surrenders (10,340,289) (5,409)
Death benefit payments (35,772) -
Policy loan transfers (990,280) (12,314)
Transfers to other contracts (14,297,011) (56,802)
Cost of insurance and administration charges (4,726,082) (225,959)
Surrender charges (180,883) (7,322)
--------------------------------
Increase in net assets from policy related transactions 20,623,252 3,562,153
--------------------------------
Total increase 27,749,658 3,915,455
--------------------------------
Net assets at December 31, 1997 57,094,676 3,915,455
(1) Commenced operations February 1, 1997.
(2) Commenced operations May 1, 1998.
See accompanying notes.
</TABLE>
<TABLE>
<CAPTION>
Asset Capital
Allocation Balanced Bond Value
Division Division Division Division
(1)
---------------------------------------------------------
<S> <C> <C> <C> <C>
Net assets at January 1, 1996 $ - $ 2,794,881 $ 922,511 $3,975,025
Increase (decrease) in net assets
Operations:
Net investment income - 329,223 84,354 828,609
Net realized gains on investments - 20,387 2,798 36,486
Change in net unrealized appreciation/depreciation of investments - 77,334 (53,168) 247,560
---------------------------------------------------------
Net increase in net assets resulting from operations - 426,944 33,984 1,112,655
Policy related transactions:
Net premium payments, less sales charges and applicable premium taxes - 1,743,079 953,519 2,993,788
Contract terminations and surrenders - (98,967) (23,277) (167,257)
Death benefit payments - (11,941) (81) (17,425)
Policy loan transfers - (9,028) (21,841) (153,962)
Transfers to other contracts - (161,403) (115,001) (217,253)
Cost of insurance and administration charges - (325,580) (103,879) (481,237)
Surrender charges - (13,328) (3,135) (22,526)
---------------------------------------------------------
Increase in net assets from policy related transactions - 1,122,832 686,305 1,934,128
---------------------------------------------------------
Total increase - 1,549,776 720,289 3,046,783
---------------------------------------------------------
Net assets at December 31, 1996 - 4,344,657 1,642,800 7,021,808
Increase (decrease) in net assets
Operations:
Net investment income (loss) 52,311 457,569 121,465 936,861
Net realized gains on investments 549 236,637 18,598 342,684
Change in net unrealized appreciation/depreciation of investments (23,876) 104,396 55,567 895,157
---------------------------------------------------------
Net increase (decrease) in net assets resulting from operations 28,984 798,602 195,630 2,174,702
Policy related transactions:
Net premium payments, less sales charges and applicable premium taxes 562,968 3,035,179 1,595,001 6,782,066
Contract terminations and surrenders (15) (1,398,821) (414,701) (2,651,564)
Death benefit payments - - - (8,829)
Policy loan transfers (6,314) (145,315) (55,770) (183,175)
Transfers to other contracts (690) (454,671) (434,583) (441,824)
Cost of insurance and administration charges (23,132) (450,585) (250,798) (827,795)
Surrender charges (20) (22,018) (6,732) (42,448)
---------------------------------------------------------
Increase in net assets from policy related transactions 532,797 563,769 432,417 2,626,431
---------------------------------------------------------
Total increase 561,781 1,362,371 628,047 4,801,133
---------------------------------------------------------
Net assets at December 31, 1997 561,781 5,707,028 2,270,847 11,822,941
(1) Commenced operations February 1, 1997.
(2) Commenced operations May 1, 1998.
See accompanying notes.
</TABLE>
<TABLE>
<CAPTION>
Fidelity Fidelity Equity Fidelity High
Contrafund Income Division Income
Division (1) (1) Division (1)
------------------------------------------------------
<S> <C> <C> <C>
Net assets at January 1, 1996 $ - $ - $ -
Increase (decrease) in net assets
Operations:
Net investment income - - -
Net realized gains on investments - - -
Change in net unrealized appreciation/depreciation of investments - - -
------------------------------------------------------
Net increase in net assets resulting from operations - - -
Policy related transactions:
Net premium payments, less sales charges and applicable premium taxes - - -
Contract terminations and surrenders - - -
Death benefit payments - - -
Policy loan transfers - - -
Transfers to other contracts - - -
Cost of insurance and administration charges - - -
Surrender charges - - -
------------------------------------------------------
Increase in net assets from policy related transactions - - -
------------------------------------------------------
Total increase - - -
------------------------------------------------------
Net assets at December 31, 1996 - - -
Increase (decrease) in net assets
Operations:
Net investment income (loss) (6,014) (3,260) (1,353)
Net realized gains on investments 850 630 3,224
Change in net unrealized appreciation/depreciation of investments 115,040 72,538 20,931
------------------------------------------------------
Net increase (decrease) in net assets resulting from operations 109,876 69,908 22,802
Policy related transactions:
Net premium payments, less sales charges and applicable premium taxes 2,125,905 1,018,045 369,108
Contract terminations and surrenders (666) (740) (262)
Death benefit payments - - -
Policy loan transfers (9,953) (800) (26,280)
Transfers to other contracts (24,082) (9,962) (20,415)
Cost of insurance and administration charges (110,670) (57,135) (15,088)
Surrender charges (901) (1,002) (355)
------------------------------------------------------
Increase in net assets from policy related transactions 1,979,633 948,406 306,708
------------------------------------------------------
Total increase 2,089,509 1,018,314 329,510
------------------------------------------------------
Net assets at December 31, 1997 2,089,509 1,018,314 329,510
(1) Commenced operations February 1, 1997.
(2) Commenced operations May 1, 1998.
See accompanying notes.
</TABLE>
<PAGE>
Principal Life Insurance Company
Variable Life Separate Account
Statements of Changes in Net Assets (continued)
Years ended December 31, 1997 and 1996
<TABLE>
<CAPTION>
Government
Securities Growth
Division (1) Division (1)
--------------------------------
<S> <C> <C>
Net assets at January 1, 1996 $ - $ -
Increase (decrease) in net assets
Operations:
Net investment income - -
Net realized gains on investments - -
Change in net unrealized appreciation/depreciation of investments - -
--------------------------------
Net increase in net assets resulting from operations - -
Policy related transactions:
Net premium payments, less sales charges and applicable premium taxes - -
Contract terminations and surrenders - -
Death benefit payments - -
Policy loan transfers - -
Transfers to other contracts - -
Cost of insurance and administration charges - -
Surrender charges - -
--------------------------------
Increase in net assets from policy related transactions - -
--------------------------------
Total increase - -
--------------------------------
Net assets at December 31, 1996 - -
Increase (decrease) in net assets
Operations:
Net investment income (loss) 5,227 12,121
Net realized gains on investments 15 299
Change in net unrealized appreciation/depreciation of investments (3,162) 30,996
--------------------------------
Net increase (decrease) in net assets resulting from operations 2,080 43,416
Policy related transactions:
Net premium payments, less sales charges and applicable premium taxes 109,941 938,351
Contract terminations and surrenders - (168)
Death benefit payments - -
Policy loan transfers - (73)
Transfers to other contracts (1,786) (1,396)
Cost of insurance and administration charges (6,014) (58,369)
Surrender charges - (228)
--------------------------------
Increase in net assets from policy related transactions 102,141 878,117
--------------------------------
Total increase 104,221 921,533
--------------------------------
Net assets at December 31, 1997 104,221 921,533
(1) Commenced operations February 1, 1997.
(2) Commenced operations May 1, 1998.
See accompanying notes.
</TABLE>
<TABLE>
<CAPTION>
High International
Yield International SmallCap
Division Division (1) Division (2)
-------------------------------------------------
<S> <C> <C> <C>
Net assets at January 1, 1996 $ 854,028 $ - $-
Increase (decrease) in net assets
Operations:
Net investment income 99,843 - -
Net realized gains on investments 70 - -
Change in net unrealized appreciation/depreciation of investments 34,507 - -
-------------------------------------------------
Net increase in net assets resulting from operations 134,420 - -
Policy related transactions:
Net premium payments, less sales charges and applicable premium taxes 507,382 - -
Contract terminations and surrenders (15,620) - -
Death benefit payments - - -
Policy loan transfers 3,597 - -
Transfers to other contracts (56,488) - -
Cost of insurance and administration charges (99,942) - -
Surrender charges (2,104) - -
-------------------------------------------------
Increase in net assets from policy related transactions 336,825 - -
-------------------------------------------------
Total increase 471,245 - -
-------------------------------------------------
Net assets at December 31, 1996 1,325,273 - -
Increase (decrease) in net assets
Operations:
Net investment income (loss) 151,360 108,949 -
Net realized gains on investments 19,548 678 -
Change in net unrealized appreciation/depreciation of investments (27,928) (165,660) -
-------------------------------------------------
Net increase (decrease) in net assets resulting from operations 142,980 (56,033) -
Policy related transactions:
Net premium payments, less sales charges and applicable premium taxes 1,100,347 3,053,987 -
Contract terminations and surrenders (254,148) (1,601) -
Death benefit payments (1,913) - -
Policy loan transfers (38,855) (20,879) -
Transfers to other contracts (56,489) (102,897) -
Cost of insurance and administration charges (121,092) (154,140) -
Surrender charges (3,921) (2,167) -
-------------------------------------------------
Increase in net assets from policy related transactions 623,929 2,772,303 -
-------------------------------------------------
Total increase 766,909 2,716,270 -
-------------------------------------------------
Net assets at December 31, 1997 2,092,182 2,716,270 -
(1) Commenced operations February 1, 1997.
(2) Commenced operations May 1, 1998.
See accompanying notes.
</TABLE>
<TABLE>
<CAPTION>
MidCap Money
MicroCap MidCap Growth Market
Division(2) Division Division(2) Division
---------------------------------------------------
<S> <C> <C> <C> <C>
Net assets at January 1, 1996 $- $7,728,821 $- $ 402,869
Increase (decrease) in net assets
Operations:
Net investment income - 275,691 - 39,013
Net realized gains on investments - 136,928 - -
Change in net unrealized appreciation/depreciation of investments - 1,479,684 - -
---------------------------------------------------
Net increase in net assets resulting from operations - 1,892,303 - 39,013
Policy related transactions:
Net premium payments, less sales charges and applicable premium taxes - 6,727,306 - 5,470,736
Contract terminations and surrenders - (390,394) - (27,352)
Death benefit payments - (7,786) - -
Policy loan transfers - (276,069) - (16,374)
Transfers to other contracts - (785,468) - (4,244,966)
Cost of insurance and administration charges - (1,131,138) - (314,760)
Surrender charges - (52,577) - (3,684)
---------------------------------------------------
Increase in net assets from policy related transactions - 4,083,874 - 863,600
---------------------------------------------------
Total increase - 5,976,177 - 902,613
---------------------------------------------------
Net assets at December 31, 1996 - 13,704,998 - 1,305,482
Increase (decrease) in net assets
Operations:
Net investment income (loss) - 383,525 - 94,705
Net realized gains on investments - 1,366,571 - -
Change in net unrealized appreciation/depreciation of investments - 1,395,356 - -
---------------------------------------------------
Net increase (decrease) in net assets resulting from operations - 3,145,452 - 94,705
Policy related transactions:
Net premium payments, less sales charges and applicable premium taxes - 11,608,767 - 15,023,945
Contract terminations and surrenders - (5,304,517) - (307,677)
Death benefit payments - (25,030) - -
Policy loan transfers - (430,694) - (59,858)
Transfers to other contracts - (1,619,014) - (11,072,400)
Cost of insurance and administration charges - (1,777,795) - (647,510)
Surrender charges - (85,538) - (8,231)
---------------------------------------------------
Increase in net assets from policy related transactions - 2,366,179 - 2,928,269
---------------------------------------------------
Total increase - 5,511,631 - 3,022,974
---------------------------------------------------
Net assets at December 31, 1997 - 19,216,629 - 4,328,456
(1) Commenced operations February 1, 1997.
(2) Commenced operations May 1, 1998.
See accompanying notes.
</TABLE>
<PAGE>
Principal Life Insurance Company
Variable Life Separate Account
Notes to Financial Statements
December 31, 1998
1. Investment and Accounting Policies
Principal Life Insurance Company Variable Life Separate Account (the Separate
Account) is a segregated investment account of Principal Life Insurance Company
(Principal Life, formerly Principal Mutual Life Insurance Company) and is
registered under the Investment Company Act of 1940 as a unit investment trust,
with no stated limitations on the number of authorized units. As directed by
eligible contractholders, each division of the Separate Account invests
exclusively in shares representing interests in a corresponding investment
option. As of December 31, 1998, contractholder investment options include the
following diversified open-end management investment companies: Principal
Variable Contracts Fund, Inc., organized by Principal Life: Aggressive Growth
Account, Asset Allocation Account, Balanced Account, Bond Account, Capital Value
Account, Government Securities Account, Growth Account, High Yield Account,
International Account, International SmallCap Account, MicroCap Account, MidCap
Account, MidCap Growth Account, Money Market Account, Real Estate Account,
SmallCap Account, SmallCap Growth Account, SmallCap Value Account and Utilities
Account; Fidelity Variable Insurance Products Fund II: Contrafund Portfolio;
Fidelity Variable Insurance Products Fund: Equity Income Portfolio; Fidelity
Variable Insurance Products Fund: High Income Portfolio; Putnam Variable Trust
Global Asset Allocation Fund, Putnam Variable Trust Vista Fund and Putnam
Variable Trust Voyager Fund. Investments are stated at the closing net asset
values per share on December 31, 1998.
The Principal Variable Contracts Fund, Inc. (the Fund) was formed on January 1,
1998. Prior to that date the accounts of the Fund were reported as separate
mutual funds. This reorganization resulted in changes to the names of the
following investment options:
<TABLE>
<CAPTION>
Former Name Name Subsequent to Reorganization
------------------------------------------ ---------------------------------
<S> <C>
Principal Aggressive Growth Fund, Inc. Aggressive Growth Account
Principal Asset Allocation Fund, Inc. Asset Allocation Account
Principal Balanced Fund, Inc. Balanced Account
Principal Bond Fund, Inc. Bond Account
Principal Capital Accumulation Fund, Inc. Capital Accumulation Account
Principal Emerging Growth Fund, Inc. Emerging Growth Account
Principal Government Securities Fund, Inc. Government Securities Account
Principal Growth Fund, Inc. Growth Account
Principal High Yield Fund, Inc. High Yield Account
Principal Money Market Fund, Inc. Money Market Account
Principal World Fund, Inc. World Account
Effective May 1, 1998, the following names within the Principal Variable
Contracts Fund, Inc. were changed:
</TABLE>
<TABLE>
<CAPTION>
Former Name Name as Changed
------------------------------------------ ---------------------------------
<S> <C>
Capital Accumulation Account Capital Value Account
Emerging Growth Account MidCap Account
World Account International Account
</TABLE>
<PAGE>
Principal Life Insurance Company
Variable Life Separate Account
Notes to Financial Statements (continued)
1. Investment and Accounting Policies (continued)
On May 1, 1998, Principal Life increased contractholder investment options to
include: Principal Variable Contracts Fund, Inc.: International SmallCap
Account, MicroCap Account, MidCap Growth Account, Real Estate Account, SmallCap
Account, SmallCap Growth Account, SmallCap Value Account and Utilities Account;
Putnam Variable Trust Global Asset Allocation Fund, Putnam Variable Trust Vista
Fund and Putnam Variable Trust Voyager Fund.
On February 1, 1997, Principal Life began offering a new product, PrinFlex Life.
This product increased the contractholder investment options to include the
following accounts of the Principal Variable Contracts Fund, Inc. (as renamed
pursuant to the organization of the Fund): Aggressive Growth Account, Asset
Allocation Account, Government Securities Account, Growth Account, International
Account; Fidelity Variable Insurance Products Fund II: Contrafund Portfolio;
Fidelity Variable Insurance Products Fund: Equity Income Portfolio; and Fidelity
Insurance Products Fund: High Income Portfolio.
Effective July 1, 1998, Principal Mutual Life Insurance Company (the Company)
formed a mutual insurance holding company and converted to a stock life
insurance company. With the conversion, the Company's name was changed to
Principal Life Insurance Company.
The average cost method is used to determine realized gains and losses on
investments. Dividends are taken into income on an accrual basis as of the
ex-dividend date.
Use of Estimates in the Preparation of Financial Statements
The preparation of the Separate Account's financial statements and accompanying
notes requires management to make estimates and assumptions that affect the
amounts reported and disclosed. These estimates and assumptions could change in
the future as more information becomes known, which could impact the amounts
reported and disclosed in the financial statements and accompanying notes.
2. Expenses and Policy Charges
Principal Life is compensated for the following expenses and charges:
Flex Variable Life Contracts - Mortality and expense risks assumed by
Principal Life are compensated for by a charge equivalent to an annual rate
of .75% of the asset value of each policy. An annual administration charge of
$57 for each policy and a cost of insurance charge, which is based on the
Company's expected future mortality experience, is deducted as compensation
for administrative and insurance expenses, respectively. The mortality and
expense risk, annual administration, and insurance charges amounted to
$227,302, $210,067, and $2,225,738, respectively, in 1998; $236,727,
$277,142, and $2,832,278, respectively, in 1997; and $160,075, $231,648, and
$2,224,888, respectively, in 1996. A sales charge of 5.0% and a tax charge of
2.0% is deducted from each payment made on behalf of each participant. The
sales and tax charge is deducted from the payments by Principal Life prior to
their transfer to the Separate Account. In addition, a surrender charge up to
a maximum of 25% of the minimum first year premium may be imposed upon total
surrender or termination of a policy for insufficient value.
PrinFlex Life Contracts (beginning in 1997) - Mortality and expense risks
assumed by Principal Life are compensated for by a charge equivalent to an
annual rate of .90% of the asset value of each policy. A monthly
administration charge of $.40 for each $1,000 of policy face amount will be
deducted from policies in their first year. After the first policy year, the
monthly administration charge is $6.00 per month. A cost of insurance charge,
which is based on the Company's expected future mortality experience, is also
deducted as compensation for insurance charges. The mortality and expense
risk, administration, and insurance charges amounted to: $509,501, $995,778
and $7,267,150, respectively, in 1998; and $86,725, $230,502 and $1,386,160,
respectively, in 1997. A sales charge of 2.75% of premiums less than or equal
to target premium and .75% of premiums in excess of target is deducted from
each payment on behalf of each participant. A tax charge of 2.2% for state
and local taxes and 1.25% for federal taxes is also deducted from each
payment on behalf of each participant. The sales and tax charge is deducted
from contributions by Principal Life prior to their transfer to the Separate
Account.
3. Federal Income Taxes
The operations of the Separate Account are a part of the operations of Principal
Life. Under current practice, no federal income taxes are allocated by Principal
Life to the operations of the Separate Account.
4. Purchases and Sales of Investment Securities
The aggregate units and cost of purchases and proceeds from sales of investments
were as follows:
<TABLE>
<CAPTION>
Year ended December 31, 1998
Units Amount Units Amount
Purchased Purchased Redeemed Redeemed
-------------- ----------------- -------------- -----------------
<S> <C> <C> <C> <C>
Aggressive Growth Division:
PrinFlex Life 861,317 $12,227,704 211,314 $ 2,857,454
Asset Allocation Division:
PrinFlex Life 131,206 1,668,350 53,260 645,589
Balanced Division:
Flex Variable Life 36,816 1,264,339 71,643 2,030,576
PrinFlex Life 490,842 6,352,561 138,126 1,693,746
-------------- ----------------- -------------- -----------------
527,658 7,616,900 209,769 3,724,322
Bond Division:
Flex Variable Life 55,198 1,406,724 53,470 1,271,250
PrinFlex Life 174,764 2,098,649 49,437 565,502
-------------- ----------------- -------------- -----------------
229,962 3,505,373 102,907 1,836,752
Capital Value Division:
Flex Variable Life 69,516 2,942,517 96,955 3,533,172
PrinFlex Life 1,007,229 14,488,359 257,693 3,491,448
-------------- ----------------- -------------- -----------------
1,076,745 17,430,876 354,648 7,024,620
Fidelity Contrafund Division:
PrinFlex Life 457,546 $ 6,291,010 120,504 $ 1,610,333
Fidelity Equity Income Division:
PrinFlex Life 361,409 4,781,646 86,079 1,119,347
Fidelity High Income Division:
PrinFlex Life 109,968 1,310,358 41,948 482,536
Government Securities Division:
PrinFlex Life 286,524 3,395,601 19,932 228,122
Growth Division:
PrinFlex Life 303,006 4,142,276 55,628 748,373
High Yield Division:
Flex Variable Life 29,675 857,141 20,132 455,939
International Division:
PrinFlex Life 530,953 6,632,041 131,554 1,545,576
International SmallCap Division:
PrinFlex Life 38,901 334,880 3,976 33,554
MicroCap Division:
PrinFlex Life 19,585 159,179 1,311 10,213
MidCap Division:
Flex Variable Life 103,942 4,846,657 183,301 7,449,571
PrinFlex Life 943,646 12,430,779 229,365 2,824,456
-------------- ----------------- -------------- ----------------
1,047,588 17,277,436 412,666 10,274,027
Mid-Cap Growth Division:
PrinFlex Life 34,735 306,597 2,195 18,952
Money Market Division:
Flex Variable Life 39,955 657,300 49,712 795,271
PrinFlex Life 3,322,020 35,876,706 2,964,012 31,732,075
-------------- ----------------- -------------- ----------------
3,361,975 36,534,006 3,013,724 32,527,346
Putnam Global Asset Allocation
Division:
PrinFlex Life 7,867 76,195 562 5,417
Putnam Vista Division;
PrinFlex Life 13,042 114,287 1,330 12,225
Putnam Voyager Division:
PrinFlex Life 90,896 868,001 7,931 74,099
Real Estate Division:
PrinFlex Life 3,623 34,212 233 2,119
SmallCap Division:
PrinFlex Life 33,031 251,186 1,679 12,442
SmallCap Growth Division:
PrinFlex Life 22,252 193,803 1,822 16,058
SmallCap Value Division:
PrinFlex Life 17,813 145,873 878 7,015
Utilities Division:
PrinFlex Life 4,976 54,019 1,032 11,132
============== ================= ============== ================
9,602,253 $126,208,950 4,857,014 $65,283,562
============== ================= ============== ================
</TABLE>
<PAGE>
Principal Life Insurance Company
Variable Life Separate Account
Notes to Financial Statements (continued)
4. Purchases and Sales of Investment Securities (continued)
<TABLE>
<CAPTION>
Year ended December 31, 1997
Units Amount Units Amount
Purchased Purchased Redeemed Redeemed
-------------- ----------------- -------------- -----------------
<S> <C> <C> <C> <C>
Aggressive Growth Division:
PrinFlex Life 343,834 $ 4,288,340 27,761 $ 319,839
Asset Allocation Division:
PrinFlex Life 51,667 616,979 2,856 31,871
Balanced Division:
Flex Variable Life 67,360 2,010,011 95,006 2,391,024
PrinFlex Life 128,270 1,521,439 10,602 119,088
-------------- ---------------- -------------- -----------------
195,630 3,531,450 105,608 2,510,112
Bond Division:
Flex Variable Life 51,436 1,162,750 52,293 1,098,247
PrinFlex Life 51,729 568,518 7,380 79,139
-------------- ---------------- -------------- -----------------
103,165 1,731,268 59,673 1,177,386
Capital Value Division:
Flex Variable Life 119,379 4,364,014 127,882 3,865,122
PrinFlex Life 281,944 3,424,513 30,266 360,113
-------------- ---------------- -------------- -----------------
401,323 7,788,527 158,148 4,225,235
Fidelity Contrafund Division:
PrinFlex Life 185,497 2,125,905 13,013 152,286
Fidelity Equity Income Division:
PrinFlex Life 89,263 1,018,045 6,221 72,899
Fidelity High Income Division:
PrinFlex Life 34,237 369,108 5,629 63,753
Government Securities Division:
PrinFlex Life 10,283 115,306 745 7,938
Growth Division:
PrinFlex Life 81,327 952,971 5,376 62,733
High Yield Division:
Flex Variable Life 52,320 1,263,141 23,011 487,852
International Division:
PrinFlex Life 273,767 3,172,214 26,010 290,962
MidCap Division:
Flex Variable Life 180,420 6,880,578 240,515 8,968,075
PrinFlex Life 442,300 5,239,657 33,607 402,455
-------------- ---------------- -------------- -----------------
622,720 12,120,235 274,122 9,370,530
Money Market Division:
Flex Variable Life 158,768 2,472,127 213,736 3,276,766
PrinFlex Life 1,225,077 12,671,220 859,324 8,843,607
-------------- ---------------- -------------- -----------------
1,383,845 15,143,347 1,073,060 12,120,373
============== ================ ============== =================
3,828,878 $54,236,836 1,781,233 $30,893,769
============== ================ ============== =================
</TABLE>
<PAGE>
Principal Life Insurance Company
Variable Life Separate Account
Notes to Financial Statements (continued)
4. Purchases and Sales of Investment Securities (continued)
<TABLE>
<CAPTION>
Year ended December 31, 1996
Units Amount Units Amount
Purchased Purchased Redeemed Redeemed
-------------- ----------------- -------------- -----------------
<S> <C> <C> <C> <C>
Balanced Division:
Flex Variable Life 82,222 $ 2,097,662 29,319 $ 645,607
Bond Division:
Flex Variable Life 48,357 1,046,130 13,728 275,471
Capital Value Division:
Flex Variable Life 126,497 3,858,566 44,900 1,095,829
High Yield Division:
Flex Variable Life 28,126 615,083 9,553 178,415
MidCap Division:
Flex Variable Life 224,022 7,077,421 89,178 2,717,856
Money Market Division:
Flex Variable Life 370,523 5,517,757 311,613 4,615,144
============== ================ ============== =================
879,747 $20,212,619 498,291 $9,528,322
============== ================ ============== =================
</TABLE>
5. Net Assets
Net assets at December 31, 1998 consisted of the following:
<TABLE>
<CAPTION>
Accumulated Net Unrealized
Net Appreciation
Unit Investment (Depreciation) of
Combined Transactions Incom Investments
--------------------------------------------------------------------
<S> <C> <C> <C> <C>
Aggressive Growth Division:
PrinFlex Life $ 14,244,041 $ 12,603,157 $ 749,015 $ 891,869
Asset Allocation Division:
PrinFlex Life 1,592,829 1,522,712 83,936 (13,819)
Balanced Division:
Flex Variable Life 3,796,104 2,805,763 510,067 480,274
PrinFlex Life 6,083,085 5,718,082 307,823 57,180
--------------------------------------------------------------------
9,879,189 8,523,845 817,890 537,454
Bond Division:
Flex Variable Life 1,948,335 1,758,798 140,086 49,451
PrinFlex Life 2,004,910 1,939,366 88,541 (22,997)
--------------------------------------------------------------------
3,953,245 3,698,164 228,627 26,454
Capital Value Division:
Flex Variable Life 8,736,005 5,950,992 1,178,313 1,606,700
PrinFlex Life 14,235,937 13,305,012 614,978 315,947
--------------------------------------------------------------------
22,971,942 19,256,004 1,793,291 1,922,647
Fidelity Contra Fund Division:
PrinFlex Life 8,023,001 6,582,486 85,254 1,355,261
Fidelity Equity Income Division:
PrinFlex Life 4,905,541 4,568,651 45,052 291,838
Fidelity High Income Division:
PrinFlex Life $ 1,064,791 $ 1,095,509 $ 29,715 $ (60,433)
Government Securities Division:
PrinFlex Life 3,266,712 3,180,086 96,146 (9,520)
Growth Division:
PrinFlex Life 4,760,835 4,223,648 69,178 468,009
High Yield Division:
Flex Variable Life 2,269,099 2,134,677 378,722 (244,300)
International Division:
PrinFlex Life 7,800,249 7,630,149 343,828 (173,728)
International SmallCap Division:
PrinFlex Life 316,190 301,071 107 15,012
MicroCap Division:
PrinFlex Life 149,378 148,011 274 1,093
Mid-Cap Division:
Flex Variable Life 11,460,175 8,300,875 599,642 2,559,658
PrinFlex Life 14,003,435 13,765,286 696,788 (458,639)
--------------------------------------------------------------------
25,463,610 22,066,161 1,296,430 2,101,019
MidCap Growth Division:
PrinFlex Life 315,903 288,492 (598) 28,009
Money Market Division:
Flex Variable Life 362,873 355,161 7,712 -
PrinFlex Life 7,972,243 7,927,870 44,373 -
--------------------------------------------------------------------
8,335,116 8,283,031 52,085 -
Putnam Global Asset Allocation
Division:
PrinFlex Life 75,231 71,030 (112) 4,313
Putnam Vista Division:
PrinFlex Life 123,051 102,469 (155) 20,737
Putnam Voyager Division:
PrinFlex Life 899,548 795,242 (1,295) 105,601
Real Estate Division:
PrinFlex Life 31,709 31,269 760 (320)
SmallCap Division:
PrinFlex Life 250,636 239,177 (508) 11,967
SmallCap Growth Division:
PrinFlex Life 209,695 178,079 (354) 31,970
SmallCap Value Division:
PrinFlex Life 144,138 138,477 245 5,416
Utilities Division:
PrinFlex Life 45,596 42,810 449 2,337
====================================================================
$121,091,275 $107,704,407 $6,067,982 $7,318,886
====================================================================
</TABLE>
<PAGE>
Principal Life Insurance Company
Variable Life Separate Account
Notes to Financial Statements (continued)
6. Year 2000 Issues (Unaudited)
Like other investment funds, financial and business organizations and
individuals around the world, the Separate Account could be adversely affected
if the computer systems used by Principal Life and other service providers do
not properly process and calculate date-related information and data from and
after January 1, 2000. In 1995, Principal Life began investigating the potential
impact of the Year 2000 on its systems, procedures, customers and business
processes. The Year 2000 assessment that was completed in 1996 provided
information used to determine what system components must be changed or replaced
to minimize the impact of the calendar change from 1999 to 2000.
Principal Life will continue to use internal and external resources to modify,
replace and test its systems. Management estimates 100% of the identified
modifications to mission critical systems and 99% of the identified
modifications to other systems have been completed for its Year 2000 project.
The project completion is scheduled to occur prior to any anticipated impact on
Principal Life's operations.
Principal Life and the Separate Account face the risk that one or more of its
critical suppliers or customers (external relationships) will not be able to
interact with them due to the third party's inability to resolve its own Year
2000 issues. Principal Life has completed its inventory of external
relationships and is attempting to determine the overall Year 2000 readiness of
its external relationships. Principal Life is engaged in discussions with the
third parties and is requesting information as to those parties' Year 2000 plans
and state of readiness. Principal Life, however, does not have sufficient
information at the current time to predict whether all of its external
relationships will be Year 2000 ready.
While Principal Life believes that it has addressed its Year 2000 concerns,
Principal Life has begun to develop contingency/recovery plans aimed at ensuring
the continuity of critical business functions before, on and after December 31,
1999. Principal Life expects contingency/recovery planning to be substantially
complete by April 1, 1999. The Year 2000 contingency plans will be reviewed
periodically throughout 1999 and revised as needed. Principal Life believes its
Year 2000 contingency plans coupled with existing "disaster recovery" and
"business resumption" plans minimize the impact Year 2000 issues may have on the
organization.
<PAGE>
Report of Independent Auditors
The Board of Directors
Principal Life Insurance Company
We have audited the accompanying consolidated statements of financial position
of Principal Life Insurance Company (the Company, an indirect wholly-owned
subsidiary of Principal Mutual Holding Company), formerly Principal Mutual Life
Insurance Company, as of December 31, 1998 and 1997, and the related
consolidated statements of operations, stockholder's equity and cash flows for
each of the three years in the period ended December 31, 1998. These financial
statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Principal Life
Insurance Company at December 31, 1998 and 1997, and the consolidated results of
its operations and its cash flows for each of the three years in the period
ended December 31, 1998, in conformity with generally accepted accounting
principles.
/s/ Ernst & Young LLP
Des Moines, Iowa
January 29, 1999
Principal Life Insurance Company
Consolidated Statements of Operations
Year ended December 31
1998 1997 1996
---------------------------------------
(In Millions)
Revenue
Premiums and annuity and other
considerations $3,409 $4,668 $5,121
Policy and contract charges 780 682 572
Net investment income 2,821 2,948 2,905
Net realized capital gains 466 176 388
Commissions and other income 208 199 150
Contribution from the closed block 13 - -
---------------------------------------
Total revenue 7,697 8,673 9,136
Expenses
Benefits, claims and settlement
expenses 4,777 5,632 6,087
Dividends to policyholders 155 299 299
Operating expenses 2,026 2,047 1,920
---------------------------------------
---------------------------------------
Total expenses 6,958 7,978 8,306
---------------------------------------
Income before income taxes 739 695 830
Income taxes 44 241 304
---------------------------------------
=======================================
Net income $ 695 $ 454 $ 526
=======================================
See accompanying notes.
<PAGE>
Principal Life Insurance Company
Consolidated Statements of Financial Position
December 31
1998 1997
---------------------------
---------------------------
(In Millions)
Assets
Fixed maturities, available-for-sale $21,006 $21,546
Equity securities, available-for-sale 1,102 1,273
Mortgage loans 12,091 13,286
Real estate 2,691 2,632
Policy loans 25 749
Other investments 349 130
Cash and cash equivalents 461 546
Accrued investment income 375 457
Deferred policy acquisition costs 456 1,057
Property held for Company use 246 232
Closed block assets 4,251 -
Separate account assets 29,009 23,627
Other assets 1,881 1,519
---------------------------
===========================
Total assets $73,943 $67,054
===========================
===========================
Liabilities
Contractholder funds $23,339 $23,179
Future policy benefits and claims 7,082 11,239
Other policyholder funds 249 314
Policyholder dividends payable 44 444
Debt 671 459
Income taxes currently payable 27 298
Deferred income taxes 497 803
Closed block liabilities 5,299 -
Separate account liabilities 29,009 23,560
Other liabilities 2,257 1,474
---------------------------
---------------------------
Total liabilities 68,474 61,770
Stockholder's equity
Common stock, par value $1 per share - authorized 5,000,000 shares, issued and
outstanding 2,500,000 shares (wholly owned indirectly by Principal Mutual
Holding Company) 3 -
Retained earnings 4,749 4,257
Accumulated other comprehensive income:
Net unrealized gains on available-for-sale securities 746 1,038
Net foreign currency translation adjustment (29) (11)
-----------------------
-----------------------
Total stockholder's equity 5,469 5,284
-----------------------
=======================
Total liabilities and stockholder's equity $73,943 $67,054
=======================
See accompanying notes.
<PAGE>
Principal Life Insurance Company
Consolidated Statements of Stockholder's Equity
<TABLE>
<CAPTION>
Net Unrealized Net Foreign
Gains on Currency Total
Common Retained Available-for-Sale Translation Stockholder's
Stock Earnings Securities Adjustment Equity
----------------------------------------------------------------------------
(In Millions)
<S> <C> <C> <C> <C> <C>
Balances at January 1, 1996 $ - $3,277 $1,336 $ (7) $4,606
Comprehensive income:
Net income - 526 - - 526
Decrease in unrealized appreciation
on fixed maturities, - - (543) - (543)
available-for-sale
Decrease in unrealized appreciation
on equity securities, - - (262) - (262)
available-for-sale
Adjustments for assumed changes in
amortization patterns:
Deferred policy acquisition costs - - 83 - 83
Unearned revenue reserves - - (11) - (11)
Provision for deferred income tax - - 257 - 257
benefit
Change in net foreign currency
translation adjustment - - - (2) (2)
------------
Comprehensive income - 48
----------------------------------------------------------------------------
Balances at December 31, 1996 - 3,803 860 (9) 4,654
Comprehensive income:
Net income - 454 - - 454
Increase in unrealized appreciation
on fixed maturities, - - 197 - 197
available-for-sale
Increase in unrealized appreciation
on equity securities, - - 118 - 118
available-for-sale
Adjustments for assumed changes in
amortization patterns: -
Deferred policy acquisition costs - - (44) - (44)
Unearned revenue reserves - - 4 - 4
Provision for deferred income taxes - - (97) - (97)
Change in net foreign currency
translation adjustment - - - (2) (2)
------------
Comprehensive income 630
----------------------------------------------------------------------------
Balances at December 31, 1997 - 4,257 1,038 (11) 5,284
</TABLE>
<PAGE>
Principal Life Insurance Company
Consolidated Statements of Stockholder's Equity (continued)
<TABLE>
<CAPTION>
Net Unrealized Net Foreign
Gains on Currency Total
Common Retained Available-for-Sale Translation Stockholder's
Stock Earnings Securities Adjustment Equity
-------------------------------------------------------------------------------
(In Millions)
<S> <C> <C> <C> <C> <C>
Balances at January 1, 1998 $ - $4,257 $1,038 $(11) $5,284
Comprehensive income:
Net income - 695 - - 695
Decrease in unrealized appreciation
on fixed maturities, - - (203) - (203)
available-for-sale
Decrease in unrealized appreciation
on equity securities,
available-for-sale, including
seed money in separate accounts - - (292) - (292)
Adjustments for assumed changes in
amortization patterns:
Deferred policy acquisition costs - - 37 - 37
Unearned revenue reserves - - (4) - (4)
Provision for deferred income tax - - 170 - 170
benefit
Change in net foreign currency
translation adjustment - - - (18) (18)
Issuance of 2,500,000 shares of
common stock to parent holding 3 (3) - - -
company
Dividend to parent holding company - (200) - - (200)
----------
Comprehensive income 185
===============================================================================
Balances at December 31, 1998 $ 3 $4,749 $746 $(29) $5,469
===============================================================================
See accompanying notes.
</TABLE>
<PAGE>
Principal Life Insurance Company
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Year ended December 31
1998 1997 1996
---------------------------------------
(In Millions)
<S> <C> <C> <C>
Operating activities
Net income $ 695 $ 454 $ 526
Adjustments to reconcile net income to net cash provided by
operating activities:
Amortization of deferred policy acquisition costs 114 170 178
Additions to deferred policy acquisition costs (173) (213) (215)
Gain on sales of subsidiaries (6) (14) -
Accrued investment income 24 7 15
Contractholder and policyholder liabilities and dividends
1,538 1,401 1,667
Current and deferred income taxes (265) 96 20
Net realized capital gains (466) (176) (388)
Depreciation and amortization expense 133 117 112
Other (197) (403) (253)
Change in closed block operating assets and
liabilities, net 230 - -
---------------------------------------
---------------------------------------
Net adjustments 932 985 1,136
---------------------------------------
Net cash provided by operating activities 1,627 1,439 1,662
Investing activities Available-for-sale securities:
Purchases (7,141) (7,478) (11,876)
Sales 5,684 7,475 9,089
Maturities 1,377 1,204 2,796
Mortgage loans acquired or originated (14,162) (9,925) (2,955)
Mortgage loans sold or repaid 14,414 8,977 1,619
Real estate acquired (436) (309) (166)
Real estate sold 662 198 253
Proceeds from sales of subsidiaries 96 35 -
Purchases of interest in subsidiaries, net of cash acquired (218) (99) (51)
Net change in policy loans (12) (13) (25)
Net change in property held for Company use (57) (11) (18)
Net change in other investments (270) (68) (74)
Change in closed block investments, net (201) - -
---------------------------------------
Net cash used in investing activities (264) (14) (1,408)
</TABLE>
<PAGE>
Principal Life Insurance Company
Consolidated Statements of Cash Flows (continued)
<TABLE>
<CAPTION>
Year ended December 31
1998 1997 1996
---------------------------------------
(In Millions)
<S> <C> <C> <C>
Financing activities
Issuance of debt $ 243 $ 75 $ 43
Principal repayments of debt (51) (28) (29)
Proceeds of short-term borrowings 8,628 5,089 1,451
Repayment of short-term borrowings (8,924) (4,974) (1,282)
Dividend paid to parent holding company (140) - -
Investment contract deposits 5,854 4,134 4,221
Investment contract withdrawals (7,058) (5,446) (4,682)
---------------------------------------
Net cash used in financing activities (1,448) (1,150) (278)
---------------------------------------
Net increase (decrease) in cash and cash equivalents (85) 275 (24)
Cash and cash equivalents at beginning of year 546 271 295
=======================================
Cash and cash equivalents at end of year $ 461 $ 546 $ 271
=======================================
</TABLE>
Schedule of noncash operating and investing activities The following noncash
assets and liabilities were transferred to the
Closed Block as a result of the July 1, 1998 mutual holding company
formation:
Operating activities:
Accrued investment income $ 59
Deferred policy acquisition costs 697
Other assets 12
Future policy benefits and claims (4,545)
Other policyholder funds (7)
Policyholder dividends payable (388)
Other liabilities (173)
------------
Total noncash operating activities (4,345) Investing activities:
Fixed maturities, available-for-sale 1,562
Mortgage loans 1,027
Policy loans 736
Other investments 1
------------
Total noncash investing activities 3,326
============
Total noncash operating and investing activities $(1,019)
=============
Net transfer of noncash assets and liabilities of Principal Health
Care Inc. on April 1, 1998 in exchange for common shares of
Coventry Health Care, Inc. $ (160)
=============
See accompanying notes.
<PAGE>
Principal Life Insurance Company
Notes to Consolidated Financial Statements
December 31, 1998
1. Nature of Operations and Significant Accounting Policies
Reorganization
Effective July 1, 1998, Principal Mutual Life Insurance Company formed a mutual
insurance holding company (Principal Mutual Holding Company) and converted to a
stock life insurance company (Principal Life Insurance Company). All of the
shares of Principal Life Insurance Company (the Company) were issued to
Principal Mutual Holding Company through two newly formed intermediate holding
companies, Principal Financial Group, Inc. and Principal Financial Services,
Inc. The reorganization itself did not have a material financial impact on the
Company.
Description of Business
The Company is a diversified financial services organization engaged in the
marketing and management of life insurance, annuity, health, pension and other
financial products and services, primarily in the United States.
Basis of Presentation
The accompanying consolidated financial statements of the Company and its
majority-owned subsidiaries have been prepared in conformity with generally
accepted accounting principles (GAAP). Less than majority-owned entities in
which the Company has at least a 20% interest are reported on the equity basis
in the consolidated statements of financial position as other investments. All
significant intercompany accounts and transactions have been eliminated.
Total assets of the unconsolidated entities amounted to $2.2 billion at December
31, 1998 and $1.1 billion at December 31, 1997. Total revenues of the
unconsolidated entities were $1.8 billion in 1998, $294 million in 1997 and $349
million in 1996. During 1998, 1997 and 1996, the Company included $18 million,
$19 million and $(3) million, respectively, in net investment income
representing the Company's share of current year net income (loss) of the
unconsolidated entities.
Closed Block
In conjunction with the formation of the mutual insurance holding company, the
Company established a Closed Block for the benefit of certain classes of
individual participating and dividend-paying policies in force on that date. The
Closed Block was designed to provide reasonable assurance to owners of insurance
policies included therein that, after the reorganization, assets would be
available to maintain the aggregate dividend scales in effect for 1997 if the
experience underlying such scales continued. Assets were allocated to the Closed
Block in amounts which, together with premiums from policies included in the
Closed Block, were reasonably expected to be sufficient to support such
policies, including provisions for payment of claims, certain expenses, charges
and taxes, and for continuation of dividend scales payable in 1997 in the
aggregate, assuming the experience underlying such scales continued.
Assets allocated to the Closed Block inure to the benefits of the holders of
policies included in the Closed Block. Closed Block assets and liabilities are
carried on the same basis as similar assets and liabilities held by the Company.
The contribution to the operating income of the Company from the Closed Block is
reported as a single line item in the statement of operations. Accordingly,
premiums, net investment income, realized capital gains (losses), policyowner
benefits and dividends attributable to the Closed Block, less certain expenses
and charges and the amortization of deferred policy acquisition costs, are shown
as a net number under the caption "Contribution from the Closed Block." This
results in material reductions in the respective line items in the statement of
operations while having no effect on net income. All assets allocated to the
Closed Block are grouped together and shown as a separate item entitled "Closed
Block assets"; and all liabilities attributable to the Closed Block are combined
and disclosed as the "Closed Block liabilities." The excess of Closed Block
liabilities over Closed Block assets represents the expected future post-tax
contribution from the Closed Block which would be recognized in income over the
period the policies and contracts in the Closed Block remain in force.
The Contribution from the Closed Block does not represent the total
profitability attributable to the policies included in the Closed Block. Certain
expenses attributable to the policies included in the Closed Block and
commissions on these policies are not included in the reported Contribution from
the Closed Block, but rather are included in operating expenses consistent with
the initial regulatory funding of the Closed Block. Consequently, the assets
needed to fund the Closed Block are less than the total accumulated assets
attributable to the policies included in the Closed Block. Income on the assets
held outside of the Closed Block is included in net investment income and not
included in the Contribution from the Closed Block.
Use of Estimates in the Preparation of Financial Statements
The preparation of the Company's consolidated financial statements and
accompanying notes requires management to make estimates and assumptions that
affect the amounts reported and disclosed. These estimates and assumptions could
change in the future as more information becomes known, which could impact the
amounts reported and disclosed in the consolidated financial statements and
accompanying notes.
Significant Risks
The following is a description of the most significant risks facing diversified
financial service organizations and how the Company mitigates those risks:
Legal or regulatory risk is the risk that changes in the legal or regulatory
environment in which an insurer operates will create additional expenses not
anticipated by the insurer in pricing its products. The Company mitigates this
risk by offering a wide range of products and operating throughout the United
States and the world, thus reducing its exposure to any single product or
jurisdiction, and also by employing underwriting practices which identify and
minimize the adverse impact of this risk.
Credit risk is the risk that issuers of securities owned by the Company or
borrowers through mortgage loans on real estate will default or that other
parties that owe the Company money, will not pay. The Company minimizes this
risk by adhering to a conservative investment strategy, by maintaining sound
credit and collection policies and by providing for any amounts deemed
uncollectible.
Interest rate risk is the risk that interest rates will change and cause a
decrease in the value of the Company's investments. This change in rates may
also cause certain interest-sensitive products to become uncompetitive or may
cause disintermediation. The Company mitigates this risk by charging fees for
policyowners' contract terminations, by offering products that transfer this
risk to the purchaser and by attempting to match the maturity schedule of its
assets with the expected payout of its liabilities. To the extent that
liabilities come due more quickly than assets mature, an insurer would have to
borrow funds or sell assets prior to maturity and potentially recognize a gain
or loss.
Cash and Cash Equivalents
Cash and cash equivalents include cash on hand, money market instruments and
other debt issues with a maturity date of three months or less when purchased.
Investments
Investments in fixed maturities and equity securities are classified as
available-for-sale and, accordingly, are carried at fair value. (See Note 12 for
policies related to the determination of fair value.) The cost of fixed
maturities is adjusted for amortization of premiums and accrual of discounts,
both computed using the interest method. The cost of fixed maturities and equity
securities is adjusted for declines in value that are other than temporary. For
the loan-backed and structured securities included in the bond portfolio, the
Company recognizes income using a constant effective yield based on currently
anticipated prepayments as determined by broker-dealer surveys or internal
estimates and the estimated lives of the securities.
Real estate investments are reported at cost less accumulated depreciation. The
initial cost bases of properties acquired through loan foreclosures are the
lower of the loan balances or fair market values of the properties at the time
of foreclosure. Buildings and land improvements are generally depreciated on the
straight-line method over the estimated useful life of improvements, and tenant
improvement costs are depreciated on the straight-line method over the term of
the related lease. The Company recognizes impairment losses for its properties
when indicators of impairment are present and a property's expected undiscounted
cash flows are not sufficient to recover the property's carrying value. In such
cases, the cost bases of the properties are reduced accordingly. Real estate
expected to be disposed is carried at the lower of cost or fair value, less cost
to sell, with valuation allowances established accordingly and depreciation no
longer recognized. Any impairment losses and any changes in valuation allowances
are reported as net realized capital losses.
Commercial and residential mortgage loans are reported at cost adjusted for
amortization of premiums and accrual of discounts, computed using the interest
method, and net of valuation allowances. Any changes in the valuation allowances
are reported as net realized capital gains (losses). The Company measures
impairment based upon the present value of expected cash flows discounted at the
loan's effective interest rate. If foreclosure is probable, the measurement of
any valuation allowance is based upon the fair value of the collateral. The
Company includes residential mortgage loans held for sale in the amount of $802
million and $512 million at December 31, 1998 and 1997, respectively, which are
carried at lower of cost or fair value and reported as mortgage loans in the
statements of financial position.
Net realized capital gains and losses on investments are determined using the
specific identification basis.
Policy loans and other investments are primarily reported at cost.
Derivatives
Derivatives are generally held for purposes other than trading and are primarily
used to hedge or reduce exposure to interest rate and foreign currency risks
associated with assets held or expected to be purchased or sold, and liabilities
incurred or expected to be incurred. Additionally, derivatives are used to
change the characteristics of the Company's asset/liability mix consistent with
the Company's risk management activities.
The Company's use of derivatives is further described in Note 4. The net
interest effect of interest rate and currency swap transactions is recorded as
an adjustment to net investment income or interest expense, as appropriate, over
the periods covered by the agreements. The cost of other derivative contracts is
amortized over the life of the contracts and classified with the results of the
underlying hedged item. Certain contracts are designated as hedges of specific
assets and, to the extent those assets are marked to market, the hedge contracts
are also marked to market and included as an adjustment of the underlying asset
value. Other contracts are designated and accounted for as hedges of certain
liabilities and are not marked to market.
Hedge accounting is used for derivatives that are specifically designated in
advance as hedges and that reduce the Company's exposure to an indicated risk by
having a high correlation between changes in the value of the derivatives and
the items being hedged at both the inception of the hedge and throughout the
hedge period. Should such criteria not be met or if the hedged items are sold,
terminated or matured, the changes in value of the derivatives are included in
net income.
Contractholder and Policyholder Liabilities
Contractholder and policyholder liabilities (contractholder funds, future policy
benefits and claims and other policyholder funds) include reserves for
investment contracts and reserves for universal life, limited payment,
participating and traditional life insurance policies. Investment contracts are
contractholders' funds on deposit with the Company and generally include
reserves for pension and annuity contracts. Reserves on investment contracts are
equal to the cumulative deposits less any applicable charges plus credited
interest.
Reserves for universal life insurance contracts are equal to cumulative premiums
less charges plus credited interest which represents the account balances that
accrue to the benefit of the policyowners. Reserves for non-participating term
life insurance contracts are computed on a basis of assumed investment yield,
mortality, morbidity and expenses, including a provision for adverse deviation,
which generally vary by plan, year of issue and policy duration. Investment
yield is based on the Company's experience. Mortality, morbidity and withdrawal
rate assumptions are based on experience of the Company and are periodically
reviewed against both industry standards and experience.
Reserves for participating life insurance contracts are based on the net level
premium reserve for death and endowment policy benefits. This net level premium
reserve is calculated based on dividend fund interest rate and mortality rates
guaranteed in calculating the cash surrender values described in the contract.
Some of the Company's policies and contracts require payment of fees in advance
for services that will be rendered over the estimated lives of the policies and
contracts. These payments are established as unearned revenue reserves upon
receipt and included in other policyowner funds in the consolidated statements
of financial position. These unearned revenue reserves are amortized to
operations over the estimated lives of these policies and contracts.
The liability for unpaid accident and health claims is an estimate of the
ultimate net cost of reported and unreported losses not yet settled. This
liability is estimated using actuarial analyses and case basis evaluations.
Although considerable variability is inherent in such estimates, the Company
believes that the liability for unpaid claims is adequate. These estimates are
continually reviewed and, as adjustments to this liability become necessary,
such adjustments are reflected in current operations.
Recognition of Premiums, Fees and Benefits
Traditional individual life and health insurance products include those products
with fixed and guaranteed premiums and benefits, and consist principally of
whole life and term life insurance policies and certain immediate annuities with
life contingencies. Premiums from these products are recognized as premium
revenue when due.
Group life and health insurance premiums are generally recorded as premium
revenue over the term of the coverage. Some group contracts allow for premiums
to be adjusted to reflect emerging experience. Such adjusted premiums are
recognized in the period that the related experience emerges. Fees for contracts
providing claim processing or other administrative services are recorded over
the period the service is provided.
Related policy benefits and expenses for individual and group life and health
insurance products are associated with earned premiums and result in the
recognition of profits over the expected lives of the policies and contracts.
Universal life-type policies are insurance contracts with terms that are not
fixed and guaranteed. Amounts received as payments for such contracts are not
reported as premium revenues. Revenues for universal life-type insurance
contracts consist of policy charges for the cost of insurance, policy initiation
and administration, surrender charges and other fees that have been assessed
against policy account values. Policy benefits and claims that are charged to
expense include interest credited to contracts and benefit claims incurred in
the period in excess of related policy account balances.
Investment contracts do not subject the Company to risks arising from
policyowner mortality or morbidity, and consist primarily of Guaranteed
Investment Contracts (GICs) and certain deferred annuities. Amounts received as
payments for investment contracts are established as investment contract
liability balances and are not reported as premium revenues. Revenues for
investment contracts consist of investment income and policy administration
charges. Investment contract benefits that are charged to expense include
benefit claims incurred in the period in excess of related investment contract
liability balances and interest credited to investment contract liability
balances.
Deferred Policy Acquisition Costs
Commissions and other costs (underwriting, issuance and agency expenses) that
vary with and are primarily related to the acquisition of new and renewal
insurance policies and investment contract business are capitalized to the
extent recoverable. Acquisition costs that are not deferrable and maintenance
costs are charged to operations as incurred.
Deferred policy acquisition costs for universal life-type insurance contracts
and participating life insurance policies and investment contracts are being
amortized over the lives of the policies and contracts in relation to the
emergence of estimated gross profit margins. This amortization is adjusted
retrospectively when estimates of current or future gross profits and margins to
be realized from a group of products and contracts are revised. The deferred
policy acquisition costs of non-participating term life insurance policies are
being amortized over the premium-paying period of the related policies using
assumptions consistent with those used in computing policyowner liabilities.
Deferred policy acquisition costs are subject to recoverability testing at the
time of policy issue and loss recognition testing at the end of each accounting
period. Deferred policy acquisition costs would be written off to the extent
that it is determined that future policy premiums and investment income or gross
profit margins would not be adequate to cover related losses and expenses.
Reinsurance
The Company enters into reinsurance agreements with other companies in the
normal course of business. The Company may assume reinsurance from or cede
reinsurance to other companies. Premiums and expenses are reported net of
reinsurance ceded. The Company is contingently liable with respect to
reinsurance ceded to other companies in the event the reinsurer is unable to
meet the obligations it has assumed.
Guaranty-fund Assessments
Guaranty-fund assessments are accrued when the Company receives notice that an
amount is payable to a guaranty fund. The Company also accrues for anticipated
assessments which are estimated using data available from various industry
sources that monitor the current status of open and closed insolvencies. The
Company has also established an other asset for assessments expected to be
recovered through future premium tax offsets.
Separate Accounts
The separate account assets and liabilities presented in the consolidated
financial statements represent the fair market value of funds that are
separately administered by the Company for contracts with equity, real estate
and fixed-income investments. Generally, the separate account contract owner,
rather than the Company, bears the investment risk of these funds. The separate
account assets are legally segregated and are not subject to claims that arise
out of any other business of the Company. The Company receives a fee for
administrative, maintenance and investment advisory services that is included in
the consolidated statements of operations. Deposits, net investment income and
realized and unrealized capital gains and losses on the separate accounts are
not reflected in the consolidated statements of operations.
Income Taxes
Principal Mutual Holding Company files a consolidated income tax return that
includes the Company and all of its qualifying subsidiaries and has a policy of
allocating income tax expenses and benefits to companies in the group based upon
pro rata contribution of taxable income or operating losses. The Company is
taxed at corporate rates on taxable income based on existing tax laws. Current
income taxes are charged or credited to operations based upon amounts estimated
to be payable or recoverable as a result of taxable operations for the current
year. Deferred income taxes are provided for the tax effect of temporary
differences in the financial reporting and income tax bases of assets and
liabilities and net operating losses using enacted income tax rates and laws.
The effect on deferred tax assets and deferred tax liabilities of a change in
tax rates is recognized in operations in the period in which the change is
enacted.
Foreign Exchange
The Company's foreign subsidiaries' statements of financial position and
operations are translated at the current exchange rates and average exchange
rates for the year, respectively. Resulting translation adjustments for foreign
subsidiaries and certain other transactions are reported as a component of
equity. Other translation adjustments for foreign currency transactions that
affect cash flows are reported in current operations.
Pension and Postretirement Benefits
The Company accounts for its pension benefits and postretirement benefits other
than pension (medical, life insurance and long-term care) using the full accrual
method.
Property Held for Company Use
Property held for Company use includes home office properties and related
leasehold improvements. Property held for Company use is shown in the
consolidated statements of financial position at cost less allowances for
accumulated depreciation. Provisions for depreciation of property held for
Company use are computed principally on the straight-line method over the
estimated useful lives of the assets. Property held for Company use and related
accumulated depreciation are as follows (in millions):
December 31
1998 1997
-----------------------------
Property held for Company use $328 $302
Accumulated depreciation (82) (70)
=============================
Property held for Company use, net $246 $232
=============================
Other Assets
Intangible assets are included in other assets in the consolidated statements of
financial position. The cost of acquired subsidiaries in excess of the fair
value of the net assets (i.e., goodwill) and other intangible assets have been
recorded in connection with acquisitions. These assets are amortized on a
straight-line basis generally over 10 to 15 years. The carrying amount of
goodwill and other intangible assets is reviewed periodically for indicators of
impairment in value.
Intangible assets and related accumulated amortization are as follows (in
millions):
December 31
1998 1997
---------------------------
Goodwill $185 $165
Accumulated amortization (40) (16)
---------------------------
Goodwill, net 145 149
Other intangible assets, net 16 74
---------------------------
Total intangible assets $161 $223
===========================
Mortgage servicing rights of $778 million and $432 million at December 31, 1998
and 1997, respectively, are included in other assets in the consolidated
statements of financial position and represent the cost of purchasing or
originating the right to service mortgage loans. These costs are capitalized and
amortized to operations over the estimated remaining lives of the underlying
loans using the interest method and taking into account appropriate prepayment
assumptions. Capitalized mortgage servicing rights are periodically assessed for
impairment, which is recognized in the consolidated statements of operations
during the period in which impairment occurs by establishing a corresponding
valuation allowance.
Other assets are reported primarily at cost.
Pooled Investment Fund
The Company has an arrangement whereby short-term funds of Principal Financial
Services, Inc. are pooled with funds of the Company's subsidiaries and invested
by the Company. The Company credits Principal Financial Services, Inc. with
interest approximating the yield earned by the Company's Separate Account LI,
which invests in commercial paper. At December 31, 1998, the Company reported
$137 million in other liabilities in the statements of financial position
related to this arrangement with Principal Financial Services, Inc.
The Company's pooled funds are also made available to Principal Financial
Services, Inc. for short-term borrowings up to $1 million, with interest
approximating the yield earned by Separate Account LI. At December 31, 1998,
there were no such borrowings outstanding under this arrangement.
Comprehensive Income
On January 1, 1998, the Company adopted Statement of Financial Accounting
Standards No. 130, Reporting Comprehensive Income ("SFAS 130"), and restated
prior years' financial statements to conform to the reporting standard. SFAS 130
establishes standards for reporting and displaying comprehensive income and its
components in a full set of general-purpose financial statements. Comprehensive
income includes all changes in equity during a period except those resulting
from investments by shareholders and distributions to shareholders. The adoption
of SFAS No. 130 resulted in revised and additional disclosures but had no effect
on the financial position, results of operations, or liquidity of the Company.
Other comprehensive income excludes net realized capital gains (losses) included
in net income of $344 million in 1998, $113 million in 1997 and $256 million in
1996. These amounts are net of income taxes and adjustments to deferred policy
acquisition costs and unearned revenue reserves of $122 million in 1998, $63
million in 1997 and $132 million in 1996.
Reclassifications
Certain reclassifications have been made to the 1996 and 1997 consolidated
financial statements to conform to the 1998 presentation.
Pending Accounting Change
In June 1998, the Financial Accounting Standards Board (the "FASB") issued
Statement No. 133, Accounting for Derivative Instruments and Hedging Activities
("SFAS 133"), which the Company is required to adopt January 1, 2000. SFAS 133
will require the Company to include all derivatives in the statement of
financial position at fair value. Changes in derivative fair values will either
be recognized in earnings as offsets to the changes in fair value of related
hedged assets, liabilities and firm commitments or, for forecasted transactions,
deferred and recorded as a component of equity until the hedged transactions
occur and are recognized in earnings. The ineffective portion of a hedging
derivative's change in fair value will be immediately recognized in earnings.
The impact of SFAS 133 on the Company's financial statements will depend on a
variety of factors, including future interpretive guidance from the FASB, the
future level of forecasted and actual foreign currency transactions, the extent
of the Company's hedging activities, the types of hedging instruments used and
the effectiveness of such instruments. However, the Company does not believe the
effect of adopting SFAS 133 will be material to its financial position.
2. Mergers, Acquisitions and Divestitures
Effective April 1, 1998, the Company merged substantially all of its managed
care operations with Coventry Corporation in exchange for a share of ownership
in the resulting entity, Coventry Health Care, Inc. At December 31, 1998, the
Company held a 42% share of Coventry Health Care, Inc. The Company's investment
in Coventry Health Care, Inc. is accounted for using the equity method. Net
equity of the transferred business on April 1, 1998 was $170 million.
Consolidated financial results for 1997 included total assets at December 31,
1997, and total revenues and pretax loss for the year then ended of
approximately $419 million, $883 million and $(26) million, respectively, for
the transferred business.
During 1998, various acquisitions were made by the Company's subsidiaries at
purchase prices aggregating $224 million. The acquisitions were all accounted
for using the purchase method and the results of operations of the acquired
businesses have been included in the financial statements of the subsidiaries
from the dates of acquisition. Such acquired companies had total assets at
December 31, 1998 and total 1998 revenue of $459 million and $58 million,
respectively.
During 1998, various divestitures were made by certain of the Company's
subsidiaries at selling prices aggregating $118 million and $15 million in net
realized capital gains were realized as a result of these divestitures. In 1997,
the financial statements included $152 million in assets, $206 million in
revenues and $20 million of pretax losses related to these subsidiaries.
Beginning in 1998, the Company did not renew medical business in 14 states where
it does not believe it can effectively compete. The Company continues to offer
non-medical coverage and administrative services only products in these states.
Annual medical premium in these states was approximately $230 million in 1997.
During 1997, various acquisitions were made by certain of the Company's
subsidiaries at purchase prices aggregating $101 million. The acquisitions were
all accounted for using the purchase method and the results of operations of the
acquired businesses have been included in the financial statements of the
subsidiaries from the dates of acquisition. Such acquired companies had total
assets at December 31, 1997 and total 1997 revenue of $459 million and $86
million, respectively.
During 1997, the Company terminated a portion of its group medical business and
helped insureds find replacement coverage. The Company has retained
responsibility for the payment of claims incurred on this business prior to the
effective date of the termination and has included an estimate of the ultimate
liability for these claims in its financial statements. Annual premiums related
to this business were approximately $380 million at date of transfer.
3. Investments
Under SFAS No. 115, Accounting for Certain Investments in Debt and Equity
Securities, securities are generally classified as available-for-sale,
held-to-maturity, or trading. The Company has classified its entire fixed
maturities portfolio as available-for-sale, although it is generally the
Company's intent to hold these securities to maturity. The Company has also
classified all equity securities as available-for-sale. Securities classified as
available-for-sale are reported at fair value in the consolidated statements of
financial position with the related unrealized holding gains and losses on such
available-for-sale securities reported as a separate component of equity after
adjustments for related changes in deferred policy acquisition costs, unearned
revenue reserves and deferred income taxes.
The cost, gross unrealized gains and losses and fair value of fixed maturities
and equity securities available-for-sale as of December 31, 1998 and 1997, are
as follows (in millions):
<TABLE>
<CAPTION>
Gross Gross
Unrealized Unrealized Fair
Cost Gains Losses Value
---------------------------------------------------------------
---------------------------------------------------------------
<S> <C> <C> <C> <C>
December 31, 1998 Fixed maturities:
United States Government and agencies
$ 611 $ - $ 10 $ 601
Foreign governments 57 21 1 77
States and political subdivisions 428 19 4 443
Corporate - public 4,470 264 88 4,646
Corporate - private 11,935 653 97 12,491
Mortgage-backed securities 2,661 92 5 2,748
---------------------------------------------------------------
Total fixed maturities $20,162 $1,049 $205 $21,006
===============================================================
Total equity securities $ 760 $ 395 $ 53 $ 1,102
===============================================================
December 31, 1997 Fixed maturities:
United States Government and agencies
$ 337 $ 1 $ - $ 338
Foreign governments 217 - - 217
States and political subdivisions 232 15 2 245
Corporate - public 4,014 224 18 4,220
Corporate - private 12,478 856 30 13,304
Mortgage-backed securities 3,124 99 3 3,220
---------------------------------------------------------------
---------------------------------------------------------------
20,402 1,195 53 21,544
Redeemable preferred stocks 2 - - 2
===============================================================
Total fixed maturities $20,404 $1,195 $ 53 $21,546
===============================================================
Total equity securities $ 639 $ 664 $ 30 $ 1,273
===============================================================
</TABLE>
The cost and fair value of fixed maturities available-for-sale at December 31,
1998, by expected maturity, are as follows (in millions):
Cost Fair Value
--------------------------
--------------------------
Due in one year or less $ 1,043 $ 1,061
Due after one year through five years 6,922 7,012
Due after five years through ten years 5,283 5,590
Due after ten years 4,234 4,577
--------------------------
--------------------------
17,482 18,240
Mortgage-backed and other securities without
a single maturity date 2,680 2,766
--------------------------
==========================
Total $20,162 $21,006
==========================
The above summarized activity is based on expected maturities. Actual maturities
may differ because borrowers may have the right to call or pre-pay obligations.
Major categories of net investment income are summarized as follows (in
millions):
Year ended December 31
1998 1997 1996
------------------------------------
Fixed maturities, available-for-sale $1,525 $1,620 $1,649
Equity securities, available-for-sale 32 39 33
Mortgage loans 1,171 1,150 1,085
Real estate 525 501 486
Policy loans 27 50 49
Cash and cash equivalents 9 9 15
Other 49 92 48
------------------------------------
------------------------------------
3,338 3,461 3,365
Less investment expenses (517) (513) (460)
------------------------------------
====================================
Net investment income $2,821 $2,948 $2,905
====================================
The major components of net realized capital gains (losses) on investments are
summarized as follows (in millions):
Year ended December 31
1998 1997 1996
----------------------------------
Fixed maturities, available-for-sale:
Gross gains $ 67 $ 51 $ 80
Gross losses (31) (43) (73)
Equity securities, available-for-sale:
Gross gains 329 132 451
Gross losses (40) (26) (5)
Mortgage loans 8 (6) (11)
Real estate 126 64 14
Other 7 4 (68)
==================================
Net realized capital gains $466 $176 $388
==================================
Proceeds from sales of investments (excluding call and maturity proceeds) in
fixed maturities were $2.8 billion, $5.0 billion and $7.8 billion in 1998, 1997
and 1996 respectively. Of the 1998, 1997 and 1996 proceeds, $2.2 billion, $4.0
billion and $7.2 billion, respectively, relates to sales of mortgage-backed
securities. The Company actively manages its mortgage-backed securities
portfolio to control prepayment risk. Gross gains of $23 million, $29 million
and $64 million and gross losses of $7 million, $10 million and $53 million in
1998, 1997 and 1996, respectively, were realized on sales of mortgage-backed
securities. At December 31, 1998, the Company had security purchases payable
totaling $576 million relating to the purchases of mortgage-backed securities at
forward dates.
Prior to 1996, the Company entered into short-term equity swap agreements to
mitigate its exposure to declines in the value of about one-half of its
marketable common stock portfolio. Under the agreements, the return on that
portion of the Company's marketable common stock portfolio was swapped for a
fixed short-term interest rate. The equity swaps were terminated during 1996 and
a realized loss of $81 million recorded. Common stocks of $633 million
associated with these equity swaps were sold during 1996 and a gain of $402
million recorded, resulting in a net realized gain of $321 million.
The unrealized appreciation on investments in fixed maturities and equity
securities available-for-sale is reported as a separate component of equity,
reduced by adjustments to deferred policy acquisition costs and unearned revenue
reserves that would have been required as a charge or credit to operations had
such amounts been realized and a provision for deferred income taxes. The
cumulative amount of net unrealized gains on available-for-sale securities,
including the net unrealized gains on the Closed Block available-for-sale
securities, is as follows (in millions):
<TABLE>
<CAPTION>
December 31
1998 1997
-----------------------------
<S> <C> <C>
Unrealized appreciation on fixed maturities, available-for-sale $939 $1,142
Unrealized appreciation on equity securities, available-for-sale,
including seed money in separate accounts 347 639
Adjustments for assumed changes in amortization patterns:
Deferred policy acquisition costs (167) (204)
Unearned revenue reserves 17 21
Provision for deferred income taxes (390) (560)
=============================
Net unrealized gains on available-for-sale securities $746 $1,038
=============================
</TABLE>
The 1998 decrease in unrealized appreciation on fixed maturities,
available-for-sale, includes the effect of a change in the method of estimating
the fair value of certain corporate bonds, net of related adjustments for
assumed changes in amortization patterns and deferred income taxes, of $116
million.
Commercial mortgage loans and corporate private placement bonds originated or
acquired by the Company represent its primary areas of credit risk exposure. At
December 31, 1998 and 1997, the commercial mortgage portfolio is diversified by
geographic region and specific collateral property type as follows:
Geographic Distribution Property Type Distribution
December 31 December 31
1998 1997 1998 1997
---------------------- --------------------
---------------------- --------------------
Pacific 28% 28% Industrial 33% 33%
South Atlantic 24 24 Retail 33 33
North Central 15 16 Office 29 29
Mid Atlantic 14 14 Other 5 5
South Central 9 9
New England 5 5
Mountain 5 4
Mortgage loans on real estate are considered impaired when, based on current
information and events, it is probable that the Company will be unable to
collect all amounts due according to contractual terms of the loan agreement.
When the Company determines that a loan is impaired, a provision for loss is
established for the difference between the carrying amount of the mortgage loan
and the estimated value. Estimated value is based on either the present value of
the expected future cash flows discounted at the loan's effective interest rate,
the loan's observable market price or fair value of the collateral. The
provision for losses is reported as a net realized capital loss.
Mortgage loans deemed to be uncollectible are charged against the allowance for
losses and subsequent recoveries are credited to the allowance for losses. The
allowance for losses is maintained at a level believed adequate by management to
absorb estimated probable credit losses. Management's periodic evaluation of the
adequacy of the allowance for losses is based on the Company's past loan loss
experience, known and inherent risks in the portfolio, adverse situations that
may affect the borrower's ability to repay, the estimated value of the
underlying collateral, composition of the loan portfolio, current economic
conditions and other relevant factors. The evaluation is inherently subjective
as it requires estimating the amounts and timing of future cash flows expected
to be received on impaired loans that may change.
A summary of the changes in the mortgage loan allowance for losses is as follows
(in millions):
December 31
1998 1997 1996
------------------------------------
Balance at beginning of year $121 $121 $115
Provision for losses 4 8 16
Releases due to write-downs,
sales and foreclosures (12) (8) (10)
====================================
Balance at end of year $113 $121 $121
====================================
The corporate private placement bond portfolio is diversified by issuer and
industry. Restrictive bond covenants are monitored by the Company to regulate
the activities of issuers and control their leveraging capabilities.
The Company was servicing approximately 484,000 and 371,000 residential mortgage
loans with aggregate principal balances of approximately $42.1 billion and $29.1
billion at December 31, 1998 and 1997, respectively. In connection with these
mortgage servicing activities, the Company held funds in trust for others
totaling approximately $284 million and $210 million at December 31, 1998 and
1997, respectively. In connection with its loan administration activities, the
Company advances payments of property taxes and insurance premiums and also
advances principal and interest payments to investors in advance of collecting
funds from specific mortgagors. In addition, the Company makes certain payments
of attorney fees and other costs related to loans in foreclosure. These amounts
receivable are recorded, at cost, as advances on serviced loans. Amounts
advanced are considered in management's evaluation of the adequacy of the
mortgage loan allowance for losses.
Real estate holdings and related accumulated depreciation are as follows (in
millions):
December 31
1998 1997
-----------------------------
Properties held for sale $1,043 $ 360
Investment real estate 2,007 2,625
-----------------------------
3,050 2,985
Accumulated depreciation (359) (353)
=============================
Real estate, net $2,691 $2,632
=============================
Other investments include properties owned jointly with venture partners and
operated by the partners. Joint ventures in which the Company has an interest
have mortgage loans with the Company of $0.9 billion and $1.2 billion at
December 31, 1998 and 1997, respectively. The Company is committed to providing
additional mortgage financing for such joint ventures aggregating $85 million at
December 31, 1998.
4. Derivatives Held or Issued for Purposes Other Than Trading
The Company uses exchange-traded interest rate futures and forward contracts to
hedge against interest rate risks. The Company attempts to match the timing of
when interest rates are committed on insurance products and on new investments.
However, timing differences do occur and can expose the Company to fluctuating
interest rates. Interest rate futures and forward contracts are used to minimize
these risks. In these contracts, the Company is subject to the risk that the
counterparties will fail to perform and to the risks associated with changes in
the value of the underlying securities; however, such changes in value generally
are offset by opposite changes in the value of the hedged items. Futures
contracts are marked to market and settled daily, which minimizes the
counterparty risk. The notional amounts of futures contracts ($140 million at
December 31, 1998, and $36 million at December 31, 1997) represent the extent of
the Company's involvement but not the risk of loss. The Company had no forward
contracts at December 31, 1998 and 1997.
The Company enters into interest rate swaps to minimize its exposure to
fluctuations in interest rates. Swaps are used in asset and liability management
to modify duration and match cash flows. The notional principal amounts of the
swaps outstanding at December 31, 1998 and 1997, were $1.6 billion and $1.0
billion, respectively, and the credit exposure at December 31, 1998 and 1997 was
$19 million and $21 million, respectively. The Company is exposed to credit loss
in the event of nonperformance of the counterparties. This credit risk is
minimized by purchasing such agreements from financial institutions with
superior performance records. The Company's current credit exposure on swaps is
limited to the value of interest rate swaps that have become favorable to the
Company. The average unexpired terms of the swaps were approximately six years
at both December 31, 1998 and 1997. The net amount payable or receivable from
interest rate swaps is accrued as an adjustment to interest income. The
Company's interest rate swap agreements include cross-default provisions when
two or more swaps are transacted with a given counterparty.
The Company manages risk on its mortgage loan pipeline by buying and selling
mortgage-backed securities in the forward markets, over-the-counter options on
mortgage-backed securities, U. S. Treasury futures contracts and options on
Treasury futures contracts. The Company entered into mandatory forward, option
and futures contracts totaling approximately $2.4 billion and $1.2 billion at
December 31, 1998 and 1997, respectively, to reduce interest rate risk on
certain mortgage loans held for sale and other commitments. The forward
contracts provide for the delivery of securities at a specified future date at a
specified price or yield. In the event the counterparty is unable to meet its
contractual obligations, the Company may be exposed to the risk of selling
mortgage loans at prevailing market prices. The effect of these contracts was
considered in the lower of cost or market calculation of mortgage loans held for
sale.
The Company has committed to originate approximately $1.1 billion and $612
million of mortgage loans at December 31, 1998 and 1997, respectively, subject
to borrowers meeting the Company's underwriting guidelines. These commitments
call for the Company to fund such loans at a future date with a specified rate
at a specified price. Because the borrowers are not obligated to close the
loans, the Company is exposed to risks that it may not have sufficient mortgage
loans to deliver to its mandatory forward contracts and, thus, would be
obligated to purchase mortgage loans at prevailing market rates to meet such
commitments. Conversely, the Company is exposed to the risk that more loans than
expected will close, and the loans would then be sold at current market prices.
The Company uses interest rate floors and options on futures contracts in
hedging a portion of its portfolio of mortgage servicing rights from prepayment
risk associated with changes in interest rates. The Company had entered into
interest rate floor and option contracts with a notional value of $6.3 billion
and $3.1 billion at December 31, 1998 and 1997, respectively. The floors and
contracts provide for the receipt of payments when interest rates are below
predetermined interest rate levels. The premiums paid for floors are included in
other assets in the Company's consolidated statements of financial position.
The Company enters into currency exchange swap agreements to convert certain
foreign denominated fixed rate assets into U.S. dollar denominated fixed rate
assets and eliminate the exposure to future currency volatility on those
securities. At December 31, 1998, the Company had various foreign currency
exchange agreements with maturities ranging from 1999 to 2018, with an aggregate
notional amount involved of approximately $486 million and the credit exposure
was $35 million. At December 31, 1997, such maturities ranged from 1998 to 2018
with an aggregate notional amount of approximately $410 million and a credit
exposure of $17 million. The average unexpired term of the swaps was
approximately seven years at both December 31, 1998 and 1997.
5. Closed Block
Summarized financial information of the Closed Block as of and for the six-month
period from formation to December 31, 1998, is as follows (in millions):
Assets
Fixed maturities, available-for-sale $1,722
Mortgage loans 1,063
Policy loans 741
Other investments 1
Accrued investment income 60
Deferred policy acquisition costs 649
Other assets 15
===========
$4,251
===========
Liabilities
Future policy benefits and claims $4,668
Other policyholder funds 6
Policyholder dividends payable 393
Other liabilities 232
===========
$5,299
===========
Revenues and expenses
Premiums $ 390
Net investment income 127
Other income 1
Benefits, claims and settlement expenses (306)
Dividends to policyholders (143)
Operating expenses (56)
===========
Contribution from the Closed Block (before income taxes) $ 13
===========
6. Accident and Health Reserves
Activity in the liability for unpaid accident and health claims, which is
included with future policy benefits and claims in the consolidated statements
of financial position, is summarized as follows (in millions):
Year ended December 31
1998 1997 1996
------------------------------------
Balance at beginning of year $ 770 $ 800 $ 810
Incurred:
Current year 1,922 2,723 3,051
Prior years (14) (21) (29)
------------------------------------
------------------------------------
Total incurred 1,908 2,702 3,022
Reclassification for subsidiary merger
(see Note 2) 155 - -
Payments:
Current year 1,523 2,235 2,535
Prior years 359 497 497
------------------------------------
Total payments 2,037 2,732 3,032
------------------------------------
Balance at end of year:
Current year 349 476 516
Prior years 292 294 284
------------------------------------
====================================
Total balance at end of year $ 641 $ 770 $ 800
====================================
The activity summary in the liability for unpaid accident and health claims
shows a decrease of $14 million, $21 million and $29 million to the December 31,
1997, 1996 and 1995 liability for unpaid accident and health claims,
respectively, arising in prior years. Such liability adjustments, which affected
current operations during 1998, 1997 and 1996, respectively, resulted from
developed claims for prior years being different than were anticipated when the
liabilities for unpaid accident and health claims were originally estimated.
These trends have been considered in establishing the current year liability for
unpaid accident and health claims.
7. Debt
The components of debt as of December 31, 1998 and December 31, 1997 are as
follows (in millions):
December 31
1998 1997
------------------------------
7.875% notes payable, due 2024 $199 $199
8% notes payable, due 2044 99 99
Mortgages and other notes payable 373 161
==============================
Total debt $671 $459
==============================
On March 10, 1994, the Company issued $300 million of surplus notes, including
$200 million due March 1, 2024 at a 7.875% annual interest rate and the
remaining $100 million due March 1, 2044 at an 8% annual interest rate. No
affiliates of the Company hold any portion of the notes. The discount and direct
costs associated with issuing these notes are being amortized to expense over
their respective terms using the interest method. Each payment of interest and
principal on the notes, however, may be made only with the prior approval of the
Commissioner of Insurance of the State of Iowa (the Commissioner) and only to
the extent that the Company has sufficient surplus earnings to make such
payments. For each of the years ended December 31, 1998, 1997 and 1996, interest
of $24 million was approved by the Commissioner, paid and charged to expense.
Subject to Commissioner approval, the surplus notes due March 1, 2024 may be
redeemed at the Company's election on or after March 1, 2004 in whole or in part
at a redemption price of approximately 103.6% of par. The approximate 3.6%
premium is scheduled to gradually diminish over the following ten years. These
surplus notes may then be redeemed on or after March 1, 2014, at a redemption
price of 100% of the principal amount plus interest accrued to the date of
redemption.
In addition, subject to Commissioner approval, the notes due March 1, 2044 may
be redeemed at the Company's election on or after March 1, 2014, in whole or in
part at a redemption price of approximately 102.3% of par. The approximate 2.3%
premium is scheduled to gradually diminish over the following ten years. These
notes may be redeemed on or after March 1, 2024, at a redemption price of 100%
of the principal amount plus interest accrued to the date of redemption.
The mortgages and other notes payable are financings for real estate
developments. The Company has obtained loans with various lenders to finance
these developments. Outstanding principal balances as of December 31, 1998 range
from $1 million to $39.1 million per development with interest rates generally
ranging from 6.6% to 9.3%. Outstanding principal balances as of December 31,
1997 range from $1 million to $10.7 million per development with interest rates
generally ranging from 6.6% to 8.0%.
At December 31, 1998, future annual maturities of debt are as follows (in
millions):
1999 $150
2000 9
2001 8
2002 8
2003 9
Thereafter 487
----------
==========
Total future maturities of debt $671
==========
Cash paid for interest for 1998, 1997 and 1996 was $97 million, $67 million and
$79 million, respectively.
The Company issues commercial paper periodically to meet its short-term
financing needs and also has credit facilities with various banks. The Company
had outstanding credit borrowings of $200 million and $225 million at December
31, 1998 and 1997, respectively. These outstanding borrowings are included in
other liabilities in the consolidated statements of financial position.
8. Income Taxes
The Company's income tax expense (benefit) is as follows (in millions):
Year ended December 31
1998 1997 1996
---------------------------------------
Current income taxes:
Federal $ (80) $144 $145
State and foreign 10 3 (1)
Net realized capital gains 107 11 210
---------------------------------------
Total current income taxes 37 158 354
Deferred income taxes 7 83 (50)
=======================================
Total income taxes $44 $241 $304
=======================================
The Company's provision for income taxes may not have the customary relationship
of taxes to income. Differences between the prevailing corporate income tax rate
of 35% times the pre-tax income and the Company's effective tax rate on pre-tax
income are generally due to inherent differences between income for financial
reporting purposes and income for tax purposes, and the establishment of
adequate provisions for any challenges of the tax filings and tax payments to
the various taxing jurisdictions. A reconciliation between the corporate income
tax rate and the effective tax rate is as follows:
Year ended December 31
1998 1997 1996
-----------------------------------
Statutory corporate tax rate 35% 35% 35%
Dividends received deduction (4) (2) (1)
Interest exclusion from taxable income (1) (1) (1)
Resolution of prior year tax issues (20) - -
Other (4) 3 4
-----------------------------------
Effective tax rate 6% 35% 37%
===================================
Significant components of the Company's net deferred income taxes are as follows
(in millions):
December 31
1998 1997
-------------------
Deferred income tax assets (liabilities):
Insurance liabilities $ 171 $ 179
Deferred policy acquisition costs (331) (341)
Net unrealized gains on available for sale securities (390) (560)
Other 53 (81)
===================
$(497) $(803)
===================
The Internal Revenue Service (the Service) has completed examination of the
consolidated federal income tax returns of the Company and affiliated companies
through 1992. The Service is completing their examination of the Company's
returns for 1993 and 1994. The Service has also begun to examine returns for
1995 and 1996. The Company believes that there are adequate defenses against or
sufficient provisions for any challenges.
Undistributed earnings of certain foreign subsidiaries are considered
indefinitely reinvested by the Company. A tax liability will be recognized when
the Company expects distribution of earnings in the form of dividends, sale of
the investment or otherwise.
Cash paid for income taxes was $309 million in 1998, $143 million in 1997 and
$285 million in 1996.
9. Employee and Agent Benefits
The Company has defined benefit pension plans covering substantially all of its
employees and certain agents. The employees and agents are generally first
eligible for the pension plans when they reach age 21. The pension benefits are
based on the years of service and generally the employee's or agent's average
annual compensation during the last five years of employment. Partial benefit
accrual of pension benefits is recognized from first eligibility until
retirement based on attained service divided by potential service to age 65 with
a minimum of 35 years of potential service. The Company's policy is to fund the
cost of providing pension benefits in the years that the employees and agents
are providing service to the Company. The Company's funding policy is to deposit
the actuarial normal cost and any change in unfunded accrued liability over a
30-year period as a percentage of compensation.
The Company also provides certain health care, life insurance and long-term care
benefits for retired employees. Substantially all employees are first eligible
for these postretirement benefits when they reach age 57 and have completed ten
years of service with the Company. Partial benefit accrual of these health, life
and long-term care benefits is recognized from the employee's date of hire until
retirement based on attained service divided by potential service to age 65 with
a minimum of 35 years of potential service. The Company's policy is to fund the
cost of providing retiree benefits in the years that the employees are providing
service to the Company. The Company's funding policy is to deposit the actuarial
normal cost and an accrued liability over a 30-year period as a percentage of
compensation.
The plans' combined funded status, reconciled to amounts recognized in the
consolidated statements of financial position and consolidated statements of
operations, is as follows (in millions):
<TABLE>
<CAPTION>
Other Postretirement Benefits
Pension Benefits
---------------------------------- -------------------------------
Year ended December 31 Year ended December 31
1998 1997 1996 1998 1997 1996
--------- ----------- ------------ ---------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Change in benefit obligation
Benefit obligation at beginning $(700) $(732) $(670) $(214) $(218) $(212)
of year
Service cost (34) (41) (38) (12) (12) (12)
Interest cost (50) (52) (46) (15) (16) (15)
Plan amendment - - (16) - - -
Actuarial gain (loss) (79) 97 19 22 22 14
Curtailment adjustment - 7 - - - -
Benefits paid 36 21 19 13 10 7
========= =========== ============ ========== ========== =========
Benefit obligation at end of year $(827) $(700) $(732) $(206) $(214) $(218)
========= =========== ============ ========== ========== =========
</TABLE>
<TABLE>
<CAPTION>
Other Postretirement Benefits
Pension Benefits
-------------------------------------- ------------------------------
Year ended December 31 Year ended December 31
1998 1997 1996 1998 1997 1996
----------- ------------ ------------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Change in plan assets
Fair value of plan assets at
beginning of year $980 $841 $723 $300 $247 $208
Actual return on plan assets 23 130 118 15 41 32
Employer contribution 26 26 20 26 25 17
Benefits paid (36) (17) (20) (15) (13) (10)
----------- ------------ ------------- ---------- ---------- ----------
Fair value of plan assets at end of $993 $980 $841 $326 $300 $247
year
=========== ============ ============= ========== ========== ==========
Funded status $166 $280 $109 $120 $ 86 $ 29
Unrecognized net actuarial gain (38) (182) (29) (71) (53) (10)
Unrecognized prior service cost 12 14 17 - - -
Unamortized transition obligation (37) (49) (60) 8 12 17
----------- ------------ ------------- ---------- ---------- ----------
Prepaid benefit cost $103 $ 63 $ 37 $ 57 $ 45 $ 36
=========== ============ ============= ========== ========== ==========
Weighted-average assumptions as of
December 31
Discount rate 6.75% 7.25% 7.25% 6.75% 7.25% 7.25%
Components of net periodic benefit
cost
Service cost $ 34 $ 41 $ 38 $ 12 $ 12 $ 12
Interest cost 50 52 46 15 16 15
Expected return on plan assets (75) (80) (119) (16) (16) (13)
Amortization of prior service cost 1 1 1 - - -
Amortization of transition (asset)
obligation (11) (11) (11) 4 4 4
Recognized net actuarial loss (gain) (8) 2 52 (1) - -
----------- ------------ ------------- ---------- ---------- ----------
Net periodic benefit cost (income) $ (9) $ 5 $ 7 $ 14 $ 16 $ 18
=========== ============ ============= ========== ========== ==========
</TABLE>
For 1998, 1997 and 1996, the expected long-term rates of return on plan assets
for pension benefits were approximately 5%, 5% and 6.2%, respectively (after
estimated income taxes) for those trusts subject to income taxes. For trusts not
subject to income taxes, the expected long-term rates of return on plan assets
were approximately 8.1%, 8.1% and 9.6% for 1998, 1997 and 1996, respectively.
The assumed rate of increase in future compensation levels varies by age for
both the qualified and non-qualified pension plans.
For 1998, 1997 and 1996, the expected long-term rates of return on plan assets
for other post-retirement benefits were approximately 5%, 5% and 6.2%,
respectively (after estimated income taxes) for those trusts subject to income
taxes. For trusts not subject to income taxes, the expected long-term rates of
return on plan assets were approximately 8.1%, 8.2% and 9.5% for 1998, 1997 and
1996, respectively. These rates of return on plan assets vary by benefit type
and employee group.
The assumed health care cost trend rate used in measuring the accumulated
postretirement benefit obligations starts at 8.75% in 1998 and declines to an
ultimate rate of 6% in 2025. Assumed health care cost trend rates have a
significant effect on the amounts reported for the health care plans. A
one-percentage-point change in assumed health care cost trend rates would have
the following effects (in millions):
1-Percentage- 1-Percentage-
Point Increase Point Decrease
--------------- ---------------
Effect on total of service and
interest cost components $ 9 $ (6)
Effect on accumulated postretirement
benefit obligation $43 $(34)
In addition, the Company has defined contribution plans that are generally
available to all employees and agents who are age 21 or older. Eligible
participants may contribute up to 20% of their compensation, to a maximum of
$10,000 annually to the plans in 1998. Eligible participants were able to
contribute up to 15% of their compensation, to a maximum of $9,500 annually to
the plans in 1997 and 1996. The Company matches the participant's contribution
at a 50% contribution rate up to a maximum Company contribution of 2% of the
participant's compensation. The Company contributed $11 million in 1998, $15
million in 1997 and $13 million in 1996 to these defined contribution plans.
10. Reinsurance
Reinsurance contracts do not relieve the Company from its obligations to
policyowners. Failure of reinsurers to honor their obligations could result in
losses to the Company. To minimize the possibility of losses, the Company
evaluates the financial condition of its reinsurers and continually monitors
concentrations of credit risk.
The effect of reinsurance on premiums and annuity and other considerations and
benefits, claims and settlement expenses is as follows (in millions):
Year ended December 31
1998 1997 1996
-----------------------------------
-----------------------------------
Premiums and annuity and other
considerations:
Direct $3,380 $4,601 $5,034
Assumed 59 106 116
Ceded (30) (39) (29)
===================================
Net premiums and annuity and other
considerations $3,409 $4,668 $5,121
===================================
===================================
Benefits, claims and settlement expenses:
Direct $4,739 $5,596 $6,003
Assumed 66 102 109
Ceded (28) (66) (25)
===================================
Net benefits, claims and
settlement expenses $4,777 $5,632 $6,087
===================================
Effective July 1, 1998, the Company no longer participates in reinsurance pools
related to the Federal Employee Group Life Insurance and Service Group Life
Insurance programs. In 1997, the premium assumed from these arrangements was
approximately $85 million.
11. Other Commitments and Contingencies
The Company, as a lessor, leases industrial, office, retail and other wholly
owned investment real estate properties under various operating leases. Rental
income for all operating leases totaled $362 million in 1998, $344 million in
1997 and $310 million in 1996. At December 31, 1998, future minimum annual
rental commitments under these noncancelable operating leases are as follows (in
millions):
Held for Sale Held for Total Rental
Investment Commitments
-------------------------------------------
1999 $150 $ 172 $ 322
2000 127 162 289
2001 103 140 243
2002 77 117 194
2003 49 99 148
Thereafter 152 758 910
===========================================
Total future minimum lease receipts $658 $1,448 $2,106
===========================================
The Company, as a lessee, leases office space, data processing equipment,
corporate aircraft and office furniture and equipment under various operating
leases. Rental expense for all operating leases totaled $60 million in 1998 and
$84 million in both 1997 and 1996. At December 31, 1998, future minimum annual
rental commitments under these noncancelable operating leases are as follows (in
millions):
1999 $ 44
2000 38
2001 28
2002 22
2003 14
Thereafter 17
-----------
163
Less future sublease rental income on these
noncancelable leases 6
===========
Total future minimum lease payments $157
===========
The Company is a defendant in various legal actions arising in the normal course
of its investment and insurance operations. In the opinion of management, any
losses resulting from the resolution of such actions would not have a material
effect on the Company's consolidated financial statements.
The Company is also subject to insurance guarantee laws in the states in which
it writes business. These laws provide for assessments against insurance
companies for the benefit of policyowners and claimants in the event of
insolvency of other insurance companies. The assessments may be partially
recovered through a reduction in future premium taxes in some states. At
December 31, 1998 and 1997, approximately $9 million and $6 million,
respectively, is accrued in other liabilities in the consolidated statements of
financial position for possible guarantee fund assessments for which notices
have not been received and the Company does not anticipate receiving a premium
tax credit.
12. Fair Value of Financial Instruments
The following discussion describes the methods and assumptions utilized by the
Company in estimating its fair value disclosures for financial instruments.
Certain financial instruments, particularly policyowner liabilities other than
investment contracts, are excluded from these fair value disclosure
requirements. The techniques utilized in estimating the fair values of financial
instruments are affected by the assumptions used, including discount rates and
estimates of the amount and timing of future cash flows. Care should be
exercised in deriving conclusions about the Company's business, its value or
financial position based on the fair value information of financial instruments
presented below. The estimates shown are not necessarily indicative of the
amounts that would be realized in a one-time, current market exchange of all of
the Company's financial instruments.
The Company defines fair value as the quoted market prices for those instruments
that are actively traded in financial markets. In cases where quoted market
prices are not available, fair values are estimated using present value or other
valuation techniques. The fair value estimates are made at a specific point in
time, based on available market information and judgments about the financial
instrument, including estimates of timing, amount of expected future cash flows
and the credit standing of counterparties. Such estimates do not consider the
tax impact of the realization of unrealized gains or losses. In many cases, the
fair value estimates cannot be substantiated by comparison to independent
markets. In addition, the disclosed fair value may not be realized in the
immediate settlement of the financial instrument.
Fair values of public debt and equity securities have been determined by the
Company from public quotations, when available. Private placement securities and
other fixed maturities and equity securities are valued by discounting the
expected total cash flows. Market rates used are applicable to the yield, credit
quality and average maturity of each security.
Fair values of commercial mortgage loans are determined by discounting the
expected total cash flows using market rates that are applicable to the yield,
credit quality and maturity of each loan. Fair values of residential mortgage
loans are determined by a pricing and servicing model using market rates that
are applicable to the yield, rate structure, credit quality, size and maturity
of each loan.
The fair values for assets classified as policy loans, other investments, cash
and cash equivalents and accrued investment income in the accompanying
consolidated statements of financial position approximate their carrying
amounts.
The fair values of the Company's reserves and liabilities for investment-type
insurance contracts (insurance, annuity and other policy contracts that do not
involve significant mortality or morbidity risk and that are only a portion of
the policyowner liabilities appearing in the consolidated statements of
financial position) are estimated using discounted cash flow analyses (based on
current interest rates being offered for similar contracts with maturities
consistent with those remaining for the investment-type contracts being valued).
The fair values for the Company's insurance contracts (insurance, annuity and
other policy contracts that do involve significant mortality or morbidity risk),
other than investment-type contracts, are not required to be disclosed. The
Company does consider, however, the various insurance and investment risks in
choosing investments for both insurance and investment-type contracts.
Fair values for debt issues are estimated using discounted cash flow analysis
based on the Company's incremental borrowing rate for similar borrowing
arrangements.
The carrying amounts and estimated fair values of the Company's financial
instruments at December 31, 1998 and 1997, are as follows (in millions):
<TABLE>
<CAPTION>
1998 1997
--------------------------- ----------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
--------------------------- ----------------------------
Assets (liabilities)
<S> <C> <C> <C> <C>
Fixed maturities (see Note 3) $21,006 $21,006 $21,546 $21,546
Equity securities (see Note 3) 1,102 1,102 1,273 1,273
Mortgage loans 12,091 12,711 13,286 14,010
Policy loans 25 25 749 749
Other investments 349 349 130 130
Cash and cash equivalents 461 461 546 546
Accrued investment income 375 375 457 457
Financial instruments included in Closed
Block (see Note 5) 3,587 3,652 - -
Investment-type insurance contracts (22,127) (21,606) (22,115) (22,637)
Debt (671) (708) (459) (486)
</TABLE>
13. Statutory Insurance Financial Information
The Company prepares statutory financial statements in accordance with the
accounting practices prescribed or permitted by the Insurance Division of the
Department of Commerce of the State of Iowa. Currently "prescribed" statutory
accounting practices include a variety of publications of the National
Association of Insurance Commissioners (NAIC) as well as state laws, regulations
and general administrative rules. "Permitted" statutory accounting practices
encompass all accounting practices not so prescribed. The impact of any
permitted accounting practices on statutory surplus is not material. The
accounting practices used to prepare statutory financial statements for
regulatory filings differ in certain instances from GAAP. Prescribed or
permitted statutory accounting practices are used by state insurance departments
to regulate the Company.
The NAIC has adopted the Codification of Statutory Accounting Principles
(Codification), the result of which is expected to constitute the primary source
of "prescribed" statutory accounting practices assuming formal adoption by Iowa
regulatory authorities. If adopted as proposed, the codification will likely
change, to some extent, prescribed statutory accounting practices and may result
in changes to the accounting practices that the Company uses to prepare its
statutory-basis financial statements. Codification will require adoption by the
various states before it becomes the prescribed statutory basis of accounting
for insurance companies domiciled within those states. The impact on the
Company's statutory financial statements has not been determined at this time.
Life/Health insurance companies are subject to certain risk-based capital (RBC)
requirements as specified by the NAIC. Under those requirements, the amount of
capital and surplus maintained by a life/health insurance company is to be
determined based on the various risk factors related to it. At December 31,
1998, the Company meets the RBC requirements.
The following summary reconciles the assets and stockholder's equity at December
31, 1998, 1997 and 1996, and net income for the years ended December 31, 1998,
1997 and 1996, in accordance with statutory reporting practices prescribed or
permitted by the Insurance Division of the Department of Commerce of the State
of Iowa with that reported in these consolidated GAAP financial statements (in
millions):
<TABLE>
<CAPTION>
Stockholder's
Assets Equity Net Income
---------------------------------------------
---------------------------------------------
<S> <C> <C> <C>
December 31, 1998
As reported in accordance with statutory accounting
practices - unconsolidated $70,096 $3,032 $511
Additions (deductions):
Unrealized gain on fixed maturities available-for-sale 997 997 -
Other investment adjustments 1,620 1,081 176
Adjustments to insurance reserves and dividends (169) (192) (56)
Deferral of policy acquisition costs 1,105 1,105 -
Surplus note reclassification as debt - (298) -
Provision for deferred federal income taxes and other
tax reclassifications - (475) 165
Other - net 294 219 (101)
=============================================
As reported in these consolidated GAAP financial statements
$73,943 $5,469 $695
=============================================
December 31, 1997
As reported in accordance with statutory accounting
practices - unconsolidated $63,957 $2,811 $432
Additions (deductions):
Unrealized gain on fixed maturities available-for-sale 1,176 1,176 -
Other investment adjustments 853 1,141 27
Adjustments to insurance reserves and dividends (173) (131) (41)
Deferral of policy acquisition costs 1,057 1,057 43
Surplus note reclassification as debt - (298) -
Provision for deferred federal income taxes and other
tax reclassifications - (643) 7
Other - net 184 171 (14)
---------------------------------------------
=============================================
As reported in these consolidated GAAP financial statements
$67,054 $5,284 $454
=============================================
Stockholder's
Assets Equity Net Income
---------------------------------------------
December 31, 1996
As reported in accordance with statutory accounting
practices - unconsolidated $56,837 $2,504 $415
Additions (deductions):
Unrealized gain on fixed maturities available-for-sale 964 964 -
Other investment adjustments 355 901 53
Adjustments to insurance reserves and dividends (156) (115) (41)
Deferral of policy acquisition costs 1,058 1,058 38
Surplus note reclassification as debt - (298) -
Provision for deferred federal income taxes and other
tax reclassifications (6) (493) 60
Other - net 90 133 1
=============================================
As reported in these consolidated GAAP financial statements
$59,142 $4,654 $526
=============================================
</TABLE>
14. Dividends
On December 1, 1998, the Company's Board of Directors declared dividends
comprising cash and other assets totaling $200 million to its sole shareholder,
Principal Financial Services, Inc. At December 31, 1998, $140 million of the
dividends have been paid and the remaining balance is reported in other
liabilities.
15. Year 2000 Issues (Unaudited)
In 1995, the Company began investigating the potential impact of the Year 2000
on its systems, procedures, customers and business processes. The Year 2000
assessment provided information used to determine what system components must be
changed or replaced to minimize the impact of the calendar change from 1999 to
2000.
The Company will continue to use internal and external resources to modify,
replace, and test its systems. Management estimates 100% of the identified
modifications to mission critical systems and 99% of the identified
modifications to other systems have been completed for its Year 2000 project.
The project completion is scheduled to occur prior to any anticipated impact on
the Company operations. The total cost for the project is estimated to be $20
million, with the costs being expensed as incurred until completion.
The Company faces the risk that one or more of its critical suppliers or
customers (external relationships) will not be able to interact with the Company
due to the third party's inability to resolve its own Year 2000 issues. The
Company has completed its inventory of external relationships and is attempting
to determine the overall Year 2000 readiness of its external relationships. The
Company is engaged in discussions with the third parties and is requesting
information as to those parties' Year 2000 plans and state of readiness. The
Company, however, does not have sufficient information at the current time to
predict whether all of its external relationships will be Year 2000 ready.
While the Company believes that it has addressed its Year 2000 concerns, the
Company has begun to develop contingency/recovery plans aimed at ensuring the
continuity of critical business functions before, on and after December 31,
1999. The Company expects contingency/recovery planning to be substantially
complete by April 1, 1999. The Year 2000 contingency plans will be reviewed
periodically throughout 1999 and revised as needed. The Company believes its
Year 2000 contingency plans coupled with existing "disaster recovery" and
"business resumption" plans minimize the impact Year 2000 issues may have on the
organization.
The process the Company is using encourages the developers of the contingency
plans to look beyond traditional systems problems which may include supply chain
issues, economic conditions, social changes, political aspects and other factors
which could influence the success of the business and customers.
APPENDIX A
The following tables illustrate how the policy value, surrender value and death
proceeds of the Policy may change with the investment experience of the
Investment Accounts. The tables show how these amounts in the Policy vary over
time if planned periodic premiums are paid annually and if the investment return
of the assets in the Investment Accounts were a uniform, gross, after-tax,
annual rate of 0%, 6% or 12%. The death benefits and values would be different
from those shown if the return averaged 0%, 6% or 12%, but fluctuated above and
below those averages during the year. Both death benefit option 1 and option 2
are illustrated.
The illustrations reflect a hypothetical Policy issued to a 55 year-old male
preferred non-smoker and a 50 year-old female preferred non-smoker.
Illustrations for younger insureds would be more favorable than those presented.
Illustrations for older insureds or for smokers would be less favorable.
o Illustrations 1 and 3 reflect current administrative and cost of
insurance charges.
o Illustrations 2 and 4 reflect the guaranteed maximum administration
and cost of insurance charges.
The illustrations reflect all Policy charges including:
o deductions from premiums for sales load and state and federal taxes;
o monthly administration charges;
o cost of insurance charge;
o mortality and expense risks charge; and
o surrender charges that may be deducted if the Policy were fully
surrendered or lapsed.
In addition, the illustrations reflect the weighted average of fees and expenses
of the Investment Accounts available through the Policy during the fiscal year
ending December 31, 1998. The Manager has agreed to reimburse operating expenses
of certain Accounts, if necessary, to limit total operating expenses for those
Accounts during the year ending December 31, 1999. The caps, is necessary, will
provide that total Account annual expenses will not exceed the rates shown
below:
MicroCap 1.06%
MidCap Growth 0.96%
SmallCap Growth 1.06%
SmallCap Value 1.16%
Stock Index 500 0.40%
There is no assurance that the fee reimbursement program will continue beyond
1999. In the future, fees and expenses of the Accounts may be more or less than
those shown. Such changes would make the operating expenses actually incurred by
an Account differ from the average rate used in the illustrations.
The illustrations are based on the assumption that:
o payments are made according to the $16,000 annual premium schedule;
o no values are allocated to the Fixed Account;
o no changes are made to the death benefit option or face amount;
o no policy loans and/or partial surrenders are made; and
o no riders are in effect.
Upon request, we will prepare a comparable illustration based upon the proposed
insureds' actual age, gender, smoking status, risk classification and desired
Policy features. For those illustrations, you have option of selecting which
Investment Accounts (and their specific fees and expenses) are used. If no
selection is made, the illustration is run using a hypothetical weighted
average.
In advertisements or sales literature for the Policies that include performance
data for one or more of the Investment Accounts, we may include policy values,
surrender values and death benefit figures computed using the same methods that
were used in creating the following illustrations. However, the actual average
total rate of return for the specific Investment Account(s) will be used instead
of the weighted average used in the following illustrations. This information
may be shown in the form of graphs, charts, tables and examples. It may include
data for periods prior to the offering of the Policy for an Account that has had
performance during such prior period (with policy charges assumed to be equal to
current charges for any period(s) prior to the offering of the Policy).
<TABLE>
<CAPTION>
Illustration 1 PRINCIPAL LIFE INSURANCE COMPANY Initial Face Amount $1,000,000
SURVIVORSHIP VARIABLE UNIVERSAL LIFE Death Benefit Option 1
PLANNED PREMIUM $16,000 MALE AGE 55 PREFERRED NON-SMOKER, FEMALE AGE 50 PREFERRED NON-SMOKER
ASSUMING CURRENT CHARGES
Death Benefit (2) Accumulated Value (2)
Assuming Hypothetical Gross Assuming Hypothetical Gross
Annual Investment Return of Annual Investment Return of
End of Accumulated 0% 6% 12% 0% 6% 12%
Year Premiums (1) (-.78% Net) (5.22% Net) (11.22% Net) (-.78% Net) (5.22% Net) (11.22% Net)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 $ 16,800 $1,000,000 $1,000,000 $1,000,000 $ 13,646 $ 14,493 $ 15,339
2 34,440 1,000,000 1,000,000 1,000,000 26,956 29,487 32,120
3 52,962 1,000,000 1,000,000 1,000,000 39,910 44,982 50,466
4 72,410 1,000,000 1,000,000 1,000,000 52,487 60,972 70,512
5 92,831 1,000,000 1,000,000 1,000,000 64,663 77,450 92,405
6 114,272 1,000,000 1,000,000 1,000,000 76,412 94,408 116,308
7 136,786 1,000,000 1,000,000 1,000,000 87,723 111,851 142,420
8 160,425 1,000,000 1,000,000 1,000,000 98,860 130,064 171,234
9 185,246 1,000,000 1,000,000 1,000,000 109,815 149,073 203,024
10 211,309 1,000,000 1,000,000 1,000,000 121,186 169,746 239,278
11 238,674 1,000,000 1,000,000 1,000,000 133,525 192,574 280,669
12 267,408 1,000,000 1,000,000 1,000,000 145,697 216,499 326,552
13 297,578 1,000,000 1,000,000 1,000,000 157,693 241,565 377,415
14 329,257 1,000,000 1,000,000 1,000,000 169,492 267,811 433,794
15 362,520 1,000,000 1,000,000 1,000,000 181,076 295,284 496,294
20 555,508 1,000,000 1,000,000 1,078,791 239,814 457,281 929,993
25 801,815 1,000,000 1,000,000 1,769,408 287,978 658,707 1,653,652
30 1,116,173 1,000,000 1,000,000 3,001,207 313,136 911,582 2,858,293
Surrender Value (2)
Assuming Hypothetical Gross
Annual Investment Return of
0% 6% 12%
(-.78% Net) (5.22% Net) (11.22% Net)
$ 4,146 $4,993 $ 5,839
17,456 19,987 22,620
30,410 35,482 40,966
42,987 51,472 61,012
55,163 67,950 82,905
67,365 85,360 107,261
79,581 103,709 134,278
92,074 123,278 164,448
104,839 144,096 198,048
118,472 167,032 236,564
133,525 192,574 280,669
145,697 216,499 326,552
157,693 241,565 377,415
169,492 267,811 433,794
181,076 295,284 496,294
239,814 457,281 929,993
287,978 658,707 1,653,652
313,136 911,582 2,858,293
<FN>
(1) Assumes net interest of 5% compounded annually.
(2) Assumes no policy loan has been made.
</FN>
The death benefit, accumulated value and surrender value will differ if premiums
are paid in different amounts or frequencies. It is emphasized that the
hypothetical investment results are illustrative only and should not be deemed
to be a representation of past or future investment results. Actual investment
results may be more or less than those shown. The death benefit, accumulated
value and surrender value for a policy would be different from those shown if
actual rates of investment return applicable to the policy averaged 0%, 6% or
12% over a period of years, but also fluctuated above or below that average for
individual policy years. The death benefit, accumulated value and surrender
value for a policy would also be different from those shown, depending on the
investment allocations made to the investment divisions of the separate account
and the different rates or return of the Fund portfolios, if the actual rates of
investment return applicable to the policy averaged 0%, 6% or 12%, but varied
above or below that average for individual divisions. No representations can be
made that these hypothetical rates of return can be achieved for any one year or
sustained over any period of time.
</TABLE>
<TABLE>
<CAPTION>
Illustration 2 PRINCIPAL LIFE INSURANCE COMPANY Initial Face Amount $1,000,000
SURVIVORSHIP VARIABLE UNIVERSAL LIFE Death Benefit Option 1
PLANNED PREMIUM $16,000 MALE AGE 55 PREFERRED NON-SMOKER, FEMALE AGE 50 PREFERRED NON-SMOKER
ASSUMING GUARANTEED CHARGES
Death Benefit (2) Accumulated Value (2)
Assuming Hypothetical Gross Assuming Hypothetical Gross
Annual Investment Return of Annual Investment Return of
End of Accumulated 0% 6% 12% 0% 6% 12%
Year Premiums (1) (-.78% Net) (5.22% Net) (11.22% Net) (-.78% Net) (5.22% Net) (11.22% Net)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 $ 16,800 $1,000,000 $1,000,000 $1,000,000 $ 13,527 $ 14,370 $ 15,212
2 34,440 1,000,000 1,000,000 1,000,000 26,719 29,236 31,854
3 52,962 1,000,000 1,000,000 1,000,000 39,558 44,597 50,045
4 72,410 1,000,000 1,000,000 1,000,000 52,021 60,447 69,921
5 92,831 1,000,000 1,000,000 1,000,000 64,085 76,779 91,626
6 114,272 1,000,000 1,000,000 1,000,000 75,724 93,584 115,322
7 136,786 1,000,000 1,000,000 1,000,000 86,907 110,849 141,186
8 160,425 1,000,000 1,000,000 1,000,000 97,604 128,561 169,417
9 185,246 1,000,000 1,000,000 1,000,000 107,779 146,705 200,234
10 211,309 1,000,000 1,000,000 1,000,000 117,976 166,083 235,048
11 238,674 1,000,000 1,000,000 1,000,000 127,876 186,275 273,590
12 267,408 1,000,000 1,000,000 1,000,000 137,122 206,964 315,931
13 297,578 1,000,000 1,000,000 1,000,000 145,623 228,102 362,468
14 329,257 1,000,000 1,000,000 1,000,000 153,269 249,631 413,660
15 362,520 1,000,000 1,000,000 1,000,000 159,938 271,487 470,040
20 555,508 1,000,000 1,000,000 1,000,000 173,552 383,442 857,285
25 801,815 1,000,000 1,000,000 1,615,713 131,562 491,837 1,510,012
30 1,116,173 1,000,000 2,717,176 577,969 2,587,787
Surrender Value (2)
Assuming Hypothetical Gross
Annual Investment Return of
0% 6% 12%
(-.78% Net) (5.22% Net) (11.22% Net)
$ 4,027 $4,870 $ 5,712
17,219 19,736 22,354
30,058 35,097 40,545
42,521 50,947 60,421
54,585 67,279 82,126
66,676 84,536 106,275
78,764 102,706 133,044
90,818 121,776 162,631
102,803 141,729 195,257
115,262 163,369 232,333
127,876 186,275 273,590
137,122 206,964 315,931
145,623 228,102 362,468
153,269 249,631 413,660
159,938 271,487 470,040
173,552 383,442 857,285
131,562 491,837 1,510,012
577,969 2,587,787
<FN>
(1) Assumes net interest of 5% compounded annually.
(2) Assumes no policy loan has been made.
</FN>
The death benefit, accumulated value and surrender value will differ if premiums
are paid in different amounts or frequencies. It is emphasized that the
hypothetical investment results are illustrative only and should not be deemed
to be a representation of past or future investment results. Actual investment
results may be more or less than those shown. The death benefit, accumulated
value and
surrender value for a policy would be different from those shown if actual rates
of investment return applicable to the policy averaged 0%, 6% or 12% over a
period of years, but also fluctuated above or below that average for individual
policy years. The death benefit, accumulated value and surrender value for a
policy would also be different from those shown, depending on the investment
allocations made to the investment divisions of the separate account and the
different rates or return of the Fund portfolios, if the actual rates of
investment return applicable to the policy averaged 0%, 6% or 12%, but varied
above or below that average for individual divisions. No representations can be
made that these hypothetical rates of return can be achieved for any one year or
sustained over any period of time.
</TABLE>
<TABLE>
<CAPTION>
Illustration 3 PRINCIPAL LIFE INSURANCE COMPANY Initial Face Amount $1,000,000
SURVIVORSHIP VARIABLE UNIVERSAL LIFE Death Benefit Option 2
PLANNED PREMIUM $16,000 MALE AGE 55 PREFERRED NON-SMOKER, FEMALE AGE 50 PREFERRED NON-SMOKER
ASSUMING CURRENT CHARGES
Death Benefit (2) Accumulated Value (2)
Assuming Hypothetical Gross Assuming Hypothetical Gross
Annual Investment Return of Annual Investment Return of
End of Accumulated 0% 6% 12% 0% 6% 12%
Year Premiums (1) (-.78% Net) (5.22% Net) (11.22% Net) (-.78% Net) (5.22% Net) (11.22% Net)
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 $ 16,800 $1,013,645 $1,014,492 $1,015,338 $ 13,645 $ 14,492 $ 15,338
2 34,440 1,026,950 1,029,481 1,032,113 26,950 29,481 32,113
3 52,962 1,039,890 1,044,960 1,050,441 39,890 44,960 50,441
4 72,410 1,052,439 1,060,916 1,070,446 52,439 60,916 70,446
5 92,831 1,064,566 1,077,332 1,092,261 64,566 77,332 92,261
6 114,272 1,076,237 1,094,186 1,116,029 76,237 94,186 116,029
7 136,786 1,087,433 1,111,470 1,141,922 87,433 111,470 141,922
8 160,425 1,098,440 1,129,491 1,170,454 98,440 129,491 170,454
9 185,246 1,109,251 1,148,270 1,201,886 109,251 148,270 201,886
10 211,309 1,120,458 1,168,666 1,237,681 120,458 168,666 237,681
11 238,674 1,132,609 1,191,161 1,278,492 132,609 191,161 278,492
12 267,408 1,144,571 1,214,690 1,323,647 144,571 214,690 323,647
13 297,578 1,156,327 1,239,282 1,373,596 156,327 239,282 373,596
14 329,257 1,167,853 1,264,964 1,428,829 167,853 264,964 428,829
15 362,520 1,179,122 1,291,758 1,489,885 179,122 291,758 489,885
20 555,508 1,236,636 1,450,183 1,913,868 236,636 450,183 913,868
25 801,815 1,280,334 1,638,820 2,607,998 280,334 638,820 1,607,998
30 1,116,173 1,291,024 1,843,182 3,727,763 291,024 843,182 2,727,763
Surrender Value (2)
Assuming Hypothetical Gross
Annual Investment Return of
0% 6% 12%
(-.78% Net) (5.22% Net) (11.22% Net)
- ---------------------------------------------
$ 4,145 $4,992 $ 5,838
17,450 19,981 22,613
30,390 35,460 40,941
42,939 51,416 60,946
55,066 67,832 82,761
67,190 85,139 106,982
79,291 103,328 133,780
91,654 122,705 163,668
104,275 143,294 196,910
117,743 165,951 234,967
132,609 191,161 278,492
144,571 214,690 323,647
156,327 239,282 373,596
167,853 264,964 428,829
179,122 291,758 489,885
236,636 450,183 913,868
280,334 638,820 1,607,998
291,024 843,182 2,727,763
<FN>
(1) Assumes net interest of 5% compounded annually.
(2) Assumes no policy loan has been made.
</FN>
The death benefit, accumulated value and surrender value will differ if premiums
are paid in different amounts or frequencies. It is emphasized that the
hypothetical investment results are illustrative only and should not be deemed
to be a representation of past or future investment results. Actual investment
results may be more or less than those shown. The death benefit, accumulated
value and surrender value for a policy would be different from those shown if
actual rates of investment return applicable to the policy averaged 0%, 6% or
12% over a period of years, but also fluctuated above or below that average for
individual policy years. The death benefit, accumulated value and surrender
value for a policy would also be different from those shown, depending on the
investment allocations made to the investment divisions of the separate account
and the different rates or return of the Fund portfolios, if the actual rates of
investment return applicable to the policy averaged 0%, 6% or 12%, but varied
above or below that average for individual divisions. No representations can be
made that these hypothetical rates of return can be achieved for any one year or
sustained over any period of time.
</TABLE>
<TABLE>
<CAPTION>
Illustration 4 PRINCIPAL LIFE INSURANCE COMPANY Initial Face Amount $1,000,000
SURVIVORSHIP VARIABLE UNIVERSAL LIFE Death Benefit Option 2
PLANNED PREMIUM $16,000 MALE AGE 55 PREFERRED NON-SMOKER, FEMALE AGE 50 PREFERRED NON-SMOKER
ASSUMING CURRENT CHARGES
Death Benefit (2) Accumulated Value (2)
Assuming Hypothetical Gross Assuming Hypothetical Gross
Annual Investment Return of Annual Investment Return of
End of Accumulated 0% 6% 12% 0% 6% 12%
Year Premiums (1) (-.78% Net) (5.22% Net) (11.22% Net) (-.78% Net) (5.22% Net) (11.22% Net)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 $ 16,800 $1,013,526 $1,014,369 $1,015,212 $13,526 $ 14,369 $ 15,212
2 34,440 1,026,714 1,029,230 1,031,847 26,714 29,230 31,847
3 52,962 1,039,538 1,044,575 1,050,020 39,538 44,575 50,020
4 72,410 1,051,974 1,060,391 1,069,855 51,974 60,391 69,855
5 92,831 1,063,989 1,076,661 1,091,484 63,989 76,661 91,484
6 114,272 1,075,550 1,093,364 1,115,045 75,550 93,364 115,045
7 136,786 1,086,617 1,110,469 1,140,689 86,617 110,469 140,689
8 160,425 1,097,150 1,127,942 1,168,577 97,150 127,942 168,577
9 185,246 1,107,099 1,145,743 1,198,877 107,099 145,743 198,877
10 211,309 1,116,989 1,164,634 1,232,924 116,989 164,634 232,924
11 238,674 1,126,484 1,184,154 1,270,356 126,484 184,154 270,356
12 267,408 1,135,205 1,203,929 1,311,116 135,205 203,929 311,116
13 297,578 1,143,032 1,223,840 1,355,427 143,032 223,840 355,427
14 329,257 1,149,825 1,243,739 1,403,514 149,825 243,739 403,514
15 362,520 1,155,425 1,263,450 1,455,603 155,425 263,450 455,603
20 555,508 1,159,229 1,351,485 1,784,935 159,229 351,485 784,935
25 801,815 1,098,039 1,389,085 2,250,504 98,039 389,085 1,250,504
30 1,116,173 1,293,118 2,864,115 293,118 1,864,115
Surrender Value (2)
Assuming Hypothetical Gross
Annual Investment Return of
0% 6% 12%
(-.78% Net) (5.22% Net) (11.22% Net)
$ 4,026 $ 4,869 $ 5,712
17,214 19,730 22,347
30,038 35,075 40,520
42,474 50,891 60,355
54,489 67,161 81,984
66,502 84,316 105,998
78,475 102,326 132,547
90,364 121,157 161,791
102,123 140,767 193,901
114,275 161,920 230,210
126,484 184,154 270,356
135,205 203,929 311,116
143,032 223,840 355,427
149,825 243,739 403,514
155,425 263,450 455,603
159,229 351,485 784,935
98,039 389,085 1,250,504
293,118 1,864,115
<FN>
(1) Assumes net interest of 5% compounded annually.
(2) Assumes no policy loan has been made.
</FN>
The death benefit, accumulated value and surrender value will differ if premiums
are paid in different amounts or frequencies. It is emphasized that the
hypothetical investment results are illustrative only and should not be deemed
to be a representation of past or future investment results. Actual investment
results may be more or less than those shown. The death benefit, accumulated
value and surrender value for a policy would be different from those shown if
actual rates of investment return applicable to the policy averaged 0%, 6% or
12% over a period of years, but also fluctuated above or below that average for
individual policy years. The death benefit, accumulated value and surrender
value for a policy would also be different from those shown, depending on the
investment allocations made to the investment divisions of the separate account
and the different rates or return of the Fund portfolios, if the actual rates of
investment return applicable to the policy averaged 0%, 6% or 12%, but varied
above or below that average for individual divisions. No representations can be
made that these hypothetical rates of return can be achieved for any one year or
sustained over any period of time.
</TABLE>
APPENDIX B
TARGET PREMIUMS
The target premiums for the Policy are based on the joint equivalent age (JEA)
of the insureds. The JEA takes into account the gender*, age, smoking status and
risk classification of each insured. The calculation is as follows:
1. Start with the unadjusted individual ages of insured #1 and insured #2.
Call this (X1) and (X2) respectively.
2. Take each individual age and adjust for gender.
-if Male the gender adjustment is 0
-if Female the gender adjustment is minus 5
-if Unisex rating is used, the gender adjustment is minus 2
3. Take resulting individual ages from step 2 and adjust for smokers if
applicable.
-if Male Smoker the smoker adjustment is plus 3
-if Female Smoker the smoker adjustment is plus 2
-if Unisex Smoker the smoker adjustment is plus 3
4. Take resulting individual ages from step 3 and adjust for substandard
table ratings, if any.
-if table A rating then add 2
-if table B rating then add 4
-if table C rating then add 6
-if table D rating then add 8
-if table E rating then add 10
-if table F rating then add 12
-if table G rating then add 14
-if table H rating then add 15
-if rating is higher than table H then add 16.
5. The result of step 4 is the adjusted individual ages of insured #1 and
insured #1. Call this (X1A) and (X2A) respectively.
6. If (X1A) is greater than 100 then set (X1A) equal to 100.
7. If (X1B) is greater than 100 then set (X1B) equal to 100.
8. Take the difference between (X1A) and (X1B). Call this (XDIFF).
9. Look up (XDIFF) on the table below to find out what to add on to
youngest adjusted age.
XDIFF ADD ON
0 0
1 to 2 1
3 to 4 2
5 to 6 3
7 to 9 4
10 to 12 5
13 to 15 6
16 to 18 7
19 to 23 8
24 to 28 9
29 to 34 10
35 to 39 11
40 to 44 12
45 to 47 13
48 to 50 14
51 to 53 15
54 to 56 16
57 to 60 17
61 to 64 18
65 to 69 19
70 to 75 20
76 to 85 21
10. The JEA (Joint Equivalent Age) is equal to the Minimum of (X1A) and
(X1B) plus ADD ON from the table above.
Example:
Male Nonsmoker age 45 table rating A, Female Smoker age 57.
1. (X1) = 45 and (X2) = 57
2. (X1) = 45 + 0 = 45; and (X2) = 57 - 5 = 52
3. (X1) = 45 + 0 = 45; and (X2) = 52 + 2 = 54
4. (X1) = 45 + 2 = 47; and (X2) = 54 + 0 = 54
5. (XIA) = 47; (X2A) = 54
6. (XIA) is not greater than 100
7. (XIB) is not greater than 100
8. (XDIFF) = (X2A) - (X1A) = 54 - 47 = 7
9. ADD ON = 4
10. JEA = minimum of (XIA) and (X2A) + ADD ON = 47 + 4 = 51
SVUL Target Premium Rates per $1000 of Face
JEA Target JEA Target
less than 20 2.78 61 21.67
20 2.78 62 22.98
21 2.87 63 24.23
22 2.95 64 25.41
23 3.03 65 26.52
24 3.13 66 27.56
25 3.22 67 28.56
26 3.32 68 29.53
27 3.41 69 30.45
28 3.52 70 31.36
29 3.62 71 32.27
30 3.73 72 33.17
31 3.84 73 34.08
32 3.96 74 35.02
33 4.07 75 35.97
34 4.24 76 36.95
35 4.42 77 37.95
36 4.60 78 38.94
37 4.79 79 39.96
38 4.99 80 40.99
39 5.20 81 42.00
40 5.41 82 42.00
41 5.64 83 42.00
42 5.87 84 42.00
43 6.11 85 42.00
44 6.51 86 42.00
45 6.93 87 42.00
46 7.38 88 42.00
47 7.86 89 42.00
48 8.38 90 42.00
49 8.93 greater than 90 42.00
50 9.50
51 10.12
52 10.78
53 11.49
54 12.54
55 13.68
56 14.92
57 16.22
58 17.58
59 18.94
60 20.32
* The cost of insurance rate for Policies issued in states which require
unisex pricing or in connection with employment related insurance and
benefit plans is not based on the gender of the insured.
PART II. OTHER INFORMATION
UNDERTAKING TO FILE REPORTS
Subject to the terms and conditions of Section 15(d) of the Securities Exchange
Act of 1934, the undersigned Registrant hereby undertakes to file with the
Securities and Exchange Commission such supplementary and periodic information,
documents and reports as may be prescribed by any rule or regulation of the
Commission heretofore or hereafter adopted under the authority conferred in that
section.
UNDERTAKING PURSUANT TO RULE 484
Insofar as indemnification for liability arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
Registrant, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter had been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
REPRESENTATION PURSUANT TO SECTION 26 OF THE INVESTMENT COMPANY ACT OF 1940
Principal Mutual Life Insurance Company represents the fees and charges deducted
under the Policy, in the aggregate, are reasonable in relation to the services
rendered, the expenses expected to be incurred, and the risks assumed by the
Company.
REPRESENTATIONS PURSUANT TO RULE 6e-3(T) This filing is made
pursuant to Rules 6c-3 and 6e-3(T) under the Investment Company Act of 1940.
Registrant elects to be governed by Rule 6e-3(T)(b)(13)(i)(A) under the
Investment Company Act of 1940, with respect to the Policies described in the
prospectus. Registrant makes the following representations:
(1) Section 6e-3(T)(b)(13)(iii)(F) has been relied upon.
(2) The level of the mortality and expense risks charge is within
the range of industry practice for comparable contracts.
(3) The Registrant has concluded that there is a reasonable
likelihood that the distribution financing arrangement for the
Variable Life Separate Account will benefit the separate account
and policyowners, and it will keep and make available to the
Commission on request a memorandum setting forth the basis for
this representation.
(4) The Variable Life Separate Account will invest only in
management investment companies which have undertaken to have a
board of directors, a majority of whom are not interested
persons of the Company, formulate and approve any plan under
Rule 12b-1 to finance distribution expenses.
The methodology used to support the representation made in paragraph (2) above
is based upon an analysis of the mortality and expense risks charges contained
in other variable life insurance policies, including scheduled and flexible
premium products. Registrant undertakes to keep and make available to the
Commission on request the documents used to support the representation in
paragraph (2) above.
CONTENTS OF REGISTRATION STATEMENT
This registration statement comprises the following papers and documents:
The facing sheet;
The prospectus, consisting of 121 pages;
The undertaking to file reports;
The undertaking pursuant to Rule 484;
Representations pursuant to Rule 6e-3(T);
The signatures;
Written consents of the following persons:
Ernst & Young LLP
The following exhibits
1. Copies of all exhibits required by paragraph A of the
instructions as to exhibits in Form N-8B-2 are set forth
below under designations based on such instructions
1.A1 Resolution of Executive Committee of Board of Directors of
Principal Mutual Life Insurance Company establishing the
Variable Life Separate Account (*Filed 2/1/99)
1.A3A.a Distribution Agreement between Princor Financial Services
Corporation and Principal Mutual Life Insurance Company
(*Filed 2/1/99)
1.A3B.a Form of Selling Agreement**
1.A3B.b Registered Representative Agreement (*Filed 2/1/99)
1.A3C Schedule of sales commissions
1.A5.a Form of Policy (*Filed 2/1/99), **
1.A5.a.i Four Year Term Insurance Rider (*Filed 2/1/99)
1.A5.a.ii Policy Split Option Rider (*Filed 2/1/99)
1.A5.a.iii Single Life Term Insurance Rider (*Filed 2/1/99)
1.A5.a.iv Enhanced Death Benefit Rider (*Filed 2/1/99)
1.A5.b Form of Policy (Unisex) (*Filed 2/1/99), **
1.A5.b.i Four Year Term Insurance Rider (*Filed 2/1/99)
1.A5.b.ii Policy Split Option Rider (Unisex) (*Filed 2/1/99)
1.A5.b.iii Single Life Term Insurance Rider (*Filed 2/1/99)
1.A5.b.iv Enhanced Death Benefit Rider (*Filed 2/1/99)
1.A6.a Articles of Incorporation, as Amended of Principal
Life Insurance Company (*Filed 2/1/99)
1.A6.b By-laws of Principal Life Insurance Company (*Filed 2/1/99)
1.A10.a Form of Application**
1.A10.b Form of Supplemental Application**
2. Opinion and consent of G. R. Narber, Senior Vice President
and General Counsel (*Filed 2/1/99)
3. No financial statements will be omitted from the prospectus
pursuant to Instruction 1(b) or (c) or Part I
4. Not applicable
5. Not applicable
6. Consent of Ernst & Young LLP
7. Description of Issuance, Transfer and Redemption Procedures
Pursuant to Rule 6e-3(T)(b)(12)(iii) (*Filed 2/1/99), **
8. Powers of Attorney of Directors of Principal Life
Insurance Company**
9. Opinion and Consent of Jeff Fitch, FSA, MAAA
- ---------------------------
* Filed by initial filing.
** Filed by Pre-effective Amendment No. 1
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment to the Registration Statement to be signed on its
behalf by the undersigned thereto duly authorized in the city of Des Moines and
state of Iowa, on the 18th day of May, 1999.
PRINCIPAL LIFE INSURANCE COMPANY
VARIABLE LIFE SEPARATE ACCOUNT
(Registrant)
By: PRINCIPAL LIFE INSURANCE COMPANY
(Depositor)
/s/ David J. Drury
By ______________________________________________
David J. Drury
Chairman and Chief Executive Officer
Attest:
/s/ Joyce N. Hoffman
- -----------------------------------
Joyce N. Hoffman
Vice President and
Corporate Secretary
As required by the Securities Act of 1933, this Amendment to the Registration
Statement has been signed by the following persons in the capacities and on the
date indicated.
Signature Title Date
/s/ D. J. Drury Chairman and May 18, 1999
- -------------------- Chief Executive Officer
D. J. Drury
/s/ D. C. Cunningham Vice President and May 18, 1999
- -------------------- Controller (Principal
D. C. Cunningham Accounting Officer)
(M. H. Gersie)* Senior Vice President May 18, 1999
- -------------------- (Principal Financial
M. H. Gersie Officer)
(B. J. Bernard)* Director May 19, 1999
- --------------------
B. J. Bernard
(J. Carter-Miller)* Director May 19, 1999
- --------------------
J. Carter-Miller
(R. M. Davis)* Director May 18, 1999
- --------------------
R. M. Davis
(C. D. Gelatt, Jr.)* Director May 18, 1999
- --------------------
C. D. Gelatt, Jr.
(J. B. Griswell)* Director May 18, 1999
- --------------------
J. B. Griswell
(G. D. Hurd)* Director May 18, 1999
- --------------------
G. D. Hurd
(C. S. Johnson)* Director May 18, 1999
- --------------------
C. S. Johnson
(W. T. Kerr)* Director May 18, 1999
- --------------------
W. T. Kerr
(L. Liu)* Director May 18, 1999
- --------------------
L. Liu
(V. H. Loewenstein)* Director May 18, 1999
- --------------------
V. H. Loewenstein
(R. D. Pearson)* Director May 18, 1999
- --------------------
R. D. Pearson
(J. R. Price)* Director May 18, 1999
- --------------------
J. R. Price
(D. M. Stewart)* Director May 18, 1999
- --------------------
D. M. Stewart
(E. E. Tallett)* Director May 18, 1999
- --------------------
E. E. Tallett
(D. D. Thornton)* Director May 18, 1999
- --------------------
D. D. Thornton
(F. W. Weitz)* Director May 18, 1999
- --------------------
F. W. Weitz
*By /s/ David J. Drury
------------------------------------
David J. Drury
Chairman and Chief Executive Officer
Pursuant to Powers of Attorney
Previously Filed or Included Herein
<PAGE>
EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT INDEX
Page Number in
Sequential Numbering
Exhibit No. Description Where Exhibit Can Be Found
<S> <C> <C>
1.A1 Resolution of Executive Committee *
of Board of Directors of Depositor
establishing Variable Life Separate
Account
1.A3A.a Distribution Agreement Between *
Depositor and Principal Underwriter
1.A3B.a Form of Selling Agreement 13
1.A3B.b Registered Representative Agreement *
1.A3C Schedule of Sales Commissions 22
1.A5.a Form of Policy 24
1.A5.a.i Four Year Term Insurance Rider *
1.A5.a.ii Policy Split Option Rider *
1.A5.a.iii Single Life Term Insurance Rider *
1.A5.a.iv Enhanced Death Benefit Rider *
1.A5.b Form of Policy (Unisex) 40
1.A5.b.i Four Year Term Insurance Rider *
1.A5.b.ii Policy Split Option Rider (Unisex) *
1.A5.b.iii Single Life Term Insurance Rider *
1.A5.b.iv Enhanced Death Benefit Rider *
1.A6.a Articles of Incorporation of the Depositor *
1.A6.b By-laws of the Depositor *
1.A10.a Form of Application 56
1.A10.b Form of Supplemental Application 69
2 Opinion and consent of G. R. Narber *
Senior Vice President and General Counsel
6 Consent of Ernst & Young LLP 73
7 Description of Issuance, Transfer and Redemption 74
Procedures Pursuant to Rule 6e-3(T)(b)(12)(iii)
8 Powers of Attorney of Directors of 82
Principal Life Insurance Company.
9 Opinion and Consent of Jeff Fitch, FSA, MAAA 83
* Filed in initial filing.
</TABLE>
Broker-Dealer Variable Contract
Supervisory and Service Agreement
- --------------------------------------------------------------------------------
Princor Financial Services Corporation ("Princor"), and Principal Life Insurance
Company (the "Insurer"), distributor and issuer for and of the Policies
hereunder described and the undersigned broker-dealer (the "Broker-Dealer"),
enter into this Agreement as of the date indicated, for the purpose of
appointing the Broker-Dealer to perform the services hereunder described,
subject to the following provisions:
1. Except as provided below, Princor hereby appoints the Broker-Dealer to
provide sales assistance with respect to, and to cause applications to be
solicited for the purchase of variable life policies issued by the Insurer.
Broker-Dealer accepts such appointment and agrees to use its best efforts
to provide sales assistance to registered representatives of the
Broker-Dealer and to cause applications for the purchase of Policies to be
solicited by such registered representatives. Broker-Dealer agrees to pay a
commission to such registered representatives. Commissions will be paid to
the registered representative's broker-dealer of record.
The Insurer represents that the Policies, including any related separate
accounts, shall comply with the registration and other applicable
requirements of the Securities Act of 1933 (1933 Act) and the Investment
Company Act of 1940 and the rules and regulations thereunder, including the
terms of any order of the Securities and Exchange Commission (SEC) with
respect thereto. Insurer further represents that the Policy prospectuses
included in the Insurer's registration statement, post-effective
amendments, and any supplements thereto, as filed or to be filed with the
SEC, as of their respective effective dates, contain or will contain all
statements and information required to be stated therein by the 1933 Act
and in all respects conform or will conform to the requirements thereof,
and no prospectus, nor any supplement thereof, includes or will include any
untrue statement of a material fact, or omits or will omit to state any
material fact required to be stated therein or necessary to make the
statements therein not misleading, provided, however, that the foregoing
representations shall not apply to information contained in or omitted from
any prospectus or supplement in reliance upon and in conformity with
written information furnished to the Insurer by the Broker-Dealer
specifically for use in preparation thereof. The foregoing representations
also shall not apply to information contained in or omitted from any
prospectus or supplement of any underlying mutual fund.
2. The Broker-Dealer will promptly forward to the appropriate office of
Princor, or its authorized designee, all Policy applications along with
other documents, if any, and any payments received with such applications
and will have no rights of set off for any reason. Any Policy application
which is rejected, together with any payment made and other documents
submitted, shall be returned to the Broker-Dealer.
3. Insurer, on behalf of Princor, shall pay the Broker-Dealer pursuant to the
accompanying Exhibits. The Broker-Dealer agrees to return promptly all
compensation received for any Policy returned within the "free look" period
as specified in the Policy.
4. In those states where Broker-Dealer cannot obtain an insurance license,
Broker-Dealer represents and warrants that: it will effect the sale of the
Policy through a validly licensed insurance Representative (Compensation
Representative) who has entered into an agreement with Broker-Dealer for
this purpose; it authorizes Insurer to pay any compensation due it from
sales of the Policy to such Compensation Representative; it remains fully
responsible for recordkeeping and supervision of the solicitation and/or
sale of the Policy; all monies received by Compensation Representative in
accordance with this section will be distributed by Compensation
Representative only to duly licensed and registered representatives who
have been appointed by the Insurer to solicit for applications for the
Polices.
5. The Broker-Dealer represents that it is a registered broker-dealer under
the Securities Exchange Act of 1934, a member in good standing of the
National Association of Securities Dealers, Inc. ("NASD"), and is
registered as a broker-dealer under state law to the extent required in
order to provide the services described in this Agreement. Broker-Dealer
agrees to abide by all rules and regulations of the NASD Regulation, Inc.
("NASDR"), including its Conduct Rules, and to comply with all applicable
state and federal laws and the rules and regulations of authorized
regulatory agencies affecting the sale of the Policies, including the
prospectus delivery requirements under the Securities Act of 1933 for the
Policies and any underlying mutual fund. The Broker-Dealer is responsible
for prospectus delivery requirements only on initial sale. The Insurer and
underwriter will be responsible for prospectus delivery annually after the
original sale. The Broker-Dealer agrees to notify Princor promptly of any
change, termination, or suspension of its status as a broker-dealer or NASD
member. Broker-Dealer shall immediately notify Princor with respect to i)
the initiation and disposition of any form of disciplinary action by the
NASDR or any other agency or instrumentality having jurisdiction with
respect to the subject matter hereof against Broker-Dealer or any of its
employees or agents; ii) the issuance of any form of deficiency notice made
part of the public record by the NASDR or any such agency regarding
Broker-Dealer's training, supervision or sales practices; and/or iii) the
effectuation of any consensual order with respect thereto.
6. In connection with the solicitation of applications for the purchase of
Policies, Broker-Dealer agrees to indemnify and hold harmless Princor and
the Insurer from any damage or expense as a result of (a) the negligence,
misconduct or wrongful act of Broker-Dealer or any employee, representative
or agent of the Broker-Dealer and/or (b) any actual or alleged violation of
any securities or insurance laws, regulations or orders and/or (c) any
actual or alleged obligation of the Compensation Representative under terms
of the agreement between the Broker-Dealer and the Compensation
Representative, including claims by one or more of the Broker-Dealer's
representatives for compensation due or to become due on account of such
representatives' sales of the Policy and any claims or controversy between
Broker-Dealer and Compensation Representative as to rights to
compensation.. Any indebtedness or obligation of the Broker-Dealer to
Princor or the Insurer, whether arising hereunder or otherwise, and any
liabilities incurred or moneys paid by Princor or the Insurer to any person
as a result of any misrepresentation, wrongful or unauthorized act or
omission, negligence of or failure of Broker-Dealer or its employees,
producers, and registered representatives to comply with this Agreement,
shall be set off against any compensation payable under this Agreement.
Notwithstanding the foregoing, Broker-Dealer shall not indemnify and hold
harmless Princor and the Insurer from any damage or expense on account of
the negligence, misconduct or wrongful act of Broker-Dealer or any
employee, representative or producer of Broker-Dealer if such negligence,
misconduct or wrongful act arises out of or is based upon any untrue
statement or alleged untrue statement of material fact, or the omission or
alleged omission of a material fact in: (i) any registration statement,
including any prospectus or any post-effective amendment thereto; or (ii)
any material prepared and/or supplied by Princor or the Insurer for use in
conjunction with the offer or sale of Policies, or (iii) any state
registration or other document filed in any state or jurisdiction in order
to qualify any Policies under the securities laws of such state or
jurisdiction. The terms of this provision shall not be impaired by
termination of this Agreement.
In connection with the solicitation of applications for the purchase of
Policies, Princor and the Insurer agree to indemnify and hold harmless
Broker-Dealer from any damage or expense on account of the negligence,
misconduct or wrongful act of Princor or the Insurer or any employee,
representative or producer of Princor or the Insurer, including but not
limited to, any damage or expense which arises out of or is based upon any
untrue statement or alleged untrue statement of material fact, or the
omission or alleged omission of a material fact in: (i) any registration
statement, including any prospectus or any post-effective amendment
thereto; or (ii) any material prepared and/or supplied by Princor or the
Insurer for use in conjunction with the offer or sale of the Policies; or
(iii) any state registration or other document filed in any state or other
jurisdiction in order to qualify any Policy under the securities laws of
such state or jurisdiction and/or any actual or alleged violation of any
securities or insurance laws, regulations or orders. The terms of this
provision shall not be impaired by termination of this Agreement.
7. The Broker-Dealer will itself be, or will select persons associated with it
who are trained and qualified to solicit applications for purchase of
Policies in conformance with applicable state and federal laws. Any such
persons shall be registered representatives of the Broker-Dealer in
accordance with the rules of the NASDR, be licensed to offer the Policies
in accordance with the insurance laws of any jurisdiction in which such
person solicits applications and be licensed with and appointed by the
Insurer to solicit applications for the Policies. Broker-Dealer will
supervise its representatives to insure that purchase of a Policy is not
recommended to an applicant in the absence of reasonable grounds to believe
that the purchase of a Policy is suitable for that applicant. Broker-Dealer
shall pay the fees to regulatory authorities in connection with obtaining
necessary securities licenses and authorizations for registered
representatives to solicit applications for the purchase of Policies.
Insurer is responsible for fees in connection with the appointment of
registered representatives as producers of the Insurer.
8. The activities of all producers referred to in Paragraph 6 will be under
the direct supervision and control of the Broker-Dealer. The right of such
producers to solicit applications for the purchase of Policies is subject
to their continued compliance with the rules and procedures which may be
established by the Broker-Dealer, or the Insurer, including, but not
limited to, those set forth in this Agreement.
9. The Broker-Dealer shall ensure that applications for the purchase of
Policies are solicited only in the states where the Policies are qualified
for sale, and only in accordance with the terms and conditions of the then
current prospectus applicable to the Policies and will make no
representations not included in the prospectus, Statement of Additional
Information, or in any authorized supplemental material supplied by
Princor. With regard to the Policies, the Broker-Dealer shall not use or
permit its producers to use any sales promotion materials or any form of
advertising other than that supplied or approved by Princor. The Insurer
and Princor shall provide only approved supplemental material, advertising
and sales materials, including illustrations, for Broker-Dealer use.
10. Broker-Dealer shall ensure that the prospectus delivery requirements under
the Securities Act of 1933 and all other applicable securities and
insurance laws, rules and regulations are met and that delivery of any
prospectus for the Policies will be accompanied by delivery of the
prospectus for the underlying mutual funds, and, where required by state
law, the Statement of Additional Information for the underlying mutual
funds. The Insurer or Princor shall inform the Broker-Dealer of those
states which require delivery of a Statement of Additional Information with
the prospectus on initial sale.
11. The Broker-Dealer understands and agrees that in performing the services
covered by this Agreement, it is acting in the capacity of an independent
contractor and not as an agent or employee of Princor or the Insurer and
that it is not authorized to act for, or make any representation on behalf
of, Princor or the Insurer except as specified herein. Broker-Dealer
understands and agrees that the Insurer shall execute telephone
transactions only in accordance with the terms and conditions of the then
current prospectus applicable to the Policies and agrees that in
consideration for the Broker-Dealer's right to exercise the telephone
transaction services neither Princor nor the Insurer will be liable for any
loss, injury or damage incurred as a result of acting upon, nor will they
be held responsible for the authenticity of any telephone instructions
containing unauthorized, incorrect or incomplete information. Broker-Dealer
agrees to indemnify and hold harmless Princor and the Insurer against any
loss, injury or damage resulting from any telephone transactions
instruction containing unauthorized, incorrect or incomplete information
received from Broker-Dealer or any of its registered representatives.
(Telephone instructions are recorded on tape.)
12. This Agreement may not be assigned by the Broker-Dealer without the prior
written consent of Princor. Any party hereto may cancel this Agreement at
any time upon written notice. This Agreement shall automatically terminate
if the Broker-Dealer voluntarily or involuntarily ceases to be or is
suspended from being, a member in good standing of the NASD. Provided
further, Princor and the Insurer reserve the right to terminate this
Agreement in the event that any employee or agent of Broker-Dealer is
suspended, disciplined or found to be in violation of governing insurance
or securities laws, rules or regulations. Furthermore, Princor and the
Insurer reserve the right to revise the payments for services described in
this Agreement as set forth in the accompanying Exhibits at any time upon
the mailing of written notice to the Broker-Dealer. Failure of any party to
terminate this Agreement for any of the causes set forth in this Agreement
shall not constitute a waiver of the right to terminate this Agreement at a
later time for any such causes.
13. This Agreement on the part of the Broker-Dealer runs to Princor and the
Insurer and is for the benefit of and enforceable by each. This Agreement
shall be governed by and construed in accordance with the laws of the State
of Iowa.
AGREED TO BY:
ABC BROKER DEALER, INC
By: ________________________________
Title: _____________________________
Date: ______________________________
PRINCOR FINANCIAL SERVICES CORPORATION
By: ________________________________
Title: _____________________________
Date: ______________________________
PRINCIPAL LIFE INSURANCE COMPANY
By: ________________________________
Title: _____________________________
Date: ______________________________
EXHIBIT A - Compensation Schedule
PrinFlex LIFE Broker-Dealer
Supervisory and Service Agreement
Principal Mutual Life Insurance Company will pay commissions on sales of
policies made pursuant to the Broker-Dealer Variable Contract Supervisory and
Service Agreement according to the schedule below on premiums we receive.
We may, by written notice to you, change this compensation schedule. We may
discontinue the issuance of any form of policy and fix the amount of
compensation on policies issued in exchange for previously issued policies.
First Year Commissions
a) 50%# of premium received up to the planned periodic premium, not to
exceed target premium*.
b) 3% of premium received above the lesser of planned periodic or target
premium.
*The target premium is determined according to a rate per $1,000 of face
amount. This rate varies by age and sex of the insured.
# See Special Underwriting
Target Premiums (Annual per $1,000 face amount)
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------
Age Male Female Unisex Age Male Female Unisex
--- ---- ------ ------ --- ---- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
0 3.50 2.83 3.41 45 14.31 11.93 14.00
1 3.50 2.83 3.41 46 15.08 12.53 14.75
2 3.50 2.83 3.41 47 15.90 13.16 15.54
3 3.50 2.83 3.41 48 16.77 13.83 16.39
4 3.50 2.83 3.41 49 17.70 14.54 17.29
5 3.50 2.83 3.41 50 18.68 15.30 18.24
6 3.50 2.83 3.41 51 19.74 16.10 19.27
7 3.50 2.83 3.41 52 20.86 16.94 20.35
8 3.50 2.83 3.41 53 22.05 17.85 21.50
9 3.50 2.83 3.41 54 23.32 18.80 22.73
10 3.50 2.83 3.41 55 24.67 19.82 24.04
11 3.65 2.91 3.55 56 26.11 20.90 25.43
12 3.80 3.00 3.70 57 27.65 22.05 26.92
13 3.95 3.08 3.84 58 29.30 23.29 28.52
14 4.10 3.17 3.98 59 31.05 24.62 30.21
15 4.25 3.25 4.12 60 32.93 26.06 32.04
16 4.62 3.63 4.49 61 34.94 27.60 33.99
17 4.99 4.00 4.86 62 37.10 29.26 36.08
18 5.36 4.38 5.23 63 39.40 31.06 38.32
19 5.73 4.75 5.60 64 41.86 32.97 40.70
20 6.10 5.13 5.97 65 44.48 35.02 43.25
21 6.11 5.16 5.99 66 47.29 37.21 45.98
22 6.12 5.20 6.00 67 50.30 39.58 48.91
23 6.13 5.23 6.01 68 53.52 42.14 52.04
24 6.14 5.27 6.03 69 56.98 44.93 55.41
25 6.15 5.30 6.04 70 60.71 47.98 59.06
26 6.29 5.42 6.18 71 64.73 51.30 62.98
27 6.43 5.54 6.31 72 69.02 54.93 67.19
28 6.57 5.65 6.45 73 73.62 58.86 71.70
29 6.71 5.77 6.59 74 78.48 63.12 76.48
30 6.85 5.89 6.73 75 83.65 67.71 81.58
31 7.17 6.16 7.04 76 87.77 71.45 85.65
32 7.51 6.44 7.37 77 91.89 75.20 89.72
33 7.87 6.74 7.72 78 96.00 78.94 93.78
34 8.26 7.06 8.10 79 100.12 82.69 97.85
35 8.66 7.40 8.50 80 104.24 86.43 101.92
36 9.10 7.76 8.93 81 113.32 95.74 111.03
37 9.55 8.13 9.37 82 122.40 105.05 120.14
38 10.03 8.53 9.84 83 131.48 114.36 129.25
39 10.54 8.94 10.33 84 140.56 123.67 138.36
40 11.09 9.38 10.87 85 149.64 132.98 147.47
41 11.66 9.83 11.42
42 12.26 10.32 12.01
43 12.91 10.82 12.64
44 13.59 11.36 13.30
--------------------------------------------------------------------------------------------------------
</TABLE>
Service Fees
A service fee of 3% on all premium received beyond the first policy year is
paid as long as the policy remains in effect and the Broker-Dealer Variable
Contract Supervisory and Service Agreement remains active.
Compensation on Increases
An increase is defined as a face amount increase. We will compare the
increased face amount of the policy against the highest policy face amount
over the latest three year period to determine if there is a policy face
amount increase during the current year.
A 50%# commission will be paid on premium received during the first 12
months following the date of an face amount increase that is greater than
the premium level on which a high [50%] first year commission rate was
previously paid. The maximum premium on which a high [50%] first year
commission rate is paid will be limited to the lesser of total planned
periodic premium or total target premium amount of the policy after a face
amount increase has occurred.
# See Special Underwriting
Compensation for Replacement of Life Policies Issued by Principal Mutual Life
Insurance Company
A. First year commission is the sum of 1,2, 3 and 4 which follow.
1. A full first year commission rate as set out in First Year Commissions
of the exhibit will be applied to all new policy premium in excess of
the replaced premium but less than the planned periodic, not to exceed
target premium.
2. A percentage of the first year commission rate of the new policy
determined from the table below according to the number of years since
the replaced policy was issued or updated will be applied to the
replaced policy planned periodic premium, not to exceed target premium.
The resulting commission rate in the table shall in no event exceed the
applicable first year commissions rates as set out in the First Year
Commissions section of this exhibit.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
Percentage of New
Policy's
First Year
Years Since Percentage of New Policy's Years Since Date of Commission Rate
Date of Issue First Year Commission Rate Issue Payable on Replaced
or Update Payable on Replaced Premium* or Update Premium*
--------- ---------------------------- --------- --------
<S> <C> <C> <C> <C>
0 - 3 0 12 36
4 20 13 38
5 22 14 40
6 24 15 42
7 26 16 44
8 28 17 46
9 30 18 48
10 32 19 and later 50
11 34
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Replaced premium amounts will be defined as the level of premium on which a
first year commission was previously paid.
** A commission equal to the renewal rate of the new policy will be paid on
replaced premium.
3. Commissions on cash values conserved and transferred into the new
policy will be paid as follows:
o 3% of cash value transferred from a non-Updated policy.
o 1% on cash value transferred from an Updated policy or current
yield policy.
These commissions will be paid on cash values deposited as unscheduled
premiums. However, in situations where a policy loan is carried over to
the new policy, we will not pay a commission on the unscheduled premium
deposit created for the purpose of carrying over the loan.
4. An additional 5% commission will be paid on the amount of policy
premium being replaced if the total premium in the new policy is at
least 25% greater than the premium of the replaced policy.
B. Service fees are determined according to the applicable rates for such as
set out in the exhibit.
C. Commissions will not be paid when partial surrender amounts are used to
fund premium increases or new business.
D. For special situations defined by the Insurer involving replacement of life
policies, the insurer reserves the right to further modify commissions
payable on replacements outlined above.
E. Special Underwriting. Commission rate is reduced to 45% if Batch
underwriting or Expanded Non-Medical underwriting is used. Commission rate
is reduced to 30% of Guaranteed Issue underwriting is used. Other
arrangements may be made with different compensation amounts.
EXHIBIT B - Compensation Schedule
SVUL Broker-Dealer
Supervisory and Service Agreement
Principal Mutual Life Insurance Company will pay commissions on sales of
policies made pursuant to the Broker-Dealer Variable Contract Supervisory and
Service Agreement according to the schedule below on premiums we receive.
We may, by written notice to you, change this compensation schedule. We may
discontinue the issuance of any form of policy and fix the amount of
compensation on policies issued in exchange for previously issued policies.
First Year Commissions
c) 50%# of premium received up to the planned periodic premium, not to
exceed target premium*.
d) 3% of premium received above the lesser of planned periodic or target
premium.
*The target premium is determined according to a rate per $1,000 of face
amount. This rate varies by age and sex of the insured.
Target Premiums (Annual per $1,000 face amount)
APPENDIX B
TARGET PREMIUMS
The target premiums for the Policy are based on the joint equivalent age (JEA)
of the insureds. The JEA takes into account the gender*, age, smoking status and
risk classification of each insured. The calculation is as follows:
1. Start with the unadjusted individual ages of insured #1 and insured #2.
Call this (X1) and (X2) respectively.
2. Take each individual age and adjust for gender.
-if Male the gender adjustment is 0
-if Female the gender adjustment is minus 5
-if Unisex rating is used, the gender adjustment is minus 2
3. Take resulting individual ages from step 2 and adjust for smokers if
applicable.
-if Male Smoker the smoker adjustment is plus 3
-if Female Smoker the smoker adjustment is plus 2
-if Unisex Smoker the smoker adjustment is plus 3
4. Take resulting individual ages from step 3 and adjust for substandard
table ratings, if any.
-if table A rating then add 2
-if table B rating then add 4
-if table C rating then add 6
-if table D rating then add 8
-if table E rating then add 10
-if table F rating then add 12
-if table G rating then add 14
-if table H rating then add 15
-if rating is higher than table H then add 16.
5. The result of step 4 is the adjusted individual ages of insured #1 and
insured #1. Call this (X1A) and (X2A) respectively.
6. If (X1A) is greater than 100 then set (X1A) equal to 100.
7. If (X1B) is greater than 100 then set (X1B) equal to 100.
8. Take the difference between (X1A) and (X1B). Call this (XDIFF).
9. Look up (XDIFF) on the table below to find out what to add on to
youngest adjusted age.
XDIFF ADD ON
0 0
1 to 2 1
3 to 4 2
5 to 6 3
7 to 9 4
10 to 12 5
13 to 15 6
16 to 18 7
19 to 23 8
24 to 28 9
29 to 34 10
35 to 39 11
40 to 44 12
45 to 47 13
48 to 50 14
51 to 53 15
54 to 56 16
57 to 60 17
61 to 64 18
65 to 69 19
70 to 75 20
76 to 85 21
10. The JEA (Joint Equivalent Age) is equal to the Minimum of (X1A) and
(X1B) plus ADD ON from the table above.
Example:
Male Nonsmoker age 45 table rating A, Female Smoker age 57.
1. (X1) = 45 and (X2) = 57
2. (X1) = 45 + 0 = 45; and (X2) = 57 - 5 = 52
3. (X1) = 45 + 0 = 45; and (X2) = 52 + 2 = 54
4. (X1) = 45 + 2 = 47; and (X2) = 54 + 0 = 54
5. (XIA) = 47; (X2A) = 54
6. (XIA) is not greater than 100
7. (XIB) is not greater than 100
8. (XDIFF) = (X2A) - (X1A) = 54 - 47 = 7
9. ADD ON = 4
10. JEA = minimum of (XIA) and (X2A) + ADD ON = 47 + 4 = 51
SVUL Target Premium Rates per $1000 of Face
JEA Target JEA Target
less than 20 2.78 61 21.67
20 2.78 62 22.98
21 2.87 63 24.23
22 2.95 64 25.41
23 3.03 65 26.52
24 3.13 66 27.56
25 3.22 67 28.56
26 3.32 68 29.53
27 3.41 69 30.45
28 3.52 70 31.36
29 3.62 71 32.27
30 3.73 72 33.17
31 3.84 73 34.08
32 3.96 74 35.02
33 4.07 75 35.97
34 4.24 76 36.95
35 4.42 77 37.95
36 4.60 78 38.94
37 4.79 79 39.96
38 4.99 80 40.99
39 5.20 81 42.00
40 5.41 82 42.00
41 5.64 83 42.00
42 5.87 84 42.00
43 6.11 85 42.00
44 6.51 86 42.00
45 6.93 87 42.00
46 7.38 88 42.00
47 7.86 89 42.00
48 8.38 90 42.00
49 8.93 greater than 90 42.00
50 9.50
51 10.12
52 10.78
53 11.49
54 12.54
55 13.68
56 14.92
57 16.22
58 17.58
59 18.94
60 20.32
* The cost of insurance rate for Policies issued in states which require
unisex pricing or in connection with employment related insurance and
benefit plans is not based on the gender of the insured.
Service Fees
A service fee on all premium received beyond the first year is paid as long
as the policy remains in effect and the variable contract supervisory and
service agreement remains active.
o 3% for policy years 2 through 10
o 1% for policy years 11 and later
A service fee will be paid only
Compensation on Increases
An increase is defined as a face amount increase. We will compare the
increased face amount of the policy against the highest policy face amount
over the latest three year period to determine if there is a policy face
amount increase during the current year.
A 50%# commission will be paid on premium received during the first 12
months following the date of an face amount increase that is greater than
the premium level on which a high [50%] first year commission rate was
previously paid. The maximum premium on which a high [50%] first year
commission rate is paid will be limited to the lesser of total planned
periodic premium or total target premium amount of the policy after a face
amount increase has occurred.
# See Special Underwriting
Compensation for Renewals
A renewal fee of 2% on all premiums received during policy years two (2)
through ten (10) is paid as long as the policy remains in effect and the
Broker-Dealer Variable Contract Supervisory and Service Agreement remains
active.
Compensation for Replacement of Life Policies Issued by Principal Mutual Life
Insurance Company
First year commission is the sum of 1,2, 3 and 4 which follow.
1. A full first year commission rate as set out in First Year Commissions
of the exhibit will be applied to all new policy premium in excess of
the replaced premium but less than the planned periodic, not to exceed
target premium.
2. A percentage of the first year commission rate of the new policy
determined from the table below according to the number of years since
the replaced policy was issued or updated will be applied to the
replaced policy planned periodic premium, not to exceed target premium.
The resulting commission rate in the table shall in no event exceed the
applicable first year commissions rates as set out in the First Year
Commissions section of this exhibit.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
Percentage of New
Policy's
First Year
Years Since Percentage of New Policy's Years Since Date of Commission Rate
Date of Issue First Year Commission Rate Issue Payable on Replaced
or Update Payable on Replaced Premium* or Update Premium*
--------- ---------------------------- --------- --------
<S> <C> <C> <C> <C>
0 - 3 0 12 36
4 20 13 38
5 22 14 40
6 24 15 42
7 26 16 44
8 28 17 46
9 30 18 48
10 32 19 and later 50
11 34
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Replaced premium amounts will be defined as the level of premium on which a
first year commission was previously paid.
** A commission equal to the renewal rate of the new policy will be paid on
replaced premium.
3. Commissions on cash values conserved and transferred into the new
policy will be paid as follows:
o 3% of cash value transferred from a non-Updated policy.
o 1 on cash value transferred from an Updated policy or current
yield policy.
These commissions will be paid on cash values deposited as unscheduled
premiums. However, in situations where a policy loan is carried over to
the new policy, we will not pay a commission on the unscheduled premium
deposit created for the purpose of carrying over the loan.
4. An additional 5% commission will be paid on the amount of policy
premium being replaced if the total premium in the new policy is at
least 25% greater than the premium of the replaced policy.
B. Service fees are determined according to the applicable rates for such as
set out in the exhibit.
C. Commissions will not be paid when partial surrender amounts are used to
fund premium increases or new business.
D. For special situations defined by the Insurer involving replacement of life
policies, the insurer reserves the right to further modify commissions
payable on replacements outlined above.
EXHIBIT C - Expense Reimbursement Schedule
Broker-Dealer Variable Contract
Supervisory and Service Agreement
Principal Mutual Life Insurance Company will reimburse the broker-dealer for
expenses incurred by them on sales of policies made pursuant to the
Broker-Dealer Variable Contract Supervisory and Service Agreement according to
the schedule below. We may, by written notice to you, change this compensation
schedule. We may discontinue the issuance of any form of policy and fix the
amount of compensation on policies issued in exchange for previously issued
policies.
New York Insurance Department Limitations
The Broker-Dealer and the Insurer agree that the maximum payment under this
agreement shall be subject to the terms of a plan submitted and approved by the
New York State Insurance Department. The determination of whether payments do
not exceed the maximum amount permissible shall be the sole responsibility of
the Insurer. Any amounts paid by the Insurer to the Broker-Dealer that are
deemed to exceed the maximum amount permissible shall become a debt from the
Broker-Dealer to the Insurer. The Insurer reserves the right to off set any
indebtedness against any amount payable under this Schedule or any other
contract with the Insurer or an affiliate of the Insurer.
Expense Reimbursement Amounts
The insurer agrees to pay the Broker-Dealer an expense reimbursement allowance
on premiums during the first policy year as follows:
o 25%# of premium received up to the planned periodic premium, not to exceed
target premium. See Exhibit A for schedule of Target Premiums.
# Allowance is reduced to 22.5% if Batch underwriting or Expanded
Non-Medical underwriting is used. Allowance is reduced to 15% if
Guaranteed Issue underwriting is used. Other arrangements may be made
with different compensation amounts.
First Year Commissions
c) 50% of premium received up to the planned periodic premium, not to
exceed target premium*.
d) 3% of premium received above the lesser of planned periodic or target
premium.
*The target premium is determined according to a rate per $1,000 of face
amount. This rate varies by age and sex of the insured.
Target Premiums (Annual per $1,000 face amount)
The target premiums for the Policy are based on the joint equivalent age (JEA)
of the insureds. The JEA takes into account the gender*, age, smoking status and
risk classification of each insured. The calculation is as follows:
1. Start with the unadjusted individual ages of insured #1 and insured #2.
Call this (X1) and (X2) respectively.
2. Take each individual age and adjust for gender.
-if Male the gender adjustment is 0
-if Female the gender adjustment is minus 5
-if Unisex rating is used, the gender adjustment is minus 2
3. Take resulting individual ages from step 2 and adjust for smokers if
applicable.
-if Male Smoker the smoker adjustment is plus 3
-if Female Smoker the smoker adjustment is plus 2
-if Unisex Smoker the smoker adjustment is plus 3
4. Take resulting individual ages from step 3 and adjust for substandard
table ratings, if any.
-if table A rating then add 2
-if table B rating then add 4
-if table C rating then add 6
-if table D rating then add 8
-if table E rating then add 10
-if table F rating then add 12
-if table G rating then add 14
-if table H rating then add 15
-if rating is higher than table H then add 16.
5. The result of step 4 is the adjusted individual ages of insured #1 and
insured #1. Call this (X1A) and (X2A) respectively.
6. If (X1A) is greater than 100 then set (X1A) equal to 100.
7. If (X1B) is greater than 100 then set (X1B) equal to 100.
8. Take the difference between (X1A) and (X1B). Call this (XDIFF).
9. Look up (XDIFF) on the table below to find out what to add on to
youngest adjusted age.
XDIFF ADD ON
0 0
1 to 2 1
3 to 4 2
5 to 6 3
7 to 9 4
10 to 12 5
13 to 15 6
16 to 18 7
19 to 23 8
24 to 28 9
29 to 34 10
35 to 39 11
40 to 44 12
45 to 47 13
48 to 50 14
51 to 53 15
54 to 56 16
57 to 60 17
61 to 64 18
65 to 69 19
70 to 75 20
76 to 85 21
10. The JEA (Joint Equivalent Age) is equal to the Minimum of (X1A) and
(X1B) plus ADD ON from the table above.
Example:
Male Nonsmoker age 45 table rating A, Female Smoker age 57.
1. (X1) = 45 and (X2) = 57
2. (X1) = 45 + 0 = 45; and (X2) = 57 - 5 = 52
3. (X1) = 45 + 0 = 45; and (X2) = 52 + 2 = 54
4. (X1) = 45 + 2 = 47; and (X2) = 54 + 0 = 54
5. (XIA) = 47; (X2A) = 54
6. (XIA) is not greater than 100
7. (XIB) is not greater than 100
8. (XDIFF) = (X2A) - (X1A) = 54 - 47 = 7
9. ADD ON = 4
10. JEA = minimum of (XIA) and (X2A) + ADD ON = 47 + 4 = 51
SVUL Target Premium Rates per $1000 of Face
JEA Target JEA Target
less than 20 2.78 61 21.67
20 2.78 62 22.98
21 2.87 63 24.23
22 2.95 64 25.41
23 3.03 65 26.52
24 3.13 66 27.56
25 3.22 67 28.56
26 3.32 68 29.53
27 3.41 69 30.45
28 3.52 70 31.36
29 3.62 71 32.27
30 3.73 72 33.17
31 3.84 73 34.08
32 3.96 74 35.02
33 4.07 75 35.97
34 4.24 76 36.95
35 4.42 77 37.95
36 4.60 78 38.94
37 4.79 79 39.96
38 4.99 80 40.99
39 5.20 81 42.00
40 5.41 82 42.00
41 5.64 83 42.00
42 5.87 84 42.00
43 6.11 85 42.00
44 6.51 86 42.00
45 6.93 87 42.00
46 7.38 88 42.00
47 7.86 89 42.00
48 8.38 90 42.00
49 8.93 greater than 90 42.00
50 9.50
51 10.12
52 10.78
53 11.49
54 12.54
55 13.68
56 14.92
57 16.22
58 17.58
59 18.94
60 20.32
* The cost of insurance rate for Policies issued in states which require
unisex pricing or in connection with employment related insurance and
benefit plans is not based on the gender of the insured.
Service Fees
A service fee on all premium received beyond the first year is paid as long
as the policy remains in effect and the variable contract supervisory and
service agreement remains active.
o 3% for policy years 2 through 10
o 1% for policy years 11 and later
A service fee will be paid only
Compensation on Increases
An increase is defined as a face amount increase. We will compare the
increased face amount of the policy against the highest policy face amount
over the latest three year period to determine if there is a policy face
amount increase during the current year.
A 50% commission will be paid on premium received during the first 12
months following the date of an face amount increase that is greater than
the premium level on which a high [50%] first year commission rate was
previously paid. The maximum premium on which a high [50%] first year
commission rate is paid will be limited to the lesser of total planned
periodic premium or total target premium amount of the policy after a face
amount increase has occurred.
Compensation for Renewals
A renewal fee of 2% on all premiums received during policy years two (2)
through ten (10) is paid as long as the policy remains in effect.
SURVIVORSHIP FLEXIBLE PREMIUM VARIABLE UNIVERSAL LIFE INSURANCE POLICY.
Adjustable death benefit. Benefits payable at death of Surviving Insured or
earlier maturity date. Flexible premiums payable until maturity date or death of
Surviving Insured.
NON-PARTICIPATING.
This policy is a legal contract between You, as owner, and Us, Principal Life
Insurance Company. Your policy is issued based on the information in the
application and payment of premiums as shown on the current Data Pages. We will
pay the benefits of this policy in accordance with its provisions.
YOUR NET PREMIUMS ARE ADDED TO YOUR POLICY VALUE. YOU MAY ALLOCATE THEM TO ONE
OR MORE OF THE SEPARATE ACCOUNT DIVISIONS AND TO THE FIXED ACCOUNT.
THE PORTION OF YOUR POLICY VALUE THAT IS IN THE SEPARATE ACCOUNT WILL VARY FROM
DAY TO DAY. THE AMOUNT IS NOT GUARANTEED. IT MAY INCREASE OR DECREASE DEPENDING
ON THE INVESTMENT EXPERIENCE OF THE UNDERLYING DIVISIONS THAT YOU HAVE CHOSEN.
THERE ARE NO MINIMUM GUARANTEES AS TO SUCH PORTION OF YOUR POLICY VALUE.
THE PORTION OF YOUR POLICY VALUE THAT IS IN THE FIXED ACCOUNT WILL ACCUMULATE,
AFTER DEDUCTIONS, AT RATES OF INTEREST WE DETERMINE. SUCH RATES WILL NOT BE LESS
THAN 3% A YEAR, COMPOUNDED ANNUALLY.
THE AMOUNT AND DURATION OF THE DEATH BENEFIT MAY BE VARIABLE OR FIXED AS
DESCRIBED IN THIS POLICY.
10-DAY EXAMINATION OFFER. IT IS IMPORTANT TO US THAT YOU ARE SATISFIED WITH THIS
POLICY. IF YOU ARE NOT SATISFIED, YOU MAY RETURN YOUR POLICY TO EITHER YOUR
AGENT OR OUR HOME OFFICE BEFORE THE LATTER OF: (1) 10 DAYS OF ITS RECEIPT; (2)
45 DAYS AFTER THE APPLICATION WAS SIGNED; (3) 10 DAYS FROM THE DELIVERY OF THE
NOTICE OF THE RIGHT TO CANCEL; OR (4) SUCH LATER DATE AS PROVIDED BY APPLICABLE
STATE LAW. WE WILL REFUND ANY PREMIUM PAID AND YOUR POLICY WILL BE CONSIDERED
VOID FROM ITS INCEPTION. PLEASE READ YOUR POLICY CAREFULLY SO YOU MAY BETTER USE
ITS MANY BENEFITS.
The terms of this policy start on the Policy Date and will stay in force until
the maturity date shown on the Data Pages so long as You satisfy the
requirements as outlined in Your policy.
/s/ Joyce N. Hoffman /s/ David J. Drury
Vice President and Corporate Secretary Chairman and Chief Executive Officer
SF 523
TABLE OF CONTENTS
SUBJECT PAGE
DEFINITIONS IN THIS POLICY.............................................4
PURCHASING AND KEEPING THE CONTRACT IN FORCE...........................5
PLANNED PERIODIC PREMIUMS..............................................6
PREMIUM PAYMENT LIMITS.................................................6
GRACE PERIOD...........................................................6
TERMINATION............................................................7
REINSTATEMENT..........................................................7
PREMIUM INVESTMENT OPTIONS.............................................7
FIXED ACCOUNT..........................................................8
INVESTMENT ACCOUNTS....................................................8
VARIABLE LIFE SEPARATE ACCOUNT.........................................8
BENEFITS WHILE POLICY IS IN FORCE......................................8
YOUR POLICY VALUE......................................................8
TRANSFERS.............................................................10
POLICY LOANS..........................................................12
LOAN INTEREST CHARGE..................................................13
REPAYMENT.............................................................13
SURRENDER OF THE POLICY...............................................13
SURRENDER VALUE.......................................................13
POLICY EXPENSES.......................................................14
COST OF INSURANCE RATES...............................................15
YOUR DEATH PROCEEDS...................................................16
DEATH BENEFIT OPTIONS.................................................16
CHANGES IN DEATH BENEFIT OPTIONS......................................17
YOUR ADJUSTMENT OPTIONS...............................................17
ADJUSTING THE FACE AMOUNT.............................................17
RIGHT TO EXCHANGE POLICY..............................................18
OWNER, BENEFICIARY, ASSIGNMENT........................................18
CHANGES OF OWNER OR BENEFICIARY.......................................19
ASSIGNMENT............................................................19
GENERAL INFORMATION...................................................19
THE CONTRACT..........................................................19
ALTERATIONS...........................................................19
INCONTESTABILITY......................................................19
AGE AND SEX...........................................................19
SUICIDE...............................................................20
STATEMENT OF VALUE....................................................21
A copy of the application and any additional benefits provided by rider follow
the last page of this policy.
(LOGO) Principal Life
Insurance Company
Des Moines, Iowa 50392-0001
DATA PAGE
- --------------------------------------------------------------------------------
Survivorship Flexible Premium Variable Universal Life
- --------------------------------------------------------------------------------
POLICY DATA
Policy Number: Sample
Owner: John Doe
Joint Owner: Jane Doe
Policy Date: July 1, 2000
Policy Maturity Date: June 30, 2065
Death Benefit Option: Option 1
Face Amount: $100,000.00
Insured's Name: John Doe
Insured's Age and Sex: 35 - Male
Insured's Risk Class: Standard Nonsmoker
Insured's Name: Jane Doe
Insured's Age and Sex: 35 - Female
Insured's Risk Class: Standard Nonsmoker
PLANNED PERIODIC PREMIUM: $500.00
Planned Premium Mode: Annual
Target Premium: $407.00
Minimum Monthly Premium* $26.75
Death Benefit Guarantee Monthly Premium $71.25
*Applicable during the first 5 Policy Years only.
This policy is adjustable. If it is adjusted, we will send you new Data Pages.
The Data Pages are to be attached to and made a part of this policy.
This policy contains a fixed loan interest rate of 8.0%
Interest on borrowed funds is credited at 6% through Policy Year ten.
Thereafter, it is credited at 7.75%.
- --------------------------------------------------------------------------------
RIDER DATA
SF 531 Death Benefit Guarantee Rider
Effective Date: July 1, 2000
Expiration Date: June 30, 2065
SF 530 Extended Coverage Rider
Effective Date: July 1, 2000
- --------------------------------------------------------------------------------
ACCOUNT DATA
Monthly Policy
Premium Allocations Charge Allocations
------------------- ------------------
FIXED ACCOUNT 00% 00%
SEPARATE ACCOUNT DIVISIONS
Aggressive Growth 00% 00%
Asset Allocation 00% 00%
Balanced 20% 20%
Bond 20% 20%
Capital Value 00% 00%
Fidelity Contrafund 20% 20%
Fidelity Equity-Income 00% 00%
Fidelity High Income 00% 00%
Government Securities 00% 00%
Growth 20% 20%
International 00% 00%
International SmallCap 00% 00%
MicroCap 00% 00%
MidCap 00% 00%
MidCap Growth 00% 00%
Money Market 20% 20%
Putnam Global Asset Allocation 00% 00%
Putnam Vista 00% 00%
Putnam Voyager 00% 00%
Real Estate 00% 00%
SmallCap 00% 00%
SmallCap Growth 00% 00%
SmallCap Value 00% 00%
Stock Index 500 00% 00%
Utilities 00% 00%
- --------------------------------------------------------------------------------
TABLE OF GUARANTEED MAXIMUM COST OF INSURANCE RATES
Monthly Rates Per $1,000.00 of Net Amount of Risk
Duration Monthly Rate Duration Monthly Rate
1 0.00033 34 0.88717
2 0.00100 35 1.02242
3 0.00183 36 1.18133
4 0.00292 37 1.37208
5 0.00425 38 1.60392
6 0.00583 39 1.88208
7 0.00775 40 2.20842
8 0.01008 41 2.58142
9 0.01292 42 2.99925
10 0.01617 43 3.45992
11 0.02000 44 3.96725
12 0.02442 45 4.53425
13 0.02958 46 5.17808
14 0.03567 47 5.91625
15 0.04267 48 6.76592
16 0.05100 49 7.72767
17 0.06083 50 8.78858
18 0.07258 51 9.93475
19 0.08650 52 11.15292
20 0.10275 53 12.43533
21 0.12133 54 13.77792
22 0.14242 55 15.18550
23 0.16592 56 16.67150
24 0.19225 57 18.26417
25 0.22242 58 20.01800
26 0.25775 59 22.06433
27 0.30000 60 24.69400
28 0.35133 61 28.48125
29 0.41308 62 34.52242
30 0.48600 63 44.77867
31 0.56975 64 61.99675
32 0.66442 65 83.33333
33 0.76967
Basis of Values: Guaranteed maximum cost of insurance rates are based on 1980
CSO Mortality Table, age last birthday, with distinction for the insured's sex.
The rates will reflect the Insured's risk class(es).
- --------------------------------------------------------------------------------
CHARGES and LIMITS
o The maximum monthly administration charge is $8.00 per month, plus $.08
per $1000 of face amount. The charge of $.08 per $1000 of face amount is
increased by $.005 per $1000 for each Insured that is classified as a
smoker.
o The maximum annual mortality and expense risks charge is .80% of the
portion of the Policy Value in the Separate Account for the first nine
Policy Years. Thereafter, the charge is .30% of the portion of the Policy
Value in the Separate Account.
o The partial surrender transaction charge is the lesser of $25, or 2% of
the amount surrendered.
o During the first ten Policy Years, and for any premiums attributable to
any face increases, the premium expense charge is 5.00% of each premium
received for premium payments less than or equal to the Target Premium
(2.00% of premiums received in excess of Target Premium); plus a charge for
state and local taxes of 2.20% of each premium received; and a federal tax
charge of 1.25% of each premium received. After the first ten Policy Years,
the premium expense charge is 2.00% of each premium received; plus a charge
for state and local taxes of 2.20% of each premium received; and a federal
tax charge of 1.25% of each premium received.
o The first 12 account transfers in a Policy Year are free. Thereafter, we
reserve the right to charge a $25 transaction charge for each transfer.
o The minimum face amount allowed is $100,000.
o The minimum transfer value for scheduled transfers is $2,500.
o The minimum face amount increase allowed is $100,000.
o The minimum partial surrender or loan amount allowed is $500.
o The minimum unscheduled transfer amount allowed is the lesser of $100, or
the balance of the Investment Account from which funds are being
transferred.
o The minimum scheduled transfer amount allowed is $100 from the
Investment Accounts and $50 from the Fixed Account.
A surrender charge will be deducted from your Policy Value if this policy is
surrendered for its net surrender value or if this policy terminates within the
first ten years. The maximum charge for each Policy Year is shown in the table
below.
The table assumes the policy face amount is never increased, and the policy has
not been reinstated.
Table of Maximum Surrender Charges Per Policy
Policy Year Amount
1 $407.00
2 407.00
3 407.00
4 407.00
5 407.00
6 387.63
7 348.84
8 290.72
9 213.19
10 116.28
11 and later 0.00
DEFINITIONS IN THIS POLICY
ADJUSTMENT DATE means the Monthly Date on or next following Our approval of a
requested adjustment.
ATTAINED AGE for each Insured means the Insured's age on the birthday on or
preceding the last Policy Anniversary.
DIVISION is the part of the Separate Account to which Net Premiums may be
allocated which invests in shares of a Mutual Fund. The value of an investment
in a Division is variable and is not guaranteed.
EFFECTIVE DATE is the date on which all requirements for issuance of a policy
have been satisfied.
FIXED ACCOUNT is that part of the Policy Value that reflects the value You have
in Our general account.
INSUREDS means the persons named as the Insureds on the current Data Pages of
this policy. The Insureds may or may not be the owner(s).
INVESTMENT ACCOUNT is that part of the Policy Value that reflects the value You
have in one of the Divisions of the Separate Account.
LOAN ACCOUNT is that part of the Policy Value that reflects the value You have
transferred from the Fixed Account and/or Separate Account as collateral for a
policy loan.
MONTHLY DATE means the day of the month which is the same as the day of the
Policy Date. The Monthly Date will never be the 29th, 30th, or 31st of any
month.
MONTHLY POLICY CHARGE is the amount subtracted from Your Policy Value on each
Monthly Date equal to the sum of the cost of insurance and the cost of
additional benefits provided by any rider plus the monthly administration charge
and mortality and expense risks charge in effect on the Monthly Date.
MUTUAL FUND means a registered open-end investment company, or a separate
investment account or portfolio thereof, in which a Division of the Separate
Account invests.
NET PREMIUM is the gross premium less the deductions for the Premium Expense
Charge as shown on the current Data Pages. It is the amount of premium allocated
to the Fixed Account and/or Investment Accounts.
NET SURRENDER VALUE is the Surrender Value less any policy loans and unpaid loan
interest.
NOTICE means any form of communication We receive in Our home office providing
the information We need, either in writing or another manner that We approve in
advance.
POLICY DATE is the date shown on the current Data Pages. The Policy Date will
never be the 29th, 30th, or 31st of any month.
POLICY VALUE is the sum of the values in the Loan Account, Fixed Account, and
Investment Accounts.
POLICY YEARS AND ANNIVERSARIES means the Policy Years and Anniversaries computed
from the Policy Date.
PREMIUM EXPENSE CHARGE is the charge deducted from premium payments to cover a
sales charge, state and local premium taxes and the federal tax charge as shown
on the current Data Pages. PRORATED BASIS means the proportion that the value of
a particular Investment Account or the Fixed Account bears to the total value of
all Investment Accounts and the Fixed Account.
SEPARATE ACCOUNT means Principal Life Insurance Company Variable Life Separate
Account, a registered unit investment trust with Divisions and segregated
assets, to which Net Premiums may be allocated under this policy and others We
issue.
SURRENDER VALUE is the Policy Value less the surrender charges.
SURVIVING INSURED means the Insured who is living upon the death of the other
Insured. If both Insureds die simultaneously, then the term "Surviving Insured"
shall mean the younger of the two Insureds.
TARGET PREMIUM is a premium amount used to determine the maximum sales charge
that is included as part of the Premium Expense Charge and any applicable
surrender charge under a policy. Your Target Premium is shown on Your current
Data Pages.
UNIT is the accounting measure used to calculate the Separate Account value.
VALUATION DAY is any day that the New York Stock Exchange is open for trading,
and trading is not restricted. We will deem each Valuation Day to end at the
time We determine the net asset value of the underlying Mutual Fund shares held
by the Division of the Separate Account. When We need to determine a Policy
Value or an amount after the end of a Valuation Day, or on a day that is not a
Valuation Day, We will do so at the end of the next Valuation Day.
VALUATION PERIOD means the period between the time as of which the net asset
value of a Mutual Fund is determined on one Valuation Day and the time as of
which such value is determined on the next following Valuation Day.
WE, OUR, US means Principal Life Insurance Company.
WRITTEN REQUEST means a form satisfactory to Us, signed and dated by You, and
received at Our home office.
YOU, YOUR means the owner(s) of this policy.
PURCHASING AND KEEPING THE CONTRACT IN FORCE
PREMIUM PAYMENTS
Your first premium is due on the Policy Date. After that, premiums may be paid
at any time while this policy is in force. The amount of Your premiums is
subject to the Premium Payment Limits provision. We will give a receipt to the
premium payor on request.
Your initial Net Premium will be allocated to the Money Market Division of the
Separate Account. Net Premiums will continue to be allocated to the Money Market
Division until 20 days after the Effective Date. After the 20-day period has
expired, Your policy's Policy Value will be transferred to the Divisions and/or
the Fixed Account indicated by Your initial premium allocation percentage(s)
request. If the purchase of this policy falls within the definition of a
replacement under state law, We reserve the right to allocate the initial Net
Premium (or any premium that may result from a replacement) to the Money Market
Division beyond the 20 days as may be necessary.
The initial premium allocation percentages are shown on the Data Pages. Unless
You change them, these percentages apply to future allocations of premiums. For
each Division and the Fixed Account, the allocation percentages must be zero or
a whole number not less than ten nor greater than 100. The sum of the
percentages for all Divisions and the Fixed Account must equal 100.
PLANNED PERIODIC PREMIUMS
You may preauthorize automatic monthly planned periodic premium payments. If You
do not elect to pay automatically, We will send You reminder notices of the
amount and frequency of Your planned periodic premiums as selected in Your
application. These notices serve only as a reminder of Your preference. Premiums
are to be sent to the address We provide in the reminder notices. You may change
the amount and frequency of Your planned periodic premiums by providing Notice
to Us.
The Grace Period provision may apply whether or not You make a planned periodic
premium payment or additional premium payments.
PREMIUM PAYMENT LIMITS
To keep this policy in force You must satisfy the requirements described in the
Grace Period provision.
You may choose to make premium payments that are greater than the planned
periodic premium. However, We will refund any premiums that would disqualify
this policy as "life insurance" as defined in the Internal Revenue Code, as
amended.
If any payment increases the policy's death benefit by more than it increases
the Policy Value, We reserve the right to refund the premium payment. If the
premium payment is not refunded, We may require satisfactory evidence of
insurability.
PAID UP BENEFIT
If You do not make a planned periodic premium payment or additional premium
payments, then this policy will not terminate unless the Net Surrender Value is
not sufficient to pay the Monthly Policy Charge which is due on the Monthly Date
and the Grace Period provision will then apply.
GRACE PERIOD
If the Net Surrender Value on any Monthly Date is less than the Monthly Policy
Charge, a 61 day grace period will begin. However, We guarantee this policy will
stay in force during the first 5 policy years when (A-B) is greater than or
equal to (C), where:
A. Is the sum of premiums paid;
B. Is the sum of all existing loans, loan interest, partial surrenders,
and transaction charges; and
C. Is the sum of the minimum monthly premiums since the Policy Date to the
most recent Monthly Date.
The current minimum monthly premium is shown on the current Data Pages.
The grace period begins when We mail a notice of impending policy termination to
You. This notice will be sent to Your last post office address known to Us.
If by the end of the grace period We do not receive a payment, as calculated in
number 5 of the Reinstatement provision, Your policy terminates as of the date
the first unpaid Monthly Policy Charge was due.
If the Surviving Insured dies during a grace period, We will pay the death
proceeds to the beneficiary(ies).
TERMINATION
All policy privileges and rights of the owner(s) under this policy end:
1. When You surrender Your policy for cash;
2. When the death proceeds are paid;
3. When the policy maturity proceeds are paid; or
4. When the grace period ends as described in the Grace Period provision. In
this case, the privileges and rights of the owner(s) terminate as of the
Monthly Date on which the grace period begins.
REINSTATEMENT
If this policy ends as described in the Grace Period provision and You have not
surrendered Your policy for cash, You may reinstate it provided:
1. Such reinstatement is prior to the maturity date;
2. Not more than three years have elapsed since the policy terminated;
3. You supply evidence which satisfies Us that at least one of the Insureds is
insurable under Our underwriting guidelines then in effect;
4. You either repay or reinstate any policy loans and unpaid loan interest
on this policy existing at termination; and
5. You make a payment of at least (A plus B divided by C) where:
A. Is the amount by which the surrender charge is more than the Policy
Value on the Monthly Date at the start of the grace period before the
Monthly Policy Charge is deducted;
B. Is three Monthly Policy Charges; and
C. Is 1 minus the maximum Premium Expense Charge.
Reinstatement will be effective on the Monthly Date on or next following the
date We approve it. The Policy Date will remain the original Policy Date and
will not be changed at reinstatement, although Surrender Charges for total
surrender following reinstatement will resume at the rate charged at the time of
the policy's termination, as adjusted for the payment of past due premiums, if
any.
PREMIUM INVESTMENT OPTIONS
ALLOCATIONS
You may allocate Net Premiums to the Fixed Account and/or any of the Investment
Accounts. Allocation percentages must be zero or a whole number not less than
ten nor greater than 100. The sum of the allocation percentages must equal 100.
You may change the allocation percentages by providing Us Notice. Unless You
change the initial premium allocation specified in Your application for this
policy, it will continue to apply to subsequent premium payments. FIXED ACCOUNT
Net Premiums allocated to the Fixed Account will earn interest at rates We
determine at Our discretion. In no event will the guaranteed interest rate be
less than 3% compounded annually.
INVESTMENT ACCOUNTS
The Separate Account is comprised of Divisions shown on the current Data Pages.
Each Division invests in a Mutual Fund with a different investment objective.
You may allocate amounts to one or more of the Divisions. An Investment Account
will be established for You corresponding to each Division of the Separate
Account to which amounts are allocated or transferred under this policy. We will
maintain each of these Investment Accounts for You to keep track of Your values
in each Division. Income, gains and losses, whether or not realized, from each
Division's assets are credited to or charged against that Division without
regard to income, gains or losses of other Divisions or Our other income, gains
or losses.
VARIABLE LIFE SEPARATE ACCOUNT
The Separate Account is registered with the Securities and Exchange Commission
as a unit investment trust under the Investment Company Act of 1940, as amended.
Assets are put into the Separate Account to support this policy and to support
other variable life insurance policies We may offer. We own the assets of the
Separate Account. These assets are not part of Our general account. Income,
gains and losses of the Separate Account, whether or not realized, are credited
to or charged against the Separate Account assets, without regard to Our other
income, gains or losses. The assets of the Separate Account will be available to
cover the liabilities of Our general account only to the extent that the assets
of the Separate Account exceed the liabilities of the Separate Account arising
under the variable life insurance policies supported by the Separate Account.
We reserve the right to add other Divisions, eliminate or combine existing
Divisions, or transfer assets in one Division to another. If shares of a Mutual
Fund are no longer available for investment, or in Our judgment investment in a
Mutual Fund becomes inappropriate considering the purpose of the Separate
Account, We may eliminate the shares of a Mutual Fund and substitute shares of
another. Substitution may be made with respect to both existing investments and
the investment of future Net Premium payments. However, no such changes will be
made without notifying You and getting any required approval from the
appropriate state and/or federal regulatory authorities. We will notify You of
any such change.
If We eliminate or combine existing Divisions, or transfer assets in one
Division to another, You may then change Your allocation percentages and
transfer any value in that Division to another Investment Account(s) and/or the
Fixed Account without charge. You may exercise this right until the latter of 60
days after, 1) the effective date of such change or, 2) the date You receive
notice of this right. You may only exercise this right if You have an interest
in the affected Division(s).
BENEFITS WHILE POLICY IS IN FORCE
YOUR POLICY VALUES
Your Policy Value at any time is equal to the sum of the values You have in the
Loan Account, the Fixed Account and the Investment Accounts.
LOAN ACCOUNT VALUE
You can get a loan on this policy under certain conditions. When You take out a
loan, We transfer the amount of the loan from the Fixed Account and/or one or
more of the Investment Accounts, into the Loan Account. For details of the Loan
Account see the Policy Loans provision.
FIXED ACCOUNT VALUE
The amount You have in the Fixed Account at any time equals:
1. Net Premiums allocated to it,
PLUS
2. Amounts transferred to it,
PLUS
3. Interest credited to it,
LESS
4. Amounts deducted from it,
LESS
5. Amounts transferred from it,
LESS
6. Amounts surrendered from it.
INVESTMENT ACCOUNT VALUE
Your Investment Account value for each Division is equal to the number of Units
in that Investment Account multiplied by that Division's Unit value. The number
of Units in an Investment Account at any time equals A minus B, where:
A. Is the number of Units credited to the Investment Account because of:
1. Net Premiums allocated to it, and
2. Amounts transferred to it; and
B. Is the number of Units canceled from the Investment Account because of:
1. Amounts deducted from it,
2. Amounts transferred from it, and
3. Amounts surrendered from it.
The number of Units credited or canceled for a given transaction is equal to the
dollar amount of the transaction, divided by the Unit value on the Valuation Day
of the transaction.
UNIT VALUES
We will determine the Unit value for each Division of the Separate Account at
the end of each Valuation Day.
The Unit value for each Division was arbitrarily set at $10 as of the Valuation
Day that the Division first purchased Mutual Fund shares. For any subsequent
Valuation Day, the Unit value for that Division is obtained by multiplying the
Unit value for the immediately preceding Valuation Day by the net investment
factor for the particular Division on that subsequent Valuation Day.
NET INVESTMENT FACTOR
The net investment factor for a Division on any Valuation Day is equal to A
divided by B where:
A. Is the net asset value of the underlying Mutual Fund shares held by that
Division at the end of such Valuation Day before any policy
transactions are made on that day; and
B. Is the net asset value of the underlying Mutual Fund shares held by that
Division at the end of the immediately preceding Valuation Day after
all policy transactions were made for that day.
We reserve the right to adjust the above formula for any taxes determined by Us
to be attributable to the operations of the Division.
TRANSFERS
TRANSFERS ALLOWED
You may transfer amounts between the Fixed Account and the Investment Accounts
as provided below. To request a transfer, You must provide Us Notice. All
transfers with the same effective dates count as one transfer. If Your request
is received prior to the close of the New York Stock Exchange, the transfer is
made and value is determined as of that day. Requests received after the close
of the New York Stock Exchange will be processed and values determined as of the
next Valuation Day. We reserve the right to not accept transfer requests from
someone requesting them for multiple contracts. We also reserve the right to
modify or revoke transfer privileges and charges.
TRANSFERS FROM FIXED ACCOUNT
You may transfer amounts from the Fixed Account to an Investment Account by
making either a scheduled or unscheduled Fixed Account transfer, subject to the
following conditions:
Either unscheduled transfers or scheduled transfers (not both) may occur during
the same Policy Year.
UNSCHEDULED FIXED ACCOUNT TRANSFERS - You may make one unscheduled transfer
from the Fixed Account each Policy Year, as follows:
1. You must provide Us Notice within 30 days following either the
Policy Date or any Policy Anniversary.
2. You must specify the dollar amount or percentage to be
transferred, and the resulting amount must not exceed 25% of Your
Fixed Account value as of the latter of the Policy Date or the
last Policy Anniversary. However, You may transfer up to 100% of
Your Fixed Account value within 30 days after the first and
following Policy Anniversaries if Your Fixed Account value is less
than $1,000.
SCHEDULED FIXED ACCOUNT TRANSFERS - (Dollar Cost Averaging) - You may make
scheduled transfers on a monthly basis from the Fixed Account as follows:
1. Transfers will begin on a monthly basis on the date (other than the
29th, 30th or 31st) specified by You.
2. Your Fixed Account value must equal or exceed the minimum transfer
value shown on the current Data Pages. We reserve the right to
change this amount but it will never exceed $10,000.
3. The monthly transfer will be the dollar amount or percentage You
specify, and that amount must equal or exceed the minimum
scheduled transfer amount shown on the current Data Pages. The
monthly amount transferred cannot exceed 2% of Your Fixed Account
value as of the latter of the Policy Date, last Policy
Anniversary, or date request is received by Us.
4. The transfers will continue until Your Fixed Account value
is exhausted or We receive Notice to stop them.
5. The amount of these scheduled transfers can be changed by You once
each Policy Year, by Written Request or by telephone.
6. If You stop the scheduled transfers, You may not start them again
until six months after the date of the last scheduled transfer.
TRANSFERS FROM INVESTMENT ACCOUNTS
You may transfer amounts from an Investment Account to either the Fixed Account
or another Investment Account by making either a scheduled or unscheduled
Investment Account transfer, subject to the following conditions:
Transfers to the Fixed Account are allowed only if:
1. You have not transferred any amount from the Fixed Account for at
least six months; and
2. Your Fixed Account value immediately after the transfer does not
exceed $1,000,000, except with Our prior approval.
UNSCHEDULED INVESTMENT ACCOUNT TRANSFERS - You may make unscheduled transfers
from an Investment Account, as follows:
1. You must specify the dollar amount or percentage to transfer from
each Investment Account, and the resulting amount must equal or
exceed the lesser of the value of Your Investment Account or the
minimum unscheduled transfer amount shown on the current Data
Pages.
2. We reserve the right to charge a transaction charge as shown on
the current Data Pages for each unscheduled transfer after the
twelfth transfer in a Policy Year.
SCHEDULED INVESTMENT ACCOUNT TRANSFERS - (Dollar Cost Averaging) - You
may make scheduled transfers from an Investment Account, as follows:
1. Transfers will begin on a monthly basis on the date (other than the
29th, 30th or 31st) specified by You.
2. You must specify how often the transfers will occur
(annually, semi-annually, quarterly or monthly).
3. You must specify the dollar amount or percentage to transfer from
each Investment Account, and that amount must equal or exceed the
lesser of the value of Your Investment Account or the minimum
scheduled transfer amount shown on the current Data Pages.
4. The value of each Investment Account from which transfers are made
must equal or exceed the minimum transfer value shown on the
current Data Pages.
The transfers will continue until Your interest in the Investment
Account is exhausted or We receive Notice to stop them.
5. We reserve the right to limit the number of Investment Accounts
from which transfers will be made at the same time. In no event
will the limit ever be less than two.
AUTOMATIC PORTFOLIO REBALANCING
Automatic portfolio rebalancing (APR), allows You to maintain a specific
percentage of Your Policy Value in Your Investment Accounts over time.
APR transfers:
1. Do not begin until the expiration of the Examination Offer (See
Examination Offer on the front cover of Your policy).
2. Are made without a charge and are not counted as unscheduled
transfers when determining any transfer fee.
3. May be made on the frequency You specify, subject to the following:
A. Quarterly APR transfers may be made on a calendar year or
Policy Year basis.
B. Semiannual or annual APR transfers may only be done on a
Policy Year basis.
4. May be made upon Your Written Request or by telephone.
Transfers are made at the end of the next Valuation Period after We receive Your
instructions. APR is not available if You have scheduled transfers from the same
Investment Account, or for values You have in the Fixed Account.
POLICY LOANS
You may obtain a policy loan from Us with this policy as sole security. You may
borrow up to A minus B where:
A. Is 90% of the Surrender Value; and
B. Is any outstanding policy loan and unpaid loan interest at the
time the loan request is processed at the home office.
The minimum loan amount is shown on the current Data Pages.
YOUR LOAN ACCOUNT
If You take a policy loan, a portion of Your Policy Value equal to the loan will
be transferred from the Fixed Account and/or the Investment Accounts to Your
Loan Account until the loan is repaid. The effective date of the transfer is the
date of the loan.
The loan will result in a reduction in the value of the Fixed Account to the
extent amounts are transferred from the Fixed Account to the Loan Account, or in
the cancellation of Units in the Investment Account or Accounts from which the
loan was withdrawn. For each Investment Account, the number of Units canceled
will be equal to the portion of the loan withdrawn divided by the Unit value for
the Valuation Period in which the loan is taken.
You may tell Us the amount of the policy loan to be withdrawn from the Fixed
Account and/or each Investment Account. If You do not tell Us, the loan amount
will be withdrawn in the same proportion as the allocation used for Your Monthly
Policy Charge. Amounts held in Your Loan Account will be part of Our general
account and will be credited with interest from the date of transfer. The
difference between the policy loan rate and the rate credited on the Loan
Account will not exceed 2%.
On each Policy Anniversary, if there has been a loan repayment, this credit is
transferred from the Loan Account to the Fixed Account and the Investment
Accounts. It is allocated among the Fixed Account and the Investment Accounts in
the same manner used to allocate premium payments.
All interest rates stated are effective annual rates. We apply these rates to
properly reflect the actual date We receive any repayments and any changes You
make in loan amounts during a policy month.
LOAN INTEREST CHARGE
Interest charges accrue daily at the annual loan interest rate shown on the
current Data Pages. Interest is due and payable at the end of each Policy Year.
Any interest not paid when due is added to the loan principal and bears interest
at the same rate. The adding of unpaid interest charges to the loan principal
will cause additional amounts to be withdrawn from the Divisions in the same
manner as described above for loans.
REPAYMENT
You may repay all or part of a policy loan as long as the policy is in force.
Any policy loans and unpaid loan interest charges not repaid at the death of the
Surviving Insured or at maturity are deducted from the death or maturity
proceeds.
YOU SHOULD IDENTIFY THE PURPOSE OF EACH PAYMENT. IF WE CANNOT IDENTIFY ITS
PURPOSE, WE WILL CONSIDER IT TO BE A LOAN REPAYMENT IF A LOAN IS OUTSTANDING.
The amount repaid is transferred from Your Loan Account to the Fixed Account
and/or the Investment Accounts in the same manner used to allocate premium
payments.
SURRENDER OF THE POLICY
SURRENDER VALUE AND NET SURRENDER VALUE
The Surrender Value of Your policy equals the Policy Value less the surrender
charges (described in the Surrender Charges provision).
The Net Surrender Value of Your policy is the Surrender Value less any policy
loans and unpaid loan interest. As long as Your policy is in force, You may
surrender it for its Net Surrender Value by sending Us a Written Request.
SURRENDER CHARGES
The Table of Maximum Surrender Charges is shown on the current Data Pages.
Surrender charges vary based on the Target Premium of the policy and will apply
only during the first 10 Policy Years unless changed due to a face amount
increase. A face amount increase has its own surrender charge period which
begins on the Adjustment Date. The total surrender charge on the policy will be
a composite of the surrender charges for the face amount at issue and each
subsequent face amount increase.
Decreases in face amount do not decrease surrender charges on the policy.
PARTIAL SURRENDERS
Each Policy Year after the second Policy Year, You may make up to two partial
surrenders from the Net Surrender Value, subject to the following:
1. Each partial surrender must be in an amount not less than the
minimum amount shown on the current Data Pages; and
2. In the aggregate the total amount surrendered in a Policy Year
will not exceed an amount equal to 75% of the Net Surrender Value
as of the date of the first surrender in a Policy Year.
The transaction charge is shown on the current Data Pages. You may tell Us in
what proportion to allocate the amount of the partial surrender and transaction
charge to be withdrawn from the Fixed Account and/or each Investment Account. If
You do not tell Us, the partial surrender and the transaction charge will be
withdrawn from the Fixed Account and each Investment Account in the same
proportion as the allocations used for Your current Monthly Policy Charge.
Partial surrenders from the Fixed Account will be taken from the most recent
premium payments first (last in, first out).
The amount of the partial surrender plus the transaction charge will result in
the cancellation of Units in the Investment Account from which the partial
surrender occurs. The number of Units canceled will be equal to the amount of
the partial surrender plus the transaction charge divided by the Unit value of
the Division or Divisions for the Valuation Period in which the partial
surrender is effective.
Your Policy Value is reduced by the amount of the partial surrender plus the
amount of the transaction charge.
If Option 1 death benefit is in effect, the face amount is reduced by the amount
of the partial surrender and the transaction charge.
POLICY EXPENSES
MONTHLY POLICY CHARGES
On the Policy Date, and each Monthly Date thereafter, We will deduct a Monthly
Policy Charge.
The deduction for the Monthly Policy Charge is the sum of the following amounts:
1. The cost of insurance (described below) and the cost of additional
benefits provided by any rider in force for the policy month;
2. The current monthly administration charge, which will not exceed
the maximum shown on the current Data Pages; and
3. The current mortality and expense risks charge imposed on the
Investment Account value, which will not exceed the maximum shown
on the current Data Pages.
The Monthly Policy Charge will be withdrawn from the Investment Accounts and/or
The Fixed Account according to the allocation percentages You have chosen.
Your choice for the Monthly Policy Charge allocation may be:
1. The same as the allocation percentages You have chosen for Your
premiums; or
2. Determined on a Prorated Basis; or
3. Any other allocation which We mutually agree upon.
If the amount in an Investment Account and/or The Fixed Account is insufficient
to allow the allocation You have chosen, Your Monthly Policy Charge will be
allocated on a Prorated Basis.
For each Investment Account and/or the Fixed Account, the allocation percentages
must be zero or a whole number not less than ten nor greater than 100. The sum
of the percentages for all the Investment Accounts and the Fixed Account must
equal 100. Changes in allocation percentages may be made by providing Notice to
Us. Once approved by Us, they are effective as of the next Monthly Date.
COST OF INSURANCE
The cost of insurance on each Monthly Date is A multiplied by the result of B
minus C, where:
A. Is the cost of insurance rate as described in the Cost Of Insurance
Rates provision divided by 1,000;
B. Is the death benefit as described in the Your Death Proceeds
provision of this policy at the beginning of the Policy Month,
divided by 1.0024663 (the sum of 1 plus the monthly guaranteed
fixed account interest rate); and
C. Is the Policy Value at the beginning of the policy month calculated
as if the Monthly Policy Charge was zero.
COST OF INSURANCE RATES
The monthly cost of insurance rates are based on the sex, issue age, duration
since issue, risk classification, and smoking status of each Insured. We
determine these rates based on Our expectations as to Our future mortality
experience. Any change in these rates applies to all individuals of the same
class as each Insured. The cost of insurance rates will never be greater than
shown in the Table of Guaranteed Maximum Cost of Insurance Rates on the current
Data Pages. However, different cost of insurance rates may apply to any
underwritten face amount increase. Cost of insurance rates for a face amount
increase are based on the sex, age at time of adjustment, duration since
adjustment, risk classification, and smoking status of each Insured.
PREMIUM EXPENSE CHARGE
We will deduct a Premium Expense Charge as shown on the current Data Pages from
each premium payment. The result will be the Net Premium payment.
OTHER CHARGES
We will charge a surrender charge as described in the Surrender Of The Policy
provision if any of the following occurs during the surrender charge period:
1. You request the Net Surrender Value of Your policy; or
2. You do not pay an amount due at the end of a grace period, and the policy
terminates.
If You take a partial surrender of the Net Surrender Value of Your policy, We
will charge a transaction charge as shown on Your current Data Pages.
YOUR DEATH PROCEEDS
We will pay the death proceeds to the beneficiary(ies) subject to the provisions
of the policy, when We receive proof that both of the Insureds died before the
maturity date. We require notification of the first death as soon as it occurs
or as soon thereafter as is reasonably possible, even though the death proceeds
are not payable until the second death. The death proceeds, determined as of the
date of the Surviving Insured's death, are A minus B where:
A. Is the death benefit described below plus any proceeds from any benefit
rider on the Surviving Insured's life; and
B. Is any policy loans and unpaid loan interest and, if the Surviving
Insured's death occurs during a grace period, any overdue Monthly
Policy Charges.
We will pay interest on death proceeds from the date of the Surviving Insured's
death until date of payment or until applied under a benefit option. It will be
at a rate We determine, but not less than required by state law.
DEATH BENEFIT OPTIONS
This policy provides two death benefit options. The option in effect is shown on
the current Data Pages.
Option 1.
Under Option 1, the death benefit equals the greater of:
1. The policy's face amount; or
2. The amount found by multiplying the Policy Value by the applicable percentage
shown below.
Option 2.
Under Option 2, the death benefit equals the greater of:
1. The policy's face amount plus its Policy Value; or
2. The amount found by multiplying the Policy Value by the applicable percentage
shown below.
TABLE OF APPLICABLE PERCENTAGES*
(For ages not shown, the applicable percentages shall decrease by a pro rata
portion for each full year.)
YOUNGER INSURED'S ATTAINED AGE %
40 and under 250
45 215
50 185
55 150
60 130
65 120
70 115
75 thru 90 105
95+ 101
* These percentages will be updated as required by revisions to the Internal
Revenue Code.
CHANGES IN DEATH BENEFIT OPTIONS
You may change the death benefit option on or after the second Policy
Anniversary. To request a change in the death benefit option, You must send Us a
Written Request. A change approved on a Monthly Date will be effective on that
Monthly Date. A change approved on other than a Monthly Date will be effective
on the next following Monthly Date. Changes in options are limited to two per
Policy Year and are subject to the following conditions:
1. If the change is from Option 1 to Option 2, We will reduce the face amount.
The reduction will be equal to the Policy Value on the effective date of
the change. The face amount after any reduction must be at least the
minimum face amount required by Our then current underwriting guidelines.
We may require proof of insurability which satisfies Us.
2. If the change is from Option 2 to Option 1, We will increase the face
amount. The increase will be equal to the Policy Value on the effective
date of change. No proof of insurability is required.
YOUR MATURITY PROCEEDS
If either Insured is living on the policy's maturity date, We will pay You the
policy's maturity proceeds, which is equal to the death proceeds described in
Your Death Proceeds provision.
YOUR ADJUSTMENT OPTIONS
ADJUSTING THE FACE AMOUNT
While Your policy is in force (but not in a grace period) and both Insureds are
living, You may request an increase in the face amount. While Your policy is in
force (but not in a grace period) You may request a decrease in the face amount.
Decreases may not be made during the first two Policy Years. Any adjustment is
subject to Our approval.
APPROVAL OF AN ADJUSTMENT
Any increase in face amount will be in a risk classification We determine, and
will be approved if:
1. The Attained Age of the oldest Insured is 90 or less, and the Attained Age
of the youngest Insured is 85 or less, and the amount of the increase is at
least the minimum increase shown on the current Data Pages; and
2. You supply evidence which satisfies Us that at least one of the Insureds is
insurable under Our underwriting guidelines then in effect.
No adjustment will be approved if:
1. The face amount after adjustment would be less than the minimum amount shown
on the current Data Pages; or
2. Your Monthly Policy Charges are being waived under any rider.
REQUESTING AN ADJUSTMENT
You must send Us a Written Request for an adjustment. A request for a face
amount increase must be signed by the Insureds and owner(s). It must show the
face amount desired after adjustment. An adjustment is effective on the
Adjustment Date.
RIGHT TO EXCHANGE POLICY
You may at any time within the first 24 months from the Effective Date, upon
Written Request, make an irrevocable, one time election to transfer all of Your
Investment Account values to the Fixed Account.
OWNER, BENEFICIARY, ASSIGNMENT
OWNERSHIP
The owner(s) is as named in the application unless You change ownership as
provided below. As owner(s), You may exercise every right and enjoy every
privilege provided by Your policy, subject to the rights of any irrevocable
beneficiary(ies). These rights and privileges continue while Your policy is in
force, and end at the Surviving Insured's death. If an owner dies before the
policy terminates, the surviving owner(s), if any, shall succeed to that
person's ownership interest, unless otherwise specified. If all owners die
before the policy terminates, the policy will pass to the estate of the last
surviving owner. With Our consent, You may specify a different arrangement for
contingent ownership.
BENEFICIARY
The beneficiary(ies) named in the application will receive the death proceeds
unless You change the beneficiary designation as provided below. Any death
proceeds payable to a beneficiary(ies) who dies before the Surviving Insured's
death will be paid equally to the surviving beneficiaries named in the
application, unless We have approved another Written Request. If no
beneficiary(ies) survives the Surviving Insured's death, the death proceeds will
be paid to the owner(s) or to the owner's estate in equal percentages unless
otherwise specified.
CHANGE OF OWNER OR BENEFICIARY
You may change the owner(s) or beneficiary(ies) of this policy by Written
Request. Our approval is needed and no change is effective until We approve it.
Once approved, the change is effective as of the date You signed the request. We
have the right to require that You send Us this policy so We can record the
change.
BENEFIT INSTRUCTIONS
While either Insured is alive, You may file instructions for the payment of the
death proceeds. Such instructions, or change of instructions, must be in a
format We specify. When the Surviving Insured's death occurs, the
beneficiary(ies) may choose the arrangement under which death proceeds will be
paid. We must approve the arrangement chosen before any payment is made.
If You change beneficiary(ies), prior benefit instructions are revoked.
ASSIGNMENT
You may assign Your policy as collateral for a loan. The assignment must be in
writing and filed in Our home office. We assume no responsibility for any
assignment's validity. An assignment as collateral does not change the owner(s).
The rights of beneficiaries, whenever named, except irrevocable beneficiaries,
become subordinate to those of the assignee.
GENERAL INFORMATION
THE CONTRACT
This policy, the attached application(s) and riders, any amendments to the
application(s), any adjustment and reinstatement application(s), and the current
Data Pages make up the entire contract. Any statements made in the
application(s), an adjustment application(s) or any amendments to the
application(s) will be considered representations and not warranties. No
statement, unless made in an application(s), or amendments thereto, will be used
to void Your policy (or void an adjustment in case of an adjustment
application(s)) or to defend against a claim.
ALTERATIONS
This policy may be altered by mutual agreement, but any alterations must be in
writing and signed by one of Our corporate officers. No one else, including the
agent, may change the contract or waive any provisions.
INCONTESTABILITY
With respect to statements made in the initial application(s) for this policy,
We will not contest this policy after either Insured has been alive for two
years after the Policy Date. With respect to statements made in any subsequent
application(s) for additional coverage or reinstatement application(s), We will
not contest the additional coverage or reinstated coverage resulting from such
application(s) after either Insured has been alive for two years after the date
of the adjustment or reinstatement. The time limits in this Incontestability
provision do not apply to fraudulent misrepresentations.
AGE AND SEX
If the age or sex of either or both of the Insureds has been misstated, the
death benefit will be that which would be purchased by the most recent mortality
charge at the correct age or sex of the Insureds.
DEFERMENT
We will usually pay surrenders, partial surrenders, or policy loans within 5
Valuation Days after We receive a Written Request. We will usually pay any death
benefit within 5 Valuation Days after We receive 1) proof at Our home office of
both Insured's deaths, and 2) any other forms We may require to be completed.
However, We may not be able to determine the value of the assets of Our Separate
Account if:
1. The New York Stock Exchange is closed on other than customary weekend and
holiday closings, or trading on the New York Stock Exchange is restricted
as determined by the Securities and Exchange Commission;
2. The Securities and Exchange Commission by order permits postponement for
the protection of policyowners; or
3. The Securities and Exchange Commission requires that trading be restricted
or declares an emergency, as a result of which disposal of securities is
not reasonably practicable or it is not reasonably practicable to determine
the net asset values of the Mutual Funds.
If any of the above events occur, We reserve the right to defer:
1. Determination and payment of any surrender, partial surrenders, or death
proceeds;
2. Payment of any policy loans;
3. Determination of the Unit values of the Divisions;
4. Any requested transfer between the Divisions; and
5. Application of Your death proceeds or surrender proceeds under Your
Benefit Options.
If payments are delayed and Your request for total surrender, partial surrender,
transfer or policy loan is not canceled by Your written instructions, the amount
of the surrender, transfer or policy loan will be determined the first Valuation
Date following the expiration of the permitted delay. The death proceeds,
surrender or policy loan will be paid, or transfers made, within 5 Valuation
Days thereafter.
SUICIDE
This policy's death proceeds will not be paid if either Insured dies by suicide,
while sane or insane, within 2 years of the Policy Date. Instead, We will return
all premiums paid, less any policy loans and unpaid loan interest. If the
suicide occurs at the death of the first Insured, this amount will be paid to
the owner(s) of the policy. If the suicide occurs at the death of the Surviving
Insured, this amount will be paid to the beneficiary(ies).
Any face amount increase made under the adjustment options will not be paid if
either Insured dies by suicide, while sane or insane, within 2 years of the
Adjustment Date. Instead, We will return the sum of the cost of insurance
charges for the increased amount of protection. If the suicide occurs at the
death of the first Insured, this amount will be paid to the owner(s) of the
policy. If the suicide occurs at the death of the Surviving Insured, this amount
will be paid to the beneficiary(ies).
BASIS OF VALUES
Guaranteed maximum cost of insurance rates are based on the mortality table
referred to on the current Data Pages.
A detailed statement of the method of calculating values and benefits has been
filed with the insurance department of the state in which this policy is
written. The guaranteed values are greater than or equal to those required by
any state law.
STATEMENT OF VALUE
You will receive a statement once each Policy Year until the policy terminates.
The statement will show:
1. The current death benefit;
2. The current Policy and Surrender Values;
3. All premiums paid since the last statement;
4. Any investment gain or loss since the last statement;
5. All charges since the last statement;
6. Any policy loans and unpaid loan interest;
7. Any partial surrenders since the last statement; and
8. The total value of each of Your Investment Accounts and the Fixed Account.
SF 523
SURVIVORSHIP FLEXIBLE PREMIUM VARIABLE UNIVERSAL LIFE INSURANCE POLICY.
Adjustable death benefit. Benefits payable at death of Surviving Insured or
earlier maturity date. Flexible premiums payable until maturity date or death of
Surviving Insured. NON-PARTICIPATING.
SF 523
SURVIVORSHIP FLEXIBLE PREMIUM VARIABLE UNIVERSAL LIFE INSURANCE POLICY.
Adjustable death benefit. Benefits payable at death of Surviving Insured or
earlier maturity date. Flexible premiums payable until maturity date or death of
Surviving Insured. NON-PARTICIPATING.
This policy is a legal contract between You, as owner, and Us, Principal Life
Insurance Company. Your policy is issued based on the information in the
application and payment of premiums as shown on the current Data Pages. We will
pay the benefits of this policy in accordance with its provisions.
YOUR NET PREMIUMS ARE ADDED TO YOUR POLICY VALUE. YOU MAY ALLOCATE THEM TO ONE
OR MORE OF THE SEPARATE ACCOUNT DIVISIONS AND TO THE FIXED ACCOUNT.
THE PORTION OF YOUR POLICY VALUE THAT IS IN THE SEPARATE ACCOUNT WILL VARY FROM
DAY TO DAY. THE AMOUNT IS NOT GUARANTEED. IT MAY INCREASE OR DECREASE DEPENDING
ON THE INVESTMENT EXPERIENCE OF THE UNDERLYING DIVISIONS THAT YOU HAVE CHOSEN.
THERE ARE NO MINIMUM GUARANTEES AS TO SUCH PORTION OF YOUR POLICY VALUE.
THE PORTION OF YOUR POLICY VALUE THAT IS IN THE FIXED ACCOUNT WILL ACCUMULATE,
AFTER DEDUCTIONS, AT RATES OF INTEREST WE DETERMINE. SUCH RATES WILL NOT BE LESS
THAN 3% A YEAR, COMPOUNDED ANNUALLY.
THE AMOUNT AND DURATION OF THE DEATH BENEFIT MAY BE VARIABLE OR FIXED AS
DESCRIBED IN THIS POLICY.
10-DAY EXAMINATION OFFER. IT IS IMPORTANT TO US THAT YOU ARE SATISFIED WITH THIS
POLICY. IF YOU ARE NOT SATISFIED, YOU MAY RETURN YOUR POLICY TO EITHER YOUR
AGENT OR OUR HOME OFFICE BEFORE THE LATTER OF: (1) 10 DAYS OF ITS RECEIPT; (2)
45 DAYS AFTER THE APPLICATION WAS SIGNED; (3) 10 DAYS FROM THE DELIVERY OF THE
NOTICE OF THE RIGHT TO CANCEL; OR (4) SUCH LATER DATE AS PROVIDED BY APPLICABLE
STATE LAW. WE WILL REFUND ANY PREMIUM PAID AND YOUR POLICY WILL BE CONSIDERED
VOID FROM ITS INCEPTION. PLEASE READ YOUR POLICY CAREFULLY SO YOU MAY BETTER USE
ITS MANY BENEFITS.
The terms of this policy start on the Policy Date and will stay in force until
the maturity date shown on the Data Pages so long as You satisfy the
requirements as outlined in Your policy.
/s/ Joyce N. Hoffman /s/ David J. Drury
Vice President and Corporate Secretary Chairman and Chief Executive
Officer
SF 524
TABLE OF CONTENTS
SUBJECT
PAGE
DEFINITIONS IN THIS POLICY.....................................................4
PURCHASING AND KEEPING THE CONTRACT IN FORCE...................................5
PLANNED PERIODIC PREMIUMS......................................................6
PREMIUM PAYMENT LIMITS.........................................................6
GRACE PERIOD...................................................................6
TERMINATION....................................................................7
REINSTATEMENT..................................................................7
PREMIUM INVESTMENT OPTIONS.....................................................7
FIXED ACCOUNT..................................................................8
INVESTMENT ACCOUNTS............................................................8
VARIABLE LIFE SEPARATE ACCOUNT.................................................8
BENEFITS WHILE POLICY IS IN FORCE..............................................8
YOUR POLICY VALUE..............................................................8
TRANSFERS.....................................................................10
POLICY LOANS..................................................................12
LOAN INTEREST CHARGE..........................................................13
REPAYMENT.....................................................................13
SURRENDER OF THE POLICY.......................................................13
SURRENDER VALUE...............................................................13
POLICY EXPENSES...............................................................14
COST OF INSURANCE RATES.......................................................15
YOUR DEATH PROCEEDS...........................................................16
DEATH BENEFIT OPTIONS.........................................................16
CHANGES IN DEATH BENEFIT OPTIONS..............................................17
YOUR ADJUSTMENT OPTIONS.......................................................17
ADJUSTING THE FACE AMOUNT.....................................................17
RIGHT TO EXCHANGE POLICY......................................................18
OWNER, BENEFICIARY, ASSIGNMENT................................................18
CHANGES OF OWNER OR BENEFICIARY...............................................19
ASSIGNMENT....................................................................19
GENERAL INFORMATION...........................................................19
THE CONTRACT..................................................................19
ALTERATIONS...................................................................19
INCONTESTABILITY..............................................................19
AGE...........................................................................19
SUICIDE.......................................................................20
STATEMENT OF VALUE............................................................21
A copy of the application and any additional benefits provided by rider follow
the last page of this policy.
(LOGO) Principal Life
Insurance Company
Des Moines, Iowa 50392-0001
DATA PAGE
- --------------------------------------------------------------------------------
Survivorship Flexible Premium Variable Universal Life
- --------------------------------------------------------------------------------
POLICY DATA
Policy Number: Sample
Owner: John Doe
Joint Owner: Jane Doe
Policy Date: July 1, 2000
Policy Maturity Date: June 30, 2065
Death Benefit Option: Option 1
Face Amount: $100,000.00
Insured's Name: John Doe
Insured's Age: 35
Insured's Risk Class: Standard Nonsmoker
Insured's Name: Jane Doe
Insured's Age: 35
Insured's Risk Class: Standard Nonsmoker
PLANNED PERIODIC PREMIUM: $500.00
Planned Premium Mode: Annual
Target Premium: $407.00
Minimum Monthly Premium* $26.92
Death Benefit Guarantee Monthly Premium $71.67
*Applicable during the first 5 Policy Years only.
This policy is adjustable. If it is adjusted, we will send you new Data Pages.
The Data Pages are to be attached to and made a part of this policy.
This policy contains a fixed loan interest rate of 8.0%
Interest on borrowed funds is credited at 6% through Policy Year ten.
Thereafter, it is credited at 7.75%.
- --------------------------------------------------------------------------------
RIDER DATA
SF 531 Death Benefit Guarantee Rider
- -------------------------------------------
Effective Date: July 1, 2000
Expiration Date: June 30, 2065
SF 530 Extended Coverage Rider
- -------------------------------------
Effective Date: July 1, 2000
(continued on next page)
- --------------------------------------------------------------------------------
ACCOUNT DATA Monthly Policy
Premium Allocations Charge Allocations
------------------- ------------------
FIXED ACCOUNT 00% 00%
SEPARATE ACCOUNT DIVISIONS
Aggressive Growth 00% 00%
Asset Allocation 00% 00%
Balanced 20% 20%
Bond 20% 20%
Capital Value 00% 00%
Fidelity Contrafund 20% 20%
Fidelity Equity-Income 00% 00%
Fidelity High Income 00% 00%
Government Securities 00% 00%
Growth 20% 20%
International 00% 00%
International SmallCap 00% 00%
MicroCap 00% 00%
MidCap 00% 00%
MidCap Growth 00% 00%
Money Market 20% 20%
Putnam Global Asset Allocation 00% 00%
Putnam Vista 00% 00%
Putnam Voyager 00% 00%
Real Estate 00% 00%
SmallCap 00% 00%
SmallCap Growth 00% 00%
SmallCap Value 00% 00%
Stock Index 500 00% 00%
Utilities 00% 00%
(continued on next page)
- --------------------------------------------------------------------------------
TABLE OF GUARANTEED MAXIMUM COST OF INSURANCE RATES
Monthly Rates Per $1,000.00 of Net Amount of Risk
Duration Monthly Rate Duration Monthly Rate
1 0.00033 34 0.92992
2 0.00100 35 1.07167
3 0.00192 36 1.23742
4 0.00300 37 1.43525
5 0.00425 38 1.67325
6 0.00592 39 1.95658
7 0.00792 40 2.28675
8 0.01025 41 2.66158
9 0.01308 42 3.07883
10 0.01642 43 3.53592
11 0.02033 44 4.03675
12 0.02483 45 4.59500
13 0.03000 46 5.22767
14 0.03625 47 5.95233
15 0.04350 48 6.78575
16 0.05200 49 7.72967
17 0.06208 50 8.77308
18 0.07425 51 9.90100
19 0.08850 52 11.10258
20 0.10542 53 12.37167
21 0.12483 54 13.70508
22 0.14675 55 15.10667
23 0.17142 56 16.58942
24 0.19942 57 18.18275
25 0.23158 58 19.94525
26 0.26917 59 21.99908
27 0.31383 60 24.63250
28 0.36792 61 28.42892
29 0.43300 62 34.48792
30 0.50925 63 44.77075
31 0.59692 64 61.99067
32 0.69592 65 83.33333
33 0.80642
Basis of Values: Guaranteed maximum cost of insurance rates are based on 1980
CSO Mortality Table, age last birthday. The rates will reflect the Insured's
risk class(es).
- --------------------------------------------------------------------------------
CHARGES and LIMITS
o The maximum monthly administration charge is $8.00 per month, plus $.08 per
$1000 of face amount. The charge of $.08 per $1000 of face amount is
increased by $.005 per $1000 for each Insured that is classified as a
smoker.
(Continued on next page)
o The maximum annual mortality and expense risks charge is .80% of the portion
of the Policy Value in the Separate Account for the first nine Policy Years.
Thereafter, the charge is .30% of the portion of the Policy Value in the
Separate Account.
o The partial surrender transaction charge is the lesser of $25, or 2% of the
amount surrendered.
o During the first ten Policy Years, and for any premiums attributable to any
face increases, the premium expense charge is 5.00% of each premium received
for premium payments less than or equal to the Target Premium (2.00% of
premiums received in excess of Target Premium); plus a charge for state and
local taxes of 2.20% of each premium received; and a federal tax charge of
1.25% of each premium received. After the first ten Policy Years, the
premium expense charge is 2.00% of each premium received; plus a charge for
state and local taxes of 2.20% of each premium received; and a federal tax
charge of 1.25% of each premium received.
o The first 12 account transfers in a Policy Year are free. Thereafter, we
reserve the right to charge a $25 transaction charge for each transfer.
o The minimum face amount allowed is $100,000.
o The minimum transfer value for scheduled transfers is $2,500.
o The minimum face amount increase allowed is $100,000.
o The minimum partial surrender or loan amount allowed is $500.
o The minimum unscheduled transfer amount allowed is the lesser of $100, or
the balance of the Investment Account from which funds are being
transferred.
o The minimum scheduled transfer amount allowed is $100 from the Investment
Accounts and $50 from the Fixed Account.
A surrender charge will be deducted from your Policy Value if this policy is
surrendered for its net surrender value or if this policy terminates within the
first ten years. The maximum charge for each Policy Year is shown in the table
below.
The table assumes the policy face amount is never increased and the policy has
not been reinstated.
Table of Maximum Surrender Charges Per Policy
Policy Year Amount
----------- ------
1 $407.00
2 407.00
3 407.00
4 407.00
5 407.00
6 387.63
7 348.84
8 290.72
9 213.19
10 116.28
11 and later 0.00
DEFINITIONS IN THIS POLICY
ADJUSTMENT DATE means the Monthly Date on or next following Our approval of a
requested adjustment.
ATTAINED AGE for each Insured means the Insured's age on the birthday on or
preceding the last Policy Anniversary.
DIVISION is the part of the Separate Account to which Net Premiums may be
allocated which invests in shares of a Mutual Fund. The value of an investment
in a Division is variable and is not guaranteed.
EFFECTIVE DATE is the date on which all requirements for issuance of a policy
have been satisfied.
FIXED ACCOUNT is that part of the Policy Value that reflects the value You have
in Our general account.
INSUREDS means the persons named as the Insureds on the current Data Pages of
this policy. The Insureds may or may not be the owner(s).
INVESTMENT ACCOUNT is that part of the Policy Value that reflects the value You
have in one of the Divisions of the Separate Account.
LOAN ACCOUNT is that part of the Policy Value that reflects the value You have
transferred from the Fixed Account and/or Separate Account as collateral for a
policy loan.
MONTHLY DATE means the day of the month which is the same as the day of the
Policy Date. The Monthly Date will never be the 29th, 30th, or 31st of any
month.
MONTHLY POLICY CHARGE is the amount subtracted from Your Policy Value on each
Monthly Date equal to the sum of the cost of insurance and the cost of
additional benefits provided by any rider plus the monthly administration charge
and mortality and expense risks charge in effect on the Monthly Date.
MUTUAL FUND means a registered open-end investment company, or a separate
investment account or portfolio thereof, in which a Division of the Separate
Account invests.
NET PREMIUM is the gross premium less the deductions for the Premium Expense
Charge as shown on the current Data Pages. It is the amount of premium allocated
to the Fixed Account and/or Investment Accounts.
NET SURRENDER VALUE is the Surrender Value less any policy loans and unpaid loan
interest.
NOTICE means any form of communication We receive in Our home office providing
the information We need, either in writing or another manner that We approve in
advance.
POLICY DATE is the date shown on the current Data Pages. The Policy Date will
never be the 29th, 30th, or 31st of any month.
POLICY VALUE is the sum of the values in the Loan Account, Fixed Account, and
Investment Accounts.
POLICY YEARS AND ANNIVERSARIES means the Policy Years and Anniversaries computed
from the Policy Date.
PREMIUM EXPENSE CHARGE is the charge deducted from premium payments to cover a
sales charge, state and local premium taxes and the federal tax charge as shown
on the current Data Pages. PRORATED BASIS means the proportion that the value of
a particular Investment Account or the Fixed Account bears to the total value of
all Investment Accounts and the Fixed Account.
SEPARATE ACCOUNT means Principal Life Insurance Company Variable Life Separate
Account, a registered unit investment trust with Divisions and segregated
assets, to which Net Premiums may be allocated under this policy and others We
issue.
SURRENDER VALUE is the Policy Value less the surrender charges.
SURVIVING INSURED means the Insured who is living upon the death of the other
Insured. If both Insureds die simultaneously, then the term "Surviving Insured"
shall mean the younger of the two Insureds.
TARGET PREMIUM is a premium amount used to determine the maximum sales charge
that is included as part of the Premium Expense Charge and any applicable
surrender charge under a policy. Your Target Premium is shown on Your current
Data Pages.
UNIT is the accounting measure used to calculate the Separate Account value.
VALUATION DAY is any day that the New York Stock Exchange is open for trading,
and trading is not restricted. We will deem each Valuation Day to end at the
time We determine the net asset value of the underlying Mutual Fund shares held
by the Division of the Separate Account. When We need to determine a Policy
Value or an amount after the end of a Valuation Day, or on a day that is not a
Valuation Day, We will do so at the end of the next Valuation Day.
VALUATION PERIOD means the period between the time as of which the net asset
value of a Mutual Fund is determined on one Valuation Day and the time as of
which such value is determined on the next following Valuation Day.
WE, OUR, US means Principal Life Insurance Company.
WRITTEN REQUEST means a form satisfactory to Us, signed and dated by You, and
received at Our home office.
YOU, YOUR means the owner(s) of this policy.
PURCHASING AND KEEPING THE CONTRACT IN FORCE
PREMIUM PAYMENTS
Your first premium is due on the Policy Date. After that, premiums may be paid
at any time while this policy is in force. The amount of Your premiums is
subject to the Premium Payment Limits provision. We will give a receipt to the
premium payor on request.
Your initial Net Premium will be allocated to the Money Market Division of the
Separate Account. Net Premiums will continue to be allocated to the Money Market
Division until 20 days after the Effective Date. After the 20-day period has
expired, Your policy's Policy Value will be transferred to the Divisions and/or
the Fixed Account indicated by Your initial premium allocation percentage(s)
request. If the purchase of this policy falls within the definition of a
replacement under state law, We reserve the right to allocate the initial Net
Premium (or any premium that results from a replacement) to the Money Market
Division beyond the 20 days as may be necessary.
The initial premium allocation percentages are shown on the Data Pages. Unless
You change them, these percentages apply to future allocations of premiums. For
each Division and the Fixed Account, the allocation percentages must be zero or
a whole number not less than ten nor greater than 100. The sum of the
percentages for all Divisions and the Fixed Account must equal 100.
PLANNED PERIODIC PREMIUMS
You may preauthorize automatic monthly planned periodic premium payments. If You
do not elect to pay automatically, We will send You reminder notices of the
amount and frequency of Your planned periodic premiums as selected in Your
application. These notices serve only as a reminder of Your preference. Premiums
are to be sent to the address We provide in the reminder notices. You may change
the amount and frequency of Your planned periodic premiums by providing Notice
to Us.
The Grace Period provision may apply whether or not You make a planned periodic
premium payment or additional premium payments.
PREMIUM PAYMENT LIMITS
To keep this policy in force You must satisfy the requirements described in the
Grace Period provision.
You may choose to make premium payments that are greater than the planned
periodic premium. However, We will refund any premiums that would disqualify
this policy as "life insurance" as defined in the Internal Revenue Code, as
amended.
If any payment increases the policy's death benefit by more than it increases
the Policy Value, We reserve the right to refund the premium payment. If the
premium payment is not refunded, We may require satisfactory evidence of
insurability.
PAID UP BENEFIT
If You do not make a planned periodic premium payment or additional premium
payments, then this policy will not terminate unless the Net Surrender Value is
not sufficient to pay the Monthly Policy Charge which is due on the Monthly Date
and the Grace Period provision will then apply.
GRACE PERIOD
If the Net Surrender Value on any Monthly Date is less than the Monthly Policy
Charge, a 61 day grace period will begin. However, We guarantee this policy will
stay in force during the first 5 policy years when (A-B) is greater than or
equal to (C), where:
A. Is the sum of premiums paid;
B. Is the sum of all existing loans, loan interest, partial surrenders,
and transaction charges; and
C. Is the sum of the minimum monthly premiums since the Policy Date to the
most recent Monthly Date.
The current minimum monthly premium is shown on the current Data Pages.
The grace period begins when We mail a notice of impending policy termination to
You. This notice will be sent to Your last post office address known to Us.
If by the end of the grace period We do not receive a payment, as calculated in
number 5 of the Reinstatement provision, Your policy terminates as of the date
the first unpaid Monthly Policy Charge was due.
If the Surviving Insured dies during a grace period, We will pay the death
proceeds to the beneficiary(ies).
TERMINATION
All policy privileges and rights of the owner(s) under this policy end:
1. When You surrender Your policy for cash;
2. When the death proceeds are paid;
3. When the policy maturity proceeds are paid; or
4. When the grace period ends as described in the Grace Period provision. In
this case, the privileges and rights of the owner(s) terminate as of the
Monthly Date on which the grace period begins.
REINSTATEMENT
If this policy ends as described in the Grace Period provision and You have not
surrendered Your policy for cash, You may reinstate it provided:
1. Such reinstatement is prior to the maturity date;
2. Not more than three years have elapsed since the policy terminated;
3. You supply evidence which satisfies Us that at least one of the Insureds is
insurable under Our underwriting guidelines then in effect;
4. You either repay or reinstate any policy loans and unpaid loan interest on
this policy existing at termination; and
5. You make a payment of at least (A plus B divided by C) where:
A. Is the amount by which the surrender charge is more than the Policy
Value on the Monthly Date at the start of the grace period before the
Monthly Policy Charge is deducted;
B. Is three Monthly Policy Charges; and
C. Is 1 minus the maximum Premium Expense Charge.
Reinstatement will be effective on the Monthly Date on or next following the
date We approve it. The Policy Date will remain the original Policy Date and
will not be changed at reinstatement, although Surrender Charges for total
surrender following reinstatement will resume at the rate charged at the time of
the policy's termination, as adjusted for the payment of past due premiums, if
any.
PREMIUM INVESTMENT OPTIONS
ALLOCATIONS
You may allocate Net Premiums to the Fixed Account and/or any of the Investment
Accounts. Allocation percentages must be zero or a whole number not less than
ten nor greater than 100. The sum of the allocation percentages must equal 100.
You may change the allocation percentages by providing Us Notice. Unless You
change the initial premium allocation specified in Your application for this
policy, it will continue to apply to subsequent premium payments. FIXED ACCOUNT
Net Premiums allocated to the Fixed Account will earn interest at rates We
determine at Our discretion. In no event will the guaranteed interest rate be
less than 3% compounded annually.
INVESTMENT ACCOUNTS
The Separate Account is comprised of Divisions shown on the current Data Pages.
Each Division invests in a Mutual Fund with a different investment objective.
You may allocate amounts to one or more of the Divisions. An Investment Account
will be established for You corresponding to each Division of the Separate
Account to which amounts are allocated or transferred under this policy. We will
maintain each of these Investment Accounts for You to keep track of Your values
in each Division. Income, gains and losses, whether or not realized, from each
Division's assets are credited to or charged against that Division without
regard to income, gains or losses of other Divisions or Our other income, gains
or losses.
VARIABLE LIFE SEPARATE ACCOUNT
The Separate Account is registered with the Securities and Exchange Commission
as a unit investment trust under the Investment Company Act of 1940, as amended.
Assets are put into the Separate Account to support this policy and to support
other variable life insurance policies We may offer. We own the assets of the
Separate Account. These assets are not part of Our general account. Income,
gains and losses of the Separate Account, whether or not realized, are credited
to or charged against the Separate Account assets, without regard to Our other
income, gains or losses. The assets of the Separate Account will be available to
cover the liabilities of Our general account only to the extent that the assets
of the Separate Account exceed the liabilities of the Separate Account arising
under the variable life insurance policies supported by the Separate Account.
We reserve the right to add other Divisions, eliminate or combine existing
Divisions, or transfer assets in one Division to another. If shares of a Mutual
Fund are no longer available for investment, or in Our judgment investment in a
Mutual Fund becomes inappropriate considering the purpose of the Separate
Account, We may eliminate the shares of a Mutual Fund and substitute shares of
another. Substitution may be made with respect to both existing investments and
the investment of future Net Premium payments. However, no such changes will be
made without notifying You and getting any required approval from the
appropriate state and/or federal regulatory authorities. We will notify You of
any such change.
If We eliminate or combine existing Divisions, or transfer assets in one
Division to another, You may then change Your allocation percentages and
transfer any value in that Division to another Investment Account(s) and/or the
Fixed Account without charge. You may exercise this right until the latter of 60
days after, 1) the effective date of such change or, 2) the date You receive
notice of this right. You may only exercise this right if You have an interest
in the affected Division(s).
BENEFITS WHILE POLICY IS IN FORCE
YOUR POLICY VALUES
Your Policy Value at any time is equal to the sum of the values You have in the
Loan Account, the Fixed Account and the Investment Accounts.
LOAN ACCOUNT VALUE
You can get a loan on this policy under certain conditions. When You take out a
loan, We transfer the amount of the loan from the Fixed Account and/or one or
more of the Investment Accounts, into the Loan Account. For details of the Loan
Account see the Policy Loans provision.
FIXED ACCOUNT VALUE
The amount You have in the Fixed Account at any time equals:
1. Net Premiums allocated to it,
PLUS
2. Amounts transferred to it,
PLUS
3. Interest credited to it,
LESS
4. Amounts deducted from it,
LESS
5. Amounts transferred from it,
LESS
6. Amounts surrendered from it.
INVESTMENT ACCOUNT VALUE
Your Investment Account value for each Division is equal to the number of Units
in that Investment Account multiplied by that Division's Unit value. The number
of Units in an Investment Account at any time equals A minus B, where:
A. Is the number of Units credited to the Investment Account because of:
1. Net Premiums allocated to it, and
2. Amounts transferred to it; and
B. Is the number of Units canceled from the Investment Account because of:
1. Amounts deducted from it,
2. Amounts transferred from it, and
3. Amounts surrendered from it.
The number of Units credited or canceled for a given transaction is equal to the
dollar amount of the transaction, divided by the Unit value on the Valuation Day
of the transaction.
UNIT VALUES
We will determine the Unit value for each Division of the Separate Account at
the end of each Valuation Day.
The Unit value for each Division was arbitrarily set at $10 as of the Valuation
Day that the Division first purchased Mutual Fund shares. For any subsequent
Valuation Day, the Unit value for that Division is obtained by multiplying the
Unit value for the immediately preceding Valuation Day by the net investment
factor for the particular Division on that subsequent Valuation Day.
NET INVESTMENT FACTOR
The net investment factor for a Division on any Valuation Day is equal to A
divided by B where:
A. Is the net asset value of the underlying Mutual Fund shares held by
that Division at the end of such Valuation Day before any policy
transactions are made on that day; and
B. Is the net asset value of the underlying Mutual Fund shares held by
that Division at the end of the immediately preceding Valuation Day
after all policy transactions were made for that day.
We reserve the right to adjust the above formula for any taxes determined by Us
to be attributable to the operations of the Division.
TRANSFERS
TRANSFERS ALLOWED
You may transfer amounts between the Fixed Account and the Investment Accounts
as provided below. To request a transfer, You must provide Us Notice. All
transfers with the same effective dates count as one transfer. If Your request
is received prior to the close of the New York Stock Exchange, the transfer is
made and value is determined as of that day. Requests received after the close
of the New York Stock Exchange will be processed and values determined as of the
next Valuation Day. We reserve the right to not accept transfer requests from
someone requesting them for multiple contracts. We also reserve the right to
modify or revoke transfer privileges and charges.
TRANSFERS FROM FIXED ACCOUNT
You may transfer amounts from the Fixed Account to an Investment Account by
making either a scheduled or unscheduled Fixed Account transfer, subject to the
following conditions:
Either unscheduled transfers or scheduled transfers (not both) may occur during
the same Policy Year.
UNSCHEDULED FIXED ACCOUNT TRANSFERS - You may make one unscheduled transfer from
the Fixed Account each Policy Year, as follows:
1. You must provide Us Notice within 30 days following either the
Policy Date or any Policy Anniversary.
2. You must specify the dollar amount or percentage to be transferred,
and the resulting amount must not exceed 25% of Your Fixed Account
value as of the later of the Policy Date or the last Policy
Anniversary. However, You may transfer up to 100% of Your Fixed
Account value within 30 days after the first and following Policy
Anniversaries if Your Fixed Account value is less than $1,000.
SCHEDULED FIXED ACCOUNT TRANSFERS - (Dollar Cost Averaging) - You may make
scheduled transfers on a monthly basis from the Fixed Account as follows:
1. Transfers will begin on a monthly basis on the date (other than the
29th, 30th or 31st) specified by You.
2. Your Fixed Account value must equal or exceed the minimum transfer
value shown on the current Data Pages. We reserve the right to
change this amount but it will never exceed $10,000.
3. The monthly transfer will be the dollar amount or percentage You
specify and that amount must equal or exceed the minimum scheduled
transfer amount shown on the current Data Pages. The monthly amount
transferred cannot exceed 2% of Your Fixed Account value as of the
latter of the Policy Date, last Policy Anniversary, or date request
is received by Us.
4. The transfers will continue until Your Fixed Account value is
exhausted or We receive Notice to stop them.
5. The amount of these scheduled transfers can be changed by You once
each Policy Year, by Written Request or by telephone.
6. If You stop the scheduled transfers, You may not start them again
until six months after the date of the last scheduled transfer.
TRANSFERS FROM INVESTMENT ACCOUNTS
You may transfer amounts from an Investment Account to either the Fixed Account
or another Investment Account by making either a scheduled or unscheduled
Investment Account transfer, subject to the following conditions:
Transfers to the Fixed Account are allowed only if:
1. You have not transferred any amount from the Fixed Account for at least six
months; and
2. Your Fixed Account value immediately after the transfer does not exceed
$1,000,000, except with Our prior approval.
UNSCHEDULED INVESTMENT ACCOUNT TRANSFERS - You may make unscheduled transfers
from an Investment Account, as follows:
1. You must specify the dollar amount or percentage to transfer from
each Investment Account, and the resulting amount must equal or
exceed the lesser of the value of Your Investment Account or the
minimum unscheduled transfer amount shown on the current Data
Pages.
2. We reserve the right to charge a transaction charge as shown on the
current Data Pages for each unscheduled transfer after the twelfth
transfer in a Policy Year.
SCHEDULED INVESTMENT ACCOUNT TRANSFERS - (Dollar Cost Averaging) - You may make
scheduled transfers from an Investment Account, as follows:
1. Transfers will begin on a monthly basis on the date (other than the
29th, 30th or 31st) specified by You.
2. You must specify how often the transfers will occur (annually,
semi-annually, quarterly or monthly).
3. You must specify the dollar amount or percentage to transfer from
each Investment Account, and that amount must equal or exceed the
lesser of the value of Your Investment Account or the minimum
scheduled transfer amount shown on the current Data Pages.
4. The value of each Investment Account from which transfers are made
must equal or exceed the minimum transfer value shown on the
current Data Pages.
5. The transfers will continue until Your interest in the Investment
Account is exhausted or We receive Notice to stop them.
6. We reserve the right to limit the number of Investment Accounts
from which transfers will be made at the same time. In no event
will the limit ever be less than two.
AUTOMATIC PORTFOLIO REBALANCING
Automatic portfolio rebalancing (APR), allows You to maintain a specific
percentage of Your Policy Value in Your Investment Accounts over time.
APR transfers:
1. Do not begin until the expiration of the Examination Offer (See
Examination Offer on the front cover of Your policy).
2. Are made without a charge and are not counted as unscheduled
transfers when determining any transfer fee.
3. May be made on the frequency You specify, subject to the following:
A. Quarterly APR transfers may be made on a calendar year or
Policy Year basis.
B. Semiannual or annual APR transfers may only be done on a Policy
Year basis.
4. May be made upon Your Written Request or by telephone.
Transfers are made at the end of the next Valuation Period after We receive Your
instructions. APR is not available if You have scheduled transfers from the same
Investment Account, or for values You have in the Fixed Account.
POLICY LOANS
You may obtain a policy loan from Us with this policy as sole security. You may
borrow up to A minus B where:
A. Is 90% of the Surrender Value; and
B. Is any outstanding policy loan and unpaid loan interest at the time
the loan request is processed at the home office.
The minimum loan amount is shown on the current Data Pages.
YOUR LOAN ACCOUNT
If You take a policy loan, a portion of Your Policy Value equal to the loan will
be transferred from the Fixed Account and/or the Investment Accounts to Your
Loan Account until the loan is repaid. The effective date of the transfer is the
date of the loan.
The loan will result in a reduction in the value of the Fixed Account to the
extent amounts are transferred from the Fixed Account to the Loan Account, or in
the cancellation of Units in the Investment Account or Accounts from which the
loan was withdrawn. For each Investment Account, the number of Units canceled
will be equal to the portion of the loan withdrawn divided by the Unit value for
the Valuation Period in which the loan is taken.
You may tell Us the amount of the policy loan to be withdrawn from the Fixed
Account and/or each Investment Account. If You do not tell Us, the loan amount
will be withdrawn in the same proportion as the allocation used for Your Monthly
Policy Charge. Amounts held in Your Loan Account will be part of Our general
account and will be credited with interest from the date of transfer. The
difference between the policy loan rate and the rate credited on the Loan
Account will not exceed 2%.
On each Policy Anniversary, if there has been a loan repayment, this credit is
transferred from the Loan Account to the Fixed Account and the Investment
Accounts. It is allocated among the Fixed Account and the Investment Accounts in
the same manner used to allocate premium payments.
All interest rates stated are effective annual rates. We apply these rates to
properly reflect the actual date We receive any repayments and any changes You
make in loan amounts during a policy month.
LOAN INTEREST CHARGE
Interest charges accrue daily at the annual loan interest rate shown on the
current Data Pages. Interest is due and payable at the end of each Policy Year.
Any interest not paid when due is added to the loan principal and bears interest
at the same rate. The adding of unpaid interest charges to the loan principal
will cause additional amounts to be withdrawn from the Divisions in the same
manner as described above for loans.
REPAYMENT
You may repay all or part of a policy loan as long as the policy is in force.
Any policy loans and unpaid loan interest charges not repaid at the death of the
Surviving Insured or at maturity are deducted from the death or maturity
proceeds.
YOU SHOULD IDENTIFY THE PURPOSE OF EACH PAYMENT. IF WE CANNOT IDENTIFY ITS
PURPOSE, WE WILL CONSIDER IT TO BE A LOAN REPAYMENT IF A LOAN IS OUTSTANDING.
The amount repaid is transferred from Your Loan Account to the Fixed Account
and/or the Investment Accounts in the same manner used to allocate premium
payments.
SURRENDER OF THE POLICY
SURRENDER VALUE AND NET SURRENDER VALUE
The Surrender Value of Your policy equals the Policy Value less the surrender
charges (described in the Surrender Charges provision).
The Net Surrender Value of Your policy is the Surrender Value less any policy
loans and unpaid loan interest. As long as Your policy is in force, You may
surrender it for its Net Surrender Value by sending Us a Written Request.
SURRENDER CHARGES
The Table of Maximum Surrender Charges is shown on the current Data Pages.
Surrender charges vary based on the Target Premium of the policy and will apply
only during the first 10 Policy Years unless changed due to a face amount
increase. A face amount increase has its own surrender charge period which
begins on the Adjustment Date. The total surrender charge on the policy will be
a composite of the surrender charges for the face amount at issue and each
subsequent face amount increase.
Decreases in face amount do not decrease surrender charges on the policy.
PARTIAL SURRENDERS
Each Policy Year after the second Policy Year, You may make up to two partial
surrenders from the Net Surrender Value, subject to the following:
1. Each partial surrender must be in an amount not less than the minimum amount
shown on the current Data Pages; and
2. In the aggregate the total amount surrendered in a Policy Year will not
exceed an amount equal to 75% of the Net Surrender Value as of the date of
the first surrender in a Policy Year.
The transaction charge is shown on the current Data Pages. You may tell Us in
what proportion to allocate the amount of the partial surrender and transaction
charge to be withdrawn from the Fixed Account and/or each Investment Account. If
You do not tell Us, the partial surrender and the transaction charge will be
withdrawn from the Fixed Account and each Investment Account in the same
proportion as the allocations used for Your current Monthly Policy Charge.
Partial surrenders from the Fixed Account will be taken from the most recent
premium payments first (last in, first out).
The amount of the partial surrender plus the transaction charge will result in
the cancellation of Units in the Investment Account from which the partial
surrender occurs. The number of Units canceled will be equal to the amount of
the partial surrender plus the transaction charge divided by the Unit value of
the Division or Divisions for the Valuation Period in which the partial
surrender is effective.
Your Policy Value is reduced by the amount of the partial surrender plus the
amount of the transaction charge.
If Option 1 death benefit is in effect, the face amount is reduced by the amount
of the partial surrender and the transaction charge.
POLICY EXPENSES
MONTHLY POLICY CHARGES
On the Policy Date, and each Monthly Date thereafter, We will deduct a Monthly
Policy Charge.
The deduction for the Monthly Policy Charge is the sum of the following amounts:
1. The cost of insurance (described below) and the cost of additional benefits
provided by any rider in force for the policy month;
2. The current monthly administration charge, which will not exceed the maximum
shown on the current Data Pages; and
3. The current mortality and expense risks charge imposed on the Investment
Account value, which will not exceed the maximum shown on the current Data
Pages.
The Monthly Policy Charge will be withdrawn from the Investment Accounts and/or
The Fixed Account according to the allocation percentages You have chosen.
Your choice for the Monthly Policy Charge allocation may be:
1. The same as the allocation percentages You have chosen for Your premiums; or
2. Determined on a Prorated Basis; or
3. Any other allocation which We mutually agree upon.
If the amount in an Investment Account and/or The Fixed Account is insufficient
to allow the allocation You have chosen, Your Monthly Policy Charge will be
allocated on a Prorated Basis.
For each Investment Account and/or the Fixed Account, the allocation percentages
must be zero or a whole number not less than ten nor greater than 100. The sum
of the percentages for all the Investment Accounts and the Fixed Account must
equal 100. Changes in allocation percentages may be made by providing Notice to
Us. Once approved by Us, they are effective as of the next Monthly Date.
COST OF INSURANCE
The cost of insurance on each Monthly Date is A multiplied by the result of B
minus C, where:
A. Is the cost of insurance rate as described in the Cost Of Insurance
Rates provision divided by 1,000;
B. Is the death benefit as described in the Your Death Proceeds provision
of this policy at the beginning of the Policy Month, divided by
1.0024663 (the sum of 1 plus the monthly guaranteed fixed account
interest rate); and
C. Is the Policy Value at the beginning of the policy month calculated as
if the Monthly Policy Charge was zero.
COST OF INSURANCE RATES
The monthly cost of insurance rates are based on the issue age, duration since
issue, risk classification, and smoking status of each Insured. We determine
these rates based on Our expectations as to Our future mortality experience. Any
change in these rates applies to all individuals of the same class as each
Insured. The cost of insurance rates will never be greater than shown in the
Table of Guaranteed Maximum Cost of Insurance Rates on the current Data Pages.
However, different cost of insurance rates may apply to any underwritten face
amount increase. Cost of insurance rates for a face amount increase are based on
the age at time of adjustment, duration since adjustment, risk classification,
and smoking status of each Insured.
PREMIUM EXPENSE CHARGE
We will deduct a Premium Expense Charge as shown on the current Data Pages from
each premium payment. The result will be the Net Premium payment.
OTHER CHARGES
We will charge a surrender charge as described in the Surrender Of The Policy
provision if any of the following occurs during the surrender charge period:
1. You request the Net Surrender Value of Your policy; or
2. You do not pay an amount due at the end of a grace period, and the policy
terminates.
If You take a partial surrender of the Net Surrender Value of Your policy, We
will charge a transaction charge as shown on Your current Data Pages.
YOUR DEATH PROCEEDS
We will pay the death proceeds to the beneficiary(ies) subject to the provisions
of the policy, when We receive proof that both of the Insureds died before the
maturity date. We require notification of the first death as soon as it occurs
or as soon thereafter as is reasonably possible, even though the death proceeds
are not payable until the second death. The death proceeds, determined as of the
date of the Surviving Insured's death, are A minus B where:
A. Is the death benefit described below plus any proceeds from any benefit
rider on the Surviving Insured's life; and
B. Is any policy loans and unpaid loan interest and, if the Surviving
Insured's death occurs during a grace period, any overdue Monthly
Policy Charges.
We will pay interest on death proceeds from the date of the Surviving Insured's
death until date of payment or until applied under a benefit option. It will be
at a rate We determine, but not less than required by state law.
DEATH BENEFIT OPTIONS
This policy provides two death benefit options. The option in effect is shown on
the current Data Pages.
Option 1.
Under Option 1, the death benefit equals the greater of:
1. The policy's face amount; or
2. The amount found by multiplying the Policy Value by the applicable
percentage shown below.
Option 2.
Under Option 2, the death benefit equals the greater of:
1. The policy's face amount plus its Policy Value; or
2. The amount found by multiplying the Policy Value by the applicable
percentage shown below.
TABLE OF APPLICABLE PERCENTAGES*
(For ages not shown, the applicable percentages shall decrease by a pro rata
portion for each full year.)
YOUNGER INSURED'S ATTAINED AGE %
40 and under 250
45 215
50 185
55 150
60 130
65 120
70 115
75 thru 90 105
95+ 101
* These percentages will be updated as required by revisions to the Internal
Revenue Code.
CHANGES IN DEATH BENEFIT OPTIONS
You may change the death benefit option on or after the second Policy
Anniversary. To request a change in the death benefit option, You must send Us a
Written Request. A change approved on a Monthly Date will be effective on that
Monthly Date. A change approved on other than a Monthly Date will be effective
on the next following Monthly Date. Changes in options are limited to two per
Policy Year and are subject to the following conditions:
1. If the change is from Option 1 to Option 2, We will reduce the face amount.
The reduction will be equal to the Policy Value on the effective date of the
change. The face amount after any reduction must be at least the minimum
face amount required by Our then current underwriting guidelines. We may
require proof of insurability which satisfies Us.
2. If the change is from Option 2 to Option 1, We will increase the face
amount. The increase will be equal to the Policy Value on the effective date
of change. No proof of insurability is required.
YOUR MATURITY PROCEEDS
If either Insured is living on the policy's maturity date, We will pay You the
policy's maturity proceeds, which is equal to the death proceeds described in
Your Death Proceeds provision
YOUR ADJUSTMENT OPTIONS
ADJUSTING THE FACE AMOUNT
While Your policy is in force (but not in a grace period) and both Insureds are
living, You may request an increase in the face amount. While Your policy is in
force (but not in a grace period) You may request a decrease in the face amount.
Decreases may not be made during the first two Policy Years. Any adjustment is
subject to Our approval.
APPROVAL OF AN ADJUSTMENT
Any increase in face amount will be in a risk classification We determine, and
will be approved if:
1. The Attained Age of the oldest Insured is 90 or less, and the Attained Age
of the youngest Insured is 85 or less, and the amount of the increase is at
least the minimum increase shown on the current Data Pages; and
2. You supply evidence which satisfies Us that at least one of the Insureds is
insurable under Our underwriting guidelines then in effect.
No adjustment will be approved if:
1. The face amount after adjustment would be less than the minimum amount shown
on the current Data Pages; or
2. Your Monthly Policy Charges are being waived under any rider.
REQUESTING AN ADJUSTMENT
You must send Us a Written Request for an adjustment. A request for a face
amount increase must be signed by the Insureds and owner(s). It must show the
face amount desired after adjustment. An adjustment is effective on the
Adjustment Date.
RIGHT TO EXCHANGE POLICY
You may at any time within the first 24 months from the Effective Date, upon
Written Request, make an irrevocable, one time election to transfer all of Your
Investment Account values to the Fixed Account.
OWNER, BENEFICIARY, ASSIGNMENT
OWNERSHIP
The owner(s) is as named in the application unless You change ownership as
provided below. As owner(s), You may exercise every right and enjoy every
privilege provided by Your policy, subject to the rights of any irrevocable
beneficiary(ies). These rights and privileges continue while Your policy is in
force, and end at the Surviving Insured's death. If an owner dies before the
policy terminates, the surviving owner(s), if any, shall succeed to that
person's ownership interest, unless otherwise specified. If all owners die
before the policy terminates, the policy will pass to the estate of the last
surviving owner. With Our consent, You may specify a different arrangement for
contingent ownership.
BENEFICIARY
The beneficiary(ies) named in the application will receive the death proceeds
unless You change the beneficiary designation as provided below. Any death
proceeds payable to a beneficiary(ies) who dies before the Surviving Insured's
death will be paid equally to the surviving beneficiaries named in the
application, unless We have approved another Written Request. If no
beneficiary(ies) survives the Surviving Insured's death, the death proceeds will
be paid to the owner(s) or to the owner's estate in equal percentages unless
otherwise specified.
CHANGE OF OWNER OR BENEFICIARY
You may change the owner(s) or beneficiary(ies) of this policy by Written
Request. Our approval is needed and no change is effective until We approve it.
Once approved, the change is effective as of the date You signed the request. We
have the right to require that You send Us this policy so We can record the
change.
BENEFIT INSTRUCTIONS
While either Insured is alive, You may file instructions for the payment of the
death proceeds. Such instructions, or change of instructions, must be in a
format We specify. When the Surviving Insured's death occurs, the
beneficiary(ies) may choose the arrangement under which death proceeds will be
paid. We must approve the arrangement chosen before any payment is made.
If You change the beneficiary(ies), prior benefit instructions are revoked.
ASSIGNMENT
You may assign Your policy as collateral for a loan. The assignment must be in
writing and filed in Our home office. We assume no responsibility for any
assignment's validity. An assignment as collateral does not change the owner(s).
The rights of beneficiaries, whenever named, except irrevocable beneficiaries,
become subordinate to those of the assignee.
GENERAL INFORMATION
THE CONTRACT
This policy, the attached application(s) and riders, any amendments to the
application(s), any adjustment and reinstatement application(s), and the current
Data Pages make up the entire contract. Any statements made in the
application(s), an adjustment application(s) or any amendments to the
application(s) will be considered representations and not warranties. No
statement, unless made in an application(s), or amendments thereto, will be used
to void Your policy (or void an adjustment in case of an adjustment
application(s)) or to defend against a claim.
ALTERATIONS
This policy may be altered by mutual agreement, but any alterations must be in
writing and signed by one of Our corporate officers. No one else, including the
agent, may change the contract or waive any provisions.
INCONTESTABILITY
With respect to statements made in the initial application(s) for this policy,
We will not contest this policy after either Insured has been alive for two
years after the Policy Date. With respect to statements made in any subsequent
application(s) for additional coverage or reinstatement application(s), We will
not contest the additional coverage or reinstated coverage resulting from such
application(s) after either Insured has been alive for two years after the date
of the adjustment or reinstatement. The time limits in this Incontestability
provision do not apply to fraudulent misrepresentations.
AGE
If the age of either or both of the Insureds has been misstated, the death
benefit will be that which would be purchased by the most recent mortality
charge at the correct age of the Insureds.
DEFERMENT
We will usually pay surrenders, partial surrenders, or policy loans within 5
Valuation Days after We receive a Written Request. We will usually pay any death
benefit within 5 Valuation Days after We receive 1) proof at Our home office of
both Insured's deaths, and 2) any other forms We may require to be completed.
However, We may not be able to determine the value of the assets of Our Separate
Account if:
1. The New York Stock Exchange is closed on other than customary weekend and
holiday closings, or trading on the New York Stock Exchange is restricted as
determined by the Securities and Exchange Commission;
2. The Securities and Exchange Commission by order permits postponement for the
protection of policyowners; or
3. The Securities and Exchange Commission requires that trading be restricted
or declares an emergency, as a result of which disposal of securities is not
reasonably practicable or it is not reasonably practicable to determine the
net asset values of the Mutual Funds.
If any of the above events occur, We reserve the right to defer:
1. Determination and payment of any surrender, partial surrenders, or death
proceeds;
2. Payment of any policy loans;
3. Determination of the Unit values of the Divisions;
4. Any requested transfer between the Divisions; and
5. Application of Your death proceeds or surrender proceeds under Your Benefit
Options.
If payments are delayed and Your request for total surrender, partial surrender,
transfer or policy loan is not canceled by Your written instructions, the amount
of the surrender, transfer or policy loan will be determined the first Valuation
Date following the expiration of the permitted delay. The death proceeds,
surrender or policy loan will be paid, or transfers made, within 5 Valuation
Days thereafter.
SUICIDE
This policy's death proceeds will not be paid if either Insured dies by suicide,
while sane or insane, within 2 years of the Policy Date. Instead, We will return
all premiums paid, less any policy loans and unpaid loan interest. If the
suicide occurs at the death of the first Insured, this amount will be paid to
the owner(s) of the policy. If the suicide occurs at the death of the Surviving
Insured, this amount will be paid to the beneficiary(ies).
Any face amount increase made under the adjustment options will not be paid if
either Insured dies by suicide, while sane or insane, within 2 years of the
Adjustment Date. Instead, We will return the sum of the cost of insurance
charges for the increased amount of protection. If the suicide occurs at the
death of the first Insured, this amount will be paid to the owner(s) of the
policy. If the suicide occurs at the death of the Surviving Insured, this amount
will be paid to the beneficiary(ies).
BASIS OF VALUES
Guaranteed maximum cost of insurance rates are based on the mortality table
referred to on the current Data Pages.
A detailed statement of the method of calculating values and benefits has been
filed with the insurance department of the state in which this policy is
written. The guaranteed values are greater than or equal to those required by
any state law.
STATEMENT OF VALUE
You will receive a statement once each Policy Year until the policy terminates.
The statement will show:
1. The current death benefit;
2. The current Policy and Surrender Values;
3. All premiums paid since the last statement;
4. Any investment gain or loss since the last statement;
5. All charges since the last statement;
6. Any policy loans and unpaid loan interest;
7. Any partial surrenders since the last statement; and
8. The total value of each of Your Investment Accounts and the Fixed Account.
SURVIVORSHIP FLEXIBLE PREMIUM VARIABLE UNIVERSAL LIFE INSURANCE POLICY.
Adjustable death benefit. Benefits payable at death of Surviving Insured or
earlier maturity date. Flexible premiums payable until maturity date or death of
Surviving Insured. NON-PARTICIPATING.
SF 524
No. XXXXXXXXXX
Principal 711 High Street Principal Life Insurance
Financial Group Des Moines, IA 50392-0001 Insurance Compan Application
PART A - LIFE
- --------------------------------------------------------------------------------
1. PERSONAL INFORMATION ABOUT THE PROPOSED INSURED
- --------------------------------------------------------------------------------
Name(First, Middle, Last) Sex Date of Birth Birthplace (State or Country)
________________________ __M __F _____/_____/_____ ________________________
Street Address Social Security Number
___________________________________ _____________ - _______ ____________
City State Zip Driver's License Number State Issued
_____________________/_______/________ _______________________/_________________
- --------------------------------------------------------------------------------
2. BASIC COVERAGE APPLIED FOR
- --------------------------------------------------------------------------------
Product ___________________________ Policy Mode Premium $ _____________________
Face Amount $ _____________________ ____Annual ____Semi Annual ____ Quarterly
____ Nonsmoker ____Smoker ____PAW/EFT ____List Bill-Ref.No._________
Death Benefit Option if applicable: Unscheduled Premium $___________
____Option 1-Level Death Benefit ____AL ____PAPA/SPUI ____AIB
____Option 2-Increasing Death Benefit PAPA/SPUI/Unscheduled Mode Premium $______
- --------------------------------------------------------------------------------
3. BENEFITS/RIDERS (Some riders are product specific)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
____Accidental death - Amount $_______________ ____Four-Year Term
____Additional Face Amount $__________________ ____Guaranteed Increase Option - Amount $__________________
____AIB/PUT Face Amount $_______________________ ____Payor Death or Disability
____Automatic Premium Loan (N/A with PAW mode premium) ____Salary Increase - Amount $____________________________
____Business Premium Advantage ____Spouse Term - Amount $______________________________
____Business Value Increase ____Survivorship Increase Option-Amount $_________________
____Change of Insured ____Survivor Purchase Option
____Children Term - Amount $______________________ ____Waiver- check one: ___WDB ___Monthly Deductions
____Cost of Living - ___Specified/Scheduled Premium (DPA)
Bill for: ___Contractual(default)___Liberalized __________________________________________________
____Extra Protection Increase-Amount $_______________
Extra Protection Salary Increase-Amount$_____________ __________________________________________________
</TABLE>
- --------------------------------------------------------------------------------
4. DIVIDEND OPTIONS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C> <C>
____Accumulate at Interest ____AL only-Plan Enhancement ____AL only-Reduce Unscheduled ____Paid Up Additions
____AL only-Additional Insurance ____AL only-Policy Improvement ____Cash ____Reduce Premium
____ ______________________
</TABLE>
- --------------------------------------------------------------------------------
5. OWNERSHIP INFORMATION (If trust, provide name/date of trust)
- --------------------------------------------------------------------------------
Name/D.O.B. Address Relationship to Insured Taxpayer ID Number
_________________________________________________________ __________________
________________________________________________________________________________
Contingent Owner (Name and Relationship)________________________________________
- --------------------------------------------------------------------------------
6. BENEFICIARY INFORMATION
- --------------------------------------------------------------------------------
Name(Primary) Relationship to Insured Taxpayer ID Number
___________________________________________________ __________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
Contingent Beneficiary (Name and Relationship)__________________________________
________________________________________________________________________________
____Proceeds to be left at interest. Beneficiary to have election and withdrawal
rights. Pay interest __________ (frequency)
AA 1034 Page 1
No. XXXXXXXXXX
- --------------------------------------------------------------------------------
7. SPOUSE TERM/PAYOR BENEFITS (Complete only if this coverage is applied for)
- --------------------------------------------------------------------------------
Name(First, Middle, Last) Sex Date of Birth Social Security Number
_________________________ ___M ___ F _____/_____/______ _______-____-_______
Birthplace Driver's License Number State Issued
____________________ __Nonsmoker __Smoker ______________________/____________
Unless changed, the beneficiary under the Spouse Term Rider is the insured, if
living, otherwise the estate of the spouse. While the insured lives, the owner
of this policy also owns the Spouse Term Rider. On the death of the insured, the
spouse is the owner of the Spouse Term Rider.
- --------------------------------------------------------------------------------
Spouse/Payor Instructions:
Telephone App Process:Part B(insurability questions)will be completed by
telephone.
Paper App Process:Detach Part B from a second app packet and complete for
spouse/payor.
- --------------------------------------------------------------------------------
8. OTHER LIFE INSURANCE
- --------------------------------------------------------------------------------
Other life insurance in force or applied for?............... ___Yes ___No
(If yes, list all other life insurance in force or currently being applied
for.)
<TABLE>
<CAPTION>
Insured's Company Amount *Amount PENDING with ADB Year of Purpose (Business or Personal)? If
name other companies amount issue business, type (Key Person,
Buy-Sell, etc.)
<S> <C> <C> <C> <C> <C> <C>
__________ ________________________ __________ __________________________ _________ _________ __________________________________
__________ ________________________ __________ __________________________ _________ _________ __________________________________
__________ ________________________ __________ __________________________ _________ _________ __________________________________
__________ ________________________ __________ __________________________ _________ _________ __________________________________
</TABLE>
Replacement
Will this insurance replace or affect any other life or annuity contract for
any person proposed for coverage (including pending coverage provided
with a binding receipt)?................................. ___Yes ___No
If yes, enclose replacement forms (if applicable) and provide company
name(s) _________________________________________
and policy number(s) ________________________________________________________
* If coverage is PENDING with other companies, will all pending coverage be
accepted?.................................... ___Yes ___No
Explain _____________________________________________________________________
________________________________________________________________________________
- --------------------------------------------------------------------------------
IF TELEPHONE APP, ANSWER QUESTION 9 AND PROCEED TO PART C
IF PAPER APP, STOP HERE AND PROCEED TO PART B
- --------------------------------------------------------------------------------
9. MEDICAL QUESTION (Complete if telephone application process; otherwise,
complete Part B)
- --------------------------------------------------------------------------------
Within the last five years, has any proposed insured (includes primary insured,
spouse, payor and children) had, been treated for, or diagnosed as having a
heart condition, chest pain, stroke, cancer, diabetes, alcohol abuse or drug
dependency? (If yes, explain below) ............................... ___Yes ___No
Proposed Details (including dates and healthcare provider's name/address)
Insured's Name
______________ ________________________________________________________________
______________ ________________________________________________________________
______________ ________________________________________________________________
______________ ________________________________________________________________
IF TELEPHONE APPLICATION, PROCEED TO PART C (Signature Page)
AA 1034 Page 2
No. XXXXXXXXXX
Principal
Finanicial 711 High Street Principal Life Insurance
Group Des Moines, IA 50392-0001 Insurance Company Application
PART A - DISABILITY INSURANCE
- --------------------------------------------------------------------------------
1. PERSONAL INFORMATION ABOUT THE PROPOSED INSURED
- --------------------------------------------------------------------------------
Name(First, Middle, Last) Sex Date of Birth Birthplace(State or Country)
__________________________ __M __F ____/____/____ ____________________________
Street Address Social Security Number ___Smoker ___Nonsmoker
__________________________ ___ - ____ - _____
City State Zip Driver's License Occupation
Number/State
_____________________/_______/______ ________________________ _______________
- --------------------------------------------------------------------------------
BASIC COVERAGE APPLIED FOR
- --------------------------------------------------------------------------------
<TABLE>
Disability Income
<CAPTION>
Monthly Amount Elimination Period Benefit Period
<S> <C> <C> <C> <C>
____Level or Disability Income $_____________ ___________ days ____________
____Step-Rate 1st AIB $_____________ -for- _________ days
2nd AIB $_____________ -for- _________ days
____ABI or SSS/SIS Benefit $_____________ ___________ days Same as Disability Income
____Benefit Update AIB $_____________ -for- ________ days
</TABLE>
- --------------------------------------------------------------------------------
OTHER BENEFITS
- --------------------------------------------------------------------------------
__Cost of Living __4% __6% __Return to Work __Premium Refund Option
__Regular Occupation __Partial Disability __6 yr.Term with __1 yr.
__2 yr. __3 yr. refund
__Other ___________________ __Residual Disability __8 yr. Term with 4 yr.
refund
__10yr. Term with 8 yr.
refund
- --------------------------------------------------------------------------------
4. OVERHEAD EXPENSE (Complete Overhead Expense Statement)
- --------------------------------------------------------------------------------
___Professional Overhead (POE) or Other Benefits
___Business Overhead (BOE) Benefit Amount $_______ ___Return to Work(5A/4A)
Elimination Period Maximum Aggregate Benefit Factor __ABI or
__30-day __60-day __90-day __12 __18 __24 __Benefit Update
- --------------------------------------------------------------------------------
5. BUY-OUT(Complete Buy-Out Statement)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Elimination Period Benefit Period Factor Other Benefits
<S> <C> <C> <C>
___Single Lump Sum-Benefit Amount $__________ __365 __24 __Employment in
___Monthly Payments-Monthly Amounts $__________ __540 __36 Firm (5A/4A)
__730 __60
___Combination Method (Complete Lump Sum and Monthly Payment Items)
</TABLE>
- --------------------------------------------------------------------------------
6. OWNERSHIP INFORMATION (If other than the Insured)
- --------------------------------------------------------------------------------
Name Address City/State/Zip Owner Taxpayer ID Number
- ------------------------------------------------------ ------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
7.PREMIUM PAYMENTS
- --------------------------------------------------------------------------------
Mode: __Annual __Semi Annual __Quarterly __Monthly __Pre-authorized Withdrawal
List Bill/Association/Salary Deduction/Other(List number)_______________________
% of Premium paid by Insured/Executive Bonus ________% Employer/Salary
Continuation ________% Other___________
- --------------------------------------------------------------------------------
8.LOSS PAYEE(if not the owner) FOR DISABILITY INCOME AND OVERHEAD EXPENSE ONLY
- --------------------------------------------------------------------------------
Name Address City State Zip
- --------------------------------------------------------------------------------
AA 1034 Page 1
- --------------------------------------------------------------------------------
9. OTHER DISABILITY INSURANCE
- --------------------------------------------------------------------------------
Other Disability Insurance In Force or Pending?................ __Yes __No
If yes, list Disability, Overhead Expense and Buy-Out coverage in force and all
coverage applied for in the past 12 months with all companies including group,
pension or retirement plans, salary continuation plans, association plans,
credit insurance plans, and any other accident, sickness or health coverage.
Also include coverage for which you will become eligible in the next three years
after a qualifying period of employment has been met.
<TABLE>
<CAPTION>
- ----------------------- -------------- ------------ ----------- ------------------ --------------- ---------------- ---------------
Company Policy No. Type Amount Elimination/ Paid to Date Pending Replacing
Benefit Period Yes No Yes No
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- ----------------------- -------------- ------------ ----------- ------------------ --------------- -------- ------- ------ ---------
- ----------------------- -------------- ------------ ----------- ------------------ --------------- -------- ------- ------ ---------
- ----------------------- -------------- ------------ ----------- ------------------ --------------- -------- ------- ------ ---------
- ----------------------- -------------- ------------ ----------- ------------------ --------------- -------- ------- ------ ---------
- ----------------------- -------------- ------------ ----------- ------------------ --------------- -------- ------- ------ ---------
- ----------------------- -------------- ------------ ----------- ------------------ --------------- -------- ------- ------ ---------
- ----------------------- -------------- ------------ ----------- ------------------ --------------- -------- ------- ------ ---------
- ----------------------- -------------- ------------ ----------- ------------------ --------------- -------- ------- ------ ---------
- ----------------------- -------------- ------------ ----------- ------------------ --------------- -------- ------- ------ ---------
</TABLE>
Replacement. By signing this application, I agree to terminate the insurance
listed above as being replaced within 60 days of the Principal Life policy date.
I understand that if I do not cancel or lapse the insurance listed above as
being replaced, the Principal Life Insurance Company will rescind this policy.
- --------------------------------------------------------------------------------
10. FINANCIAL
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Current Year to Last Calendar 2 Years Ago
Date 19 ______ Year, 19____ 19________
<S> <C> <C> <C>
a. Nonowner Employee's salary and bonus, (Form W-2).
(Less business expenses reported on IRS Form 2106) ___________ ___________ _____________
b. Owner-Employee of C or S Corporation's salary, and
bonus (Form W-2). _____________ ___________ _____________
c. Owner-Employee's share of after-tax corporate profits
or losses (after expenses) provided you own 20% or more
and are active in the corporation (Form 1120 or 1120S). _____________ ___________ _____________
If losses, indicate with parentheses.
d. Sole Proprietor net income, after expenses (Form 1040
Schedule C). _____________ ___________ _____________
e. Share of Partnership or Limited Liability Company
(LLC) net income,after expenses (Schedule K-1 or
Form 1040 Schedule E). _____________ ___________ _____________
f. Pension plan or Profit-Sharing contributions that would
end if you become disabled. _____________ ___________ _____________
g. Other earned income, specify ___________________ _____________ ___________ _____________
h. Total Earned Income _____________ ___________ _____________
</TABLE>
Unearned Income - Includes capital gains, interest, dividends, net rental
income, pensions, annuities, and alimony. Is unearned income greater than 10%
of earned income or $30,000? __Yes __No If yes, itemize:
-----------------------------------------------------------------------------
Net Worth - Is net worth, excluding primary residence, greater than
$6,000,000? __Yes __No If yes, itemize:
-----------------------------------------------------------------------------
IF PAPER APP, STOP HERE AND PROCEED TO PART B - IF TELEPHONE APP, ANSWER
QUESTION 11 AND PROCEED TO PART C
- --------------------------------------------------------------------------------
11. MEDICAL QUESTION (Complete if telephone app; otherwise, complete Part B)
- --------------------------------------------------------------------------------
Within the last five years, have you had, been treated for, or diagnosed as
having a heart condition, chest pain, stroke, back or neck problems, a
psychological disorder, cancer, diabetes, alcohol abuse or drug dependency?
(If yes,provide details including healthcare provider's name/address) __Yes __No
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
IF TELEPHONE APPLICATION, PROCEED TO PART C (Signature Page)
AA 1034 Page 2
Principal No. XXXXXXXXXXXX
Financial 711 High Street Principal Life Conditional
Group Des Moines, IA 50392-0001 Insurance Company Receipt
(In this Receipt, "we," "us," "our," or "the Company" is Principal Life
Insurance Company.)
- --------------------------------------------------------------------------------
Name of Proposed Insured(s)
- --------------------------------------------------------------------------------
Advance payment of : (Life) (Overhead Expense) (Disability Income)
$----------------------------/$--------------------------/$---------------------
has been received this date as a premium deposit with the application bearing
the same number and date as this Receipt.
Agent or Broker Date of Receipt
- ---------------------------------------------------/----------------------------
This Receipt is not a "binder." No agent, broker, medical examiner or telephone
application interviewer may accept risks, determine insurability or bind the
Company in any way. No agent or broker may waive or change any terms of the
Receipt, or of the policy(ies) applied for, or any other rights of the Company.
The agent or broker has NO AUTHORITY to accept any premium or to issue this
Receipt: 1) if it is apparent that any Condition Precedent to coverage under
this Receipt is not or cannot be satisfied; or 2) in the case of an application
for Disability Buy-Out Expense coverage. This Conditional Receipt shall be
ineffective if issued without authority.
INSURANCE PROVIDED:
If all of the Conditions Precedent set forth in this Receipt are fulfilled
exactly, insurance under this Receipt takes effect on the Start Date. The Start
Date is the date upon which all of our initial application requirements are
completed. Our initial application requirements consist of full completion and
signing of the application (Parts A and C, if using the telephone application
process; Parts A, B, & C, if using the paper application process) and all
necessary supplements, and any medical exams and tests required by our published
rules.
The insurance provided by this Receipt shall be that applied for on the
application, subject to all the LIMITATIONS set forth in this Receipt. Any
insurance provided by this Receipt ends on the Stop Date, which is the earliest
of:
(a) 75 days after the Start Date;
(b) the date we mail the proposed owner a premium refund and a notice that we
will not consider the application on a prepaid basis;
(c) the date we mail the proposed owner a premium refund and a notice that no
policy will be issued on the application
(d) the date a policy is presented to the proposed owner (whether or not
accepted by the proposed owner).
This Receipt does not commit us to issue any policy. However, in determining
whether to issue coverage and on what terms, we will consider no changes in a
Proposed Insured's health or insurability occurring between the Start Date and
the Stop Date. We have until the actual delivery of the policy to make this
determination. If an event giving rise to a claim occurs at any time before
physical delivery and acceptance of a policy by the owner, the claim will be
considered solely under this Receipt even if a policy is issued. If any
provision of this Receipt is unenforceable under state law, all other terms and
conditions shall continue in full force and effect.
CONDITIONS PRECEDENT -- All the following conditions must be fulfilled exactly.
Otherwise, there is NO insurance under this Receipt and the Receipt is void:
1. On the Start Date, all Proposed Insureds must be insurable, as determined by
our underwriters under our underwriting guidelines. If a condition affecting
such insurability existed in fact on the Start Date, it shall be considered
in the determination of insurability.
2. The premium deposit(s) must be at least a full month's premium for each
policy applied for. For policies having a planned periodic premium, the
premium deposit must be at least the amount of the planned periodic premium
shown on the application.
3. The premium deposit(s) must be paid at the time the application is signed,
and this Receipt must be issued at the same time
4. The premium deposit(s) must be received in our home office and must be
honored on first presentation for payment.
LIMITATIONS
1. Except as limited by this Receipt, our liability is governed by the terms of
the policy(ies) applied for.
2. No death benefit is payable under this Receipt if the Proposed Insured dies
by suicide while sane or insane. In such case, our sole liability shall be
to pay the premium we received to the named beneficiary(ies).
3. No benefit is payable under this Receipt and this Receipt is void, if there
is any incorrect, untrue, incomplete or omitted statement of material fact
in Part A, B or C of the application, any supplemental form, or medical
questionnaire that becomes a part of the policy. No knowledge of any fact on
the part of any agent, broker, medical examiner, phone application
interviewer or other person shall be considered knowledge of the Company
unless such fact is stated in the application.
-- CONTINUED --
AA 1034
- --------------------------------------------------------------------------------
4. Life Insurance - The total death benefit (including any accidental death
benefit applied for) payable under this Receipt and all other Receipts that
may be in effect with us is limited as follows:
a. If the Proposed Insured is insurable on a standard or more favorable
basis -- $1,000,000 or the amount applied for, whichever is less.
b. If the Proposed Insured is insurable on a basis less favorable than
standard -- $100,000 or the amount applied for, whichever is less.
c. For Survivorship Whole Life insurance, no death benefit will be
considered under this receipt unless both individuals have died.
5. Disability Income or Overhead Expense Insurance - For any claim that occurs
at any time after the Start Date and before physical delivery and acceptance
of a policy by the owner, any Disability Income or Overhead Expense maximum
monthly benefit payable will be the lesser of:
o The amount of benefits applied for in the application;
o The amount of benefits that would be offered subject to our then current
underwriting guidelines and practices; or
o $5,000.00.
The coverage available under the Conditional Receipt, such as the
elimination period, the benefit period, the policy, policy riders and riders
related to exclusions, limitations, modifications, or enhancements of
coverage will be based on what we would have approved or offered to you
subject to our then current underwriting guidelines and practices.
PREMIUMS - If a policy is issued from this application and accepted by the
proposed owner, we will apply the premium deposit to the first premium due for
such policy. If no policy is put into force but a benefit is paid under this
Receipt, we will keep the earned portion of the premium deposit and refund the
balance, if any. If no policy is put into force and no benefit is paid under
this Receipt, the premium deposit will be refunded. If this Receipt is issued
for more than one type of coverage, the provisions of this paragraph shall apply
separately with respect to each type.
AA 1034
No. XXXXXXXXXX
Principal
Financial 711 High Street Principal Life Insurance
Group Des Moines, IA 50392-0001 Insurance Company Application
- --------------------------------------------------------------------------------
PART C-AGREEMENT/AUTHORIZATION TO OBTAIN AND DISCLOSE INFORMATION
- --------------------------------------------------------------------------------
("Company" means Principal Life Insurance Company)
Statements In Application: I represent that all statements in this application
are true and complete and were correctly recorded before I signed my name below.
I understand and agree that the statements in the application, including
statements by the Proposed Insured in any medical questionnaire that becomes a
part of this application, shall be the basis of any insurance issued. I also
understand that misrepresentations can mean denial of an otherwise valid claim
and rescission of the policy during the contestable period.
When Insurance Effective: Except as may be provided by the Conditional Receipt,
I understand and agree that the Company shall incur no liability: (1) unless a
policy issued on this application has been physically delivered to and accepted
by the owner and the first premium paid; and (2) unless, at the time of such
delivery and payment, the person to be insured is actually in the state of
health and insurability represented in this application and in any medical
questionnaire or amendment that becomes a part of this application. If these
conditions are met, the policy is deemed effective on the Policy Date stated in
the policy.
Limitation of Authority: I understand and agree that no agent, broker, telephone
application interviewer, or medical examiner has any authority to determine
insurability, or to make, change or discharge any contract, or to waive any of
the Company's rights. The Company's right to truthful and complete answers to
all questions on this application and on any medical questionnaire that becomes
a part of this application may not be waived. No knowledge of any fact on the
part of any agent, broker, phone application interviewer, medical examiner or
other person shall be considered knowledge of the Company unless such fact is
stated in the application.
- --------------------------------------------------------------------------------
__This application is c.o.d. or __I have paid $_______________ for Life;
$_________________ for Disability Insurance. If money was paid, I have been
given the Conditional Receipt. In return I have read, understand, and agree to
its terms.
- --------------------------------------------------------------------------------
AUTHORIZATION: I authorize any doctor, hospital, clinic, health care provider,
insurance (or reinsuring) company, consumer reporting agency, my insurance
agent/broker, or any other organization, institution or person having personal
information (including physical, mental, drug or alcohol use history) regarding
me or any named proposed insured, to provide to the Company, its representatives
or reinsurers, any such data. I authorize the Company to conduct a personal
telephone interview in connection with my application for insurance.
I authorize the MIB, Inc. to furnish the above data to the Company or its
reinsurers. I authorize the company to release any such data to its reinsurers,
to MIB, Inc. or as required by law or as provided in the Notice of Information
Practices. Data released may include results of my medical examination or tests
requested by the Company. I understand that the data obtained by use of this
authorization will be used by the Company to determine eligibility for
insurance.
I have received a copy of the "Notice of Insurance Information Practices," which
includes notice required by any Fair Credit Reporting Act. It also describes
MIB, Inc. I agree that this authorization shall be valid for 30 months from the
earlier of: (1) the date of this application, or (2) the date of my policy. I
may revoke this authorization for information not then obtained. Such revocation
must be in writing. It will not be effective until received at the Company's
home office.
I agree a photocopy of this authorization is as valid as the original. I have
received a copy of this authorization.
Taxpayor ID Certification: As owner of this contract, I certify under penalties
of perjury:
1. The taxpayer identification number shown on this application is correct.
2. I am not subject to IRS backup withholding. Note: Check this box ___ if
you are currently subject to backup withholding.
The Internal Revenue Service does not require your consent to any provision of
this document other than the certifications required to avoid backup
withholding.
- --------------------------------------------------------------------------------
SIGNATURES
- --------------------------------------------------------------------------------
Proposed Insured (If age 15 or over) Spouse/Payor (If coverage is applied for)
- -------------------------------------/------------------------------------------
Parent (If Proposed Insured is under age 18 and Parent has not signed as Owner)
- --------------------------------------------------------------------------------
Owner of Insurance Title (If corporation, an
(If other than Proposed Insured) officer other than the
Proposed Insured must sign)
- ------------------------------------------/-------------------------------------
- -----------------------------------------/--------------------------------------
Signed at City State Date Witness (Agent/Broker) Agent/Broker License Number
- -----------------------/-----/---------------------/----------------------------
Cosignature by resident Date Agent/Broker License Number
licensed Agent/Broker,
if applicable in your state
- ----------------------------------/----------------/----------------------------
AA 1034 HOME OFFICE COPY
No. XXXXXXXXXX
Principal
Financial 711 High Street Principal Life Insurance
Group Des Moines, IA 50392-0001 Insurance Company Application
- --------------------------------------------------------------------------------
PART C - AGREEMENT/AUTHORIZATION TO OBTAIN AND DISCLOSE INFORMATION
- --------------------------------------------------------------------------------
("Company" means Principal Life Insurance Company)
Statements In Application: I represent that all statements in this application
are true and complete and were correctly recorded before I signed my name below.
I understand and agree that the statements in the application, including
statements by the Proposed Insured in any medical questionnaire that becomes a
part of this application, shall be the basis of any insurance issued. I also
understand that misrepresentations can mean denial of an otherwise valid claim
and rescission of the policy during the contestable period.
When Insurance Effective: Except as may be provided by the Conditional Receipt,
I understand and agree that the Company shall incur no liability: (1) unless a
policy issued on this application has been physically delivered to and accepted
by the owner and the first premium paid; and (2) unless, at the time of such
delivery and payment, the person to be insured is actually in the state of
health and insurability represented in this application and in any medical
questionnaire or amendment that becomes a part of this application. If these
conditions are met, the policy is deemed effective on the Policy Date stated in
the policy.
Limitation of Authority: I understand and agree that no agent, broker, telephone
application interviewer, or medical examiner has any authority to determine
insurability, or to make, change or discharge any contract, or to waive any of
the Company's rights. The Company's right to truthful and complete answers to
all questions on this application and on any medical questionnaire that becomes
a part of this application may not be waived. No knowledge of any fact on the
part of any agent, broker, phone application interviewer, medical examiner or
other person shall be considered knowledge of the Company unless such fact is
stated in the application.
- --------------------------------------------------------------------------------
__This application is c.o.d. or __I have paid $_______________ for Life;
$_________________ for Disability Insurance. If money was paid, I have been
given the Conditional Receipt. In return I have read, understand, and agree to
its terms.
- --------------------------------------------------------------------------------
AUTHORIZATION: I authorize any doctor, hospital, clinic, health care provider,
insurance (or reinsuring) company, consumer reporting agency, my insurance
agent/broker, or any other organization, institution or person having personal
information (including physical, mental, drug or alcohol use history) regarding
me or any named proposed insured, to provide to the Company, its representatives
or reinsurers, any such data. I authorize the Company to conduct a personal
telephone interview in connection with my application for insurance.
I authorize the MIB, Inc. to furnish the above data to the Company or its
reinsurers. I authorize the company to release any such data to its reinsurers,
to MIB, Inc. or as required by law or as provided in the Notice of Information
Practices. Data released may include results of my medical examination or tests
requested by the Company. I understand that the data obtained by use of this
authorization will be used by the Company to determine eligibility for
insurance.
I have received a copy of the "Notice of Insurance Information Practices," which
includes notice required by any Fair Credit Reporting Act. It also describes
MIB, Inc. I agree that this authorization shall be valid for 30 months from the
earlier of: (1) the date of this application, or (2) the date of my policy. I
may revoke this authorization for information not then obtained. Such revocation
must be in writing. It will not be effective until received at the Company's
home office.
I agree a photocopy of this authorization is as valid as the original. I have
received a copy of this authorization.
Taxpayor ID Certification: As owner of this contract, I certify under penalties
of perjury:
1. The taxpayer identification number shown on this application is correct.
2. I am not subject to IRS backup withholding. Note: Check this box __if you
are currently subject to backup withholding.
The Internal Revenue Service does not require your consent to any provision of
this document other than the certifications required to avoid backup
withholding.
- --------------------------------------------------------------------------------
SIGNATURES
- --------------------------------------------------------------------------------
Proposed Insured (If age 15 or over) Spouse /Payor (If coverage is applied for)
- ------------------------------------/-------------------------------------------
Parent (If Proposed Insured is under age 18 and Parent has not signed as Owner)
- --------------------------------------------------------------------------------
Owner of Insurance Title (If corporation, an
(If other than Proposed Insured) officer other than the
Proposed Insured must sign)
- ---------------------------------------/----------------------------------------
- --------------------------------------/-----------------------------------------
Signed at City State Date Witness (Agent/Broker)Agent/Broker License Number
- -----------------------/-----/----------------------/---------------------------
Cosignature by resident licensed Agent/Broker, Date Agent/Broker License Number
if applicable in your state
- ----------------------------------------------/----/---------------------------
AA 1034 PROPOSED INSURED'S COPY
Notice of Insurance
Information Practices
- --------------------------------------------------------------------------------
We appreciate your applying for insurance with our company.
This notice explains our information practices. It describes the information we
need, possible sources, reasons for collection and how your data is kept
confidential. This notice also tells how we process your application. Please
keep this notice for your records. The word "you" in this notice means the
proposed insured.
Overview
Your insurance application contains specific personal questions about you and
any named dependents. We need your answers to decide if you qualify for
coverage. If you qualify, we determine the coverage for which you are eligible
and the cost. This process, known as underwriting, takes into account factors
such as physical and mental conditions, medical history, job, age, and hobbies.
Underwriting makes it possible to keep rates fair.
Sources and Types of Information
You are the primary source of personal data. We may call you to verify data on
your application, or to obtain more data. We may ask you about your age, medical
history, job, income, habits, hobbies and other personal characteristics. We may
contact other sources for personal data, including: (1) spouse, (2) roommate,
(3) accountant, (4) lawyer, (5) employer, (6) other persons who know you well,
(7) insurance companies to which you may have applied for insurance in the past
and (8) MIB, Inc. We may also contact your doctor, hospital or other health care
provider to clarify your medical history. We may ask that you have medical exams
and tests.
Proper underwriting of your application may require use of an investigative
consumer report. Upon written request we will tell you if a report is made. We
will provide the name and address of any outside agency who prepares the report.
We will also tell you the nature and substance of the report. It would contain
the same types of information that we collect from the other sources listed
above. This data may be obtained through interviews with you, your friends,
neighbors and associates.
You may ask that you be interviewed if we request this report. Data collected
and retained by a consumer reporting agency may be disclosed to other insurance
companies having proper authorization.
Our Use of Information
We will attempt to keep your data confidential. It will be seen only by
employees and agents of Principal Life Insurance Company who underwrite and
administer your coverage. We may also provide data to: (1) MIB, Inc.; (2) other
insurance companies, if you authorize release of the data to them; (3) our
reinsurers, if needed to secure reinsurance; (4) federal and state agencies and
others if required by law; (5) our research personnel (anonymously) to help
market our products.
Access To Your Data
Upon your written request, we will provide you with the nature and scope of your
personal data in our records. You must give us proper identification. We will
respond to your first request within 30 days from the date of receipt. You may
be charged a fee for any copies of your data. Medical data will be disclosed to
a doctor of your choice, unless you instruct us to send the medical data
directly to you. (Medical information received from doctors and other health
care providers may be prohibited from redisclosure.) You have the right to see
your nonmedical data and obtain a copy. You have the right to correct or amend
any data in your file. Any request for correction or amendment must be in
writing. If we agree with you, we will notify anyone we may have given such
incorrect data. We will also delete data from your file if we agree it is
incorrect. If we disagree with your correction or amendment, we will give you
our reason. You may respond in writing listing the basis on which you dispute
the correctness of the data. Your response will be added to your file.
Information obtained through consumer reporting agencies will be furnished to
you according to the provisions of the Fair Credit Reporting Act. You have a
right to see and obtain a copy of any report made.
Upon written request, we will tell you the name of any person to whom we may
have given your data. You should direct all requests to: Underwriting Officer,
Principal Life Insurance Company, Des Moines, Iowa 50392-1620 (Telephone
515-247-5797).
MIB Pre-Notice
Information regarding your insurability will be treated as confidential.
Principal Life Insurance Company or its reinsurers may, however, make a brief
report thereon to the Medical Information Bureau, a non-profit membership
organization of life insurance companies, which operates an information exchange
on behalf of its members. If you apply to another Bureau member company for life
or health insurance coverage, or a claim for benefits is submitted to such a
company, the Bureau, upon request, will supply such company with the information
in its file.
Upon receipt of a request from you, the Bureau will arrange disclosure of any
information it may have in your file. If you question the accuracy of
information in the Bureau's file, you may contact the Bureau and seek a
correction in accordance with the procedures set forth in the federal Fair
Credit Reporting Act. The address of the Bureau's information office is P.O. Box
105, Essex Station, Boston, Massachusetts 02112, telephone number (617)
426-3660.
With your authorization, Principal Life Insurance Company, or its reinsurers,
may also release information in its file to other insurance companies to whom
you apply for life or health insurance, or to whom a claim for benefits may be
submitted.
AA 1034
No. XXXXXXXXXX
Principal
Financial 711 High Street Principal Life Insurance
Group Des Moines, IA 50392-0001 Insurance Company Application
Proposed Insured_________________________ D.O.B.__/___/__ Policy Number________
(If known)
PART B
All references to "you" mean the Proposed Insured.
- --------------------------------------------------------------------------------
ACTIVITIES/HEALTH HABITS
- --------------------------------------------------------------------------------
1. In the last five years have you, or do you have plans to:
a. be a member of any armed forces or military unit? (If yes, submit
military statement).......................... ___Yes ___No
b. pilot any type of aircraft? (If yes, submit aviation
statement)................................... ___Yes ___No
c. engage in scuba/skin diving, motor vehicle racing, skydiving or any
other hazardous sporting activity? (If yes, submit hazardous sports
statement)................................... ___Yes ___No
d. live outside the United States or Canada? (If yes, explain
below)...................................... ___Yes ___No
e. travel outside the United States or Canada? (If yes, explain
below)...................................... ___Yes ___No
2. In the last five years have you:
a. been in a motor vehicle accident, been charged with driving while
intoxicated or had more than one moving violation? (If yes, explain
below)....................................... ___Yes ___No
b. been on parole or probation or charged with a felony or misdemeanor?
(If yes, explain below)................... ___Yes ___No
3. In the last ten years have you used any tobacco or nicotine
products?.......................................... ___Yes ___No
(Indicate date last used and amount per day)
a. ___cigarettes _______________________ d. ___pipe_______________________
b. ___cigars ___________________________ e. ___chewing tobacco/snuff______
c. ___nicotine patch/gum _______________ f. ___other______________________
4. In the last ten years have you consumed alcoholic beverages?
___Yes ___No
If yes, date last used?______________ Number of drinks per week:___________
5. In the last ten years have you used cocaine, marijuana, methamphetamines,
barbiturates or other controlled substances? (If yes, submit drug
questionnaire.)................................... ___Yes ___No
6. Have you ever been advised to limit or discontinue the use of alcohol or
drugs; sought or received treatment, or participated in a support program
because of your alcohol or drug use? (If yes, submit drug and/or chemical
dependency questionnaire)......................... ___Yes ___No
- --------------------------------------------------------------------------------
DETAILS TO QUESTIONS 1-6
- --------------------------------------------------------------------------------
Quest. # Include dates and details as requested above.
___________ ____________________________________________________________________
___________ ____________________________________________________________________
___________ ____________________________________________________________________
___________ ____________________________________________________________________
___________ ____________________________________________________________________
___________ ____________________________________________________________________
___________ ____________________________________________________________________
___________ ____________________________________________________________________
___________ ____________________________________________________________________
___________ ____________________________________________________________________
___________ ____________________________________________________________________
___________ ____________________________________________________________________
___________ ____________________________________________________________________
___________ ____________________________________________________________________
___________ ____________________________________________________________________
AA 1036 Page 3
No. XXXXXXXXXX
PART B - (Continued)
- --------------------------------------------------------------------------------
INCOME/OCCUPATION
For Life, complete questions 7 and 8. For DI, complete questions 8-17.
In all cases, Part B continues on the next page.
- --------------------------------------------------------------------------------
7. Annual income from occupation $__________ Other income$______________________
Source of other income_____________Net Worth (Assets-Liabilities)$___________
8. Primary occupation________________________ Employer__________________________
9. Current Employment Information
a. Type of business or industry______________________________________________
b. Job title_________________________________________________________________
c. What are your job activities and percentage of time spent in each?________
_____________________________________________________________________________
_____________________________________________________________________________
d. How many hours do you usually work per week in your primary job?__________
e. Total number of employees: Full-time_____ Part-time____ Sub-contracted____
f. How many employees do you supervise? ___________________
10. How long have you been employed by your current employer? _______________
(If less than three years, provide details below, e.g., employers,
occupations and dates for last five years.)
11. Do you work out of your home?(If yes, how many hours per week?_____________)
___Yes ___No
12. Do you have any other part-time or full-time jobs? (If yes, explain below)
___Yes ___No
13. Are you actively at work on a full-time basis without medical restriction?
(If no, explain below) ................ ___Yes ___No
14. Do you intend to change jobs or employment in the next 6 months? (If yes,
explain below)......................... ___Yes ___No
15. Have you ever requested or received any type of disability benefits
(including worker's compensation and state disability) for an injury or
illness? (If yes, explain below)....................... ___Yes ___No
16. Do you have an ownership interest in any business you work
for?............... ___Yes ___No
If yes, ownership percentage______ length of ownership______________________
Type of business: __C Corporation __S Corporation __Partnership
__Sole Proprietorship __Limited Liability Company __Other___________________
17. Have you, or any business owned in whole or part by you, ever been in
bankruptcy or any similar proceedings? (If yes, provide date discharged,
type and chapter)................................ ___Yes ___No
- --------------------------------------------------------------------------------
DETAILS TO QUESTIONS 7-17
- --------------------------------------------------------------------------------
Quest. # Include dates and details as requested above.
___________ ____________________________________________________________________
___________ ____________________________________________________________________
___________ ____________________________________________________________________
___________ ____________________________________________________________________
___________ ____________________________________________________________________
___________ ____________________________________________________________________
___________ ____________________________________________________________________
___________ ____________________________________________________________________
___________ ____________________________________________________________________
___________ ____________________________________________________________________
___________ ____________________________________________________________________
___________ ____________________________________________________________________
___________ ____________________________________________________________________
___________ ____________________________________________________________________
___________ ____________________________________________________________________
AA 1036 Page 4
No. XXXXXXXX
Principal
Financial 711 High Street Principal Life Insurance
Group Des Moines, IA 50392-0001 Insurance Company Application
Proposed Insured_________________________ D.O.B.__/___/__ Policy Number________
(If known)
- --------------------------------------------------------------------------------
PART B - (Continued)
- --------------------------------------------------------------------------------
MEDICAL HISTORY (Provide details to yes answers, questions 18-20, below)
- --------------------------------------------------------------------------------
18. In the last ten years, have you had, been treated for or been diagnosed as
having:
a. high blood pressure, heart attack, chest pain, heart murmur, irregular
heart beat, stroke, or any other disease or disorder of the heart or
blood vessels?........................................ ___Yes ___No
b. cancer or a tumor, cyst or growth?.................... ___Yes ___No
c. asthma, bronchitis, emphysema, tuberculosis or any other disease or
disorder of the lungs or respiratory system?.......... ___Yes ___No
d. seizure, paralysis, headaches, multiple sclerosis or any other disease
or disorder of the brain or nervous system?........... ___Yes ___No
e. chronic fatigue, stress, depression, anxiety or any other emotional or
psychological disorder?............................... ___Yes ___No
f. hepatitis, colitis, ulcer, cirrhosis, irritable bowel or any other
disease or disorder of the liver, gallbladder, pancreas or digestive
tract?................................................ ___Yes ___No
g. diabetes, borderline diabetes, sugar in the urine, thyroid disorder or
any other disease or disorder of the glandular
system?............................................... ___Yes ___No
h. kidney stones, nephritis, any blood or protein in the urine, sexually
transmitted disease, prostate disorder, breast disorder or any other
disease or disorder of the urinary or reproductive
system?.............. ___Yes ___No
i. back or neck pain, disc problems, spinal sprain or strain, sciatica,
arthritis, carpal tunnel syndrome, or any other disease or disorder of
the bones, joints, or muscles?....................... ___Yes ___No
j. any disease or disorder of the eyes, ears, nose, throat or
skin?............................................... ___Yes ___No
19. (DI Only) Are you currently pregnant or have you had complications of
pregnancy in the last ten years?............. ___Yes ___No
20. In the last ten years, have you had, been treated for or been diagnosed as
having Human Immunodeficiency Virus (HIV) infection, positive HIV test,
Acquired Immunodeficiency Syndrome (AIDS) or any other disease or disorder
of the immune system?...................................... ___Yes ___No
- --------------------------------------------------------------------------------
DETAILS TO QUESTIONS 18-20
- --------------------------------------------------------------------------------
Quest. # For yes answers, include dates, details, diagnosis, types and
results of treatment, healthcare provider's full name and address.
___________ ____________________________________________________________________
___________ ____________________________________________________________________
___________ ____________________________________________________________________
___________ ____________________________________________________________________
___________ ____________________________________________________________________
___________ ____________________________________________________________________
___________ ____________________________________________________________________
___________ ____________________________________________________________________
___________ ____________________________________________________________________
___________ ____________________________________________________________________
___________ ____________________________________________________________________
___________ ____________________________________________________________________
___________ ____________________________________________________________________
___________ ____________________________________________________________________
___________ ____________________________________________________________________
AA 1036 Page 5
PART B - (Continued)
- --------------------------------------------------------------------------------
MEDICAL HISTORY (Provide details to yes answers, questions 21-26, below)
- --------------------------------------------------------------------------------
21. Who is your Primary Physician? ___ None
____________________________________________________________________________
a. Name Phone Number
________________________________________________________________________
Street City State Zip
________________________________________________________________________
b. Date last seen, reason and details
________________________________________________________________________
22. In the last ten years:
a. have you had any medical tests, hospitalization, illness or injury not
provided in response to a previous question? (If yes, explain below)
___Yes ___No
b. have you consulted a doctor, chiropractor, psychiatrist, psychologist,
counselor, therapist or other health care provider not provided in
response to a previous question? (If yes, explain below)
___Yes ___No
23. Are you taking or have you been advised to take any medication or treatment
not provided in response to a previous question? (If yes, explain below)
___Yes ___No
24. Current Ht. _____________ Wt. ________________ Have you lost more than 10
lbs. in the last year?... ___Yes ___No
If yes, ________ lbs/kgs. Indicate reason _______________________________
25. a. Has either of your natural parents lived to at least age 60?
___Yes ___No
b. Do any of your natural parents or siblings have a history of diabetes,
cancer, stroke or heart disease?............... ___Yes ___No
If yes, provide details (i.e., relationship, type of disease, age
diagnosed, current age or age at death):
___________________________________________________________________________
___________________________________________________________________________
26. Have you ever had any life, health or disability insurance rated, ridered
or declined? (If yes, explain below) ... ___Yes ___No
- --------------------------------------------------------------------------------
DETAILS TO QUESTIONS 21-26
- --------------------------------------------------------------------------------
Quest. # Include dates and details as requested above.
___________ ____________________________________________________________________
___________ ____________________________________________________________________
___________ ____________________________________________________________________
___________ ____________________________________________________________________
___________ ____________________________________________________________________
___________ ____________________________________________________________________
___________ ____________________________________________________________________
___________ ____________________________________________________________________
___________ ____________________________________________________________________
___________ ____________________________________________________________________
___________ ____________________________________________________________________
___________ ____________________________________________________________________
___________ ____________________________________________________________________
___________ ____________________________________________________________________
___________ ____________________________________________________________________
AA 1036 Page 6
PART B - (Continued) No. XXXXXXXXX
Proposed Insured_________________________ D.O.B.__/___/__ Policy Number________
(If known)
- --------------------------------------------------------------------------------
DETAILS TO QUESTIONS
- --------------------------------------------------------------------------------
Quest. # Where appropriate include date, details, including diagnosis, types
and results of treatment, doctor's full name and address.
___________ ____________________________________________________________________
___________ ____________________________________________________________________
___________ ____________________________________________________________________
___________ ____________________________________________________________________
___________ ____________________________________________________________________
___________ ____________________________________________________________________
___________ ____________________________________________________________________
___________ ____________________________________________________________________
___________ ____________________________________________________________________
___________ ____________________________________________________________________
___________ ____________________________________________________________________
___________ ____________________________________________________________________
___________ ____________________________________________________________________
___________ ____________________________________________________________________
___________ ____________________________________________________________________
AA 1036
PART B - (Continued)
Proposed Insured_________________________ D.O.B.__/___/__ Policy Number________
(If known)
- --------------------------------------------------------------------------------
DETAILS TO QUESTIONS
- --------------------------------------------------------------------------------
Quest. # Where appropriate include date, details, including diagnosis, types
and results of treatment, doctor's full name and address.
___________ ____________________________________________________________________
___________ ____________________________________________________________________
___________ ____________________________________________________________________
___________ ____________________________________________________________________
___________ ____________________________________________________________________
___________ ____________________________________________________________________
___________ ____________________________________________________________________
___________ ____________________________________________________________________
___________ ____________________________________________________________________
___________ ____________________________________________________________________
___________ ____________________________________________________________________
___________ ____________________________________________________________________
___________ ____________________________________________________________________
___________ ____________________________________________________________________
___________ ____________________________________________________________________
AA 1036
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Principal Mailing Address: Principal Life Flexible Variable
Financial Des Moines, IA 50392-0001 Insurance Company Universal Life Insurance
Group Supplemental Application
</TABLE>
- --------------------------------------------------------------------------------
1. Print full name of Proposed Insured (1) Policy Number
-------------------------------------------------------------------------
Print full name of Proposed Insured (2)
-------------------------------------------------------------------------
- ---------------------------------------------------------- ---------------------
2. Complete the sections for: Required Sections Optional Sections
A. New Business 1, 4, 5, & 7 3 & 6
B. Adjustments to Existing 1, 5, & 7 3, 4, & 6
Business
C. Term Conversions 1, 4, 5, & 7 3 & 6
D. Adding/ChangingDollar Cost 1, 6 & 7 (N/A)
Averaging or Automatic
Portfolio Rebalancing
Note: Section 8 must be completed when sold by a Registered Representative of
a Broker/Dealer other than Princor Financial Services Corporation. A selling
agreement between the Broker/Dealer and Princor Financial Services
Corporation must be in place.
- --------------------------------------------------------------------------------
3. Decline Telephone Privilege Authorization: I (We) do not want the
telephone privilege services as described in the prospectus where
allowed by state (if this box is not checked, telephone services
will apply). Telephone instructions received from any joint
contract owner will be binding on all contract owners.
- --------------------------------------------------------------------------------
4. Allocation Percentages for:
Premiums Premiums include the initial payment and all planned periodic
premiums. The net premium is the premium paid less the Premium Expense
Charge. Net premiums received by the Company will be allocated to the
Money Market Division for 20 days from the effective date. On the 21st
day, the policy value and net premiums will be reallocated to the
Investment Account Divisions and/or Fixed Account according to the
allocation percentages you choose.
Monthly Policy Charge The Monthly Policy Charge includes the cost of
insurance, the cost of additional benefits provided by any rider, the
current monthly administration charge and the mortality and expense
risks charge. This amount is withdrawn from the Investment Account
Divisions and/or Fixed Account according to the allocation percentages
you choose.
NOTE: IF THE MONTHLY POLICY CHARGE SECTION IS NOT COMPLETED, THE
MONTHLY POLICY CHARGE WILL BE ALLOCATED IN THE SAME MANNER AS
PREMIUMS.
<TABLE>
<CAPTION>
PREMIUMS MONTHLY POLICY CHARGE
(Minimum of 10% per selection. Whole numbers only.) (Minimum of 10% per selection. Whole numbers only.)
Check ____ Allocated in the same manner as premiums
One ____ Prorated based on balances of the
owner's Investment Accounts
____ As below
<S> <C> <C> <C> <C>
Fixed Account % Fixed Account %
------ -----
Aggressive Growth Divison % Aggressive Growth Division %
------ -----
Asset Allocation Division % Asset Allocation Division %
------ -----
Balanced Division % Balanced Division %
------ -----
Bond Division % Bond Division %
------ -----
Capital Value Division % Capital Value Division %
------ -----
Fidelity Contrafund Division % Fidelity Contrafund Division %
------ -----
Fidelity Equity-Income Division % Fidelity Equity-Income Division %
------ -----
Fidelity High Income Division % Fidelity High Income Division %
------ -----
Government Securities Division % Government Securities Division %
------ -----
Growth Division % Growth Division %
------ -----
International Division % International Division %
------ -----
International SmallCap Division % International SmallCap Division %
------ -----
MicroCap Division % MicroCap Division %
------ -----
MidCap Division % MidCap Division %
------ -----
MidCap Growth Division % MidCap Growth Division %
------ -----
Money Market Division % Money Market Division %
------ -----
Putnam Global Asset Allocation Division % Putnam Global Asset Allocation Division %
------ -----
Putnam Vista Division % Putnam Vista Division %
------ -----
Putnam Voyager Division % Putnam Voyager Division %
------ -----
Real Estate Division % Real Estate Division %
------ -----
SmallCap Division % SmallCap Division %
------ -----
SmallCap Growth Division % SmallCap Growth Division %
------ -----
SmallCap Value Division % SmallCap Value Division %
------ -----
Stock Index 500 Division % Stock Index 500 Division %
------ -----
Utilities Division % Utilities Division %
------ -----
Total 100 % Total 100 %
------ -----
</TABLE>
If allocated to the Fixed Account and you are not requesting Dollar Cost
Averaging, please explain: -----------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
5. Electronic Prospectus Authorization:
_____I (We) consent to electronic delivery of prospectuses and
prospectus supplements by a 3.5" diskette in lieu of paper
versions. I (We) understand that this consent is effective until I
revoke it. (If box is not checked, you will receive only paper
versions).
- --------------------------------------------------------------------------------
6. Scheduled Transfer Options: (You may choose Dollar Cost Averaging or
Automatic Portfolio Rebalancing.)
____ Dollar Cost Averaging - Allows for transfer of money between Separate
Account Divisions and/or Fixed Account on a scheduled basis. There
must be a minimum of $2,500 in a division/account to initiate
scheduled transfers from it.
Frequency: ____Monthly ____Quarterly ____Semiannually ____Annually
Initial Transfer Date / /
------ ----- -------
M D YR
(not available on 29, 30, or 31st of month)
<TABLE>
<CAPTION>
Transfer Out (-) Transfer In (+)
<S> <C> <C> <C> <C> <C> <C>
Division/Account Amount Percent Division/Account Amount Percent
---------------- ------ ------- ---------------- ------ -------
1. $ % 1. $ %
-------------------- ------------ ---------- -------------------- -------------- ----------
2. $ % 2. $ %
-------------------- ------------ ---------- -------------------- -------------- ----------
3. $ % 3. $ %
-------------------- ------------ ---------- -------------------- -------------- ----------
4. $ % 4. $ %
-------------------- ------------ ---------- -------------------- -------------- ----------
5. $ % 5. $ %
-------------------- ------------ ---------- -------------------- -------------- ----------
6. $ % 6. $ %
-------------------- ------------ ---------- -------------------- -------------- ----------
<FN>
Note: Dollar Cost Averaging will begin on the first Monthly Date
following receipt of this form, unless another date is requested
above.
</FN>
</TABLE>
_____ Automatic Portfolio Rebalancing - This feature allows for maintaining
the investment allocation that was originally established. It allows
for rebalancing annually, semiannually or quarterly. (Rebalancing not
available for the Fixed Account.)
Also, you may elect to rebalance upon request if you contact the Home
Office.
Frequency: Select one from each Category A and B:
A. ___Quarterly ___Semiannually ___Annually ___Fiscal Quarter
B. ___Based on Contract Date ___Specified future date / /
---- ---- ------
M D YR
(not available on 29, 30, or 31st of month)
<TABLE>
<CAPTION>
Investment Division Options: (Whole Percentages Only)
Rebalance my contract in the following way:
<S> <C> <C> <C> <C>
Aggressive Growth Division % MicroCap Division %
------- -------
Asset Allocation Division % MidCap Division %
------- -------
Balanced Division % MidCap Growth Division %
------- -------
Bond Division % Money Market Division %
------- -------
Capital Value Division % Putnam Global Asset Allocation Division %
------- -------
Fidelity Contrafund Division % Putnam Vista Division %
------- -------
Fidelity Equity-Income Division % Putnam Voyager Division %
------- -------
Fidelity High Income Division % Real Estate Division %
------- -------
Government Securities Division % SmallCap Division %
------- -------
Growth Division % SmallCap Growth Division %
------- -------
International Division % SmallCap Value Division %
------- -------
International SmallCap Division % Stock Index 500 Division %
-------
-------
Utilities Division %
-------
Total must be equal to 100%
</TABLE>
- --------------------------------------------------------------------------------
7. Signature
I have read this application and have had the opportunity to read the
prospectuses. I authorize the instructions in this application. I have
been given the opportunity to ask questions regarding this policy, and
they have been answered to my satisfaction. I understand the investment
objectives of the Investment Account Divisions and/or Fixed Account for
which I am applying and believe they fit with my investment
objective(s). All of the statements in this application are true and
complete to the best of my knowledge and are the basis of any life
insurance issued.
- --------------------------------------- -------------------------------------
Signature of Owner (1) Signature of Owner (2)
If a Corporation, Trust, Entity, etc., (if joint owners)
authorized person (indicate title) must sign
To be completed by the Registered Representative:
Signed at----------------------------------- Signature-------------------------
City State Date
- --------------------------------------------------------------------------------
8. To Be Completed by Selling Firm
- --------------------------------------------------------------------------------
Dealer's Name Telephone
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Reviewed by Date
Registered Principal:
- --------------------------------------------------------------------------------
AA 1665
ERNST & YOUNG LLP Suite 3400 Phone: 515 243 2727
801 Grand Avenue
Des Moines, Iowa 50309-2764
Consent of Independent Auditors
We consent to the reference to our firm under the caption "Independent Auditors"
and to the use of our reports dated January 29, 1999, with respect to Principal
Life Insurance Company Variable Life Separate Account and Principal Life
Insurance Company, in Pre-Effective Amendment No. 1 to the Registration
Statement (Form S-6 No. 333-71521) and related Prospectus of Principal Life
Insurance Company Variable Life Separate Account -Survivorship Flexible Premium
Variable Universal Life Insurance Policy.
/S/ Ernst & Young LLP
Des Moines, Iowa
May 18, 1999
Ernst & Young LLP is a member of Ernst & Young International, Ltd.
DESCRIPTION OF PRINCIPAL LIFE INSURANCE COMPANY'S ISSUANCE,
TRANSFER AND REDEMPTION PROCEDURES FOR POLICIES PURSUANT TO RULE
6e-3(T)(b)(12)(iii) UNDER THE INVESTMENT COMPANY ACT OF 1940
This document sets forth the information called for under Rule
6e-3(T)(b)(12)(iii) under the Investment Company Act of 1940 (1940 Act). The
rule provides exemptions from sections 22(c), 22(d), 22(e) and 27(c)(1) of the
1940 Act, and Rule 22c-1 thereunder, for issuance (including face amount
increase), transfer and redemption procedures under Survivorship Flexible
Premium Variable Universal Life, the flexible premium variable life insurance
policy (Policy) to the extent necessary to comply with other provisions of Rule
6e-3(T), state insurance law or established administrative procedures of
Principal Life Insurance Company (the Company). To qualify for the exemptions,
procedures must be reasonable, fair and not discriminatory to the interests of
the affected contractholders and for all other holders of contracts of the same
class or series funded by the Separate Account, and must be disclosed in the
registration statement filed by the Separate Account.
Principal Life Insurance Company believes its procedures meet the
requirements of Rule 6e-3(T)(b)(12)(iii), as described below.
1. Purchases and Related Transactions
Set out below is a summary of the major contract provisions and administrative
procedures relating to purchase transactions. Because of the insurance nature of
the contract, the procedures involved differ in certain significant respects
from the purchase procedures for mutual funds and contractual plans.
(a) Application and Contract
To purchase a Policy, a completed application, including any required
supplements, must be submitted to the Company through the agent or broker
selling the Policy. The Company generally will not issue policies to insure
persons over the age 90 (one insured must be less than 85) for regularly
underwritten Policies Applicants must furnish satisfactory evidence of
insurability, and acceptance is subject to the Company's insurance
underwriting guidelines and suitability rules and procedures. The Company
reserves the right to reject any application or related premium if in the
view of the Company, the Company's insurance underwriting guidelines and
suitability rules and procedures are not satisfied. The minimum face amount
for a Policy at issue is $100,000. The Company reserves the right to revise
its rules from time to time to specify either a higher or lower minimum
face amount.
The "Policy Date" is the date established if the Company determines to
issue a Policy. Policy years and anniversaries will be determined from the
Policy Date regardless of when a Policy is delivered. Each Policy also has
an Effective Date. The Policy Date and the Effective Date will be the same
unless (i) a backdated Policy Date is requested, (ii)the application was
not accompanied by a payment in an amount equal to or greater than the
minimum monthly premium, or (iii) additional premiums or application
amendments are required. In such cases, the Effective Date will be the date
on which the required premiums have been received at the Company's home
office and any application amendments have been received, reviewed, and
accepted in the Company's home office. The Company does not date Policies
on the 29th, 30th or 31st day of any month of the year. The Policy Date is
shown on the Policy's data pages.
Upon specific written request of the applicant in the application and
subject to the Company's approval, a Policy may be issued with a backdated
Policy Date. The Policy Date may not be more than six months prior to the
date of the application or such shorter backdating period as required by
state law. Payment of the Minimum Monthly Premium is required for the
period the Policy is backdated.
If a payment of at least the required minimum initial premium amount is
submitted with the completed application, then a conditional receipt is
delivered to the applicant by the agent or broker selling the Policy,
reflecting receipt of the initial payment and any interim conditional
insurance coverage provided by the conditional receipt. No insurance under
a Policy will take effect until actual physical delivery to and acceptance
of a Policy by the applicant. If the proposed insureds die before actual
physical delivery to and acceptance of a Policy by the applicant, there
will be no coverage under the Policy and coverage will be determined solely
under the terms of the conditional receipt, if any, given to the applicant.
If the Company rejects an application or a policyowner chooses to cancel
the Policy during the free look period, the Company will refund all amounts
paid under the application or Policy. For Policies applied for in the state
of California, the Company will return accumulated value (also known as
Policy Value, plus premium expense charges deducted from the premium and
policy charges deducted from the policy value.) upon exercise of the
free-look privilege. The postmark date on the envelope containing the
Policy and the written request for cancellation shall determine whether
such Policy has been submitted within the designated period. The refund
will ordinarily be made within five business days after the Company
receives the returned Policy. Consequently, during underwriting and the
free-look period, the Company bears the investment risk with respect to any
amounts paid under the Policy (except with respect to Policies applied for
in the state of California. However, if the policyowner does not exercise
the free-look privilege, the Policy Value will reflect investment
performance during the free look period.
(b) Payment of Premiums
Premiums must be paid to the Company at its home office. There is no fixed
schedule of premium payments on a Policy either as to the amount or timing
of the payments within certain restrictions. The Policy will remain in
force as long as the accumulated value, less any loans and unpaid loan
interest, is sufficient to pay the Monthly Policy Charges imposed in
connection with the Policy.
A policyowner may determine, within the specified limits set forth below, a
planned periodic premium schedule to fit the policyowners insurance needs and
financial abilities. Planned Periodic Premium schedules may provide for
annual, semiannual, quarterly or monthly payments. A pre-authorized
withdrawal allows the company to deduct premiums, on a monthly basis, from
the policyowners checking or other financial institution account. The Company
will send premium reminder notices in accordance with planned periodic
premium schedules to policyowners who are on annual, semi-annual or quarterly
premium payment schedules. Premium payments may also be made by unscheduled
premium payment made to the Company at its home office, or by payroll
deduction where allowed by law and approved by the Company.
(i) Initial Premiums
To apply for a Policy, a completed application, including any required
supplements, must be submitted to the Company through the agent or broker
selling the Policy. If interim coverage is desired, a payment in at least
the required minimum initial premium amount must be submitted along with
the completed application and any required supplements.
(ii) Maximum Premiums In no event can the total of all premiums paid
exceed the current maximum premium limitations required by the Internal
Revenue Code in order to qualify the Policy as a life insurance contract.
The premium limitations are imposed to assure favorable federal income tax
treatment of the Policy and its death benefit. If at any time a premium is
paid which would result in total premiums exceeding the current maximum
premium limitation, the Company will only accept that portion of the
premium which will make total premiums equal the maximum. Any part of the
premium in excess of the maximum will be returned and no further premiums
will be accepted until allowed by the current maximum premium limitations
required by the Internal Revenue Code.
(iii) Evidence of Insurability If any premium payment would increase a
Policy's death benefit by more than it increases the Policy Value, the
Company reserves the right to refund the premium payment. Evidence of
insurability under the Company's current underwriting guidelines then in
effect may be required before acceptance of any such premium.
(c) Allocation of Premiums
The initial premium payment, less the premium expense charge (the charge
deducted from premium payments to cover a sales charge, state and local
premium taxes and federal taxes), is allocated to the Money Market Division
of the Separate Account at the end of the Valuation Period during which the
Premium Payment is received. Any additional premium payments received prior
to the Effective Date and during the first 20 days from the Effective Date,
less premium expense charge, will be allocated to the Money Market Division
at the end of the Valuation Period during which such premiums are received.
On the 21st day after the Effective Date, Policy Value held in the Money
Market Division is automatically transferred to the Divisions of the Separate
Account or to the Fixed Account, or both, in accordance with the policyowners
direction for allocation of premium payments.
For each Division and the Fixed Account, the allocation percentages must be
zero or a whole number not less than ten nor greater than 100. The
policyowner may change the allocation of future premium payments among the
Divisions of the Separate Account and the Fixed Account by written request to
the Company or by telephone as described below without payment of any fee or
penalty. New allocation percentages will be effective as of the end of the
Valuation Period in which the Company receives the policyowners request in
proper form.
(d) Monthly Policy Charge
There is a Monthly Policy Charge from the Policy Value in the Divisions of
the Separate Account and the Fixed Account equal to the cost of insurance
plus the cost of additional benefits provided by rider plus the monthly
administration charge and mortality and expense risks charge in effect on
the Monthly Date (the day of the month which is the same as the day of the
Policy Date). The cost of insurance charge is calculated on each Monthly
Date. It is based on the sex (where allowed by law), issue age, duration
since issue, smoking status and risk classification of each insured.
Current monthly cost of insurance rates will be determined by the Company
based on its expectations as to future mortality experience. Cost of
insurance rates are guaranteed not to exceed the maximum charge based on
the 1980 Smoker and Nonsmoker Commissioners Standard Ordinary Mortality
Tables, age last birthday. Unisex rates will also be available for use in
connection with employment-related insurance and benefit plans. The cost of
insurance rate for a face amount increase is based on each insured's gender
(where allowed by law), age at time of increase, duration since increase,
smoking status and risk classification of each insured at the time of the
increase.
(e) Change in Face Amount
A policyowner may make a written request to increase the face amount of a
Policy at any time, so long as both insureds are living, the Policy is not
in a grace period and premiums are not being waived under a rider. A
policyowner may make a written request to decrease the face amount at any
time on or after the second Policy anniversary so long as the Policy is not
in a grace period and premiums are not being waived under a rider. Any
written request for adjustment of face amount is subject to these
additional conditions.
(i) Any request for an increase in face amount must be applied for by
an adjustment application, signed by the policyowner and the
insureds, and shall be subject to evidence of insurability
satisfactory to the Company under its underwriting guidelines then in
effect. The minimum increase in face amount is $100,000. The age of
the older insured is 90 or less and the age of the younger insured is
85 or less at the time of the request..
(ii) A request for a decrease in face amount must be applied for by an
adjustment application, signed by the policyowner and the insureds,
and may not reduce the face amount of the Policy below $100,000.
(iii) Any increase in face amount will be in a risk classification the
Company determines.
(iv) Any adjustment approved by the Company will become effective on
the monthly date that coincides with or next follows the Company's
approval of the request.
We calculate an "adjustment conditional receipt premium deposit" based on
the policyowner's request for an increase. If a payment is made with the
adjustment application of at least as much as the adjustment conditional
receipt premium deposit, a conditional receipt is issued which shows
receipt of payment and outlines any interim insurance coverage.
(f) Reinstatement
If the Policy lapses, the policyowner may reinstate the Policy subject to
certain conditions.
An application for reinstatement may be made any time within three years of
lapse. (In some states, the Company is required by law to provide a longer
period of time within which a Policy may be reinstated.) It must be prior
to the maturity date and while at least one insured is alive. Satisfactory
proof of insurability based upon the Company's current insurance
underwriting guidelines is required. Payment of a reinstatement premium is
also required.
The reinstatement premium must be at least the greater of ((a) plus (b)
divided by (c)) where:
a. Is the amount by which the Surrender Charge exceeds the Policy Value
on the Monthly Date at the start of the grace period before the
monthly policy charge is deducted;
b. Is three Monthly Policy Charges;
c. Is one minus the maximum Premium Expense Charge percentage;
If a loan was outstanding at the time of lapse, the Company will require
repayment or reinstatement of the loan and any unpaid loan interest before
permitting reinstatement of the Policy. Loan interest will not be charged
for the period of lapse. Reinstatement will be effective on the next
Monthly Date following the Company's approval of the reinstatement
application.
The Policy Date of the Policy will remain the original policy date and will
not be changed at reinstatement. If you reinstate your policy and then it
is totally surrendered, a surrender charge may be imposed. The charge, if
any, is calculated based on the number of years the Policy was in force.
The period of time during which the Policy was terminated is not credited
toward the number of policy years to make this calculation.
(g) Repayment of Loan and Loan Interest
A policy loan may be repaid in whole or in part at any time while the
Policy is in force and before the surviving insured dies. Loan repayments
will be applied effective the date payment is received in the Home Office.
If the policyowner does not designate a payment as a premium payment, or if
the Company cannot identify it as a premium payment, the Company will apply
payments received as loan repayments if a loan is outstanding. When a loan
repayment is made, Policy Value securing the policy loan in the loan
account equal to the loan repayment will be allocated among the Divisions
of the Separate Account and the Fixed Account in the proportion currently
designated by a policyowner for allocation of premium payments. Unless the
Company is instructed otherwise, the balance of a payment not needed to
repay a loan, less the Premium Expense Charge, will be applied to the
Divisions of the Separate Account and the Fixed Account according to the
premium allocation then in effect.
(h) Misstatements of Age or Gender
If the age or, where applicable, gender of an insured has been misstated in
an application, we adjust the death benefit payable under the Policy to
reflect the amount that would have been payable at the correct ages and
gender.
2. Redemptions and Related Transactions. Set out below is a summary of the major
contract provisions and administrative procedures relating to redemption
transactions. Because of the insurance nature of the contract, the procedures
involved differ in certain significant respects from procedures for mutual
funds and contractual plans.
(a) Total Surrender and Partial Surrenders
So long as the Policy is in effect and prior to the maturity date, a
policyowner may elect to surrender the Policy and receive its net surrender
value determined as of the date the Company receives the policyowners
written request.
A policyowner may, after the second Policy Year and prior to the maturity
date and so long as a Policy is in effect, request a partial surrender from
the net surrender value, but no more than two times per policy year. The
minimum amount of a partial surrender is $500 and the maximum amount that
may be surrendered in a Policy Year by partial surrender is 75% of the net
surrender value as of the date of the first partial surrender. There is a
transaction charge of the lesser of $25 or two percent of the amount
surrendered for each partial surrender. A partial surrender will be
processed effective the date written request is received in the home office
of the Company.
The Policy Value is reduced by the amount of the partial surrender plus the
amount of the transaction charge. If the option 1 death benefit is in
effect at the time of a partial surrender, then the Policy's face amount
also is reduced by the amount of the partial surrender and the transaction
charge. Proceeds will ordinarily be paid within five business days from the
date of receipt of a written request at the Company's home office.
A policyowner may designate the amount of the partial surrender to be
withdrawn from each of the Divisions and the Fixed Account. If no
designation is made, the amount of the partial surrender and the
transaction charge will be withdrawn in the same proportion as allocation
instruction in effect for the Monthly Policy Charge.
During the first ten years of a Policy, a surrender charge will be assessed
in connection with total surrender of a Policy. In addition, each face
increase carries its own set of ten-year surrender charges, causing any
total surrender made after an adjustment date to be subject to a composite
surrender charge. Surrender charges following a Policy's reinstatement
commence at the rate in effect at the time of the Policy's termination. A
policyowner will never be assessed the surrender charge if total surrender
or termination of the Policy does not occur within the first ten Policy
years or ten years following an adjustment date.
(b) Benefit Claims
As long as the Policy remains in force and before the maturity date, the
Company will, upon proof of the death of both insured, and receipt of all
additional claim requirements, and pursuant to the terms of the Policy, pay
the death proceeds to the named beneficiary in accordance with the
designated death benefit option. The amount of the death benefit payable
will be determined as of the date of death of the surviving insured, or on
the next following valuation date if the date of death is not a valuation
date. Benefit claims will ordinarily be paid within five business days
after all necessary claim requirements are received.
Unless a settlement option is elected by the policyowner during the
insureds' lifetime or by the beneficiary following the insureds' death, the
proceeds will be paid in one lump sum. The Company will pay interest from
the date of the surviving insureds' death to the date of payment or
application under a benefit option at a rate determined by the Company, but
not less than required by state law. The Company offers beneficiaries and
policyowners a wide variety of settlement options.
The Policy provides two death benefit options: Option 1 and Option 2. The
policyowner designates the death benefit option in the application. Under
Option 1 the death benefit is the greater of the Policy's current face
amount or the Policy Value on the date of death of the surviving insured
multiplied by the applicable percentage as determined by the then effective
tax corridor percentage table as shown in the Policy. The Option 2 death
benefit is equal to the greater of the Policy's current face amount plus
its Policy Value on the date of death of the surviving insured or the
policy value on the date of the death of the surviving insured multiplied
by the applicable percentage.
The death proceeds, determined as of the date of the surviving insureds'
death, are: The death benefit described above, plus the proceeds from any
benefit rider on the surviving insureds' life, less any unpaid loan
principal and loan interest under the Policy, and less any overdue Monthly
Policy Charges if the insured died during a grace period, plus interest on
the death proceeds from date of death of the surviving insured until date
of payment or application under a benefit payment option.
The amount of the benefit payable at maturity is the Policy Value less any
policy loans and unpaid loan interest on the maturity date. This benefit
will only be paid if either insured is living on the policy maturity date.
The Policy will mature on the policy anniversary following the birthday on
which the insured reaches age 100.
(c) Policy Loans
As long as the Policy remains in force and the Policy has a net surrender
value, a policyowner may borrow money from the Company using the Policy as
security for the loan. The maximum amount that may be borrowed is 90% of
the net surrender value of the Policy as of the date a loan request is
processed at the Company's home office. The minimum loan amount is $500.
Proceeds of policy loans ordinarily will be disbursed within five business
days from the date of written request for a loan at the Company's home
office.
When a policy loan is taken, a portion of the Policy Value equal to the
amount of the loan will be transferred to the Loan Account from the
Divisions and the Fixed Account in the proportions requested by the
policyowner. The Loan Account is that part of the Policy Value that
reflects the value transferred to the General Account from the Fixed
Account, Separate Account, or both as collateral for a Policy Loan. A
Policy's Loan Account is part of the Company's General Account. If no
request for allocation of the loaned amount is made by the policyowner, the
loan amount will be withdrawn from the Divisions and the Fixed Account in
the same proportion as the allocation used for the most recent Monthly
Policy Charge.
Any loan interest that is due and unpaid will also be transferred in the
same manner as described above for policy loans. During the first ten
Policy Years, the Loan Account will earn interest at an annual rate six
percent, and thereafter at an effective annual rate of 7.75 percent. On
each Policy Anniversary, if there has been a loan repayment, this credited
interest is transferred from the Loan Account to the Divisions of the
Separate Account and the Fixed Account in the proportion currently
designated by a policyowner for the allocation of premium payments.
The Company will charge interest on any unpaid policy loan. Interest
accrues daily at an effective annual interest rate of eight percent.
Interest is due and payable at the end of each Policy Year. Any interest
not paid when due is added to the loan principal and bears interest at the
rate of eight percent. Adding unpaid interest to the loan principal will
cause additional amounts to be withdrawn from the Divisions and the Fixed
Account in the same manner as described above for loans.
If on any Monthly Date the net surrender value is not sufficient to pay the
Monthly Policy Charge, the 61-day grace period provision may apply (see
Section 2(d) below, Policy Termination and Grace Period). Unpaid policy
loans and loan interest reduce the net surrender value and may cause it to
be less than the Monthly Policy Charge on a Monthly Date.
Upon repayment, the Policy Value securing the repaid portion of the loan in
the Loan Account will be transferred to the Divisions of the Separate
Account and the Fixed Account, applying the same percentages currently in
effect for the allocation of premium payments. Any unpaid policy loans and
loan interest are subtracted from life insurance proceeds payable at the
surviving insured's death, from Policy Value upon total surrender, and from
Policy Value payable at maturity. The claim of the Company for repayment of
policy loans and unpaid loan interest has priority over the claims of any
assignee, any beneficiary or any other person.
(d) Policy Termination and Grace Period
Failure to make a planned periodic premium payment will not necessarily cause
the Policy to terminate. A notice of impending policy termination will be
sent if:
If the net surrender value on any monthly date is less than the monthly
policy charge, a 61-day grace period begins. However, during the first 60
policy months, the Policy will stay in force if (a minus b) is greater than
or equal to (c) where:
(a) is the sum of the premiums paid;
(b) is the sum of all existing policy loans, unpaid loan interest,
partial surrenders and transactions charges; and
(c) is the sum of the minimum monthly premiums since the policy date
to the most recent monthly date.
After the first 60 policy months, making premium payments under the planned
periodic premium schedule does not guarantee that the policy will stay
in force unless:
o the Policy's net surrender value is at least equal to the monthly
policy charge on the current monthly date, or
o the death benefit guarantee rider is in effect.
The grace period begins when the Company mails to the policyowner a notice
of impending policy termination. The notice will be sent to the
policyowners last post office address known to the Company. It will show
the minimum payment required to keep the Policy in force. It will also show
the 61 day grace period during which such payment will be accepted.
If the Policy is in a grace period, the minimum payment is equal to (a)
plus (b) divided by (c) where:
(a) is the amount by which the surrender charge is more than the
policy value on the monthly date at the start of the grace period
before the monthly policy charge is deducted,
(b) is three monthly policy charges, and
(c) is one minus the maximum premium expense charge percentage.
If the grace period ends before we receive this minimum payment, the
Company will keep any remaining value in the policy.
The Policy will continue in force through the grace period, but if the
required payment is not received by the Company during the 61-day grace
period, the Policy will terminate as of the Monthly Date on or immediately
preceding the start of the grace period. If the surviving insured dies
during the grace period, the death benefit payable under the Policy will be
reduced by the amount of all Monthly Policy Charges due and unpaid at the
surviving insured's death, as well as the amount of any unpaid policy loans
and loan interest.
(e) Suicide
Death proceeds are not paid if either insured dies by suicide, whether sane
or insane, within two years from the Policy Date or two years from the date
of any increase in face amount with respect to such increase. In the event
of suicide of either insured within two years of the Policy Date, the only
liability of the Company will be a refund of premiums paid, without
interest, less any policy loans and unpaid loan interest, any partial
surrenders, and any surrender charges. In the event of suicide within two
years of an increase in face amount, the only liability of the Company in
respect to such increase in face amount will be a refund of the cost of
insurance charges for such increase. If the suicide occurs at the death of
the first insured, this amount will be paid to the owner(s) of the Policy.
If the suicide occurs at the death of the surviving insured, this amount
will be paid to the beneficiary(ies).
(f) Postponement of Payment
Payment of any amount upon total or partial surrender, policy loan, or
benefits payable at death or maturity and the right to transfer to and from
an Investment Account may be postponed whenever:
(i) The New York Stock Exchange is closed other than customary weekend and
holiday closings, or trading on the New York Stock Exchange is restricted
as determined by the Securities and Exchange Commission.
(ii) The Securities and Exchange Commission by order permits postponement
for the protection of policyowners.
(iii) An emergency exists, as determined by the Securities and Exchange
Commission, as a result of which disposal of securities is not reasonably
practicable or it is not reasonably practicable to determine the value of
the Separate Account assets.
3. Transfers
The policyowner may transfer amounts among the Divisions of the Separate
Account and the Fixed Account on either an unscheduled or a scheduled basis.
(a) Transfers From Divisions of the Separate Account
Unscheduled Transfers. Transfers of amounts from one Division to another or
to the Fixed Account can be made by the policyowner. A transfer from a
Division to the Fixed Account may not be made if a transfer from the Fixed
Account to a Division has been made within the six-month period prior to
the date of the requested transfer or if immediately after the transfer to
the Fixed Account the policyowner's Fixed Account Value exceeds $1 million
(without the Company's prior approval). The amount to be transferred may be
stated as a dollar amount or as a percentage of the value of the Division
from which the transfer is to be made. The amount transferred from each
Division must equal or exceed the lesser of $100 or 100% of the
policyowner's interest in the Division. Transfers may be completed by
sending a Written Request to the Company at its home office, or by
telephone as described below. (See Service Available by Telephone.)
All or part of the values in one or more Divisions may be transferred at
one time. Transfers from a Division will be executed and values will be
determined in connection with the transfers at the next computed Unit value
after the Company receives the transfer request. There is currently no
charge for the transfer but the Company reserves the right to impose
charges (not to exceed $25 per transfer) on unscheduled transfers after the
twelfth such transfer during a Policy Year. For this purpose, all transfers
between and among Divisions and the Fixed Account will be treated as one
transfer, if all the transfer requests are made at the same time as part of
one request. The Company also reserves the right to reject transfer
instructions provided by a person providing them for multiple contracts.
Scheduled Transfers. The policyowner may elect to have automatic transfers
completed on a periodic basis from any Division. Scheduled transfers may be
initiated from a Division only if the value of the Investment Account
equals or exceeds $2,500 when scheduled transfers begin. A policyowner may
establish scheduled transfers by sending a Written Request to the Company
at its home office or by telephone. (See Service Available by Telephone.)
Scheduled transfers will be completed on a monthly, quarterly, semiannual
or annual basis beginning on the Monthly Date following the date the
Company receives the request. The amount of the transfers (minimum of the
lesser of $100 or 100% of the policyowner's interest in the Division.) will
be the dollar amount selected by the policyowner or a percentage of the
value of the Division as of the date specified by the policyowner (other
than the 29th, 30th or 31st). Scheduled transfers will continue until the
Policy Value in the Division from which such transfers are made is
exhausted or until the policyowner notifies the Company to discontinue such
transfers. The Company reserves the right to limit the number of Divisions
from which transfers will be made simultaneously, but in no event will such
limitation be less than two Divisions.
(b) Transfer From The Fixed Account
Transfers from the Fixed Account have special limitations which are described
below. A policyowner may not make both an unscheduled transfer and scheduled
transfers from the Fixed Account during the same Policy Year.
Unscheduled Transfers. An unscheduled transfer in an amount not to exceed 25%
of the policyowners Fixed Account value as of the later of the Policy Date or
the last Anniversary, may be made each Policy Year during the 30-day period
following the Policy Date or Anniversary. A transfer request must be made by
the policyowner within such 30-day period. The minimum transfer amount is
$100 (or, if less, the entire amount of the Fixed Account value).
Scheduled Transfers. The policyowner may elect to have automatic transfers
completed on a monthly basis from the Fixed Account to one or more Investment
Accounts. Scheduled transfers are available from the Fixed Account only if
the policyowners Fixed Account value equals or exceeds $2,500 at the time
scheduled transfers begin. (The Company reserves the right to change that
amount but it will never exceed $10,000.) A policyowner may establish
scheduled transfers by sending a Written Request to the Company at its home
office or by telephone. (See Service Available by Telephone.) Scheduled
transfers will be completed on a monthly basis beginning on the Monthly Date
following the date the Company receives the request. Once each Policy Year, a
policyowner having automatic transfers completed may, upon Written Request or
by telephone (See Service Available by Telephone), change the dollar amount
of scheduled monthly transfers (subject to the $50 minimum), the percentage
of the Fixed Account transferred each month (subject to the $50 minimum and
2% of Fixed Account value maximum), and/or the date as of which the Fixed
Account value figure for calculating the dollar amount of scheduled transfers
expressed as a percentage of Fixed Account value is determined. The updated
Fixed Account value figure is the Fixed Account value as of the immediately
preceding Policy Anniversary, or, if the policyowner so elects, the Fixed
Account value as of the date the Company receives the request. Scheduled
monthly transfers will continue until the Fixed Account value is exhausted or
until the policyowner notifies the Company to discontinue the scheduled
transfers. If the policyowner discontinues the scheduled transfers, these
transfers may not begin again until six months after the date of the last
scheduled transfer.
4. Service Available by Telephone
Unless telephone transaction services are declined on the supplemental
application for a Policy, or at any subsequent time the policyowner notifies
the Company in writing to remove telephone transaction services, certain
transactions, including transfers permitted by the Policy, Policy loans
(Policy loan proceeds will be mailed only to the policyowners address of
record), changes in the allocation of future premium payments and changes in
allocation of the Monthly Policy Charge, may be made pursuant to telephone
instructions. The telephone transactions may be exercised by telephoning
1-800-247-9988. Telephone transfer requests must be received by the close of
the New York Stock Exchange on a day when the Company is open for business to
be effective that day. Requests made after that time or on a day when the
Company is not open for business will be effective the next Valuation Day.
Although neither the Separate Account nor the Company is responsible for the
authenticity of telephone transaction requests, the right is reserved to
refuse to accept telephone requests when the opinion of the Company it seems
prudent to do so. The policyowner bears the risk of loss caused by fraudulent
telephone instructions the Company reasonably believes to be genuine. The
Company will employ reasonable procedures to assure telephone instructions
are genuine and if such procedures are not followed, the Company may be
liable for losses due to unauthorized or fraudulent transactions. Such
procedures include recording all telephone instructions, requesting personal
identification information such as the callers name, daytime telephone
number, social security number and/or birthday and sending a written
confirmation of the transaction to the policyowners address of record.
Policyowners may obtain additional information and assistance by telephoning
the toll free number. The Company may modify or terminate telephone transfer
procedures at any time.
5. Right to Exchange Policy
During the first 24 months after the policy date (except during a grace
period), the policyowner has the right to make an irrevocable, one-time
election to transfer all of Investment Account values to the Fixed Account.
No charge is imposed on this transfer.
The request must be in writing and be signed by the owner(s). The request
must be postmarked or delivered to the Company. The transfer is effective
when the Company receives the written request.
The Company reserves the right to make certain changes if, in its
judgement, they best serve the policyowners interests or are appropriate in
carrying out the purpose of the Policy. Any changes are made only to the
extent and in the manner permitted by applicable laws. Also, when required
by law, the Company will obtain the policyowner's approval of the changes
and approval from any appropriate regulatory authority. Approvals may not
be required in all cases. Examples of the changes that may be made include:
o transfer assets in any division to another division or to the
Fixed Account;
o add, combine or eliminate divisions in the Separate Account; or
o substitute the shares of an Investment Account for the Investment
Account shares in any division:
o if shares of an Investment Account are no longer available
for investment; or
o if in the Company's judgement, investment in an Investment
Account becomes inappropriate considering the purposes of
the Separate Account.
If the Company eliminates or combines existing divisions or transfer assets
from one division to another, the policyowner may change allocation
percentages and transfer any value in an affected division to another
Investment Account(s) and/or the Fixed Account without charge. This
exchange privilege may be exercised until the latter of 60 days after a)the
effective date of the change, or b) the date the policyowner receives
notice of the options available. This right may be exercised only if the
policyowner has an interest in the affected division(s).
6. Statement of Value
Each year a statement will be sent to the policyowner which shows the
following:
1. the current death benefit;
2. the current Policy Value and surrender value;
3. all premiums paid since the last statement;
4. all charges since the last statement;
5. any Policy loans and unpaid loan interest;
6. any partial surrenders since the last statement;
7. the number of units and unit value;
8. the total value of each of the policyowner's investment account and
fixed account;
9. the designated beneficiary or beneficiaries;
10. all riders included with the Policy; and
11. a detailed summary of activity which occurred during the Policy Year.
The Company will also send the policyowner the reports required by the
Investment Company Act of 1940. The policyowner may request a current statement
from the Company at any time.
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director of Principal Life
Insurance Company, an Iowa corporation (the "Company"), hereby constitutes and
appoints D. J. Drury, J. B. Griswell, G. R. Narber and J. N. Hoffman, and each
of them (with full power to each of them to act alone), the undersigned's true
and lawful attorney-in-fact and agent, with full power of substitution to each,
for and on behalf and in the name, place and stead of the undersigned, to
execute and file any of the documents referred to below relating to registration
under the Securities Act of 1933 with respect to flexible premium variable life
insurance contracts, with premiums received in connection with such contracts
held in the Principal Life Insurance Company Variable Life Separate Account on
Form S-6 or other forms under the Securities Act of 1933, and any and all
amendments thereto and reports thereunder with all exhibits and all instruments
necessary or appropriate in connection therewith, each of said attorneys-in-fact
and agents and his or their substitutes being empowered to act with or without
the others or other, and to have full power and authority to do or cause to be
done in the name and on behalf of the undersigned each and every act and thing
requisite and necessary or appropriate with respect thereto to be done in and
about the premises in order to effectuate the same, as fully to all intents and
purposes as the undersigned might or could do in person; hereby ratifying and
confirming all that said attorneys-in-fact and agents, or any of them, may do or
cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned director has hereunto set his hand this 18th
day of May, 1999.
/s/ B. J. Bernard
_________________________________
B. J. Bernard
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director of Principal Life
Insurance Company, an Iowa corporation (the "Company"), hereby constitutes and
appoints D. J. Drury, J. B. Griswell, G. R. Narber and J. N. Hoffman, and each
of them (with full power to each of them to act alone), the undersigned's true
and lawful attorney-in-fact and agent, with full power of substitution to each,
for and on behalf and in the name, place and stead of the undersigned, to
execute and file any of the documents referred to below relating to registration
under the Securities Act of 1933 with respect to flexible premium variable life
insurance contracts, with premiums received in connection with such contracts
held in the Principal Life Insurance Company Variable Life Separate Account on
Form S-6 or other forms under the Securities Act of 1933, and any and all
amendments thereto and reports thereunder with all exhibits and all instruments
necessary or appropriate in connection therewith, each of said attorneys-in-fact
and agents and his or their substitutes being empowered to act with or without
the others or other, and to have full power and authority to do or cause to be
done in the name and on behalf of the undersigned each and every act and thing
requisite and necessary or appropriate with respect thereto to be done in and
about the premises in order to effectuate the same, as fully to all intents and
purposes as the undersigned might or could do in person; hereby ratifying and
confirming all that said attorneys-in-fact and agents, or any of them, may do or
cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned director has hereunto set his hand this 18th
day of May, 1999.
/s/ J. Carter-Miller
_________________________________
J. Carter-Miller
May 13, 1999
RE: PRINCIPAL LIFE'S SURVIVORSHIP FLEXIBLE PREMIUM VARIABLE UNIVERSAL
LIFE INSURANCE POLICY
Dear Sir or Madam:
In my capacity as Senior Actuarial Associate of Principal Life Insurance Company
("Principal Life"), I have provided actuarial advice concerning, and
participated in the design of Principal Life's Survivorship Flexible Premium
Variable Universal Life Insurance Policy (the "Policy"). I also provided
actuarial advice concerning the preparation of a registration statement on form
S-6 for filing with the Securities and Exchange Commission under the Securities
Act of 1933 in connection with the Policy. In my opinion:
a) the federal tax charge of 1.25% of premium for deferred
acquisition costs is reasonable in relation to Principal Life's
increased tax burden under Section 848 of the Internal Revenue
Code of 1986 as amended. In addition, it is my professional
opinion that the 15% rate of return, and the assumptions on which
that rate is based, are reasonable for use in calculating such
charges.
b) the illustrations of death benefits, account values, surrender
values and accumulated premiums in the prospectus are based on the
assumptions stated in the illustrations, consistent with the
provisions on the Policy. Such assumptions, including the assumed
current charge levels are reasonable. The Policy has not been
designed so as to make the relationship between premium and
benefits, as shown in the illustrations, appear to be
correspondingly more favorable to a prospective purchaser of the
Policy at the ages, genders and underwriting classes shown, than
to prospective purchasers at other ages, genders and underwriting
classes. Nor were the particular illustrations selected for the
purpose of making this relationship appear more favorable.
I hereby consent to the use of this opinion as an exhibit to the registration
statement and to the reference to my name under the heading "Experts" in the
prospectus.
Very truly yours,
/s/ Jeff Fitch
Jeff Fitch, FSA, MAAA
Senior Actuarial Associate
Phone: 515-235-5898
Fax: 515-362-0056
