Registration No. 333-89446
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------
PRE-EFFECTIVE AMENDMENT NO. 3 TO
FORM S-6
FOR REGISTRATION UNDER THE SECURITIES ACT OF 1933
OF SECURITIES OF UNIT INVESTMENT TRUSTS REGISTERED ON
FORM N-8B-2
--------
PRINCIPAL LIFE INSURANCE COMPANY VARIABLE LIFE SEPARATE ACCOUNT
(Exact Name of Registrant)
--------
PRINCIPAL LIFE INSURANCE COMPANY
(Name of Depositor)
--------
711 High Street
Des Moines, Iowa 50309
(Address of Depositor's Principal Executive Offices)
--------
(515) 247-5111
(Depositor's Telephone Number, Including Area Code)
--------
Sarah H. Pitts
Principal Life Insurance Company
711 High Street
Des Moines, Iowa 50309
(Name and Address of agent for service of process)
--------
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: Principal Benefit Variable Universal Life
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.)
Approximate date of proposed public offering: As soon as practicable after the
effective date of the Registration Statement. 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.
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.............. General Information (Legal Proceedings)
10(a).......... Ownership, Beneficiary, Assignment
10(b).......... Policy Values
10(c), 10(d)... Summary; Division Transfers; Automatic Portfolio
Rebalancing; Surrenders; Right to Exchange Policy
10(e).......... Summary; Policy Termination and 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); Appendix
12(a).......... Cover page
12(b).......... Not Applicable
12(c).......... Principal Life Insurance Company Variable Life
Separate Account
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 Initial 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 (Division
Transfers)
27............. The Company
28............. Executive Oficers (Other than Directors); Directors)
Principal Life Insurance Company
29............. The Company
30............. Not Applicable
31............. Not Applicable
32............. Not Applicable
33............. Not Applicable
PRINCIPAL BENEFIT VARIABLE UNIVERSAL LIFE
VARIABLE UNIVERSAL LIFE INSURANCE POLICY
This prospectus is dated__________________.
The Principal Benefit Variable Universal Life Insurance Policy (the "Policy") is
issued by Principal Life Insurance Company (the "Company").
This Policy is for use by corporations, employers, trusts, associations or
similar entities. The Policy is designed for financing non-qualified executive
deferred compensation plans, salary continuation plans, post-employment benefits
or other similar purposes. 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.The Policy involves investment risk,
including possible loss of principal.
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 as investment options under the Policy. Please read
these prospectuses carefully and keep them for future reference.
The Securities and Exchange Commission ("SEC") has not approved or disapproved
this security or determined if this prospectus is truthful or complete. Any
representation to the contrary is a criminal offense.
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.
TABLE OF CONTENTS
GLOSSARY................................................................
SUMMARY.................................................................
THE COMPANY.............................................................
PRINCIPAL LIFE INSURANCE COMPANY VARIABLE LIFE SEPARATE ACCOUNT.........
THE FUNDS...............................................................
THE POLICY..............................................................
DEATH BENEFITS AND RIGHTS...............................................
CHARGES AND DEDUCTIONS..................................................
POLICY TERMINATION AND REINSTATEMENT....................................
OTHER MATTERS...........................................................
GENERAL PROVISIONS......................................................
OFFICERS AND DIRECTORS OF PRINCIPAL MANAGEMENT CORPORATION..............
EXECUTIVE OFFICERS OF PRINCIPAL LIFE INSURANCE COMPANY (OTHER THAN DIRECTORS)
DIRECTORS OF PRINCIPAL LIFE INSURANCE COMPANY...........................
DISTRIBUTION OF THE POLICY..............................................
STATE REGULATION........................................................
FEDERAL TAX MATTERS.....................................................
GENERAL INFORMATION.....................................................
FINANCIAL STATEMENTS....................................................
APPENDIX A - INVESTMENT DIVISIONS.......................................
APPENDIX B - ILLUSTRATIONS..............................................
APPENDIX C - TARGET PREMIUMS............................................
APPENDIX D - APPLICABLE PERCENTAGES (for Life Insurance Definition Test)
GLOSSARY
ADJUSTMENT - change to the Policy resulting from an increase or decrease in
total 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 - the insured's issue age plus the number of full policy years
since the policy date.
BUSINESS DAY - any date that the New York Stock Exchange ("NYSE") is open for
trading and trading is not restricted.
DIVISION - a part of the separate account which invests in shares of a
corresponding mutual fund.
EFFECTIVE DATE - the date on which all requirements for issuance of a Policy
have been satisfied.
GENERAL ACCOUNT - assets of the Company other than those allocated to any of our
separate accounts.
INSURED - the person named as the "insured" on the application for the Policy.
The insured may or may not be the owner of the Policy.
LOAN ACCOUNT - that part of the dollar amount in the policy value that reflects
the total loan indebtedness.
MONTHLY DATE - the day of the month which is the same day as the policy date.
Example: If the policy date is May 5, 2003, the first monthly date is June
5, 2003.
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 asset based charge in effect on the
monthly date.
NET POLICY VALUE - the policy value minus any outstanding policy loans and
unpaid loan interest.
NET PREMIUM - the gross premium less the deductions for the premium expense
charge. It is the amount of premium allocated to the divisions.
NET SURRENDER VALUE - surrender value minus any outstanding policy loans and
unpaid loan interest.
NOTICE - any form of communication that we receive that provides the information
we need which may be in writing sent to us by mail or by facsimile or by calling
the service office.
OWNER - the party which 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 FACE AMOUNT - the insurance benefit provided by the Policy without any
riders.
POLICY MONTH - any one-month period beginning on the monthly date.
Example: The monthly date is May 5, 2003, the first policy month ends on
June 4, 2003.
POLICY VALUE - an amount equal to the division 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 May 5, 2003, the first policy year ends on
May 4, 2004. The first policy anniversary falls on May 5, 2004.
PREMIUM EXPENSE CHARGE - the charge deducted from premium payments to cover a
sales charge, state and local premium taxes and federal taxes.
PRORATED BASIS - is the proportion that the value of a particular division bears
to the total value of all divisions.
SERVICE OFFICE - Principal Financial Group Service Center
P.O.Box 724447
Atlanta GA 31139
Phone: 1-888-737-3855
Fax: 1-770-690-1900
SURRENDER VALUE - an amount equal to the policy value minus any surrender
charges. The surrender value also includes any value provided by a rider
benefit.
TARGET PREMIUM - a premium amount used to determine any applicable premium
expense charge and surrender charge under a Policy.
TOTAL FACE AMOUNT - policy face amount plus face amount of the supplemental
benefit rider, if any. .
UNDERLYING MUTUAL FUND - a registered open-end investment company, or a separate
division or portfolio thereof, in which a division invests.
UNIT - the accounting measure used to calculate the value of the divisions.
VALUATION PERIOD - the period begins at the close of normal trading on the NYSE,
generally 4:00 p.m. E.T., on each business day and ends at the close of normal
trading of the NYSE on the next business day.
WRITTEN REQUEST - actual delivery to the Company or the service office of a
written notice or request, signed and dated, on a form we supply or approve.
SUMMARY
This prospectus describes a 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:
.. insurance protection;
.. a death benefit payable at the death of the insured;
.. flexibility in:
. the amount and frequency of premium payments (subject to certain
limitations); and
. the amount of life insurance proceeds payable under the Policy;
.. policy loans; and
.. a net surrender value which may be accessed by a partial or full surrender of
the Policy.
Net premium payments are allocated to divisions. All divisions may not be
available in all states. A current list of divisions available in your state may
be obtained from a sales representative or the Company.
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 and qualified plans. 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, 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.
The following divisions are currently available (subject to state availability):
DIVISION DIVISION
AIM V.I. Aggressive Growth JPMorgan Bond
AIM V.I. International Growth JPMorgan SmallCap
AIM V.I. Premier Equity MFS VIT Emerging Growth
American Century VP Income & Growth MFS VIT MidCap Growth
American Century VP International MFS VIT New Discovery
American Century VP Ultra MFS VIT Value
American Century VP Value Neuberger Berman AMT Guardian
Berger IPT MidCap Value Bond
Dreyfus VIF Appreciation Capital Value
Dreyfus DIP Core Value Equity Growth
Dreyfus VIF Quality Bond Government Securities
Dreyfus VIF Small Cap Growth
Dreyfus Socially Responsible Growth International
DIP Founders Discovery International SmallCap
DIP Founders Growth LargeCap Blend
Fidelity VIP II Asset Manager LargeCap Growth
Fidelity VIP II Contrafund LargeCap Value
Fidelity VIP Equity-Income MidCap
Fidelity VIP Growth MidCap Growth
Fidelity VIP High Income MidCap Growth Equity
Fidelity VIP MidCap MidCap Value
Franklin Income Securities Money Market
Franklin Mutual Discovery Real Estate
Franklin Mutual Shares SmallCap
Franklin Rising Dividends SmallCap Growth
Franklin Small Cap Value Securities SmallCap Value
INVESCO VIF - Core Equity Putnam VT Growth & Income
INVESCO VIF - Dynamics Putnam VT International Growth
INVESCO VIF - Health Sciences Putnam VT Voyager
INVESCO VIF - Small Company Growth Vanguard VIF Balanced
INVESCO VIF - Technology Vanguard VIF Equity Index
Janus Aspen Aggressive Growth Vanguard VIF MidCap Index
Janus Aspen Balanced Wells Fargo VT Asset Allocation
Janus Aspen Core Equity Wells Fargo VT Equity Income
Janus Aspen Flexible Income Wells Fargo VT Large Company Growth
Janus Aspen International Growth
Janus Aspen Strategic Value
Janus Aspen Worldwide Growth
PREMIUMS
Within certain limits, you may select the amount and frequency of premium
payments.
POLICY VALUE
The policy value is:
.. the value(s) of the policy division(s)
.. plus the value of the loan account.
It is possible that the investment performance could cause a loss of the entire
amount allocated to the divisions. Without additional premium payments or a
death benefit guarantee rider, it is possible that no death benefit would be
paid upon the insured's death.
TRANSFERS
Amounts may be transferred between the divisions.
POLICY LOANS
Loans may be taken against the policy value any time the Policy has a net
surrender value. The minimum amount of a loan is $500. The maximum amount of a
loan is 90% of the net surrender value.
LOAN ACCOUNT
When a policy loan is taken, a loan account is established. Interest is charged
on the policy loan. An amount equal to the amount of the policy loan is redeemed
from the divisions and the proceeds are transferred to the loan account. The
loan account earns interest.
SURRENDERS (FULL AND PARTIAL)
Full Surrender
- --------------
.. The Policy may be surrendered and the net surrender value paid to the owner.
.. We calculate the net surrender value as of the business day we receive the
written surrender request.
Partial Surrender
- -----------------
.. After the first policy year, a Policy may be partially surrendered and the
proceeds paid to the owner.
.. The minimum amount of partial surrender is $500.
.. The amount surrendered may not be greater than 90% of the net surrender value.
.. The total face amount may be reduced by the amount of the partial surrender
(and any transaction fee).
Preferred Partial Surrender (available if Death Benefit Option 1 is in effect)
- ------------------------------------------------------------------------------
.. In any policy year, 5% of the net surrender value as of the end of the prior
policy year may be surrendered without a resulting decrease in the total face
amount.
.. Any amount surrendered in excess of 5% may cause a reduction in the total face
amount.
.. The 5% preferred partial surrender privilege is not cumulative from
year-to-year.
CHARGES AND DEDUCTIONS
The following tables describe the fees and expenses that you will pay when
buying, owning, and surrendering the Policy. The first table describes the fees
and expenses that you will pay at the time that you buy the Policy, surrender
the Policy, or transfer cash value between investment options.
TRANSACTION FEES
------------------------------------------------------------------------------
CHARGE WHEN CHARGE IS DEDUCTED AMOUNT DEDUCTED
------------------------------------------------------------------------------
Maximum Sales Charge
Imposed on Premiums
up to Target Premium from each premium paid 6.50% of premium paid
- all years
------------------------------------------------------------------------------
Maximum Sales Charge
Imposed on Premiums
over Target Premium -
years 1-5 (after from each premium paid 5.00% of premium paid
issue or adjustment)
------------------------------------------------------------------------------
Maximum Sales Charge
Imposed on Premiums
over Target Premium -
years 6 and later
(after issue or from each premium paid 6.50% of premium paid
adjustment)
------------------------------------------------------------------------------
Premium Taxes
(federal, state and from each premium paid 3.45% of premium paid
local)
------------------------------------------------------------------------------
Maximum Deferred from surrender proceeds 75% of target premium
Sales Charge*
------------------------------------------------------------------------------
from each partial
surrender after the 2nd $25 per partial
Other Surrender Fee partial surrender in a surrender
policy year
------------------------------------------------------------------------------
upon each unscheduled currently zero but we
transfer after the first reserve the right to
Transfer Fees unscheduled transfer in a impose a transfer fee of
policy month. no more than $25
------------------------------------------------------------------------------
* Deferred sales charges (surrender fees) decline over time.
DEFERRED SALES CHARGE (AS % OF TARGET PREMIUM)
------------------------------------------------------------------
POLICY YEAR AGES 20-65* AGES 66-70* AGES 71-75*
------------------------------------------------------------------
1 75 75 55
------------------------------------------------------------------
2 75 70 50
------------------------------------------------------------------
3 75 65 45
------------------------------------------------------------------
4 70 60 40
------------------------------------------------------------------
5 60 50 35
------------------------------------------------------------------
6 50 45 30
------------------------------------------------------------------
7 40 35 25
------------------------------------------------------------------
8 30 30 20
------------------------------------------------------------------
9 20 20 15
------------------------------------------------------------------
10 10 10 5
------------------------------------------------------------------
* Age at issue or adjustment
The next table describes the fees and expenses that you will pay periodically
during the time that you own the Policy, not including underlying mutual fund
fees and expenses.
PERIODIC CHARGES OTHER THAN UNDERLYING MUTUAL FUND OPERATING EXPENSES
------------------------------------------------------------------------------
WHEN CHARGE
CHARGE IS DEDUCTED AMOUNT DEDUCTED
------------------------------------------------------------------------------
Cost of Insurance*:
------------------------------------------------------------------------------
$0.02 increasing to $83.33 per $1,000 of
Minimum and Maximum total face amount (equivalent to $0.25
Charge monthly increasing to $1,000 per $1,000 per
year)
------------------------------------------------------------------------------
Charge for a
representative Policy
owner $0.07 increasing to $83.33 per $1,000 of
(45-year old male total face amount (equivalent to $0.83
with a risk increasing to $1,000 per $1,000 per
classification of monthly year)
preferred non-smoker)
------------------------------------------------------------------------------
equivalent to:
Asset Based Charge monthly . policy years 1-10: 0.40% per year
. after policy year 10: 0.30% per year
------------------------------------------------------------------------------
Accounting Benefit monthly equivalent to $0.10 per $1,000 per year
Rider
------------------------------------------------------------------------------
Policy loan interest
as a percentage of
loan balance (applies policy years 1-10: 5.0% per year
only if policy loan daily after policy year 10: 4.3% per year
outstanding)
------------------------------------------------------------------------------
* The cost of insurance charge varies based on individual characteristics (the
gender, issue age and age at adjustment, duration since issue and since
adjustment, smoking status, and risk classification of the insured) and the
charge shown in the table may not be representative of the charge that a
particular policy owner will pay. You may obtain more information about the
particular cost of insurance charge that would apply to you from your
registered representative or by phoning 1-800-247-9988.
The next table describes the underlying mutual fund fees and expenses that you
will pay periodically during the time that you own the Policy. The table shows
the minimum and maximum fees and expenses charged by any of the underlying
mutual funds. More detail concerning the fees and expenses of each underlying
mutual fund is contained in the prospectus for each underlying mutual fund.
Annual Underlying Mutual Fund Operating Expenses (expenses that are deducted
from underlying mutual fund assets) as of December 31, 2001.
MANAGEMENT FEES 12B-1 OTHER EXPENSES TOTAL EXPENSES
UNDERLYING MUTUAL FUNDS AFTER REIMBURSEMENT FEES AFTER REIMBURSEMENT AFTER REIMBURSEMENT/(1)/
----------------------- ------------------- ----- ------------------- ------------------------
AIM V.I. Aggressive Growth
Division 0.80% N/A 0.41% 1.21%
AIM V.I. International
Growth Division 0.73 N/A 0.32 1.05
AIM V.I. Premier Equity 0.60 N/A 0.25 0.85
American Century VP Income
& Growth 0.70 0.25'% 0.00 0.95
American Century VP
International 1.19 0.25 0.00 1.44
American Century VP Ultra 0.90 0.25 0.00 1.15
American Century VP Value 0.86 0.25 0.00 1.11
Berger IPT MidCap Value 0.75 0.25 0.33 1.20/(2)/
Dreyfus DIP Core Value 0.75 0.25 0.00 1.00
Dreyfus VIF Appreciation 0.75 0.25 0.10 1.10
Dreyfus VIF Quality Bond 0.65 0.25 0.11 1.01
Dreyfus VIF Small Cap 0.75 0.25 0.11 1.11
Dreyfus Socially
Responsible Growth 0.75 0.25 0.09 1.09
DIP Founders Discovery 0.90 0.25 0.62 1.50
DIP Founders Growth 0.75 0.25 0.40 1.00
Fidelity VIP II Asset
Manager 0.53 0.25 0.12 0.90/(3)/
Fidelity VIP II Contrafund 0.58 0.25 0.11 0.94/(3)/
Fidelity VIP Equity-Income 0.48 0.25 0.11 0.84/(3)/
Fidelity VIP Growth 0.58 0.25 0.10 0.93/(3)/
Fidelity VIP High Income 0.58 0.25 0.15 0.98/(3)/
Fidelity VIP MidCap 0.58 0.25 0.11 0.94/(3)/
Franklin Income Securities 0.49 0.25 0.04 0.78
Franklin Mutual Discovery 0.80 0.25 0.22 1.27
Franklin Mutual Shares
Securities 0.60 0.25 0.19 1.04
Franklin Rising Dividends 0.74 0.25 0.02 1.01
Franklin Small Cap Value
Securities 0.57 0.25 0.20 1.02
INVESCO VIF - Core Equity 0.75 N/A 0.34 1.09/(3)/
INVESCO VIF - Dynamics 0.75 N/A 0.33 1.08/(3)/
INVESCO VIF - Health
Sciences 0.75 N/A 0.31 1.06/(3)/
INVESCO VIF - Small
Company Growth 0.75 N/A 0.50 1.29/(3)(4)/
INVESCO VIF - Technology 0.75 N/A 0.32 1.07/(3)/
Janus Aspen Aggressive
Growth 0.65 0.25 0.02 0.92/(5)/
Janus Aspen Balanced 0.65 0.25 0.01 0.91/(5)/
Janus Aspen Core Equity 0.65 0.25 0.40 1.30/(5)/
Janus Aspen Flexible
Income 0.64 0.25 0.02 0.91/(5)/
Janus Aspen International
Growth 0.65 0.25 0.06 0.96/(5)/
Janus Aspen Strategic
Value 0.65 0.25 0.70 1.50/(5)/
Janus Aspen Worldwide
Growth 0.55 0.25 0.04 0.94/(5)/
JP Morgan Bond 0.30 N/A 0.45 0.75
JP Morgan SmallCap 0.60 N/A 0.55 1.15
MFS VIT Emerging Growth 0.75 0.25 0.12 1.12/(3)/
MFS VIT MidCap Growth 0.75 0.25 0.15 1.15/(3)/
MFS VIT New Discovery 0.90 0.25 0.16 1.31/(3)/
MFS VIT Value 0.75 0.25 0.15 1.15/(2)(3)/
Neuberger Berman AMT
Guardian 0.85 0.25 0.13 1.23
Principal VCF Bond 0.49 N/A 0.01 0.50
Principal VCF Capital
Value 0.60 N/A 0.01 0.61
Principal VCF Equity
Growth 0.74 N/A 0.01 0.75
Principal VCF Government
Securities 0.48 N/A 0.01 0.49
Principal VCF Growth 0.60 N/A 0.01 0.61
Principal VCF
International 0.85 N/A 0.07 0.92
Principal VCF
International SmallCap 1.20 N/A 0.21 1.41
Principal VCF LargeCap
Blend 0.75 N/A 0.25 1.05/(2)/
Principal VCF LargeCap
Growth 1.10 N/A 0.07 1.17
Principal VCF LargeCap
Value 0.75 N/A 0.11 0.86/(2)/
Principal VCF MidCap 0.61 N/A 0.01 0.62
Principal VCF MidCap
Growth 0.90 N/A 0.07 0.97
Principal VCF MidCap
Growth Equity 0.75 N/A 0.35 1.35/(6)/
Principal VCF MidCap Value 1.05 N/A 0.31 1.36
Principal VCF Money Market 0.48 N/A 0.02 0.50
Principal VCF Real Estate 0.90 N/A 0.02 0.92
Principal VCF SmallCap 0.85 N/A 0.15 1.00
Principal VCF SmallCap
Growth 1.00 N/A 0.05 1.05
Principal VCF SmallCap
Value 1.10 N/A 0.14 1.24
Putnam VT Growth & Income 0.46 0.25 0.04 0.75
Putnam VT International
Growth 0.76 0.25 0.18 1.19
Putnam VT Voyager 0.51 0.25 0.05 0.81
Vanguard VIF Balanced 0.28 N/A 0.02 0.30
Vanguard VIF Equity Index 0.16 N/A 0.02 0.18
Vanguard VIF MidCap Index 0.24 N/A 0.06 0.30
Wells Fargo VT Asset
Allocation 0.49 0.25 0.26 1.00/(2)/
Wells Fargo VT Equity
Income 0.32 0.25 0.43 1.00
Wells Fargo VT Large
Company Growth 0.54 0.25 0.21 1.00/(2)/
/ //(1)/ The Company and Princor Financial Services Corporation may receive a
portion of the underlying fund expenses for recordkeeping, marketing and
distribution services.
/ //(2)/ Expenses for this fund are estimated for 2002.
/ //(3)/ Actual annual class operating expenses were lower because a portion of
the brokerage commissions that the fund paid was used to reduce the fund's
expenses, and/or because through arrangements with the fund's custodian,
credits realized as a result of uninvested cash balances were used to reduce a
portion of the fund's custodian expenses. See the accompanying fund prospectus
for details.
/ //(4)/ Voluntary waiver of expenses capped fund expenses at 1.25% for year
ended December 31, 2001.
/ //(5)/ All expenses are shown without the effect of any expense offset
arrangements.
/ //(6)/ Voluntary waiver of expenses capped fund expenses at 1.10% for year
ended December 31, 2001.
.. Some underlying mutual funds are subject to fee waivers and expense
reimbursements. The following chart shows
MANAGEMENT FEES 12B-1 OTHER EXPENSES TOTAL EXPENSES
UNDERLYING MUTUAL FUNDS BEFORE REIMBURSEMENT FEES BEFORE REIMBURSEMENT BEFORE REIMBURSEMENT/(1)/
----------------------- -------------------- ----- -------------------- -------------------------
Dreyfus DIP Core Value 0.75% 0.25% 0.27% 1.27%/ (
DIP Founders Discovery 0.90 0.25 0.62 1.77/ (2
DIP Founders Growth 0.75 0.25 0.40 1.40/ (2
Franklin Rising Dividends 0.75 0.25 0.02 1.02/ (3
Franklin Small Cap Value Securities 0.60 0.25 0.20 1.05/ (3
INVESCO VIF - Small Company Growth 0.75 N/A 0.54 1.29/ (4
Janus Aspen Strategic Value 0.65 0.25 0.70 1.60/ (2
MFS VIT MidCap Growth 0.75 0.25 0.20 1.20/ (6
MFS VIT New Discovery 0.90 0.25 0.19 1.34/ (6
MFS VIT Value 0.75 0.25 0.44 1.44/ (6
Principal VCF MidCap Growth Equity 1.00 N/A 0.35 1.35/ (9
Wells Fargo VT Asset Allocation 0.55 0.25 0.26 1.06/ (2
Wells Fargo VT Equity Income 0.55 0.25 0.43 1.23/ (2
Wells Fargo VT Large Company Growth 0.55 0.25 0.21 1.01/ (2
/ //(1)/ The Company and Princor Financial Services Corporation may receive a
portion of the underlying fund expenses for recordkeeping, marketing and
distribution services.
/ //(2) /This a contractual waiver through December 31, 2002.
/ //(3) /The manager agreed in advance to reduce its fees to reflect reduced
services from the Fund's investment in a Franklin Templeton money fund, as
required by the Board and an SEC order.
/ //(4)/ Actual annual class operating expenses were lower because a portion of
the brokerage commissions that the fund paid was used to reduce the fund's
expenses, and/or because through arrangements with the fund's custodian,
credits realized as a result of uninvested cash balances were used to reduce a
portion of the fund's custodian expenses. See the accompanying fund prospectus
for details.
/ //(5)/ Voluntary waiver of expenses capped fund expenses at 1.25% for year
ended December 31, 2001.
/ //(6)/ All expenses are shown without the effect of any expense offset
arrangements.
/ //(7) /This a contractual waiver through May 1, 2003.
/ //(8)/ Expenses for this fund are estimated for 2002.
/ //(9)/ Voluntary waiver of expenses capped fund expenses at 1.10% for year
ended December 31, 2001.
DEATH BENEFITS AND PROCEEDS
The death proceeds are paid to the beneficiary(ies) when the insured dies. Death
proceeds are calculated as of the date of death of the insured. The amount of
the death proceeds is:
.. the death benefit plus interest (as explained in DEATH PROCEEDS AND RIGHTS -
Death Proceeds);
.. minus outstanding policy loans and unpaid loan interest;
.. minus any overdue monthly policy charges (Overdue monthly policy charges arise
when a policy is in a grace period and the net policy value is insufficient to
cover the sum of the cost of insurance and of additional benefits provided by
any rider plus the asset based charge.).
The Policy provides for three death benefit options. A death benefit option is
elected on the application. Subject to certain conditions, the death benefit
option may be changed 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 as required by state law.
MATURITY PROCEEDS
If the insured is living on the maturity date (shown on your current data
pages), we will pay the owner an amount equal to the net surrender value. The
Policy then terminates. Maturity proceeds are paid in cash lump sum or applied
under a benefit payment option.
ADJUSTMENT OPTIONS
The total face amount may be increased or decreased. The minimum amount of an
increase is $10,000 and is subject to our underwriting guidelines in effect at
the time the increase is requested. A decrease in total face amount may be
requested:
.. on or after the first policy anniversary; and
.. if the request does not decrease the total face amount below $100,000.
TERMINATION AND REINSTATEMENT
The Policy terminates:
.. upon a full policy surrender;
.. when death proceeds are paid;
.. when maturity proceeds are paid; or
.. if sufficient premium payments are not made before the expiration of a 61-day
grace period.
Subject to certain conditions, a Policy that terminated because of insufficient
policy value may be reinstated.
EXAMINATION PERIOD (FREE-LOOK PROVISION)
.. The Policy may be returned during the examination period that is generally 10
days but may be longer in certain states.
.. Based on state law, we return either all premiums paid or the net policy
value.
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.,
which in turn, is a directly wholly owned subsidiary of Principal Financial
Group, 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. Effective October
26, 2001, Principal Mutual Holding Company converted to a stock company and
Principal Financial Group, Inc. completed its initial public offering.
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 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.
The assets of each division invest in a corresponding underlying mutual fund.
New divisions may be added and made available. Divisions may also be eliminated
from the separate account following SEC approval.
THE FUNDS
The funds are mutual funds registered under the Investment Company Act of 1940
as open-end management investment companies. The funds provide the investment
vehicles for the divisions. 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.
Appendix A contains a brief summary of the investment objectives of each
division.
An Investment Advisor agrees to provide investment advisory services for a
specific underlying mutual fund. For these services, the Investment Advisor is
paid a fee.
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 underlying mutual funds. The
assets of each division are separate from the others. A division's performance
has no effect on the investment performance of any other division.
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 total face amount when the Policy is originally issued is $100,000.
We reserve the right to increase or decrease the minimum total face amount. If
the minimum total face amount is changed, the new minimum would apply only to
Policies issued after the effective date of the change.
To issue a Policy, we require that the insured be age 75 or younger as of the
policy date. Other underwriting restrictions may apply.
An applicant for the Policy must:
.. furnish satisfactory evidence of insurability of the insured; and
.. meet our insurance underwriting guidelines and suitability rules.
If you want insurance coverage to start at the time the application is
submitted, a payment must be sent with the completed application. The amount is
shown on the Policy illustration provided by your registered representative. If
this amount is submitted with the application, a conditional receipt may be
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. 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. The policy date is
shown on the current data pages. Current data pages are the most recent Policy
specification pages issued to a Policy owner and are located in the Policy.
Upon specific request and our approval, the 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 at least the monthly policy
charges 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:
.. a backdated Policy date is requested; or
.. a Policy is applied for on a COD basis (the effective date is the date we
received at least the monthly policy charge and all requirements for issuance
of the Policy have been satisfied); or
.. 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 the insured was to die before you actually receive 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 the premium payments affects the policy value, the
net policy 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. You must pay premiums to us at:
Principal Financial Group Service Center
P.O.Box 724447
Atlanta GA 31139
Preauthorized withdrawals may be set up on a monthly basis (to allow us
automatically to deduct premium payments from a checking or other financial
institution account). We send premium reminder notices of the planned periodic
premium amount if an annual, semiannual or quarterly premium payment schedule is
established. Unscheduled payments may be sent to our service office.
TARGET PREMIUM,
The target premium is based on the gender, if applicable, age and risk
classification of the insured (see APPENDIX C - TARGET PREMIUM). The target
premium is a calculated premium amount used to determine the premium expense
charge and the surrender charge. The target premium is not required to be paid.
Payment of a required minimum premium provides for the Death Benefit Guarantee
Rider (as described in GENERAL PROVISIONS - Optional Insurance Benefits).
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 a premium payment is made 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.
Unless otherwise directed, any excess will be returned and no further premiums
accepted until allowed by the current maximum premium limitations.
EXAMINATION PERIOD (FREE-LOOK PROVISION)
Under state law, the Policy may be returned for any reason during the
examination period. The request and the Policy must be mailed to us or returned
to the agent no later (as determined by the postmark) than the last day of the
examination period as shown below.
The examination period is the later of:
.. 10 days after the Policy is delivered to you; and
.. such later date as specified by applicable state law.
NOTE: If the purchase of this Policy is a replacement for another life insurance
policy or an annuity contract, different examination periods may apply. In
those states which require return of premium, we reserve the right to
retain the initial net premium payment in the Money Market division longer
than 10 days to correspond to the examination period of a particular
state's replacement requirements.
ALLOCATION OF INITIAL PREMIUMS
We allocate initial net premiums on the later of the policy date or the
effective date.
Certain states require that the premium be refunded if the Policy is returned
during the examination period. If the Policy is issued in one of those states,
the initial net premium is allocated to the Money Market division on the later
of the policy date or the effective date. After the examination period, the
initial net premium is re-allocated to the divisions according to your
instructions. If the day following the examination period is not a business day,
the transfer will occur on the next business day.
Example: If the examination period is 10 days and the effective date of the
Policy is February 1st, at the close of business on February 11th,
the net premium is reallocated to the division(s) that you selected.
If the Policy is issued in a state which does not require refund of premiums
paid, the initial net premium is allocated to the divisions on the later of the
policy date or the effective date. States which do not require refund of
premiums paid are: Alabama, Alaska, Arizona, Arkansas, California, Colorado,
Florida, Iowa, Kansas, Oregon, South Dakota, Tennessee, Washington, Wisconsin
and Wyoming. Different rules may apply if this Policy is a replacement for
another life insurance policy or an annuity contract.
Allocations are made to the divisions according to your instructions. The total
of all the percentages for the divisions must equal 100. The percentage
allocation for future premium payments may be changed, without charge, at any
time by:
.. sending a notice to our service office;
.. calling us (if telephone privileges apply (1-888-737-3855)); or
.. faxing the notice to us (1-770-690-1900).
The allocation changes are effective at the end of the valuation period in which
the new instructions are received.
NOTE: See GENERAL PROVISIONS - Delay of Payments.
POLICY VALUES
The policy value is equal to the sum of the values in the divisions and loan
account (see THE POLICY - Loan Account). The policy value also reflects premium
payments, partial surrenders, transaction charges, policy loans and the policy
expenses deducted from the divisions.
There is no guaranteed minimum division value. Its value reflects the investment
experience of the division. It is possible that the investment performance could
cause a loss of the entire amount allocated to the division. Without additional
premium payments or a rider, it is possible that no death benefit would be paid
upon the insured's death.
At the end of any valuation period, the Policy's value in a division is:
.. the number of units in the division attributable to the Policy
.. 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:
.. the initial premium payment (less premium expense charges);
.. plus subsequent premium payments (less premium expense charges);
.. plus transfers from another division
minus units sold:
.. for partial surrenders from the division;
.. as part of a transfer to another division or the loan account; and
.. to pay monthly policy charges and any transaction fees.
Unit values are calculated each business day. To calculate the unit value of a
division, the unit value from the previous business day 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 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 during the valuation period}
divided by
the share price of the underlying mutual fund at the end of the previous
valuation period after that day's transactions].
When an investment owned by an underlying mutual fund pays a dividend, the
dividend increases the net asset value of a share of the underlying mutual fund
as of the date the dividend is recorded. As the net asset value of a share of an
underlying mutual fund 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 in the division attributable to the Policy.
DIVISION TRANSFERS
An unscheduled transfer may be requested or a periodic transfer established by:
.. sending the notice to our service office;
.. calling us (if telephone privileges apply (1-888-737-3855)); or
.. faxing the notice to us (1-770-690-1900).
The dollar amount or percentage to transfer from and to each division must be
specified. The transfer is made, and the values determined, as of the end of the
valuation period in which we receive the request. 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. We also reserve the
right to modify or revoke transfer privileges (see GENERAL PROVISIONS - Market
Timing Disclosure).
Unscheduled Transfers
- ---------------------
Unscheduled transfers among divisions may be made. We reserve the right to
impose a transfer fee of up to $25 on each unscheduled transfer after the first
unscheduled transfer in a policy month. The fee, if any, is deducted from the
divisions according to the allocations used for the monthly policy charge.
Scheduled Transfers (dollar cost averaging (DCA))
- -------------------------------------------------
DCA is a program of automatic transfers out of one division into one or more of
the other divisions. You choose the investment options and the dollar amount and
timing of the transfers. DCA is designed to reduce the risks that result from
market fluctuations. It does this by spreading out the allocation of your money
to investment options over a longer period of time. This allows you to reduce
the risk of investing most of your money at a time when market prices are high.
Obviously, the success of this strategy depends on market trends and is not
guaranteed.
Example:
MONTH AMOUNT INVESTED SHARE PRICE SHARES PURCHASED
January $ 100 $ 25.00 4
February $ 100 $ 20.00 5
March $ 100 $ 20.00 5
April $ 100 $ 10.00 10
May $ 100 $ 15.00 6
June $ 100 $ 20.00 5
Total $ 600 $ 18.33 35
(average price per share)
$600 divided by 35 $ 17.14
(shares purchased) (average cost per share)
(amount invested)
In the example above, the average share price is $18.83. The average share cost
is $17.14.
Automatic transfers are made on a periodic basis without an additional charge.
.. The amount of the transfer is:
. the dollar amount selected; or
. a percentage of the division value as of the date specified (other than the
29th, 30th or 31st).
.. You select the transfer date (other than the 29th, 30th or 31st) and the
transfer frequency (annually, semi-annually, quarterly or monthly).
.. If the selected date is not a business day, the transfer is completed on the
next business day.
.. Transfers continue until we receive notice to stop them or the interest in the
division has a zero balance.
.. We reserve the right to limit the number of divisions from which simultaneous
transfers are made. In no event will it ever be less than two.
AUTOMATIC PORTFOLIO REBALANCING (APR)
APR allows you to maintain a specific percentage of your net policy value in the
divisions 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
the value to be in the Bond division and 40% in the Capital Value
division. By rebalancing, units from the Bond division are sold and
the proceeds are used to purchase units in the Capital Value division
so that 50% of the policy values are once again invested in each
division.
APR may be elected at the time of application or after the Policy has been
issued. APR transfers:
.. do not begin until the expiration of the examination period;
.. are done without charge;
.. may be done on the specified frequency (monthly, quarterly, semiannual or
annual) on a calendar year or policy year basis;
.. may be done by:
. calling us (if telephone privileges apply (1-888-737-3855)); or
. mailing the notice to our service office; or
. faxing the request to us (1-770-690-1900).
.. are made at the end of the next valuation period after we receive the
instruction; and
.. are not available if you have scheduled transfers from divisions.
POLICY LOANS
While the 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.
.. The minimum policy loan is $500.
.. The maximum amount you may borrow is 90% of the net surrender value as of the
date we process the policy loan.
.. If you elect telephone privileges, you may request a policy loan of $100,000
or less by calling us at 1-888-737-3855. If you do not have telephone
privileges or are requesting a policy loan of more than $100,000, the request
must be made in writing.
.. Generally, policy loan proceeds are sent within five business days from the
date we receive the request (see GENERAL PROVISIONS - Delay of Payments). Loan
proceeds are sent to the owner's address of record.
LOAN ACCOUNT
When a policy loan is taken, a loan account is established. Units with a total
value equal to the amount of the loan are redeemed from the divisions. The
redemption proceeds are transferred to the loan account. You may instruct us on
the proportions to redeem from the divisions. If instructions are not provided,
the redemptions are taken in the same proportion as the allocation used for the
most recent monthly policy charge.
The loan account earns interest from the date of transfer. The loan account
interest rate is 4.00% per year. Interest accrues daily. Loan accounts are part
of our general account.
Interest is charged on the policy loan. During the first ten policy years, the
interest rate is 5.00% per year. After policy year ten, the interest rate is
4.30% per year. If coverage is extended beyond the maturity date, the interest
rate is 4.00% per year. 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 loan amount causes additional units to be
redeemed from the division(s) and the redemption proceeds transferred to the
loan account. Redemptions are made in the same proportions as described above.
Outstanding policy loans and unpaid loan interest reduce the net policy value.
If the net policy value is less than the monthly policy charge 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 insured dies, policy loans and loan
interest may be repaid, in whole or in part, as follows:
.. repayments are allocated to the division(s) in the proportions used for
allocation of premium payments; and
.. 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 division(s). In addition, outstanding policy loans and unpaid loan
interest are subtracted from:
.. death proceeds at the death of the insured;
.. surrender value upon full surrender or termination of a Policy; and
.. maturity proceeds payable at maturity.
If the Policy lapses with an outstanding loan balance, there may be tax
consequences. Please consult a qualified tax advisor.
SURRENDERS
A request for any surrender must be in writing. The request must be signed by
all owners, irrevocable beneficiary(ies), if any, and any assignees.The
surrender is effective as of the end of the valuation period during which we
receive the written request for surrender.
Total and partial surrenders from the Policy are generally paid within five
business days of our receipt of the written request for surrender. Certain
delays in payment are permitted (see GENERAL PROVISIONS - Delay of Payments).
Full surrender
- --------------
The Policy may be surrendered on or before the maturity date while the Policy is
in effect. We will pay the net surrender value at the end of the valuation
period during which we receive the surrender request. If the full surrender is
within ten years of the policy date or a policy face amount increase, a
surrender charge is imposed. No adjustment is made to the net surrender value
for monthly policy charges deducted prior to a full surrender.
We reserve the right to require that the Policy be returned prior to making any
payment though this does not affect the net surrender value.
Partial surrender
- -----------------
After the first policy anniversary and prior to the maturity date, a part of the
net surrender value may be surrendered. The minimum amount of a partial
surrender is $500. The partial surrender may not be greater than 90% of the net
surrender value. A transaction fee of $25 is charged on each partial surrender
after the 2nd partial surrender in a policy year. The partial surrender may not
decrease the total face amount to less than $100,000. No surrender charge is
imposed on a partial surrender.
The policy value is reduced by the amount of the surrender plus any transaction
fee(s). We surrender units from the division(s) to equal the dollar amount of
the surrender request (plus any transaction fee). The surrender and transaction
fee, if any, is deducted from the division(s) according to the specified
surrender allocation percentages. If surrender allocation percentages are not
specified, we use the monthly policy charge allocation percentages.
If Death Benefit Option 1 is in effect and the death proceeds equal the total
face amount, the total face amount is reduced by the amount of the partial
surrender that is not deemed to be a preferred partial surrender. If the total
face amount had been increased, any reduction of the total face amount is made
on a last in, first out basis.
PREFERRED PARTIAL SURRENDER (AVAILABLE IF DEATH BENEFIT OPTION 1 IS IN EFFECT)
.. In any policy year, 5% of the net surrender value as of the end of the prior
policy year may be surrendered without a subsequent decrease in the total face
amount. Any amount surrendered in excess of 5% causes a reduction in the total
face amount. The 5% preferred partial surrender privilege is not cumulative from
year-to-year.
The maximum preferred partial surrender is equal to (a plus b) not to exceed (c)
where:
(a) is the amount of the surrender (including any transaction fee);
(b) is the amount of any preferred partial surrenders in the same policy
year; and
(c) is 5% of the net surrender value at the end of the prior policy year
(not to exceed $100,000 in any policy year and not to exceed $250,000 over
the life of the Policy).
If Death Benefit Option 2 is in effect, there is no reduction in the total face
amount upon a partial surrender.
If Death Benefit Option 3 is in effect and the death proceeds equal the total
face amount, the total face amount is reduced by the greater of (a) or (b)
where:
(a) is the amount by which the total partial surrenders exceed total
premiums paid*; and
(b) is zero.
If the total face amount had been increased, any reduction of the total face
amount is made on a last in, first out basis.
* Face amount reduction will be less if the face amount has already been
reduced due to a prior partial surrender.
DEATH PROCEEDS AND RIGHTS
DEATH PROCEEDS
If the insured dies before the maturity date, we pay death proceeds. We must
receive:
.. proof of the death of the insured;
.. Beneficiary's Statement (Claim Form)*
.. Trust Agreement (if the beneficiary is a trust)
* if the beneficiary is a corporation, the Claim Form must be signed by a
corporate officer and submitted with a copy of the Articles of Incorporation
or By-Laws indicating the authority of the officer's position and a Board
resolution providing the name of the officer currently authorized to execute
the Claim Form. The corporation must also submit a Certificate of Good
Standing or Certificate of Existence provided by the state of incorporation.
Payment is made to any assignee. The remainder is paid to the named
beneficiary(ies) under the designated death benefit option (see GENERAL
PROVISIONS - Beneficiary).
The payments are made in cash lump sum or under a benefit option selected by the
beneficiary(ies). Death proceeds are calculated as of the date of the insured's
death and include:
.. the death benefit described below;
.. minus outstanding policy loans and unpaid loan interest;
.. minus any overdue monthly policy charges if the insured died during a grace
period;
.. plus interest on the death proceeds as required by state law.
DEATH BENEFIT OPTION
The death benefit option is selected at the time of application. If a death
benefit option is not chosen, the Policy will be issued with Death Benefit
Option 1.
The three death benefit options available are:
.. Death Benefit Option 1 - the death benefit equals the greater of:
. the total face amount; or
. the amount found by multiplying the policy value by the applicable
percentage*.
.. Death Benefit Option 2 - the death benefit equals the greater of:
. the total face amount plus the policy value; or
. the amount found by multiplying the policy value by the applicable
percentage*.
.. Death Benefit Option 3 - the death benefit equals the greater of:
. the total face amount plus the greater of a) premiums paid less partial
surrenders or b) zero; or
. the amount found by multiplying the policy value by the applicable
percentage*.
* The applicable percentage tables are in Appendix D and are based on our
interpretation of Section 7702 of the Code as set forth in FEDERAL TAX
MATTERS - IRS Definition of Life Insurance. The table which applies to
your Policy is determined by your choice of either the guideline
premium/cash value corridor test or the cash value accumulation test.
Example: The following assumptions are made to demonstrate the use of the
Tables found in Appendix D.
Death Benefit Option: 1
Face Amount: $750,000
Policy Value: $650,000
Definition of Life Insurance Test: Guideline Premium/Cash Value
Corridor Test
Attained Age: 65
Risk Class: Class A
Applicable Percentage: 120%
Death Benefit = $780,000
If the definition of Life Insurance Test was the Cash Value
Accumulation Test, the applicable percentage would be 150.30%
(assuming the insured is a male) and the death benefit would be
$976,950.
CHANGE IN DEATH BENEFIT OPTION
The death benefit option may be changed prior to the insured's attained age 75.
The death benefit option may be changed on or after the first policy
anniversary. Up to two changes are allowed per policy year. The 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.
The option may not be changed from Death Benefit Option 1 to Death Benefit
Option 3 or from Death Benefit Option 2 to Death Benefit Option 3. We will
increase or decrease the total face amount so that the death benefit after the
change equals the death benefit immediately before the change.
..
CHANGING FROM DEATH BENEFIT OPTION 1 TO DEATH BENEFIT OPTION 2
We will decrease the total face amount. The amount of the decrease is equal
to the policy value on the effective date of the change. If there have been
increases in the total face amount, the decrease of total face amount will
be made on a last in, first out basis. Because the death benefit can
continue to increase under Death Benefit Option 2, we will require proof of
insurability. Cost of insurance charges will likely increase. This example
assumes that the policy face amount equals the total face amount.
--------------------------
- -------------------------------------------------------------------------------
TOTAL FACE AMOUNT DEATH BENEFIT POLICY VALUE
- -------------------------------------------------------------------------------
BEFORE THE CHANGE BEFORE THE CHANGE BEFORE THE CHANGE
- -------------------------------------------------------------------------------
$1,000,000 $1,000,000 $50,000
- -------------------------------------------------------------------------------
AFTER THE CHANGE AFTER THE CHANGE AFTER THE CHANGE
- -------------------------------------------------------------------------------
$950,000 $1,000,000 $50,000
($1,000,000 - $50,000) ($950,000+$50,000)
- -------------------------------------------------------------------------------
CHANGING FROM DEATH BENEFIT OPTION 2 TO DEATH BENEFIT OPTION 1
We will increase the total face amount. The amount of the increase is equal
to the policy value on the effective date of the change. The total face
amount increase will be in the same proportion as the policy face amount to
the total face amount. Because the death benefit will not continue to
increase under Death Benefit Option 1, no proof of insurability is required.
Cost of insurance charges will likely decrease. This example assumes that
the policy face amount equals the total face amount.
- -------------------------------------------------------------------------------
TOTAL FACE AMOUNT DEATH BENEFIT POLICY VALUE
- -------------------------------------------------------------------------------
BEFORE THE CHANGE BEFORE THE CHANGE BEFORE THE CHANGE
- -------------------------------------------------------------------------------
$1,000,000 $1,050,000 $50,000
($1,000,000+$50,000)
- -------------------------------------------------------------------------------
AFTER THE CHANGE AFTER THE CHANGE AFTER THE CHANGE
- -------------------------------------------------------------------------------
$1,050,000 $1,050,000 $50,000
($1,000,000 + $50,000)
- -------------------------------------------------------------------------------
CHANGING FROM DEATH BENEFIT OPTION 3 TO DEATH BENEFIT OPTION 1
We will increase the total face amount if the total premiums paid are
greater than total partial surrenders (including any transaction fees) as of
the effective date of the change. The increase will be in the same
proportion as the policy face amount is to the total face amount. Because
the death benefit will not continue to increase under Death Benefit Option
1, no proof of insurability is required. Cost of insurance charges will
likely decrease. This example assumes total premiums paid are $30,000, total
partial surrenders are $10,000 and the policy face amount equals the total
face amount.
-----------------------------
- -------------------------------------------------------------------------------
TOTAL FACE AMOUNT DEATH BENEFIT POLICY VALUE
- -------------------------------------------------------------------------------
BEFORE THE CHANGE BEFORE THE CHANGE BEFORE THE CHANGE
- -------------------------------------------------------------------------------
$1,000,000 $1,020,000 $50,000
($1,000,000+($30,000-$10,000))
- -------------------------------------------------------------------------------
AFTER THE CHANGE AFTER THE CHANGE AFTER THE CHANGE
- -----------------------------------------------------------------------------------
$1,020,000 $1,020,000 $50,000
($1,000,000 + ($30,000 -
$10,000))
- -----------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
CHANGING FROM DEATH BENEFIT OPTION 3 TO DEATH BENEFIT OPTION 2
We will either increase or decrease the total face amount by subtracting the policy value from the greater of a) premiums paid
less partial surrenders and b) zero. Because the death benefit can continue to increase under Death Benefit Option 2, we will
require proof of insurability. Cost of insurance charges will likely increase. This example assumes that total premiums paid are
$30,000, total partial surrenders are $10,000 and the policy face amount equals the total face amount.
-------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL FACE AMOUNT DEATHBENEFIT POLICYVALUE
- -----------------------------------------------------------------------------------------------------------------------------------
BEFORE THE CHANGE BEFORETHECHANGE BEFORETHECHANGE
- -----------------------------------------------------------------------------------------------------------------------------------
$1,000,000 $1,020,000 $50,000
($1,000,000+($30,000-$10,000))
- -----------------------------------------------------------------------------------------------------------------------------------
AFTER THE CHANGE AFTERTHECHANGE AFTERTHECHANGE
- -----------------------------------------------------------------------------------------------------------------------------------
$970,000 $1,020,000 $50,000
($1,000,000 + ($30,000 - $10,000) - ($970,000+$50,000)
$50,000)
- -----------------------------------------------------------------------------------------------------------------------------------
MATURITY PROCEEDS
The maturity date is the policy anniversary where the insured's attained age is
100 and is shown on your current data pages. If the insured is living on the
maturity date and if the Extended Coverage Rider is not present, maturity
proceeds equal to the net surrender value are paid. If the Extended Coverage
Rider is present on the Policy but you wish to receive the maturity proceeds at
the Policy's maturity and avoid conversion to Death Benefit Option 1, you must
send instructions to our service office.
The payment is either a cash lump sum on the maturity date or under the benefit
payment option you have selected. After the payment, the Policy then terminates.
Only if the Extended Coverage Rider is present on the Policy will the maturity
date automatically be extended to the date of the insured's death (as explained
in GENERAL PROVISIONS - Optional Insurance Benefits).
ADJUSTMENT OPTIONS
Increase in total face amount
- -----------------------------
An increase in total face amount may be requested at any time provided that the
monthly policy charges are not being waived under a rider. The minimum increase
in total face amount is $10,000.
The request must be made on an adjustment application. The application must be
signed by the owner(s) and the insured. If the request is not approved, no
changes are made to the Policy.
We will approve the request if:
.. the insured is alive at the time of the request; and
.. the attained age of the insured is 75 or less at the time of the request; and
.. we receive evidence satisfactory to us that the insured is insurable under our
underwriting guidelines in place at the time of the request; and
.. the death proceeds minus the policy value do not exceed our maximum limits as
defined under our underwriting guidelines then in effect.
The increase in total face amount is in a risk classification determined by us.
No examination period applies to an increase in total face amount.
Any payment made with the adjustment application is held in our general account
without interest. If we approve the adjustment, the amount of the premium
payment being held minus the premium expense charge is moved to the divisions on
the effective date of the adjustment. The current premium allocation percentages
are used to make this allocation. Approval of an adjustment can take from one to
ninety days. The adjustment is effective on the monthly date on or next
following our approval of the request.
The cost of insurance charge will increase in the event of an increase in the
total face amount. If there is insufficient value to pay the higher charges
after an increase in total face amount, the Policy will lapse unless the death
benefit guarantee rider is in effect. The entire Policy would be at risk of
lapsing, not just the incremental increase in face amount.
Decrease in total face amount
- -----------------------------
On or after the first policy anniversary, a decrease in the total face amount
may be requested. No transaction fee is imposed on decreases in the total face
amount. A decrease in face amount lowers the cost of insurance charges. A
decrease is requested as follows:
.. the request must be made on an adjustment application;
.. the application must be signed by the owner(s);
.. monthly policy charges are not being waived under a waiver rider; and
.. the decrease may not reduce the total face amount below $100,000.
A decrease may not be allowed if the decrease would cause a refund of premium
and/or the distribution of the policy value in order to maintain compliance with
the limits required by the Code relating to the definition of life insurance.
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 transaction
fees are deducted at the time of the transaction.
PREMIUM EXPENSE CHARGE
CURRENT PREMIUM EXPENSE CHARGE (AS A % OF PREMIUM PAID)*
----------------
YEARS SINCE ISSUE OR ADJUSTMENT SALES CHARGE** STATE AND LOCAL TAXES FEDERAL TAXES TOTAL
------------------------------- -------------- --------------------- ------------- -----
1 through 5 6.50% 2.20% 1.25% 9.95%
more than 5 years 6.50 2.20 1.25 9.95%
*Deducted from premiums paid in each period. The premium expense charge
also applies to premiums attributable to a face amount increase.
**The sales charge on premiums in excess of Target Premium is reduced to
5.0% in years 1 through 5.
The sales charge 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 charges received in any policy year
are not necessarily related to actual distribution expenses incurred in that
year. We expect that the majority of the 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 charge (including the sales
charge 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:
.. a charge for the cost of insurance;
.. a charge for any optional benefit added by rider(s); and
.. an asset based charge.
On the policy date and each monthly date thereafter, we deduct the monthly
policy charge from the policy value. The deduction is made using the current
monthly policy charge allocation percentages. The allocation percentages may be:
.. the same as allocation percentages for premium payments;
.. determined on a prorated basis; or
.. determined by any other allocation method which we agree upon.
If you do not designate monthly policy charge allocation percentages, they will
be the same as the allocation percentages for premium payments. 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 next
monthly date after the request is received. If we cannot follow the instructions
because of insufficient value in any division, the monthly policy charge is
deducted on a prorated basis.
COST OF INSURANCE CHARGE
The monthly cost of insurance charge is (a) multiplied by ((b) minus (c)) where:
(a) is the cost of insurance rate (described below) divided by 1,000;
(b) is the death benefit at the beginning of the policy month; and
(c) is the policy value at the beginning of the policy month calculated as
if the monthly policy charge was zero.
Monthly cost of insurance rates can range from $0.04 to $1,000.00 per $1,000 of
total face amount.
The cost of insurance rate at issue and for any underwritten total face amount
increase is based on the gender*, issue age and age at adjustment, duration
since issue and since adjustment, smoking status, and risk classification of the
insured. We determine the rate based on our expectation as to investment
earnings, expenses, mortality and
persistency experience. Changes in the cost of insurance rates apply to all
individuals of the same age, gender* and risk classification. The rate for the
total face amount 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
the insured.
* The cost of insurance rate for Policies issued in states which require
unisex pricing or in connection with certain employment related insurance
and benefit plans is not based on the gender of the insured.
ASSET BASED CHARGE
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, we deduct a charge for these risks. The annual rate of the charge,
as a percentage of the net policy value, is 0.40% in the first ten policy years
and 0.30% after the tenth policy year. We reserve the right to increase the
annual rate but guarantee that the maximum annual rate will not exceed 0.60%. If
we increase the annual rate, the increase will only apply to policies issued on
or after the date of the increase.
SURRENDER CHARGE
Surrender charges vary based on the issue age, target premium of the policy and
the number of policy years since issue or adjustment. The charge applies only
during the first ten policy years unless there is a policy face amount increase.
A policy 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 policy face amount at issue and each policy face
amount increase. The surrender charge is not affected by any decrease in policy
face amount or any change in policy 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 is (a) multiplied by (b) where:
(a) is the target premium shown in Appendix B;
(b) is the percentage shown below which varies by issue age (or age at the
time of a face amount increase):
DEFERRED SALES CHARGE (AS % OF TARGET PREMIUM)
-----------------------------------------------------------------------------------
POLICY YEAR AGES 20-65* AGES 66-70* AGES 71-75*
-----------------------------------------------------------------------------------
1 75 75 55
-----------------------------------------------------------------------------------
2 75 70 50
-----------------------------------------------------------------------------------
3 75 65 45
-----------------------------------------------------------------------------------
4 70 60 40
-----------------------------------------------------------------------------------
5 60 50 35
-----------------------------------------------------------------------------------
6 50 45 30
-----------------------------------------------------------------------------------
7 40 35 25
-----------------------------------------------------------------------------------
8 30 30 20
-----------------------------------------------------------------------------------
9 20 20 15
-----------------------------------------------------------------------------------
10 10 10 5
-----------------------------------------------------------------------------------
* Age since issue or adjustment
TRANSACTION CHARGES
A transaction fee of $25 is charged on each partial surrender after the 2nd
partial surrender in a policy year. We reserve the right to impose a transfer
fee of up to $25 on each unscheduled transfer after the first unscheduled
transfer in a policy month.
The transaction fee, if any, and transfer fee, if any, are deducted from the
division(s) according to the specified surrender allocation percentages. If
surrender allocation percentages are not specified, we use the monthly policy
charge allocation percentages.
OTHER CHARGES
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
mutual fund. Current management fees and operating expenses for each mutual fund
are shown in the section of the Summary entitled Charges and Deductions - Other
Charges.
SPECIAL PROVISIONS
Charges and deductions may be reduced for Policies purchased under an
arrangement where the size or nature of the group results in savings in sales,
underwriting, administration or other costs. Reductions may be available to
employees, officers, directors, agents and immediate family members of the group
arrangement. Reductions are made under our rules in effect on the date a Policy
application is approved and are based on certain criteria (size of group,
expected number of participants, anticipated premium payments, total assets
under management for the Policy owner).
We may modify, on a uniform basis, both the amounts of reductions and the
criteria for qualification. Reductions in these charges will not discriminate
unfairly against any person, including the affected owners and all other policy
owners with policies funded with the separate account.
In addition, groups may apply for flexible underwriting. If flexible
underwriting is granted, the cost of insurance charge may increase because of
higher anticipated mortality experience. Flexible underwriting programs
currently available include: batch underwriting, simplified issue underwriting
and guaranteed issue underwriting.
POLICY TERMINATION AND REINSTATEMENT
POLICY TERMINATION
If the net policy value on any monthly date is less than the monthly policy
charge, a 61-day grace period begins. The grace period begins when we send a
notice of pending lapse. The notice:
.. is mailed to your last known post office address;
.. shows the minimum payment required to keep the Policy in force; and
.. shows the 61-day period during which we will accept the required payment.
The minimum required payment is (a) plus ((b) divided by (c)) where:
(a) is the amount by which the net policy value is less than zero before
deducting the month policy charge on the monthly date preceding the grace
period;
(b) is three monthly policy charges; and
(c) is 1 minus the maximum premium expense charge.
The maximum premium expense charge is shown in CHARGES AND DEDUCTIONS - Premium
Expense Charge.
Example:
Policy Value - $5,000
Loan Balance - $4,000
Net Policy Value - $1,000 (Policy Value - Loan Balance)
Monthly Policy Charge - $1,500
Maximum Premium Expense Charge - 9.95%
Minimum required payment is $0 + ((3 x $1,500)/(1 - .0995)) = $4,997.22
This payment is intended to reimburse us for the monthly policy charges during
the grace period. To cover past due monthly policy charges, if the grace period
ends before we receive the minimum payment, we keep any remaining value in the
Policy.
The Policy is in force during a grace period. If we do not receive the required
payment, the Policy terminates as of the end of the grace period. If the insured
dies during a grace period, policy proceeds are reduced by:
.. all monthly policy charges due and unpaid at the death of the insured; and
.. any outstanding policy loans and unpaid loan interest.
The Policy also terminates when:
.. the Policy is surrendered;
.. death proceeds are paid; or
.. maturity proceeds are paid.
When the Policy terminates, all of the owner's Policy rights and privileges end.
Neither partial surrenders nor policy loans may be made during a grace period.
REINSTATEMENT
Subject to certain conditions, a Policy that terminated because of insufficient
policy value may be reinstated. The Policy may only be reinstated:
.. prior to the maturity date and while the insured is alive;
.. upon our receipt of satisfactory evidence of insurability (according to our
underwriting guidelines then in effect);
.. if payment of a reinstatement premium is made; and
.. 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).
The reinstatement premium is calculated using the formulas found above in POLICY
TERMINATION AND REINSTATEMENT - Policy Termination. 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 the
reinstatement application are held in our general account without interest until
the reinstatement date. They are allocated to the selected division(s) 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 are restored upon reinstatement.
OTHER MATTERS
VOTING RIGHTS
We vote division shares at shareholder meetings of the underlying mutual funds.
We follow the voting instructions received from people having the voting
interest in the division shares.
You have a voting interest under a Policy. You have one vote for each $100 of
policy value in the division. 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 may be
solicited by a written proxy statement before a shareholder meeting. We vote
other underlying mutual fund shares, for which no voting instructions are
received, in the same proportion as the shares for which we receive voting
instructions. Underlying mutual fund shares held in our general account are
voted in proportion to instructions that are received with respect to the
participating policies.
If we determine, under applicable law, that underlying mutual fund shares need
not be voted according to the instructions received, we may vote underlying
mutual fund 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:
.. change a subclassification or investment objective of the underlying mutual
fund;
.. disapprove an investment advisory contract of the underlying mutual fund; or
.. approve changes initiated by an owner in the investment policy or investment
advisor of the underlying mutual fund if we reasonably disapprove of the
changes.
The change would be disapproved only if:
.. the proposed change is contrary to state law;
.. prohibited by state regulatory authorities; or
.. we determine the change is inconsistent with the investment objectives of the
division.
STATEMENT OF VALUES
An annual statement is sent each year. The statement will show:
.. current death benefit amount;
.. current policy value and net surrender value;
.. all premiums paid since the last statement;
.. all charges since the last statement;
.. any outstanding policy loans and unpaid loan interest;
.. any partial surrenders since the last statement;
.. the number of units and unit value;
.. total value of each of the divisions;
.. designated beneficiary(ies); and
.. all riders included in the Policy.
You will also receive a statement with the same information as of the end of
each calendar quarter. At any time, you may request a current statement by
telephoning 1-888-737-3855.
We also send the reports required by the Investment Company Act of 1940 (as
amended).
SERVICES AVAILABLE VIA THE TELEPHONE
If you elect telephone privileges, instructions for the following transactions
may be given to us via the telephone:
.. change in allocations of future premium payments;
.. change in allocation of the monthly policy charge;
.. change to APR instructions;
.. change to DCA instructions;
.. unscheduled division transfers; and
.. requesting a policy loan (of $100,000 or less).
Instructions:
.. may be given by calling us at 1-888-737-3855 between 8a.m. and 5 p.m. Eastern
Time on any day that the NYSE is open;
.. must be received by us before the close of the NYSE (generally 4:00 p.m.
Eastern Time) to be effective the day they are given; and
.. are effective the next business day if not received until after the close of
the NYSE.
Although neither the separate account nor the Company is responsible for the
authenticity of telephone transaction instructions, the separate account and the
Company reserve the right to refuse telephone instructions. YOU ARE LIABLE FOR A
LOSS RESULTING FROM A FRAUDULENT TELEPHONE INSTRUCTION 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 for telephone
instructions include: recording all
telephone instructions and requesting personal identification information (name,
phone number, social security number, birth date, etc.).
GENERAL PROVISIONS
THE CONTRACT
The entire contract is made up of the Policy and all 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, one or more optional insurance benefits may be
added to the Policy. These include but are not limited to:
.. supplemental benefit rider (yearly renewable term)
.. extended coverage rider
.. death benefit guarantee rider (only available at the time the Policy is issued
and is not available in conjunction with the supplemental benefit rider)
.. change of insured rider
.. accounting benefit rider
Detailed information concerning optional insurance benefits may be obtained from
an authorized agent or our home office. NOT ALL OPTIONAL INSURANCE BENEFITS ARE
AVAILABLE IN ALL STATES. The cost, if any, of an optional insurance benefit is
deducted as part of the monthly policy charge.
Supplemental Benefit Rider
- --------------------------
This rider is intended to allow for flexibility in funding design. For an
additional charge, this rider provides an additional face amount and an
additional death benefit. The use of this rider disqualifies the use of the
Death Benefit Guarantee Rider.
Death Benefit Guarantee Rider
- -----------------------------
This rider guarantees the Policy will not lapse before the insured's attained
age 85 provided that the cumulative death benefit guarantee premium requirement
is met. This rider is automatically made a part of the Policy unless the
Supplemental Benefit Rider is used.
There are no policy charges for the death benefit guarantee rider. Rather, a
required minimum premium level is defined for the rider benefit to be provided.
The death benefit guarantee premium requirement is met if (a) is greater than or
equal to (b) where:
(a) is the sum of all premiums paid less any partial surrenders and any
outstanding policy loans and loan interest; and
(b) is the sum of the death benefit guarantee monthly premiums from the
policy date to the most recent monthly date.
The most recent death benefit guarantee premium is shown on the current data
page.
The death benefit guarantee premium is based on the issue age, gender (where
permitted by law), smoking status and risk classification of the insured. This
premium may change if:
.. the total face amount is changed;
.. a rider is added or deleted; or
.. an adjustment is made to the Policy.
As a result of a change, an additional premium may be required to satisfy the
new death benefit guarantee premium requirement.
Payment of this premium will keep your policy in force to the insured's age 85
provided that the cumulative death benefit guarantee premium requirement is met.
However, payment of this minimum premium does not allow you to take advantage of
the potential for building up a significant account value. When your death
benefit guarantee rider terminates, it may be necessary for you to pay
significantly higher premiums in order to maintain your contract.
Accounting Benefit Rider
- ------------------------
For an additional charge, this rider provides if the Policy is surrendered, any
surrender charge which would otherwise apply will be waived. This waiver of
surrender charge does not apply to a Policy which is surrendered for the purpose
of replacing it with a policy from another company, including Code Section 1035
exchanges. Our approval, under our then current underwriting guidelines, is
required to add this rider.
Extended Coverage Rider
- -----------------------
This rider, which is automatically included on each Policy, allows the Policy to
remain in force beyond the maturity date. Under the rider, at maturity of the
Policy, the maturity date is automatically extended to the date of the insured's
death. There is no charge for this rider and at maturity the Policy
automatically changes to Death Benefit Option 1 and no future adjustments are
allowed.
MISSTATEMENT OF AGE OR GENDER
If the age or, where applicable, gender of the insured has been misstated, we
adjust the death benefit payable under the Policy to reflect the amount that
would have been payable at the correct age and gender.
ASSIGNMENT
You may assign the 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 service 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 the 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 the
Policy be sent to us so that we can record the change.
Unless changed, the owner is as named in the application. The owner 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.
If an owner dies before the Policy terminates, the surviving owner(s), if any,
succeeds 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. If the owner is not a natural person and is no longer in
existence, the insured becomes the owner unless otherwise required by law. 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 an irrevocable beneficiary has been named, the beneficiary
designation may be changed by sending us a written request. After approval, the
change is effective as of the date the request for change was signed. We reserve
the right to require that the Policy be sent to us so that we can record the
change.
If no beneficiary(ies) survives the insured, the death proceeds are paid to the
owner or the estate of the owner.
BENEFIT INSTRUCTIONS
While the 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 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.
.. Special Benefit Arrangement - A specially designed benefit payment option may
be arranged with our approval.
.. Life Income - We pay income during a person's lifetime. A minimum guaranteed
period may be used. If the payee dies after payments begin but before the end
of any guaranteed period, the remaining payments are paid to a payee named
under the benefit option.
.. Joint and Survivor Life Income - We pay income during the lifetime of two
people and continue until the death of the survivor. If both persons die after
payments begin but before the end of any guaranteed period, the remaining
payments are paid to a payee named under the benefit option.
If no beneficiary(ies) survives the insured, the death proceeds will be paid to
the owner or to the owner's estate unless otherwise specified.
Interest at a rate set by us, but never less than required by state law, will be
applied to calculate the amount of the payment.
RIGHT TO EXCHANGE POLICY
The Policy may be exchanged for a new universal life insurance policy on the
life of the insured which is made available by the Company for this purpose. The
new policy will not be a term insurance policy or a variable life insurance
policy. Evidence of insurability will not be required.
The exchange must be made during the first 24 months from the policy date while
the Policy is in force and not in a grace period. The exchange is effective upon
our receipt of written notice. This Policy then terminates. The new policy has
the same policy date as this Policy.
The new policy has the same death benefit as this Policy unless required to be
higher in order to qualify as "life insurance" as defined in Section 7702 of the
Code, as amended. The new policy is based on the same issue age, gender (if
applicable) and risk classification as this Policy.
No additional charge is made for this exchange privilege. Any outstanding policy
loan and unpaid loan interest must be repaid or transferred to the new policy.
NON-PARTICIPATING POLICY
The Policies do not share in any divisible surplus of the Company.
INCONTESTABILITY
After a period of two years from the policy date, we will not contest the
insurance coverage provided by the Policy. Any total 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 misrepresentations.
SUICIDE
Death proceeds are not paid if the insured dies by suicide, while sane or
insane, within two years of the policy date (or two years from the date of total
face amount increase with respect to such increase). In the event of the suicide
of the insured within two years of the policy date, our only liability is a
refund of premiums paid, without interest, minus any outstanding policy loans
and unpaid loan interest and partial surrenders. In the event of suicide within
two years of a total face amount increase, our only liability with respect to
that increase is a refund of the cost of insurance for the increase. This amount
will be paid to the beneficiary(ies).
DELAY OF PAYMENTS
Payment upon return of the Policy, full or partial surrender, policy loan,
death, maturity or the transfer to or from a division are generally made within
five days after we receive instructions in a form acceptable to us. This period
may be shorter where required by law. However, the payments 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:
.. trading on the NYSE is restricted as determined by the SEC or when the NYSE is
closed for other than weekends and holidays, or
.. an emergency exists, as determined by the SEC, as a result of which:
. disposal by a fund of securities owned by it is not reasonably practicable;
. it is not reasonably practicable for a fund to fairly determine the value of
its net assets; or
. the SEC permits suspension.
If payments are delayed and your instruction is not canceled by written
instruction, the amount of the transaction is determined the first business day
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.
MARKET TIMING DISCLOSURE
The Policy does not permit excessive trading or market timing. Market timing
activity can disrupt management strategy of the underlying mutual funds and
increase expenses, which are borne by all Policy owners. We reserve the right to
reject excessive exchanges or purchases if we deem that the trade would disrupt
the management of the separate account, any division or any underlying mutual
fund. In addition, we may suspend or modify transfer privileges at any time to
prevent transactions that could disadvantage other Policy owners. These
modifications could include, but not be limited to:
.. requiring a minimum time period between each transfer;
.. not accepting transfer requests from someone providing them for multiple
Policies for which he or she is not the owner; or
.. limiting the dollar amount that a Policy owner may transfer at any one time.
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:
.. transfer assets in any division to another division;
.. add, combine or eliminate divisions; or
.. substitute the shares of a division for shares in another division:
. if shares of a division are no longer available for investment; or
. if in our judgement, investment in a division becomes inappropriate
considering the purposes of the division.
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 division(s) without charge. You may
exercise this exchange privilege until the later 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 ("Princor"). The
principal business address for each officer and director is: Principal Financial
Group, Des Moines, Iowa 50392.
*JOHN EDWARD ASCHENBRENNER Director
*PATRICIA ANN BARRY Assistant Corporate Secretary
*CRAIG LAWRENCE BASSETT Treasurer
*MICHAEL JON BEER Executive Vice President
*MICHAEL THOMAS DALEY Director
*RALPH CRAIG EUCHER Director and President
*ARTHUR SIGLIN FILEAN Senior Vice President
*DENNIS PAUL FRANCIS Director
*PAUL NORMAN GERMAIN Vice President - Mutual Fund Operations
*ERNEST HAROLD GILLUM Vice President - Product Development
Senior Vice President and Corporate
*JOYCE NIXSON HOFFMAN Secretary
Senior Vice President - Marketing and
*JOHN RANDALL LEPLEY Distribution
LAYNE ALLAN RASMUSSEN Controller - Mutual Funds
*MICHAEL DENNIS ROUGHTON Counsel
*JAMES FRANKLIN SAGER Vice President
Assistant Vice President - Registered
*JEAN BETSY SCHUSTEK Products
*KAREN ELIZABETH SHAFF Director
Senior Vice President and Chief Financial
*KIRK LLOYD TIBBETTS Officer
*LARRY DONALD ZIMPLEMAN Director
PRINCIPAL LIFE INSURANCE COMPANY:
EXECUTIVE OFFICERS (OTHER THAN DIRECTORS)
JOHN EDWARD ASCHENBRENNER Executive Vice President
PAUL FRANCIS BOGNANNO Senior Vice President
GARY MERLYN CAIN Senior Vice President
MICHAEL THOMAS DALEY Executive Vice President
CHARLES ROBERT DUNCAN Senior Vice President
RALPH CRAIG EUCHER Senior Vice President
DENNIS PAUL FRANCIS Senior Vice President
Executive Vice President and Chief Financial
MICHAEL HARRY GERSIE Officer
THOMAS JOHN GRAF Senior Vice President
ROBB BRYAN HILL Senior Vice President
JOYCE NIXSON HOFFMAN Senior Vice President and Corporate Secretary
DANIEL JOSEPH HOUSTON Senior Vice President
ELLEN ZISLIN LAMALE Senior Vice President and Chief Actuary
Senior Vice President and Chief Investment
JULIA MARIE LAWLER Officer
JAMES PATRICK MCCAUGHAN Executive Vice President
MARY AGNES O'KEEFE Senior Vice President
KAREN ELIZABETH SHAFF Senior Vice President and General Counsel
ROBERT ALLEN SLEPICKA Senior Vice President
NORMAN RAUL SORENSEN Senior Vice President
Senior Vice President and Chief Information
CARL CHANSON WILLIAMS Officer
LARRY DONALD ZIMPLEMAN Executive Vice President
DIRECTORS
Principal Life Insurance Company is managed by a Board of Directors. The
directors of the Company, their positions with the Company, including Board
Committee memberships, and their principal occupation during the last five
years, are as follows:
NAME, POSITIONS AND PRINCIPAL OCCUPATION DURING LAST 5 YEARS
------OFFICES------ ----------------------------------------
-------
President and Chief Executive Officer of AT&T
Consumer since April 2001. Executive Vice
BETSY JANE BERNARD President - National Mass Markets of Qwest
Director Communications, formerly US West, 2000-2001;
Chair, Nominating Executive Vice President - Retail Markets, US
Committee West, 1998-2000; President and Chief Executive
Officer, US WEST Long Distance, 1997-1998;
President and Chief Operating Officer, Avirnex,
July 1997 - December 1997; President and Chief
Executive Officer, Pacific Bell Communications,
Pacific Telesis, 1995-1997.
Executive Vice President and Chief Marketing
Officer of Office Depot, Inc. since 2002.
JOCELYN CARTER-MILLER Corporate Vice President and Chief Marketing
Director Officer, Motorola, Inc., 1999-2002; Vice
Member, Audit Committee President, 1998-1999; Vice President and General
Manager, 1997-1998.
GARY EDWARD COSTLEY Chairman and Chief Executive Officer of
Director International Multifoods Corporation since 2001.
Member, Human Resources Chairman, President and Chief Executive Officer,
Committee 1997-2001.
DAVID JAMES DRURY Retired. Chairman, Principal Life Insurance
Director Company 2000-2002. Chairman and Chief Executive
Member, Executive Officer, 1995-2000.
Committee
CHARLES DANIEL GELATT,
JR.
Director
Member, Executive President, NMT Corporation since 1986.
Committee
Member, Human Resources
Committee
JOHN BARRY GRISWELL
Director, Chairman of Chairman of the Board, President and Chief
the Board Executive Officer of Principal Life Insurance
Chair, Executive Company since 2002. President and Chief Executive
Committee Officer, 2000-2002; President, 1998-2000;
Executive Vice President, 1996-1998.
Executive Vice President and Chief Financial
SANDRA LYNN HELTON Officer of Telephone & Data Systems, Inc. since
Director 1998. Vice President and Corporate Controller,
Member, Audit Committee Compaq Computer Corporation, 1997-1998. Prior
thereto, Senior Vice President and Treasurer of
Corning Incorporated, 1994-1997.
CHARLES SAMUEL JOHNSON Retired. Executive Vice President, DuPont,
Director 1999-2000; Chairman, President and Chief
Member, Human Resources Executive Officer, Pioneer Hi-Bred International,
Committee Inc., 1996-1999.
WILLIAM TURNBALL KERR
Director Chairman & Chief Executive Officer of
Member, Executive Meredith Corporation since 1998. President and
Committee Chief Executive Officer, 1997-1998; President and
Chair, Human Resources Chief Operating Officer, 1994-1997.
Committee
Chairman of the Board of W.W. Grainger, Inc.
RICHARD LEE KEYSER since 1997. Chief Executive Officer, 1995 to
Director present.
Member, Audit Committee
VICTOR HENDRIK
LOEWENSTEIN Senior Director, Egon Zehnder International since
Director 2001. Partner, 1999-2001; Managing Partner,
Member, Nominating 1979-1999.
Committee
FEDERICO FABIAN PENA Managing Director of Vestar Capital Partners
Director since 2000. Senior Advisor of Vestar Capital
Member, Nominating Partners, 1998-2000. Prior thereto, Secretary,
Committee U.S. Department of Energy, 1996-1998.
President and Chief Executive Officer of The
DONALD MITCHELL STEWART Chicago Community Trust since 2000. Senior
Director Program Officer and Special Advisor to the
Member, Nominating President at the Carnegie Corporation of New
Committee York, 1999-2000. Prior thereto, President, The
College Board, 1986-1999.
ELIZABETH EDITH TALLETT President and Chief Executive Officer of Marshall
Director Pharmaceuticals, Inc. since 2001. President and
Chair, Audit Committee Chief Executive Officer, Galenor Inc. 1999-2001
Member, Executive and also President & Chief Executive Officer of
Committee Dioscor, Inc. since 1996.
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, which is
an affiliate of ours. Princor was incorporated under the laws of Iowa on May 1,
1968. The distribution contract (which was executed on August 6, 2002) may be
terminated by either party upon 60 day notice. Princor was incorporated in the
State of Iowa in 1968, and is also a securities broker-dealer registered with
the SEC as well as 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 target premium. Commissions range from 0% to 3% of
premiums received after the first policy year. In addition, a service fee of up
to 2% is paid on premiums received after the first 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 the Commissioner's
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.
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
increasing the charges paid by policy owners.
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. An increase in separate account expenses would adversely
impact investment performance.
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
either the guideline premium/cash value corridor test or the cash value
accumulation test as defined under Section 7702 of the Code. One of these tests
is chosen on the application. If a test is not chosen, the Policy will comply
with the guideline premium/cash value corridor test. Once a test is chosen, it
cannot be changed on the Policy.
The guideline premium/cash value corridor test places limitations on the amount
of premium payments that may be made and on policy values that can accumulate
relative to the death benefit. Guideline premium limits are determined when the
Policy is issued and can vary by the death benefit option chosen. Guideline
premium limits will likely change due to any adjustment to the Policy.
If at any time a premium is paid which would result in total premiums exceeding
the current guideline premium limits, we accept only that portion of the premium
which would make the total premiums equal the guideline premium limits.
The cash value accumulation test does not place limitations on the amount of
premium payments, however limits the amount of policy values that can accumulate
relative to the death benefit.
To satisfy either test, the ratio of the policy value to the death benefit must
be at least as great as the applicable percentage shown in Appendix D. As the
policy value increases, the minimum death benefit may be required to increase.
Because the cost of insurance you pay is based in part on the amount of the
death benefit, an increase in the death benefit increases the cost of insurance.
As compared to the cash value accumulation test, the guideline premium/cash
value corridor test generally:
.. has smaller applicable percentages
.. lower minimum death benefit
.. lower cost of insurance charges
.. better policy value growth.
The smaller applicable percentages lead to a lower minimum death benefit and
thus lower cost of insurance charges. Lower charges result in better policy
value growth.
This may not be the result in all cases. The specifics of each policy determine
which test is more suitable. Illustrations using each of the tests will help you
determine which test meets your objectives. An illustration may be obtained from
your registered representative or by calling 1-800- 247-9988.
The table below demonstrates the minimum death benefit based on the test chosen.
Policy value assumptions may not be realistic. Net amount at risk is the
difference between the death benefit that would payable if the person insured by
the Policy died (discounted by 1.0024663) and the policy value of your Policy.
The example below is based on the following:
.. The person, a male, insured by the policy is age 45 at the time the policy was
issued and dies at the beginning of the sixth policy year (attained age 50)
.. Face amount is $100,000
.. Death Benefit Option 1
.. Policy value at the date of death is $25,000
.. The minimum death benefit under the guideline premium/cash value corridor test
is $46,250 (assuming an applicable percentage of 185% x policy value)
.. The minimum death benefit under the cash value accumulation test is $61,820
(assuming an applicable percentage of 247.28%)
THE DEATH BENEFIT PAYABLE IS THE
LARGER OF THESE TWO AMOUNTS
---------------------------------
NET AMOUNT AT
DEATH MINIMUM RISK USED IN
BENEFIT DEATH CALCULATING THE COST
CHOSEN BENEFIT OF INSURANCE CHARGE
------- ------- --------------------
Guideline
Premium/Cash Value
Corridor Test $100,000 $46,250 $74,753.98
Cash Value
Accumulation Test $100,000 $61,820 $74,753.98
Here's the same example, but with a policy value of $75,000. Because the policy
value has increased, the minimum death benefit is now:
.. $138,750 for the guideline premium/cash value corridor test
.. $185,460 for the cash value accumulation test.
THE DEATH BENEFIT PAYABLE IS THE
LARGER OF THESE TWO AMOUNTS
---------------------------------
NET AMOUNT AT
DEATH MINIMUM RISK USED IN
BENEFIT DEATH CALCULATING THE COST
CHOSEN BENEFIT OF INSURANCE CHARGE
------- ------- --------------------
Guideline
Premium/Cash Value
Corridor Test $100,000 $138,750 $ 63,408.64
Cash Value
Accumulation Test $100,000 $185,460 $110,003.73
Keep in mind that cost of insurance charges, which affect your Policy's value,
increase with the amount of the death benefit, as well as over time. The cost of
insurance is charged at a rate per $1,000 of the discounted net amount at risk.
As the net amount at risk increases, the cost of insurance increases. Policy
value also varies depending on the performance of the investment options in your
Policy.
All transactions will be subject to the limits as defined under Section 7702 of
the Code. A transaction may not be allowed, or an increase in face amount may be
required, if the transaction would cause a refund of premium and/or distribution
of the policy value in order to maintain compliance with the Section 7702
limits.
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 may be subject to
a federal income tax penalty of 10%.
Modified endowment contract classification may be avoided by limiting the amount
of premiums paid under the Policy. In the absence of your instructions, we will
refund all or part of the premium payment that would make the Policy 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 is not taxed on the 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 net 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 benefit payment option.
A full surrender of the Policy will, and a partial surrender may, be included in
your gross income to the extent that the distribution exceeds the 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 full surrender or partial surrender under the
Policy. Transfers between the division(s) 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 qualified tax advisor as to the deductibility of interest paid on
policy loans. If the Policy is a modified endowment contract, a policy loan
and/or capitalized loan interest 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.
If the Policy lapses with an outstanding loan balance, there may be tax
consequences. Please consult a qualified tax advisor.
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 unless 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
qualified tax advisor.
GENERAL INFORMATION
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 qualified tax advisor should be consulted on
these matters.
LEGAL OPINIONS
Legal matters, including our right to issue Policies under Iowa law, have been
passed on by Karen E. Shaff, 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.
OTHER VARIABLE INSURANCE CONTRACTS
The Company currently offers other variable life policies that participate in
the separate account. In the future, we may designate additional group or
individual variable life policies 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, DCA and
APR. You would be notified of any such action to the extent required by law.
CUSTOMER INQUIRIES
Questions should be directed to:
Principal Financial Group Service Center
P.O.Box 724447
Atlanta GA 31139
Phone: 1-888-737-3855
Fax: 1-770-690-1900
INDEPENDENT AUDITORS
The financial statements of the Principal Life Insurance Company Variable Life
Separate Account and the consolidated 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.
Principal Benefit Variable Universal Life Insurance Investment Company Act File
Number 333-89446
Principal Life Insurance Company
Variable Life Separate Account
Statements of Assets and Liabilities
June 30, 2002
(Unaudited)
American
Centruy VP
AIM V.I. Core AIM V.I. Growth AIM V.I. Premier Income &
Equity Division Division Equity Division Growth Division
---------------------------------------------------------------------
Assets
Investments in shares of mutual funds, at market $ 483,816 $ 374,687 $ 1,256,944 $ 874,115
Liabilities - - - -
---------------------------------------------------------------------
Net assets $ 483,816 $ 374,687 $ 1,256,944 $ 874,115
=====================================================================
Net assets
Accumulation units:
Flex Variable Life $ 11,604 $ - $ 9,237 $ 3,746
PrinFlex Life 403,990 324,953 1,085,416 762,078
Survivorship Variable Universal Life 10,810 4,806 41,736 15,354
Variable Universal Life Accumulator 57,412 44,928 120,555 92,937
---------------------------------------------------------------------
Total net assets $ 483,816 $ 374,687 $ 1,256,944 $ 874,115
=====================================================================
Investments in shares of mutual funds, at cost 516,751 450,141 1,521,191 962,390
Shares of mutual fund owned 25,859 28,844 68,312 152,285
Accumulation units outstanding:
Flex Variable Life 1,507 - 1,334 466
PrinFlex Life 52,011 47,824 155,512 94,041
Survivorship Variable Universal Life 1,392 708 5,980 1,895
Variable Universal Life Accumulator 7,391 6,614 17,272 11,469
Accumulation unit value:
Flex Variable Life $ 7.70 $ - $ 6.92 $ 8.04
PrinFlex Life 7.77 6.79 6.98 8.10
Survivorship Variable Universal Life 7.77 6.79 6.98 8.10
Variable Universal Life Accumulator 7.77 6.79 6.98 8.10
American American
Century VP Century VP Asset Allocation Balanced
Ultra Division Value Division Division Division
--------------------------------------------------------------------
Assets
Investments in shares of mutual funds, at market $ 381,357 $ 120,613 $ 8,629,930 $ 12,557,976
Liabilities - - - -
--------------------------------------------------------------------
Net assets $ 381,357 $ 120,613 $ 8,629,930 $ 12,557,976
====================================================================
Net assets
Accumulation units:
Flex Variable Life $ 8,537 $ 2,446 $ 9,716 $ 2,884,639
PrinFlex Life 283,420 87,942 7,567,418 9,131,689
Survivorship Variable Universal Life 28,054 - 792,331 426,176
Variable Universal Life Accumulator 61,346 30,225 260,465 115,472
--------------------------------------------------------------------
Total net assets $ 381,357 $ 120,613 $ 8,629,930 $ 12,557,976
====================================================================
Investments in shares of mutual funds, at cost 420,215 122,109 9,700,759 15,083,965
Shares of mutual fund owned 45,617 17,922 811,084 1,014,376
Accumulation units outstanding:
Flex Variable Life 1,068 262 1,078 112,584
PrinFlex Life 35,144 9,421 547,248 796,200
Survivorship Variable Universal Life 3,479 - 77,472 49,483
Variable Universal Life Accumulator 7,607 3,238 18,837 10,068
Accumulation unit value:
Flex Variable Life $ 8.00 $ 9.33 $ 9.01 $ 25.62
PrinFlex Life 8.06 9.33 13.83 11.47
Survivorship Variable Universal Life 8.06 - 10.23 8.61
Variable Universal Life Accumulator 8.06 9.33 13.83 11.47
DIP Founders Fidelity VIP
Capital Value Discovery Equity Growth Contrafund
Bond Division Division Division Division Division
Assets ------------------------------------------------------------------------------
Investments in shares of mutual funds, at market $ 18,074,210 $ 31,498,964 $ 153,333 $ 43,717,202 $ 42,012,359
Liabilities - - - - -
------------------------------------------------------------------------------
Net assets $ 18,074,210 $ 31,498,964 $ 153,333 $ 43,717,202 $ 42,012,359
==============================================================================
Net assets
Accumulation units:
Flex Variable Life $ 2,145,329 $ 6,237,635 $ - $ 19,594 $ 76,745
PrinFlex Life 14,975,696 23,626,132 150,002 41,657,915 39,777,527
Survivorship Variable Universal Life 631,372 458,963 - 1,772,576 1,720,229
Variable Universal Life Accumulator 321,813 1,176,234 3,331 267,117 437,858
------------------------------------------------------------------------------
Total net assets $ 18,074,210 $ 31,498,964 $ 153,333 $ 43,717,202 $ 42,012,359
==============================================================================
Investments in shares of mutual funds, at cost 17,929,702 37,260,619 178,357 63,196,596 48,799,232
Shares of mutual fund owned 1,552,767 1,174,458 18,953 3,260,045 2,120,765
Accumulation units outstanding:
Flex Variable Life 78,324 194,543 - 2,661 8,323
PrinFlex Life 1,077,617 1,914,170 20,452 3,269,975 2,500,430
Survivorship Variable Universal Life 52,175 55,075 - 231,457 186,333
Variable Universal Life Accumulator 23,157 95,299 454 20,973 27,527
Accumulation unit value:
Flex Variable Life $ 27.39 $ 32.06 $ - $ 7.36 $ 9.22
PrinFlex Life 13.90 12.34 7.33 12.74 15.91
Survivorship Variable Universal Life 12.10 8.33 - 7.66 9.23
Variable Universal Life Accumulator 13.90 12.34 7.33 12.74 15.91
Fidelity VIP Fidelity VIP
Equity-Income Fidelity VIP High Income
Division Growth Division Division
-----------------------------------------------
Assets
Investments in shares of mutual funds, at market $ 18,507,092 $ 3,447 $ 2,748,216
Liabilities - - -
-----------------------------------------------
Net assets $ 18,507,092 $ 3,447 $ 2,748,216
===============================================
Net assets
Accumulation units:
Flex Variable Life $ 64,338 $ - $ 2,082
PrinFlex Life 17,063,397 3,428 2,624,774
Survivorship Variable Universal Life 1,139,449 - 115,632
Variable Universal Life Accumulator 239,908 19 5,728
-----------------------------------------------
Total net assets $ 18,507,092 $ 3,447 $ 2,748,216
===============================================
Investments in shares of mutual funds, at cost 21,262,887 3,755 4,055,638
Shares of mutual fund owned 901,905 128 501,499
Accumulation units outstanding:
Flex Variable Life 7,539 - 244
PrinFlex Life 1,212,171 399 336,591
Survivorship Variable Universal Life 121,172 - 17,567
Variable Universal Life Accumulator 17,045 2 735
Accumulation unit value:
Flex Variable Life $ 8.53 $ - $ 8.53
PrinFlex Life 14.08 8.58 7.80
Survivorship Variable Universal Life 9.40 - 6.58
Variable Universal Life Accumulator 14.08 8.58 7.80
International
Government Emerging
Securities High Yield International Markets
Division Growth Division Division Division Division
-----------------------------------------------------------------------------
Assets
Investments in shares of mutual funds, at market $ 14,762,748 $ 13,295,204 $ 1,384,532 $ 19,413,340 $ 10,133
Liabilities - - - - -
-----------------------------------------------------------------------------
Net assets $ 14,762,748 $ 13,295,204 $ 1,384,532 $ 19,413,340 $ 10,133
=============================================================================
Net assets
Accumulation units:
Flex Variable Life $ 98,282 $ - $ 1,384,532 $ 2,608 $ -
PrinFlex Life 10,765,233 12,528,836 - 17,879,311 5,300
Survivorship Variable Universal Life 3,473,323 741,993 - 820,633 -
Variable Universal Life Accumulator 425,910 24,375 - 710,788 4,833
-----------------------------------------------------------------------------
Total net assets $ 14,762,748 $ 13,295,204 $ 1,384,532 $ 19,413,340 $ 10,133
=============================================================================
Investments in shares of mutual funds, at cost 14,432,647 23,038,190 1,975,744 25,739,740 8,552
Shares of mutual fund owned 1,287,075 1,345,668 251,733 1,908,883 1,101
Accumulation units outstanding:
Flex Variable Life 9,086 - 71,278 317 -
PrinFlex Life 731,968 1,351,897 - 1,745,205 593
Survivorship Variable Universal Life 274,375 125,749 - 105,134 -
Variable Universal Life Accumulator 28,960 2,631 - 69,395 541
Accumulation unit value:
Flex Variable Life $ 10.82 $ - $ 19.42 $ 8.22 $ -
PrinFlex Life 14.71 9.26 - 10.24 8.93
Survivorship Variable Universal Life 12.66 5.90 - 7.81 -
Variable Universal Life Accumulator 14.71 9.26 - 10.24 8.93
International INVESCO VIF - INVESCO VIF -
SmallCap Dynamics Health Sciences
Division Division Division
--------------------------------------------------
Assets
Investments in shares of mutual funds, at market $ 8,723,658 $ 117,800 $ 803,332
Liabilities - - -
---------------------------------------------
Net assets $ 8,723,658 $ 117,800 $ 803,332
=============================================
Net assets
Accumulation units:
Flex Variable Life $ 20,746 $ - $ 7,269
PrinFlex Life 7,913,520 103,272 667,107
Survivorship Variable Universal Life 678,233 - 36,100
Variable Universal Life Accumulator 111,159 14,528 92,856
---------------------------------------------
Total net assets $ 8,723,658 $ 117,800 $ 803,332
=============================================
Investments in shares of mutual funds, at cost 9,126,875 143,094 894,014
Shares of mutual fund owned 789,471 12,258 51,861
Accumulation units outstanding:
Flex Variable Life 2,410 - 865
PrinFlex Life 637,724 16,743 78,676
Survivorship Variable Universal Life 64,297 - 4,258
Variable Universal Life Accumulator 8,962 2,355 10,952
Accumulation unit value:
Flex Variable Life $ 8.61 $ - $ 8.41
PrinFlex Life 12.40 6.17 8.48
Survivorship Variable Universal Life 10.55 - 8.48
Variable Universal Life Accumulator 12.40 6.17 8.48
INVESCO VIF - INVESCO VIF - Janus Aspen
Small Company Technology Aggressive LargeCap Blend
Growth Division Division Growth Division Division
------------------------------------------------------------------
Assets
Investments in shares of mutual funds, at market $ 280,502 $ 339,499 $ 687,706 $ 70,599
Liabilities - - - -
------------------------------------------------------------------
Net assets $ 280,502 $ 339,499 $ 687,706 $ 70,599
==================================================================
Net assets
Accumulation units:
Flex Variable Life $ 857 $ 11,763 $ 21,029 $ -
PrinFlex Life 207,914 303,304 583,549 40,116
Survivorship Variable Universal Life 3,008 2,888 5,003 -
Variable Universal Life Accumulator 68,723 21,544 78,125 30,483
------------------------------------------------------------------
Total net assets $ 280,502 $ 339,499 $ 687,706 $ 70,599
==================================================================
Investments in shares of mutual funds, at cost 315,312 462,715 818,642 71,944
Shares of mutual fund owned 23,691 33,547 39,230 7,551
Accumulation units outstanding:
Flex Variable Life 126 2,528 3,474 -
PrinFlex Life 30,379 64,647 95,606 4,359
Survivorship Variable Universal Life 440 615 820 -
Variable Universal Life Accumulator 10,041 4,592 12,799 3,312
Accumulation unit value:
Flex Variable Life $ 6.79 $ 4.65 $ 6.05 $ -
PrinFlex Life 6.84 4.69 6.10 9.20
Survivorship Variable Universal Life 6.84 4.69 6.10 -
Variable Universal Life Accumulator 6.84 4.69 6.10 9.20
LargeCap LargeCap Stock LargeCap Value MicroCap
Growth Division Index Division Division Division
---------------------------------------------------------------
Assets
Investments in shares of mutual funds, at market $ 1,127,907 $ 16,910,814 $ 68,974 $ 2,289,167
Liabilities - - - -
----------------------------------------------------------------
Net assets $ 1,127,907 $ 16,910,814 $ 68,974 $ 2,289,167
================================================================
Net assets
Accumulation units:
Flex Variable Life $ 12,264 $ 80,915 $ - $ 12,236
PrinFlex Life 250,378 15,121,369 32,523 1,801,965
Survivorship Variable Universal Life 7,226 1,472,166 4,505 419,338
Variable Universal Life Accumulator 858,039 236,364 31,946 55,628
----------------------------------------------------------------
Total net assets $ 1,127,907 $ 16,910,814 $ 68,974 $ 2,289,167
================================================================
Investments in shares of mutual funds, at cost 1,310,166 21,792,395 70,377 2,269,289
Shares of mutual fund owned 164,899 2,355,267 7,276 251,281
Accumulation units outstanding:
Flex Variable Life 2,012 10,526 - 1,276
PrinFlex Life 40,735 1,990,005 3,506 196,255
Survivorship Variable Universal Life 1,176 192,983 486 40,545
Variable Universal Life Accumulator 139,619 31,108 3,444 6,060
Accumulation unit value:
Flex Variable Life $ 6.09 $ 7.69 $ - $ 9.59
PrinFlex Life 6.15 7.60 9.28 9.18
Survivorship Variable Universal Life 6.15 7.63 9.28 10.34
Variable Universal Life Accumulator 6.15 7.60 9.28 9.18
MidCap Growth MidCap Growth MidCap Value
MidCap Division Division Equity Division Division
---------------------------------------------------------------------
Assets
Investments in shares of mutual funds, at market $ 40,308,252 $ 3,455,144 $ 249,379 $ 1,513,475
Liabilities - - - -
---------------------------------------------------------------------
Net assets $ 40,308,252 $ 3,455,144 $ 249,379 $ 1,513,475
=====================================================================
Net assets
Accumulation units:
Flex Variable Life $ 12,352,053 $ - $ 806 $ 38,409
PrinFlex Life 27,074,848 3,174,341 227,506 1,330,865
Survivorship Variable Universal Life 574,453 179,734 5,393 31,638
Variable Universal Life Accumulator 306,898 101,069 15,674 112,563
---------------------------------------------------------------------
Total net assets $ 40,308,252 $ 3,455,144 $ 249,379 $ 1,513,475
=====================================================================
Investments in shares of mutual funds, at cost 42,800,448 4,565,695 299,378 1,540,454
Shares of mutual fund owned 1,309,135 492,888 54,450 128,697
Accumulation units outstanding:
Flex Variable Life 254,201 - 127 3,973
PrinFlex Life 1,786,840 398,218 35,615 136,496
Survivorship Variable Universal Life 47,878 22,308 844 3,245
Variable Universal Life Accumulator 20,253 12,685 2,454 11,545
Accumulation unit value:
Flex Variable Life $ 48.59 $ - $ 6.33 $ 9.67
PrinFlex Life 15.15 7.97 6.39 9.75
Survivorship Variable Universal Life 12.00 8.06 6.39 9.75
Variable Universal Life Accumulator 15.15 7.97 6.39 9.75
Putnam VT
Global Asset Putnam VT
Money Market Allocation Putnam VT Voyager
Division Division Vista Division Division
--------------------------------------------------------------
Assets
Investments in shares of mutual funds, at market $ 34,686,523 $ 1,776,141 $ 5,489,179 $ 20,973,542
Liabilities - - - -
--------------------------------------------------------------
Net assets $ 34,686,523 $ 1,776,141 $ 5,489,179 $ 20,973,542
==============================================================
Net assets
Accumulation units:
Flex Variable Life $ 609,612 $ 8,621 $ 1,769 $ 27,189
PrinFlex Life 29,027,692 1,598,003 5,088,755 18,776,931
Survivorship Variable Universal Life 2,742,251 140,751 383,191 1,923,983
Variable Universal Life Accumulator 2,306,968 28,766 15,464 245,439
--------------------------------------------------------------
Total net assets $ 34,686,523 $ 1,776,141 $ 5,489,179 $ 20,973,542
==============================================================
Investments in shares of mutual funds, at cost 34,688,356 2,129,525 9,689,099 36,402,219
Shares of mutual fund owned 34,686,523 141,751 600,567 886,081
Accumulation units outstanding:
Flex Variable Life 32,794 973 273 3,880
PrinFlex Life 2,262,912 167,566 617,100 2,029,985
Survivorship Variable Universal Life 241,875 15,636 53,558 250,298
Variable Universal Life Accumulator 179,848 3,017 1,876 26,548
Accumulation unit value:
Flex Variable Life $ 18.59 $ 8.86 $ 6.47 $ 7.01
PrinFlex Life 12.82 9.54 8.24 9.25
Survivorship Variable Universal Life 11.34 9.00 7.15 7.69
Variable Universal Life Accumulator 12.82 9.54 8.24 9.25
Real Estate SmallCap SmallCap SmallCap Value
Division Division Growth Division Division
------------------------------------------------------------------
Assets
Investments in shares of mutual funds, at market $ 5,059,851 $ 4,355,617 $ 8,219,925 $ 8,422,666
Liabilities - - - -
------------------------------------------------------------------
Net assets $ 5,059,851 $ 4,355,617 $ 8,219,925 $ 8,422,666
==================================================================
Net assets
Accumulation units:
Flex Variable Life $ 20,383 $ 20,311 $ 5,625 $ 98,784
PrinFlex Life 3,927,962 3,487,205 7,498,926 7,590,283
Survivorship Variable Universal Life 958,498 278,117 636,163 430,383
Variable Universal Life Accumulator 153,008 569,984 79,211 303,216
------------------------------------------------------------------
Total net assets $ 5,059,851 $ 4,355,617 $ 8,219,925 $ 8,422,666
==================================================================
Investments in shares of mutual funds, at cost 4,377,520 5,271,471 15,754,698 7,917,697
Shares of mutual fund owned 409,042 624,909 1,082,994 684,770
Accumulation units outstanding:
Flex Variable Life 1,626 2,480 1,037 9,337
PrinFlex Life 268,718 386,627 890,269 515,715
Survivorship Variable Universal Life 60,926 29,643 95,460 27,283
Variable Universal Life Accumulator 10,468 63,189 9,409 20,604
Accumulation unit value:
Flex Variable Life $ 12.53 $ 8.19 $ 5.43 $ 10.58
PrinFlex Life 14.62 9.02 8.42 14.72
Survivorship Variable Universal Life 15.73 9.38 6.66 15.77
Variable Universal Life Accumulator 14.62 9.02 8.42 14.72
Wells Fargo VT Wells Fargo VT Wells Fargo VT
Asset Allocation Equity Income Large Company
Utilities Division Division Division Growth Division
------------------------------------------------------------------------
Assets
Investments in shares of mutual funds, at market $ 2,048,332 $ - $ - $ -
Liabilities - - - -
-----------------------------------------------------------------------
Net assets $ 2,048,332 $ - $ - $ -
=======================================================================
Net assets
Accumulation units:
Flex Variable Life $ 7,155 $ - $ - $ -
PrinFlex Life 1,799,392 - - -
Survivorship Variable Universal Life 227,463 - - -
Variable Universal Life Accumulator 14,322 - - -
-----------------------------------------------------------------------
Total net assets $ 2,048,332 $ - $ - $ -
=======================================================================
Investments in shares of mutual funds, at cost 2,635,333 - - -
Shares of mutual fund owned 256,683 - - -
Accumulation units outstanding:
Flex Variable Life 1,084 - - -
PrinFlex Life 193,155 - - -
Survivorship Variable Universal Life 29,405 - - -
Variable Universal Life Accumulator 1,538 - - -
Accumulation unit value:
Flex Variable Life $ 6.60 $ - $ - $ -
PrinFlex Life 9.31 - - -
Survivorship Variable Universal Life 7.74 - - -
Variable Universal Life Accumulator 9.31 - - -
PRINCIPAL LIFE INSURANCE COMPANY
VARIABLE LIFE SEPARATE ACCOUNT
STATEMENT OF OPERATIONS
For the Period Ended June 30, 2002
(Unaudited)
AIM V.I. Core AIM V.I. Growth AIM V.I. Premier
Equity Division(1) Division Equity Division(2)
--------------------------------------------------------
Investment income (loss)
Income:
Dividends $ - $ - $ -
Expenses:
Mortality and expense risks 1,347 1,412 3,923
--------------------------------------------------------
Net Investment income (loss) (1,347) (1,412) (3,923)
Realized gains (losses) on investments
Realized gain (losses) on sale of fund shares (62) (6,657) (6,061)
Capital gain distributions - - -
--------------------------------------------------------
Total realized gains (losses) on investments (62) (6,657) (6,061)
Change in net unrealized appreciation or depreciation of investments (34,721) (74,719) (255,702)
--------------------------------------------------------
Net increase (decrease) in net assets resulting from operations $ (36,130) $ (82,788) $ (265,686)
========================================================
(1) Represented the operations of the AIM V.I. Growth & Income Division until
May 18, 2002 name change to AIM V.I. Core Equity Division.
(2) Represented the operations of the AIM V.I. Value Division until May 18,
2002 name change to AIM V.I. Premier Equity Division.
(3) Commenced operations May 18, 2002.
American
Century VP American American
Income & Century VP Ultra Century VP
Growth Division Division Value Division(3)
---------------------------------------------------
Investment income (loss)
Income:
Dividends $ 5,743 $ 113 $ -
Expenses:
Mortality and expense risks 3,075 1,400 23
---------------------------------------------------
Net Investment income (loss) 2,668 (1,287) (23)
Realized gains (losses) on investments
Realized gain (losses) on sale of fund shares (1,051) (1,122) -
Capital gain distributions - - -
---------------------------------------------------
Total realized gains (losses) on investments (1,051) (1,122) -
Change in net unrealized appreciation or depreciation of investments (92,451) (43,091) (1,497)
---------------------------------------------------
Net increase (decrease) in net assets resulting from operations $ (90,834) $ (45,500) $ (1,520)
===================================================
(1) Represented the operations of the AIM V.I. Growth & Income Division until
May 18, 2002 name change to AIM V.I. Core Equity Division.
(2) Represented the operations of the AIM V.I. Value Division until May 18,
2002 name change to AIM V.I. Premier Equity Division.
(3) Commenced operations May 18, 2002.
Asset Allocation
Division Balanced Division Bond Division
--------------------------------------------------------
Investment income (loss)
Income:
Dividends $ - $ 386,534 $ 748,320
Expenses:
Mortality and expense risks 42,219 54,793 68,690
--------------------------------------------------------
Net Investment income (loss) (42,219) 331,741 679,630
Realized gains (losses) on investments
Realized gain (losses) on sale of fund shares (149,950) (158,216) (16,974)
Capital gain distributions - - -
--------------------------------------------------------
Total realized gains (losses) on investments (149,950) (158,216) (16,974)
Change in net unrealized appreciation or depreciation of investments (420,017) (1,173,358) (180,566)
--------------------------------------------------------
Net increase (decrease) in net assets resulting from operations $ (612,186) $ (999,833) $ 482,090
========================================================
DIP Founders
Capital Value Discovery Equity Growth
Division Division Division
--------------------------------------------------
Investment income (loss)
Income:
Dividends $ - $ - $ 31,795
Expenses:
Mortality and expense risks 141,061 691 222,719
--------------------------------------------------
Net Investment income (loss) (141,061) (691) (190,924)
Realized gains (losses) on investments
Realized gain (losses) on sale of fund shares (191,968) (1,239) (326,073)
Capital gain distributions - - -
--------------------------------------------------
Total realized gains (losses) on investments (191,968) (1,239) (326,073)
Change in net unrealized appreciation or depreciation of investments (968,709) (29,591) (9,005,742)
--------------------------------------------------
Net increase (decrease) in net assets resulting from operations $ (1,301,738) $ (31,521) $ (9,522,739)
==================================================
Fidelity VIP Fidelity VIP
Contrafund Equity-Income Fidelity VIP
Division Division Growth Division
-------------------------------------------------
Investment income (loss)
Income:
Dividends $ 333,389 $ 290,352 $ -
Expenses:
Mortality and expense risks 177,406 76,366 2
---------------------------------------------
Net Investment income (loss) 155,983 213,986 (2)
Realized gains (losses) on investments
Realized gain (losses) on sale of fund shares (281,169) (93,219) (1)
Capital gain distributions - 395,202 -
---------------------------------------------
Total realized gains (losses) on investments (281,169) 301,983 (1)
Change in net unrealized appreciation or depreciation of investments (420,167) (1,865,482) (307)
---------------------------------------------
Net increase (decrease) in net assets resulting from operations $ (545,353) $ (1,349,513) $ (310)
=============================================
Fidelity VIP Government
High Income Securities
Division Division Growth Division
-------------------------------------------------
Investment income (loss)
Income:
Dividends $ 304,426 $ 487,225 $ 3,174
Expenses:
Mortality and expense risks 13,774 39,911 71,525
-------------------------------------------------
Net Investment income (loss) 290,652 447,314 (68,351)
Realized gains (losses) on investments
Realized gain (losses) on sale of fund shares (115,277) 2,990 (322,482)
Capital gain distributions - 31,729 -
-------------------------------------------------
Total realized gains (losses) on investments (115,277) 34,719 (322,482)
Change in net unrealized appreciation or depreciation of investments (330,954) (30,298) (2,790,629)
-------------------------------------------------
Net increase (decrease) in net assets resulting from operations $ (155,579) $ 451,735 $ (3,181,462)
=================================================
International
High Yield International Emerging
Division Division Markets Division
------------------------------------------------
Investment income (loss)
Income:
Dividends $ - $ 79,128 $ -
Expenses:
Mortality and expense risks 5,849 87,157 8
------------------------------------------------
Net Investment income (loss) (5,849) (8,029) (8)
Realized gains (losses) on investments
Realized gain (losses) on sale of fund shares (94,837) (226,035) (880)
Capital gain distributions - - -
------------------------------------------------
Total realized gains (losses) on investments (94,837) (226,035) (880)
Change in net unrealized appreciation or depreciation of investments 19,860 (364,088) 1,582
------------------------------------------------
Net increase (decrease) in net assets resulting from operations $ (80,826) $ (598,152) $ 694
================================================
International INVESCO VIF - INVESCO VIF -
SmallCap Dynamics Health Sciences
Division Division Division
-------------------------------------------------
Investment income (loss)
Income:
Dividends $ 19,750 $ - $ 1,227
Expenses:
Mortality and expense risks 36,965 394 3,040
-------------------------------------------------
Net Investment income (loss) (17,215) (394) (1,813)
Realized gains (losses) on investments
Realized gain (losses) on sale of fund shares (214,801) (792) (1,922)
Capital gain distributions - - -
-------------------------------------------------
Total realized gains (losses) on investments (214,801) (792) (1,922)
Change in net unrealized appreciation or depreciation of investments 389,738 (28,220) (96,131)
-------------------------------------------------
Net increase (decrease) in net assets resulting from operations $ 157,722 $ (29,406) $ (99,866)
=================================================
INVESCO VIF - INVESCO VIF - Janus Aspen
Small Company Technology Aggressive
Growth Division Division Growth Division
------------------------------------------------
Investment income (loss)
Income:
Dividends $ - $ - $ -
Expenses:
Mortality and expense risks 812 978 2,633
------------------------------------------------
Net Investment income (loss) (812) (978) (2,633)
Realized gains (losses) on investments
Realized gain (losses) on sale of fund shares (308) (2,442) (8,450)
Capital gain distributions - - -
------------------------------------------------
Total realized gains (losses) on investments (308) (2,442) (8,450)
Change in net unrealized appreciation or depreciation of investments (39,850) (128,208) (107,301)
------------------------------------------------
Net increase (decrease) in net assets resulting from operations $ (40,970) $ (131,628) $ (118,384)
================================================
LargeCap Blend LargeCap LargeCap Stock
Division Growth Division Index Division
----------------------------------------------------
Investment income (loss)
Income:
Dividends $ - $ - $ -
Expenses:
Mortality and expense risks 13 1,985 80,001
----------------------------------------------------
Net Investment income (loss) (13) (1,985) (80,001)
Realized gains (losses) on investments
Realized gain (losses) on sale of fund shares (1) (5,405) (174,523)
Capital gain distributions - - -
----------------------------------------------------
Total realized gains (losses) on investments (1) (5,405) (174,523)
Change in net unrealized appreciation or depreciation of investments (1,344) (185,493) (2,460,601)
----------------------------------------------------
Net increase (decrease) in net assets resulting from operations $ (1,358) $ (192,883) $ (2,715,125)
====================================================
LargeCap Value MicroCap
Division Division MidCap Division
--------------------------------------------------
Investment income (loss)
Income:
Dividends $ - $ - $ 3,945
Expenses:
Mortality and expense risks 34 9,747 151,539
--------------------------------------------------
Net Investment income (loss) (34) (9,747) (147,594)
Realized gains (losses) on investments
Realized gain (losses) on sale of fund shares (2) 6,336 (33,558)
Capital gain distributions - - 579,967
--------------------------------------------------
Total realized gains (losses) on investments (2) 6,336 546,409
Change in net unrealized appreciation or depreciation of investments (1,404) (30,070) (1,659,047)
--------------------------------------------------
Net increase (decrease) in net assets resulting from operations $ (1,440) $ (33,481) $ (1,260,232)
==================================================
MidCap Growth MidCap Growth MidCap Value
Division Equity Division Division
-------------------------------------------------
Investment income (loss)
Income:
Dividends $ - $ - $ -
Expenses:
Mortality and expense risks 15,285 987 3,658
-------------------------------------------------
Net Investment income (loss) (15,285) (987) (3,658)
Realized gains (losses) on investments
Realized gain (losses) on sale of fund shares (45,721) (6,261) 3,253
Capital gain distributions - - 1,530
-------------------------------------------------
Total realized gains (losses) on investments (45,721) (6,261) 4,783
Change in net unrealized appreciation or depreciation of investments (638,886) (53,650) (31,439)
-------------------------------------------------
Net increase (decrease) in net assets resulting from operations $ (699,892) $ (60,898) $ (30,314)
=================================================
Putnam VT
Global Asset
Money Market Allocation Putnam VT Vista
Division Division Division
----------------------------------------------------
Investment income (loss)
Income:
Dividends $ 242,702 $ 27,680 $ -
Expenses:
Mortality and expense risks 165,207 6,907 31,333
----------------------------------------------------
Net Investment income (loss) 77,495 20,773 (31,333)
Realized gains (losses) on investments
Realized gain (losses) on sale of fund shares - (14,778) (244,941)
Capital gain distributions - - -
----------------------------------------------------
Total realized gains (losses) on investments - (14,778) (244,941)
Change in net unrealized appreciation or depreciation of investments (1,747) (99,866) (1,114,475)
----------------------------------------------------
Net increase (decrease) in net assets resulting from operations $ 75,748 $ (93,871) $ (1,390,749)
====================================================
Putnam VT Real Estate SmallCap
Voyager Division Division Division
------------------------------------------------------
Investment income (loss)
Income:
Dividends $ 127,149 $ - $ -
Expenses:
Mortality and expense risks 109,813 17,152 16,073
------------------------------------------------------
Net Investment income (loss) 17,336 (17,152) (16,073)
Realized gains (losses) on investments
Realized gain (losses) on sale of fund shares (362,645) 70,192 (40,580)
Capital gain distributions - - -
------------------------------------------------------
Total realized gains (losses) on investments (362,645) 70,192 (40,580)
Change in net unrealized appreciation or depreciation of investments (3,797,049) 538,235 (572,383)
------------------------------------------------------
Net increase (decrease) in net assets resulting from operations $ (4,142,358) $ 591,275 $ (629,036)
======================================================
SmallCap SmallCap Value
Growth Division Division Utilities Division
--------------------------------------------------------
Investment income (loss)
Income:
Dividends $ - $ - $ -
Expenses:
Mortality and expense risks 51,439 29,079 10,267
--------------------------------------------------------
Net Investment income (loss) (51,439) (29,079) (10,267)
Realized gains (losses) on investments
Realized gain (losses) on sale of fund shares (217,734) 14,019 (136,512)
Capital gain distributions - - -
--------------------------------------------------------
Total realized gains (losses) on investments (217,734) 14,019 (136,512)
Change in net unrealized appreciation or depreciation of investments (2,905,636) 455,369 (37,079)
--------------------------------------------------------
Net increase (decrease) in net assets resulting from operations $ (3,174,809) $ 440,309 $ (183,858)
========================================================
Wells Fargo VT Wells Fargo VT Wells Fargo VT
Asset Allocation Equity Income Large Company
Division Division Growth Division
----------------------------------------------------
Investment income (loss)
Income:
Dividends $ - $ - $ -
Expenses:
Mortality and expense risks - - -
----------------------------------------------------
Net Investment income (loss) - - -
Realized gains (losses) on investments
Realized gain (losses) on sale of fund shares - - -
Capital gain distributions - - -
----------------------------------------------------
Total realized gains (losses) on investments - - -
Change in net unrealized appreciation or depreciation of investments - - -
----------------------------------------------------
Net increase (decrease) in net assets resulting from operations $ - $ - $ -
====================================================
PRINCIPAL LIFE INSURANCE COMPANY
VARIABLE LIFE SEPARATE ACCOUNT
STATEMENT OF CHANGES IN NET ASSETS
For the Period Ended June 30, 2002
(Unaudited)
AIM V.I. Core AIM V.I. Growth AIM V.I. Premier
Equity Division Division Equity Division
-------------------------------------------------------
Net Assets at January 1, 2002 $ 107,483 $ 174,780 $ 426,219
Increase (decrease) in net assets
Operations:
Net investment income (loss) (1,347) (1,412) (3,923)
Total realized gains (losses) on investments (62) (6,657) (6,061)
Change in net unrealized appreciation or depreciation of investments (34,721) (74,719) (255,702)
-------------------------------------------------------
Net Increase (decrease) in net assets resulting from operations (36,130) (82,788) (265,686)
Policy related transactions:
Net premium payments, less sales charges
and applicable premium taxes 633,336 482,159 1,985,392
Contract terminations and surrenders (839) (967) (1,444)
Death benefit payments - - -
Policy loan transfers (886) (5) (2,425)
Transfers to other contracts (190,064) (168,951) (810,805)
Cost of insurance and administration charges (28,874) (29,294) (73,932)
Surrender charges (210) (247) (375)
-------------------------------------------------------
Increase (decrease) in assets from policy related transactions 412,463 282,695 1,096,411
-------------------------------------------------------
Total increase (decrease) 376,333 199,907 830,725
-------------------------------------------------------
Net assets at June 30, 2002 $ 483,816 $ 374,687 $ 1,256,944
=======================================================
American Century
VP Income & American Century American Century
Growth Division VP Ultra Division VP Value Division
----------------------------------------------------
Net Assets at January 1, 2002 $ 323,130 $ 192,825 $ -
Increase (decrease) in net assets
Operations:
Net investment income (loss) 2,668 (1,287) (23)
Total realized gains (losses) on investments (1,051) (1,122) -
Change in net unrealized appreciation or depreciation of investments (92,451) (43,091) (1,497)
----------------------------------------------------
Net Increase (decrease) in net assets resulting from operations (90,834) (45,500) (1,520)
Policy related transactions:
Net premium payments, less sales charges
and applicable premium taxes 924,241 333,041 122,428
Contract terminations and surrenders (689) (2,753) -
Death benefit payments - - -
Policy loan transfers 432 - -
Transfers to other contracts (231,451) (64,960) -
Cost of insurance and administration charges (50,538) (30,594) (295)
Surrender charges (176) (702) -
----------------------------------------------------
Increase (decrease) in assets from policy related transactions 641,819 234,032 122,133
----------------------------------------------------
Total increase (decrease) 550,985 188,532 120,613
----------------------------------------------------
Net assets at June 30, 2002 $ 874,115 $ 381,357 $ 120,613
====================================================
Asset Allocation
Division Balanced Division Bond Division
-------------------------------------------------------
Net Assets at January 1, 2002 $ 9,649,902 $ 13,101,392 $ 14,908,876
Increase (decrease) in net assets
Operations:
Net investment income (loss) (42,219) 331,741 679,630
Total realized gains (losses) on investments (149,950) (158,216) (16,974)
Change in net unrealized appreciation or depreciation of investments (420,017) (1,173,358) (180,566)
-------------------------------------------------------
Net Increase (decrease) in net assets resulting from operations (612,186) (999,833) 482,090
Policy related transactions:
Net premium payments, less sales charges
and applicable premium taxes 3,908,123 3,137,507 10,994,967
Contract terminations and surrenders (781,852) (347,363) (292,093)
Death benefit payments - (22,809) (38,006)
Policy loan transfers (13,862) (33,022) (506,477)
Transfers to other contracts (2,929,697) (1,659,692) (6,634,130)
Cost of insurance and administration charges (391,194) (546,097) (774,597)
Surrender charges (199,304) (72,107) (66,420)
-------------------------------------------------------
Increase (decrease) in assets from policy related transactions (407,786) 456,417 2,683,244
-------------------------------------------------------
Total increase (decrease) (1,019,972) (543,416) 3,165,334
-------------------------------------------------------
Net assets at June 30, 2002 $ 8,629,930 $ 12,557,976 $ 18,074,210
=======================================================
Capital Value DIP Founders Equity Growth
Division Discovery Division Division
---------------------------------------------------
Net Assets at January 1, 2002 $ 29,595,153 $ 155,009 $ 50,584,441
Increase (decrease) in net assets
Operations:
Net investment income (loss) (141,061) (691) (190,924)
Total realized gains (losses) on investments (191,968) (1,239) (326,073)
Change in net unrealized appreciation or depreciation of investments (968,709) (29,591) (9,005,742)
---------------------------------------------------
Net Increase (decrease) in net assets resulting from operations (1,301,738) (31,521) (9,522,739)
Policy related transactions:
Net premium payments, less sales charges
and applicable premium taxes 7,647,542 90,227 13,605,107
Contract terminations and surrenders (639,692) (67) (2,102,985)
Death benefit payments (20,998) - (43,467)
Policy loan transfers (131,679) - (315,317)
Transfers to other contracts (2,032,218) (53,055) (5,446,635)
Cost of insurance and administration charges (1,498,531) (7,243) (2,502,114)
Surrender charges (118,875) (17) (539,089)
---------------------------------------------------
Increase (decrease) in assets from policy related transactions 3,205,549 29,845 2,655,500
---------------------------------------------------
Total increase (decrease) 1,903,811 (1,676) (6,867,239)
---------------------------------------------------
Net assets at June 30, 2002 $ 31,498,964 $ 153,333 $ 43,717,202
===================================================
Fidelity VIP Fidelity VIP
Contrafund Equity-Income Fidelity VIP
Division Division Growth Division
------------------------------------------------
Net Assets at January 1, 2002 $ 41,154,655 $ 18,129,536 $ -
Increase (decrease) in net assets
Operations:
Net investment income (loss) 155,983 213,986 (2)
Total realized gains (losses) on investments (281,169) 301,983 (1)
Change in net unrealized appreciation or depreciation of investments (420,167) (1,865,482) (307)
------------------------------------------------
Net Increase (decrease) in net assets resulting from operations (545,353) (1,349,513) (310)
Policy related transactions:
Net premium payments, less sales charges
and applicable premium taxes 11,728,144 8,830,692 3,785
Contract terminations and surrenders (2,257,695) (1,063,138) -
Death benefit payments (15,635) (13,084) -
Policy loan transfers (248,828) (100,505) -
Transfers to other contracts (5,334,630) (4,890,848) -
Cost of insurance and administration charges (1,880,656) (752,007) (28)
Surrender charges (587,643) (284,041) -
------------------------------------------------
Increase (decrease) in assets from policy related transactions 1,403,057 1,727,069 3,757
------------------------------------------------
Total increase (decrease) 857,704 377,556 3,447
------------------------------------------------
Net assets at June 30, 2002 $ 42,012,359 $ 18,507,092 $ 3,447
================================================
Fidelity VIP Government
High Income Securities
Division Division Growth Division
----------------------------------------------------
Net Assets at January 1, 2002 $ 2,817,582 $ 10,466,081 $ 15,258,597
Increase (decrease) in net assets
Operations:
Net investment income (loss) 290,652 447,314 (68,351)
Total realized gains (losses) on investments (115,277) 34,719 (322,482)
Change in net unrealized appreciation or depreciation of investments (330,954) (30,298) (2,790,629)
----------------------------------------------------
Net Increase (decrease) in net assets resulting from operations (155,579) 451,735 (3,181,462)
Policy related transactions:
Net premium payments, less sales charges
and applicable premium taxes 1,375,669 7,427,505 4,182,154
Contract terminations and surrenders (353,814) (123,650) (369,232)
Death benefit payments - (6,819) (1,115)
Policy loan transfers (109,156) (65,251) (88,880)
Transfers to other contracts (597,385) (2,913,457) (1,531,217)
Cost of insurance and administration charges (138,912) (440,301) (873,747)
Surrender charges (90,189) (33,095) (99,894)
----------------------------------------------------
Increase (decrease) in assets from policy related transactions 86,213 3,844,932 1,218,069
----------------------------------------------------
Total increase (decrease) (69,366) 4,296,667 (1,963,393)
----------------------------------------------------
Net assets at June 30, 2002 $ 2,748,216 $ 14,762,748 $ 13,295,204
====================================================
International
High Yield International Emerging Markets
Division Division Division
------------------------------------------------
Net Assets at January 1, 2002 $ 1,710,543 $ 17,773,333 $ -
Increase (decrease) in net assets
Operations:
Net investment income (loss) (5,849) (8,029) (8)
Total realized gains (losses) on investments (94,837) (226,035) (880)
Change in net unrealized appreciation or depreciation of investments 19,860 (364,088) 1,582
------------------------------------------------
Net Increase (decrease) in net assets resulting from operations (80,826) (598,152) 694
Policy related transactions:
Net premium payments, less sales charges
and applicable premium taxes 22,927 5,521,292 366,708
Contract terminations and surrenders (157,389) (343,526) (2)
Death benefit payments - (22,746) -
Policy loan transfers (3,039) (109,988) 209
Transfers to other contracts (53,457) (1,795,401) (357,321)
Cost of insurance and administration charges (47,085) (922,866) (154)
Surrender charges (7,142) (88,606) (1)
------------------------------------------------
Increase (decrease) in assets from policy related transactions (245,185) 2,238,159 9,439
------------------------------------------------
Total increase (decrease) (326,011) 1,640,007 10,133
------------------------------------------------
Net assets at June 30, 2002 $ 1,384,532 $ 19,413,340 $ 10,133
================================================
INVESCO VIF -
International INVESCO VIF - Health Sciences
SmallCap Division Dynamics Division Division
------------------------------------------------------
Net Assets at January 1, 2002 $ 7,597,799 $ 53,019 $ 369,374
Increase (decrease) in net assets
Operations:
Net investment income (loss) (17,215) (394) (1,813)
Total realized gains (losses) on investments (214,801) (792) (1,922)
Change in net unrealized appreciation or depreciation of investments 389,738 (28,220) (96,131)
------------------------------------------------------
Net Increase (decrease) in net assets resulting from operations 157,722 (29,406) (99,866)
Policy related transactions:
Net premium payments, less sales charges
and applicable premium taxes 8,350,205 179,672 792,667
Contract terminations and surrenders (124,756) (497) (2,708)
Death benefit payments (4,776) - -
Policy loan transfers (45,087) 12 (1,007)
Transfers to other contracts (6,712,460) (76,882) (191,987)
Cost of insurance and administration charges (462,427) (7,991) (62,446)
Surrender charges (32,562) (127) (695)
------------------------------------------------------
Increase (decrease) in assets from policy related transactions 968,137 94,187 533,824
------------------------------------------------------
Total increase (decrease) 1,125,859 64,781 433,958
------------------------------------------------------
Net assets at June 30, 2002 $ 8,723,658 $ 117,800 $ 803,332
======================================================
INVESCO VIF - INVESCO VIF - Janus Aspen
Small Company Technology Aggressive
Growth Division Division Growth Division
----------------------------------------------------
Net Assets at January 1, 2002 $ 63,237 $ 137,546 $ 403,359
Increase (decrease) in net assets
Operations:
Net investment income (loss) (812) (978) (2,633)
Total realized gains (losses) on investments (308) (2,442) (8,450)
Change in net unrealized appreciation or depreciation of investments (39,850) (128,208) (107,301)
----------------------------------------------------
Net Increase (decrease) in net assets resulting from operations (40,970) (131,628) (118,384)
Policy related transactions:
Net premium payments, less sales charges
and applicable premium taxes 455,266 450,635 696,985
Contract terminations and surrenders (1,678) (10) (720)
Death benefit payments - - -
Policy loan transfers (474) - (13,497)
Transfers to other contracts (176,282) (95,527) (217,245)
Cost of insurance and administration charges (18,117) (21,514) (62,608)
Surrender charges (480) (3) (184)
----------------------------------------------------
Increase (decrease) in assets from policy related transactions 258,235 333,581 402,731
----------------------------------------------------
Total increase (decrease) 217,265 201,953 284,347
----------------------------------------------------
Net assets at June 30, 2002 $ 280,502 $ 339,499 $ 687,706
====================================================
LargeCap Blend LargeCap Growth LargeCap Stock
Division Division Index Division
----------------------------------------------------
Net Assets at January 1, 2002 $ - $ 154,565 $ 17,277,953
Increase (decrease) in net assets
Operations:
Net investment income (loss) (13) (1,985) (80,001)
Total realized gains (losses) on investments (1) (5,405) (174,523)
Change in net unrealized appreciation or depreciation of investments (1,344) (185,493) (2,460,601)
----------------------------------------------------
Net Increase (decrease) in net assets resulting from operations (1,358) (192,883) (2,715,125)
Policy related transactions:
Net premium payments, less sales charges
and applicable premium taxes 72,237 1,407,755 6,631,840
Contract terminations and surrenders - (1,323) (366,809)
Death benefit payments - - (8,219)
Policy loan transfers - (159) (97,921)
Transfers to other contracts - (173,017) (3,066,537)
Cost of insurance and administration charges (280) (66,694) (636,765)
Surrender charges - (337) (107,603)
----------------------------------------------------
Increase (decrease) in assets from policy related transactions 71,957 1,166,225 2,347,986
----------------------------------------------------
Total increase (decrease) 70,599 973,342 (367,139)
----------------------------------------------------
Net assets at June 30, 2002 $ 70,599 $ 1,127,907 $ 16,910,814
====================================================
LargeCap Value
Division MicroCap Division MidCap Division
-------------------------------------------------------
Net Assets at January 1, 2002 $ - $ 1,907,964 $ 39,443,774
Increase (decrease) in net assets
Operations:
Net investment income (loss) (34) (9,747) (147,594)
Total realized gains (losses) on investments (2) 6,336 546,409
Change in net unrealized appreciation or depreciation of investments (1,404) (30,070) (1,659,047)
-------------------------------------------------------
Net Increase (decrease) in net assets resulting from operations (1,440) (33,481) (1,260,232)
Policy related transactions:
Net premium payments, less sales charges
and applicable premium taxes 70,758 906,973 10,150,926
Contract terminations and surrenders - (32,323) (1,076,953)
Death benefit payments - (29,054) (76,105)
Policy loan transfers - (19,130) (525,930)
Transfers to other contracts (9) (316,933) (4,635,750)
Cost of insurance and administration charges (335) (86,610) (1,489,640)
Surrender charges - (8,239) (221,838)
-------------------------------------------------------
Increase (decrease) in assets from policy related transactions 70,414 414,684 2,124,710
-------------------------------------------------------
Total increase (decrease) 68,974 381,203 864,478
-------------------------------------------------------
Net assets at June 30, 2002 $ 68,974 $ 2,289,167 $ 40,308,252
=======================================================
MidCap Growth MidCap Growth MidCap Value
Division Equity Division Division
--------------------------------------------------
Net Assets at January 1, 2002 $ 3,431,858 $ 124,701 $ 334,689
Increase (decrease) in net assets
Operations:
Net investment income (loss) (15,285) (987) (3,658)
Total realized gains (losses) on investments (45,721) (6,261) 4,783
Change in net unrealized appreciation or depreciation of investments (638,886) (53,650) (31,439)
--------------------------------------------------
Net Increase (decrease) in net assets resulting from operations (699,892) (60,898) (30,314)
Policy related transactions:
Net premium payments, less sales charges
and applicable premium taxes 1,689,202 348,248 1,544,605
Contract terminations and surrenders (95,101) (77) (3,146)
Death benefit payments - - -
Policy loan transfers (5,490) (18) (3,761)
Transfers to other contracts (637,220) (143,337) (265,424)
Cost of insurance and administration charges (203,971) (19,220) (62,372)
Surrender charges (24,242) (20) (802)
--------------------------------------------------
Increase (decrease) in assets from policy related transactions 723,178 185,576 1,209,100
--------------------------------------------------
Total increase (decrease) 23,286 124,678 1,178,786
--------------------------------------------------
Net assets at June 30, 2002 $ 3,455,144 $ 249,379 $ 1,513,475
==================================================
Putnam VT Global
Money Market Asset Allocation Putnam VT Vista
Division Division Division
-----------------------------------------------------
Net Assets at January 1, 2002 $ 29,911,038 $ 1,442,869 $ 6,598,135
Increase (decrease) in net assets
Operations:
Net investment income (loss) 77,495 20,773 (31,333)
Total realized gains (losses) on investments - (14,778) (244,941)
Change in net unrealized appreciation or depreciation of investments (1,747) (99,866) (1,114,475)
-----------------------------------------------------
Net Increase (decrease) in net assets resulting from operations 75,748 (93,871) (1,390,749)
Policy related transactions:
Net premium payments, less sales charges
and applicable premium taxes 60,037,118 829,115 2,413,971
Contract terminations and surrenders (2,099,710) (16,590) (356,279)
Death benefit payments - (1,474) (450)
Policy loan transfers (314,317) (1,545) (34,258)
Transfers to other contracts (49,962,491) (287,991) (1,258,663)
Cost of insurance and administration charges (2,421,006) (90,042) (391,921)
Surrender charges (539,857) (4,330) (90,607)
-----------------------------------------------------
Increase (decrease) in assets from policy related transactions 4,699,737 427,143 281,793
-----------------------------------------------------
Total increase (decrease) 4,775,485 333,272 (1,108,956)
-----------------------------------------------------
Net assets at June 30, 2002 $ 34,686,523 $ 1,776,141 $ 5,489,179
=====================================================
Putnam VT Real Estate
Voyager Division Division SmallCap Division
----------------------------------------------------
Net Assets at January 1, 2002 $ 22,400,946 $ 3,295,109 $ 3,681,969
Increase (decrease) in net assets
Operations:
Net investment income (loss) 17,336 (17,152) (16,073)
Total realized gains (losses) on investments (362,645) 70,192 (40,580)
Change in net unrealized appreciation or depreciation of investments (3,797,049) 538,235 (572,383)
----------------------------------------------------
Net Increase (decrease) in net assets resulting from operations (4,142,358) 591,275 (629,036)
Policy related transactions:
Net premium payments, less sales charges
and applicable premium taxes 7,681,024 4,212,773 2,664,859
Contract terminations and surrenders (561,632) (519,621) (210,874)
Death benefit payments (14,151) (37,637) (50,381)
Policy loan transfers (55,265) (68,313) (24,203)
Transfers to other contracts (2,875,207) (2,057,534) (802,837)
Cost of insurance and administration charges (1,304,678) (223,736) (215,664)
Surrender charges (155,137) (132,465) (58,216)
----------------------------------------------------
Increase (decrease) in assets from policy related transactions 2,714,954 1,173,467 1,302,684
----------------------------------------------------
Total increase (decrease) (1,427,404) 1,764,742 673,648
----------------------------------------------------
Net assets at June 30, 2002 $ 20,973,542 $ 5,059,851 $ 4,355,617
====================================================
SmallCap Growth SmallCap Value Utilities
Division Division Division
--------------------------------------------------
Net Assets at January 1, 2002 $ 10,098,274 $ 5,542,468 $ 2,061,320
Increase (decrease) in net assets
Operations:
Net investment income (loss) (51,439) (29,079) (10,267)
Total realized gains (losses) on investments (217,734) 14,019 (136,512)
Change in net unrealized appreciation or depreciation of investments (2,905,636) 455,369 (37,079)
--------------------------------------------------
Net Increase (decrease) in net assets resulting from operations (3,174,809) 440,309 (183,858)
Policy related transactions:
Net premium payments, less sales charges
and applicable premium taxes 4,082,000 6,923,464 1,210,813
Contract terminations and surrenders (396,197) (1,087,059) (54,206)
Death benefit payments (6,254) (33,477) (22,724)
Policy loan transfers (7,151) (75,249) (37,612)
Transfers to other contracts (1,656,343) (2,715,671) (780,400)
Cost of insurance and administration charges (614,129) (295,016) (131,183)
Surrender charges (105,466) (277,103) (13,818)
--------------------------------------------------
Increase (decrease) in assets from policy related transactions 1,296,460 2,439,889 170,870
--------------------------------------------------
Total increase (decrease) (1,878,349) 2,880,198 (12,988)
--------------------------------------------------
Net assets at June 30, 2002 $ 8,219,925 $ 8,422,666 $ 2,048,332
==================================================
Wells Fargo VT Wells Fargo VT Wells Fargo VT
Asset Allocation Equity Income Large Company
Division Division Growth Division
--------------------------------------------------
Net Assets at January 1, 2002 $ - $ - $ -
Increase (decrease) in net assets
Operations:
Net investment income (loss) - - -
Total realized gains (losses) on investments - - -
Change in net unrealized appreciation or depreciation of investments - - -
--------------------------------------------------
Net Increase (decrease) 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 (decrease) in assets from policy related transactions - - -
--------------------------------------------------
Total increase (decrease) - - -
--------------------------------------------------
Net assets at June 30, 2002 $ - $ - $ -
==================================================
PRINCIPAL LIFE INSURANCE COMPANY
VARIABLE LIFE SEPARATE ACCOUNT
Notes to Financial Statements
June 30, 2002
1. Basis of Presentation
The accompanying interim unaudited condensed financial statements should be
read in conjunction with the financial statements and notes thereto for the
year ended December 31, 2001. The condensed financial statements presented
herein are unaudited but, in the opinion of management, include all the
necessary adjustments (which comprise only normal recurring items) required
for a fair presentation of the financial position as of June 30, 2002 and
the results of operations for the six months ended June 30, 2002. However,
interim results of operations necessarily require more estimates than
annual results and may not be indicative of results for the full year.
Principal Life Insurance Company
Consolidated Statements of Financial Position
June 30, December 31,
2002 2001
------------------ ------------------
(Unaudited) (Note 1)
(in millions,
except per share data)
Assets
Fixed maturities, available-for-sale................................ $30,580.1 $29,007.4
Fixed maturities, trading........................................... 59.6 17.8
Equity securities, available-for-sale............................... 785.3 798.7
Mortgage loans...................................................... 10,599.4 10,884.6
Real estate......................................................... 941.9 950.5
Policy loans........................................................ 824.7 831.9
Other investments................................................... 607.2 615.5
------------------ ------------------
Total investments............................................... 44,398.2 43,106.4
Cash and cash equivalents........................................... 1,959.4 1,077.7
Accrued investment income........................................... 606.1 593.5
Premiums due and other receivables.................................. 1,040.9 468.3
Deferred policy acquisition costs................................... 1,388.3 1,322.3
Property and equipment.............................................. 480.4 480.6
Goodwill............................................................ 68.6 59.2
Other intangibles................................................... 10.3 13.0
Mortgage loan servicing rights...................................... 1,978.1 1,778.5
Separate account assets............................................. 33,151.8 34,028.9
Other assets........................................................ 783.9 642.2
------------------ ------------------
------------------ ------------------
Total assets.................................................... $85,866.0 $83,570.6
================== ==================
================== ==================
Liabilities
Contractholder funds................................................ $25,995.0 $24,664.6
Future policy benefits and claims................................... 13,422.3 13,011.7
Other policyholder funds............................................ 580.2 576.6
Short-term debt..................................................... 1,657.0 1,378.4
Long-term debt...................................................... 588.7 617.6
Income taxes currently payable...................................... 211.7 -
Deferred income taxes............................................... 827.3 782.7
Separate account liabilities........................................ 33,151.8 34,028.9
Other liabilities................................................... 4,155.1 3,167.9
------------------ ------------------
------------------ ------------------
Total liabilities............................................... 80,589.1 78,228.4
Stockholder's equity
Common stock, par value $.01 per share - 5.0 million shares authorized, 2.5
million shares issued and outstanding
(wholly owned indirectly by Principal Financial Group, Inc.)g 2.5 2.5
Additional paid-in capital.......................................... 5,005.9 5,004.6
Retained-earnings deficit........................................... (94.2) (26.6)
Accumulated other comprehensive income.............................. 362.7 368.4
Treasury stock, at cost (363.7 thousand shares of Principal
Financial Group, Inc. common stock - 2001)....................... - (6.7)
------------------ ------------------
Total stockholder's equity...................................... 5,276.9 5,342.2
------------------ ------------------
------------------ ------------------
Total liabilities and stockholder's equity...................... $85,866.0 $83,570.6
================== ==================
See accompanying notes.
Principal Life Insurance Company
Consolidated Statements of Operations
(Unaudited)
For the three months ended For the six months
June 30, ended June 30,
--------------------------------- -------------------------------
2002 2001 2002 2001
---------------------------------- --------------- ---------------
(in millions)
Revenues
Premiums and other considerations.............. $1,122.0 $ 827.8 $ 1,966.5 $ 1,863.5
Fees and other revenues........................ 406.4 360.8 811.1 696.6
Net investment income.......................... 767.6 797.6 1,534.1 1,613.9
Net realized capital losses.................... (126.1) (97.6) (39.5) (170.1)
---------------- ---------------- ---------------- ---------------
---------------- ---------------- ---------------- ---------------
Total revenues........................... 2,169.9 1,888.6 4,272.2 4,003.9
Expenses
Benefits, claims and settlement
expenses.................................... 1,419.6 1,165.4 2,570.1 2,517.3
Dividends to policyholders..................... 79.5 81.1 161.9 162.1
Operating expenses............................. 550.7 495.4 1,091.4 1,015.3
---------------- ---------------- ---------------- ---------------
---------------- ---------------- ---------------- ---------------
Total expenses........................... 2,049.8 1,741.9 3,823.4 3,694.7
---------------- ---------------- ---------------- ---------------
---------------- ---------------- ---------------- ---------------
Income before income taxes and cumulative
effect of accounting changes................ 120.1 146.7 448.8 309.2
Income taxes................................... 21.3 31.0 121.8 62.1
---------------- ---------------- ---------------- ---------------
---------------- ---------------- ---------------- ---------------
Income before cumulative effect of
accounting changes.......................... 98.8 115.7 327.0 247.1
Cumulative effect of accounting changes, net
of related income taxes..................... - - (4.6) (10.7)
---------------- ---------------- ---------------- ---------------
Net income..................................... $ 98.8 $ 115.7 $ 322.4 $ 236.4
================ ================ ================ ===============
See accompanying notes.
Principal Life Insurance Company
Consolidated Statements of Stockholder's Equity
(Unaudited)
Accumulated
Additional Retained other Total
Common paid-in earnings comprehensive Treasury stockholder's
Stock capital (deficit) income stock equity
------------- ----------- ---------------------------- ---------- --------------
(in millions)
Balances at January 1, 2001.... $ 2.5 $ 21.0 $5,188.6 $ 88.1 $ - $5,300.2
Dividends to parent............ - - (420.0) 9.8 - (410.2)
Comprehensive income:
Net income................... - - 236.4 - - 236.4
Net unrealized gains......... - - - 177.6 - 177.6
Provision for deferred - (76.8) - (76.8)
income taxes.................. - -
Foreign currency translation
adjustment................ - - - 25.1 - 25.1
Cumulative effect of
accounting change, net
of related income taxes.. - - - (14.2) - (14.2)
--------------
--------------
Comprehensive income........... 348.1
-------------- ---------------------------------------- ---------- --------------
-------------- ---------------------------------------- ---------- --------------
Balances at June 30, 2001...... $ 2.5 $ 21.0 $5,005.0 $209.6 $ - $5,238.1
============== ======================================== ========== ==============
============== ======================================== ========== ==============
Balances at January 1, 2002.... $2.5 $5,004.6 $ (26.6) $368.4 $(6.7) $5,342.2
Dividends to parent............ - - (390.0) - - (390.0)
Principal Financial Group,
Inc. shares sold by rabbi - - 6.7 8.0
trusts........................ 1.3 -
Comprehensive income:
Net income................... - - 322.4 - - 322.4
Net unrealized losses........ - - - (14.0) - (14.0)
Provision for deferred
income tax - 3.9 - 3.9
benefit.................. - -
Foreign currency
translation adjustment - - - 4.4 - 4.4
--------------
--------------
Comprehensive income........... 316.7
-------------- ---------------------------------------- ---------- --------------
Balances at June 30, 2002...... $2.5 $5,005.9 $ (94.2) $362.7 $ - $5,276.9
============== ======================================== ========== ==============
See accompanying notes.
Principal Life Insurance Company
Consolidated Statements of Cash Flows
(Unaudited)
For the six months ended
June 30,
---------------------------------
2002 2001
----------------- ----------------
(in millions)
Operating activities
Net income............................................ $ 322.4 $ 236.4
Adjustments to reconcile net income to net cash
provided by operating activities:
Cumulative effect of accounting changes,
net of related income taxes.................... 4.6 10.7
Amortization of deferred policy acquisition
costs.......................................... 64.9 103.4
Additions to deferred policy acquisition costs... (156.0) (130.0)
Accrued investment income........................ (12.6) (49.9)
Premiums due and other receivables............... 64.3 (50.7)
Contractholder and policyholder liabilities
and dividends.................................. 1,039.0 911.5
Current and deferred income taxes................ 309.1 13.2
Net realized capital losses...................... 39.5 170.1
Depreciation and amortization expense............ 44.0 42.8
Amortization and impairment/recovery of
mortgage servicing rights..................... 201.4 128.7
Other............................................ (52.4) 390.0
----------------- ----------------
----------------- ----------------
Net adjustments....................................... 1,545.8 1,539.8
----------------- ----------------
----------------- ----------------
Net cash provided by operating activities............. 1,868.2 1,776.2
Investing activities Available-for-sale securities:
Purchases.......................................... (6,844.0) (6,673.0)
Sales............................................. 3,576.5 2,925.7
Maturities........................................ 1,774.9 1,227.3
Net cash flows from trading securities................ (41.2) -
Mortgage loans acquired or originated................. (20,689.6) (16,775.7)
Mortgage loans sold or repaid......................... 20,974.3 16,774.2
Purchase of mortgage servicing rights................. (471.4) (392.3)
Proceeds from sale of mortgage servicing rights....... 8.0 26.0
Real estate acquired.................................. (123.7) (180.4)
Real estate sold...................................... 157.5 394.4
Net change in property and equipment.................. (32.8) (42.4)
Net proceeds (disbursements) from sales of
subsidiaries....................................... 1.4 (13.5)
Purchases of interest in subsidiaries, net of cash
acquired........................................... - (4.2)
Net change in other investments....................... 428.0 (295.0)
----------------- ----------------
----------------- ----------------
Net cash used in investing activities................. $(1,282.1) $(3,028.9)
Principal Life Insurance Company
Consolidated Statements of Cash Flows (continued)
(Unaudited)
For the six months ended
June 30,
----------------------------------
2002 2001
----------------- ----------------
(in millions)
Financing activities
Sale of Principal Financial Group, Inc. shares
held by rabbi trusts............................. $ 8.0 $ -
Issuance of long-term debt........................... 10.7 146.4
Principal repayments of long-term debt............... (39.6) (92.4)
Dividends to parent.................................. (390.0) (273.9)
Proceeds of short-term borrowings.................... 1,466.0 268.9
Repayment of short-term borrowings................... (1,187.4) -
Investment contract deposits......................... 4,088.7 3,302.9
Investment contract withdrawals...................... (3,660.8) (2,880.2)
----------------- ----------------
----------------- ----------------
Net cash provided by financing activities............ 295.6 471.7
----------------- ----------------
Net increase (decrease) in cash and
cash equivalents................................. 881.7 (781.0)
Cash and cash equivalents at beginning of period..... 1,077.7 1,842.2
----------------- ----------------
----------------- ----------------
Cash and cash equivalents at end of period........... $ 1,959.4 $ 1,061.2
================= ================
================= ================
See accompanying notes.
Principal Life Insurance Company
Notes to Consolidated Financial Statements
June 30, 2002
(Unaudited)
1. Nature of Operations and Significant Accounting Policies
Basis of Presentation
The accompanying unaudited consolidated financial statements of Principal Life
Insurance Company and its majority-owned subsidiaries ("the Company") have been
prepared in conformity with accounting principles generally accepted in the U.S.
("U.S. GAAP") for interim financial statements. In the opinion of management,
all adjustments (consisting of normal recurring accruals) considered necessary
for a fair presentation have been included. Operating results for the three
months and six months ended June 30, 2002, are not necessarily indicative of the
results that may be expected for the year ended December 31, 2002. These interim
unaudited consolidated financial statements should be read in conjunction with
the Company's annual audited financial statements as of December 31, 2001. The
accompanying consolidated statement of financial position at December 31, 2001,
has been derived from the audited consolidated statement of financial position
but does not include all of the information and footnotes required by U.S. GAAP
for complete financial statements.
Reclassifications have been made to the December 31, 2001 and June 30, 2001,
financial statements to conform to the June 30, 2002, presentation.
Separate Accounts
At June 30, 2002, the Separate Accounts included a separate account valued at
$1.2 billion which primarily included shares of the Principal Financial Group,
Inc. ("PFG") stock that were allocated and issued to eligible participants of
qualified employee benefit plans administered by the Company as part of the
policy credits issued under the PFG demutualization. The separate account shares
are recorded at fair value and are reported as separate account assets and
separate account liabilities in the consolidated statements of financial
position. Activity of the separate account shares is reflected in both the
separate account assets and separate account liabilities and does not impact the
Company's results of operations.
Accounting Changes
The Financial Accounting Standards Board (the "FASB") Statement of Financial
Accounting Standards ("SFAS") No. 123, Accounting for Stock-Based Compensation
("SFAS 123") encourages, but does not require, companies to record compensation
cost for stock-based employee compensation plans based on the fair value of
options granted. The Company has elected to adopt the fair value based method of
accounting prescribed in SFAS 123 retroactive to January 1, 2002, for its
employee stock-based compensation plans and will implement the method during the
third quarter of 2002 for all stock-based awards granted subsequent to January
1, 2002. Prior to January 1, 2002, the Company elected to account for its
stock-based compensation plans under the provisions of Accounting Principles
Board ("APB") Opinion No. 25, Accounting for Stock Issued to Employees and,
accordingly, employee stock-based compensation costs were excluded from
compensation expense. The Company does not anticipate a material impact to its
consolidated financial statements as a result of this change in accounting
policy.
In June 2001, the FASB issued SFAS No. 141, Business Combinations ("SFAS 141"),
and SFAS No. 142, Goodwill and Other Intangible Assets ("SFAS 142"). SFAS 141
requires that the purchase method of accounting be used for all business
combinations initiated after June 30, 2001, and requires separate recognition of
intangible assets apart from goodwill, if such intangible assets meet certain
criteria. SFAS 142, effective January 1, 2002, prohibits the amortization of
goodwill and intangible assets with indefinite useful lives. Intangible assets
with finite lives will continue to be amortized over their estimated useful
lives. Additionally, SFAS 142 requires that goodwill and indefinite-lived
intangible assets be reviewed for impairment at least annually, which the
Company plans to do in the fourth quarter each year.
Principal Life Insurance Company
Notes to Consolidated Financial Statements (continued)
June 30, 2002
(Unaudited)
1. Nature of Operations and Significant Accounting Policies (continued)
The initial adoption of SFAS 142 required the Company to perform a two-step
fair-value based goodwill impairment test. The first step of the test compared
the estimated fair value of the reporting unit to its carrying value, including
goodwill. If the carrying value exceeded fair value, a second step was
performed, which compared the implied fair value of the applicable reporting
unit's goodwill with the carrying amount of that goodwill, to measure the
goodwill impairment, if any.
The Company's measurements of fair value were based on evaluations of future
discounted cash flows, product level analysis, market performance assumptions
and cash flow assumptions. These evaluations utilized the best information
available in the circumstances, including reasonable and supportable assumptions
and projections. The discounted cash flow evaluations considered earnings
scenarios and the likelihood of possible outcomes. Collectively, these
evaluations were management's best estimate of projected future cash flows.
As a result of performing the two-step impairment test, the Company recorded an
after-tax goodwill impairment of $4.6 million related to its Life and Health
operations. This impairment was recognized on January 1, 2002, as a cumulative
effect of a change in accounting principle.
Net income for the three months and six months ended June 30, 2002 and 2001,
adjusted for the effects of SFAS 142 related to non-amortization of goodwill and
indefinite-lived intangibles, is as follows (in millions):
For the three months ended For the six months ended
June 30, June 30,
--------------------------------- -----------------------------------
--------------------------------- -----------------------------------
2002 2001 2002 2001
--------------------------------- -----------------------------------
--------------- -----------------
Reported net income.................... $98.8 $115.7 $322.4 $236.4
Adjustment for amortization expense
for goodwill and indefinite-lived
intangibles.......................... - 1.4 - 2.5
Tax impacts of amortization expense ... - (0.6) - (0.9)
--------------------------------- -----------------------------------
--------------------------------- -----------------------------------
Adjusted net income.................... $98.8 $116.5 $322.4 $238.0
================================= ===================================
================================= ===================================
In August 2001, the FASB issued SFAS No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets ("SFAS 144"). This Statement supersedes SFAS No.
121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of, and amends APB Opinion No. 30, Reporting the Results
of Operations - Reporting the Effects of Disposal of a Segment of a Business,
and Extraordinary, Unusual and Infrequently Occurring Events and Transactions
("Opinion 30"), establishing a single accounting model for the disposal of
long-lived assets. SFAS 144 generally retains the basic provisions of existing
guidance, but broadens the presentation of any discontinued operations to
include a component of an entity (rather than a segment of a business as defined
in Opinion 30). The Company adopted SFAS 144 on January 1, 2002, which did not
have a significant impact on the Company's consolidated financial statements.
On January 1, 2001, the Company adopted SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities ("SFAS 133"), as amended by SFAS No. 138,
Accounting for Certain Derivative Instruments and Certain Hedging Activities -
an amendment of FASB Statement No. 133. As amended, SFAS 133 requires, among
other things, that all derivatives be recognized in the consolidated statement
of financial position as either assets or liabilities that are measured at fair
value. SFAS 133 also established special accounting for qualifying hedges, which
allows for matching the timing of gain or loss recognition on the hedging
instrument with the recognition of the corresponding changes in value of the
hedged item. Changes in the fair value of a derivative qualifying as a hedge are
recognized in earnings or directly in stockholders' equity depending on the
instrument's intended use. For derivatives that are not designated as hedges or
that do not meet the hedge accounting criteria in SFAS 133, changes in fair
value are required to be recognized in earnings in the period of change.
1. Nature of Operations and Significant Accounting Policies (continued)
At January 1, 2001, the Company's consolidated financial statements were
adjusted to record a cumulative effect of adopting SFAS 133, as follows (in
millions):
Accumulated other
Net loss comprehensive loss
------------------ ----------------------
Adjustment to fair value of derivative contracts (1).......... $(16.4) $(15.8)
Income tax impact............................................. 5.7 1.6
------------------ ----------------------
------------------ ----------------------
Total ........................................................ $(10.7) $(14.2)
================== ======================
------------------
(1) Amount presented is net of adjustment to hedged item.
2. Goodwill and Other Intangible Assets
As of June 30, 2002 and December 31, 2001, the Company had $10.3 million and
$13.0 million, respectively, of other intangible assets, all of which have
indefinite useful lives. Due to the adoption of SFAS 142 on January 1, 2002, the
Company no longer amortizes its intangible assets.
The changes in the carrying amount of goodwill reported in the Company's
operating segments for the six months ended June 30, 2002, are as follows (in
millions):
U.S. Asset Life and Mortgage Corporate and Consolidated
Management
and Health
Accumulation Insurance Banking Other
--------------- --------------- --------------- --------------- ----------------
--------------- --------------- --------------- --------------- ----------------
Balance at January 1, 2002 $16.1 $49.4 $8.4 $(14.7) $59.2
Goodwill disposed of
during the period....... - (0.7) - 14.7 14.0
Cumulative effect of
accounting change....... - (4.6) - - (4.6)
--------------- --------------- --------------- --------------- ----------------
Balance at June 30, 2002.. $16.1 $44.1 $8.4 $ - $68.6
=============== =============== =============== =============== ================
3. Mergers, Acquisitions, and Divestitures
On February 1, 2002, the Company sold its remaining stake of 15.1 million shares
in Coventry Health Care, Inc. ("Coventry") common stock and a warrant,
exercisable for 3.1 million shares of Coventry common stock. Total proceeds from
the completion of this transaction were $325.4 million and the Company
recognized a net realized capital gain of $183.0 million.
4. Closed Block
In connection with its 1998 mutual insurance holding company formation, the
Company formed and began operating a closed block ("Closed Block") for the
benefit of individual participating dividend-paying policies in force on that
date. As of June 30, 2002, cumulative actual earnings, including consideration
of net unrealized gains, have been less than cumulative expected earnings.
Therefore, no policyholder dividend obligation has been recognized.
4. Closed Block (continued)
Closed Block liabilities and assets designated to the Closed Block are as
follows:
As of June 30, As of December 31,
2002 2001
------------------------- -------------------------
(in millions)
Closed Block liabilities
Future policy benefits and claims.................. $5,270.0 $5,248.7
Other policyholder funds........................... 26.4 20.3
Policyholder dividends payable..................... 383.2 376.6
Other liabilities.................................. 86.8 11.8
------------------------- -------------------------
------------------------- -------------------------
Total Closed Block liabilities................... 5,766.4 5,657.4
Assets designated to the Closed Block
Fixed maturities, available-for-sale............... 2,537.8 2,466.3
Equity securities, available-for-sale.............. 23.6 23.4
Mortgage loans..................................... 893.8 880.0
Policy loans....................................... 781.2 792.5
Other investments.................................. 8.3 6.9
------------------------- -------------------------
------------------------- -------------------------
Total investments................................ 4,244.7 4,169.1
Cash and cash equivalents (deficit)................ 12.0 (8.0)
Accrued investment income.......................... 77.2 77.2
Deferred tax asset................................. 90.6 80.8
Premiums due and other receivables................. 73.2 33.3
------------------------- -------------------------
------------------------- -------------------------
Total assets designated to the Closed Block...... 4,497.7 4,352.4
------------------------- -------------------------
------------------------- -------------------------
Excess of Closed Block liabilities over assets
designated to the Closed Block................... 1,268.7 1,305.0
Amounts included in other comprehensive
income........................................... 55.8 43.6
------------------------- -------------------------
------------------------- -------------------------
Maximum future earnings to be recognized from
Closed Block assets and liabilities.............. $1,324.5 $1,348.6
========================= =========================
4. Closed Block (continued)
Closed Block revenues and expenses were as follows:
For the three months ended For the six months ended
June 30, June 30,
--------------------------------- -----------------------------------
2002 2001 2002 2001
-------------- --------------- -------------- -----------------
(in millions)
Revenues
Premiums and other considerations..... $ 181.0 $188.9 $ 359.8 $ 376.1
Net investment income................. 76.8 74.9 156.2 151.8
Net realized capital losses .......... (15.3) (2.5) (22.0) (1.8)
-------------- --------------- -------------- -----------------
-------------- --------------- -------------- -----------------
Total revenues...................... 242.5 261.3 494.0 526.1
Expenses
Benefits, claims, and settlement
expenses............................ 146.3 147.4 291.3 305.1
Dividends to policyholders............ 77.5 80.2 155.2 158.2
Operating expenses.................... 3.2 3.1 6.2 6.2
-------------- --------------- -------------- -----------------
-------------- --------------- -------------- -----------------
Total expenses...................... 227.0 230.7 452.7 469.5
-------------- --------------- -------------- -----------------
-------------- --------------- -------------- -----------------
Closed Block revenue, net of Closed
Block expenses, before income taxes. 15.5 30.6 41.3 56.6
Income taxes.......................... 4.8 10.0 13.3 18.5
-------------- --------------- -------------- -----------------
-------------- --------------- -------------- -----------------
Closed Block revenue, net of Closed 10.7 20.6 28.0 38.1
Block expenses and income taxes...
Funding adjustment charges............ (2.4) (1.5) (3.9) (3.3)
-------------- --------------- -------------- -----------------
-------------- --------------- -------------- -----------------
Closed Block revenue, net of Closed $ 8.3 $ 19.1 $ 24.1 $ 34.8
Block expenses, income taxes
and funding adjustment charges......
============== =============== ============== =================
The change in maximum future earnings of the Closed Block was as follows:
As of or for the six months ended
June 30,
-------------------------------------
---------------- --- ----------------
2002 2001
---------------- ----------------
(in millions)
Beginning of year........................... $ 1,348.6 $1,408.8
End of period............................... 1,324.5 1,374.0
---------------- ----------------
---------------- ----------------
Change in maximum future earnings........... $ (24.1) $ (34.8)
================ ================
The Company charges the Closed Block with federal income taxes, payroll taxes,
state and local premium taxes and other state or local taxes, licenses and fees
as provided in the plan of reorganization.
5. Federal Income Taxes
The effective income tax rate on net income for the three months and six months
ended June 30, 2002 and 2001, is lower than the prevailing corporate federal
income tax rate primarily due to income tax deductions allowed for corporate
dividends received.
6. Comprehensive Income
Comprehensive income is as follows:
For the three For the six
months ended months ended
June 30, June 30,
-------------------------- --------------------------
2002 2001 2002 2001
---------- ---------- ----------- -----------
(in millions)
Comprehensive income:
Net income......................................... $ 98.8 $ 115.7 $322.4 $ 236.4
Net change in unrealized gains and losses on fixed )
maturities, available-for-sale.................. 405.4 (205.7 45.9 181.2
Net change in unrealized gains and losses on equity
securities, available-for-sale, including seed
money
in separate accounts............................ (15.5) 42.0 (2.9) 23.5
Adjustments for assumed changes
in amortization patterns:
Deferred policy acquisition costs............... (66.6) 40.2 (25.1) (26.8)
Unearned revenue reserves....................... 3.4 (4.6) 0.6 0.6
Net change in unrealized gains and losses on
derivative instruments.......................... (44.1) 22.1 (32.5) 11.5
Provision for deferred income taxes (benefits)..... (99.0) 30.4 3.9 (76.8)
Change in net foreign currency translation adjustment 1.1 15.4 4.4 12.7
Cumulative effect of accounting change, net of related
income taxes.................................... - - - (14.2)
----------- ---------- ---------- -----------
----------- ---------- ---------- -----------
Comprehensive income............................ $ 283.5 $ 55.5 $316.7 $ 348.1
=========== ========== ========== ===========
7. Commitments and Contingencies
Litigation
The Company is a plaintiff or defendant in actions arising out of its
operations. The Company is, from time to time, also involved in various
governmental and administrative proceedings. While the outcome of any pending or
future litigation cannot be predicted, management does not believe that any
pending litigation will have a material adverse effect on the Company's
business, financial condition or results of operations. However, no assurances
can be given that such litigation would not materially and adversely affect the
Company's business, financial condition or results of operations.
Other companies in the life insurance industry have historically been subject to
substantial litigation resulting from claims disputes and other matters. Most
recently, such companies have faced extensive claims, including class-action
lawsuits, alleging improper life insurance sales practices. The Company is
currently a defendant in two class-action lawsuits which allege improper sales
practices.
7. Commitments and Contingencies (continued)
In 2000, the Company reached an agreement in principle to settle these two
class-action lawsuits alleging improper sales practices. In April 2001, the
proposed settlement of the class-action lawsuits received court approval. In
agreeing to the settlement, the Company specifically denied any wrongdoing. The
Company has accrued a loss reserve for its best estimate based on information
available. As uncertainties continue to exist in resolving this matter, it is
reasonably possible that, as the actual cost of the claims subject to
alternative dispute resolution becomes available, the final cost of settlement
could exceed the Company's estimate. The range of any additional cost related to
the settlement cannot be presently estimated; however, the Company believes the
settlement will not have a material impact on its business, financial condition
or results of operations. A number of persons and entities who were eligible to
be class members have excluded themselves from the class (or "opted out"), as
the law permits them to do. The Company has been notified that some of those who
opted out from the class will file lawsuits and make claims similar to those
addressed by the settlement. Some of these lawsuits are presently on file.
8. Segment Information
The Company provides financial products and services through the following
segments: U.S. Asset Management and Accumulation, Life and Health Insurance and
Mortgage Banking. In addition, there is a Corporate and Other segment. The
segments are managed and reported separately because they provide different
products and services, have different strategies or have different markets and
distribution channels.
The U.S. Asset Management and Accumulation segment provides retirement and
related financial products and services primarily to businesses, their employees
and other individuals and provides asset management services to the Company's
asset accumulation business, the life and health insurance operations and
third-party clients.
The Life and Health insurance segment provides individual life and disability
insurance to the owners and employees of businesses and other individuals in the
U.S. and provides group life and health insurance to businesses in the U.S.
The Mortgage Banking segment originates and services residential mortgage loan
products for customers primarily in the U.S.
The Corporate and Other segment manages the assets representing capital that has
not been allocated to any other segment. Financial results of the Corporate and
Other segment primarily reflect financing activities for the Company, income on
capital not allocated to other segments, intersegment eliminations and
non-recurring or other income or expenses not allocated to the segments based on
review of the nature of such items. This segment also includes international
operations that offer retirement products and services, annuities, mutual funds
and life insurance through subsidiaries in Argentina, Chile, Mexico and Hong
Kong. By December 31, 2001, the Company disposed of, distributed or dividended
essentially all of its international operations to its parent, Principal
Financial Services, Inc.
The Corporate and Other segment includes an equity ownership interest in
Coventry. The ownership interest was sold on February 1, 2002, described further
in Note 3. The Corporate and Other segment's equity in earnings of Coventry,
which was included in net investment income, was $2.1 million for the six months
ended June 30, 2002, and $4.8 million and $9.7 million for the three months and
six months ended June 30, 2001, respectively.
8. Segment Information (continued)
The Company evaluates segment performance on segment operating earnings, which
is determined by adjusting U.S. GAAP net income for net realized capital gains
and losses, as adjusted, and non-recurring items which management believes are
not indicative of overall operating trends. Net realized capital gains and
losses, as adjusted, are net of tax, related changes in the amortization pattern
of deferred policy acquisition costs, recognition of front-end fee revenues for
sales charges on pension products and services, net realized capital gains
credited to customers and certain market value adjustments to fee revenues.
Segment operating revenues exclude net realized capital gains and their impact
on recognition of front-end fee revenues. While these items may be significant
components in understanding and assessing the consolidated financial
performance, management believes the presentation of segment operating earnings
enhances the understanding of the Company's results of operations by
highlighting earnings attributable to the normal, recurring operations of the
business. However, segment operating earnings are not a substitute for net
income determined in accordance with U.S. GAAP.
For the three months ended June 30, 2002, the Company did not exclude any
non-recurring items from net income for its presentation of operating earnings.
For the three months ended June 30, 2001, the Company excluded $10.9 million of
non-recurring items, net of income taxes, related to the negative effects of
expenses related to the demutualization.
For the six months ended June 30, 2002, the Company excluded $6.6 million of
non-recurring items, net of income taxes, including the negative effects of: (1)
a cumulative effect of accounting change related to the implementation of SFAS
142 ($4.6 million); and (2) expenses related to the demutualization ($2.0
million).
For the six months ended June 30, 2001, the Company excluded $31.4 million of
non-recurring items, net of income taxes, including the negative effects of: (1)
expenses related to the demutualization ($14.8 million); (2) a cumulative effect
of change in accounting principle related to the implementation of SFAS 133
($10.7 million); and (3) an increase to a loss contingency reserve established
for sales practices litigation ($5.9 million).
The accounting policies of the segments are similar to those of the Company,
with the exception of capital allocation. The Company allocates capital to its
segments based upon an internal capital model that allows management to more
effectively manage the Company's capital.
8. Segment Information (continued)
The following tables summarize selected financial information by segment as of
or for the three months ended, June 30, 2002 and 2001, and reconciles segment
totals to those reported in the consolidated financial statements (in millions):
U.S. Asset Life and Mortgage Corporate and Consolidated
Management
and Health
Accumulation Insurance Banking Other
--------------- --------------- --------------- --------------- --------------
--------------- --------------- --------------- --------------- --------------
2002
Revenues:
Operating revenues........ $ 1,113.3 $ 984.5 $ 194.2 $ 7.2 $ 2,299.2
Net realized
capital losses.. (89.7) (33.6) - (2.8) (126.1)
Plus recognition of
front- end fee
revenues................ 1.4 - - - 1.4
Less capital gains
distributed as market
value adjustment........ (4.6) - - - (4.6)
--------------- --------------- --------------- --------------- --------------
--------------- --------------- --------------- --------------- --------------
Revenues.................... $ 1,020.4 $ 950.9 $ 194.2 $ 4.4 $ 2,169.9
=============== =============== =============== =============== ==============
Net income:
Operating earnings........ $ 100.6 $ 61.7 $ 15.1 $ 0.4 $ 177.8
Net realized capital
gains (losses), as
adjusted................ (60.4) (20.8) - 2.2 (79.0)
--------------- --------------- --------------- --------------- --------------
Net income.................. $ 40.2 $ 40.9 $ 15.1 $ 2.6 $ 98.8
=============== =============== =============== =============== ==============
=============== =============== =============== =============== ==============
Assets...................... $ 69,717.7 $ 11,132.5 $2,965.3 $2,050.5 $ 85,866.0
=============== =============== =============== =============== ==============
=============== =============== =============== =============== ==============
Other segment data:
Revenues from external
customers............... $ 1,011.5 $ 952.5 $ 194.2 $ 11.7 $ 2,169.9
Intersegment revenues..... 8.9 (1.6) - (7.3) -
Interest expense.......... 0.8 - - 9.0 9.8
Income tax expense
(benefit)............... (4.9) 21.7 9.0 (4.5) 21.3
8. Segment Information (continued)
U.S. Asset Life and Corporate and
anagement and Health Mortgage Other
MAccumulation Insurance Banking Consolidated
------------------------------- --------------- --------------- ---------------
------------------------------- --------------- --------------- ---------------
2001
Revenues:
Operating revenues..... $ 821.4 $ 975.8 $ 164.3 $ 24.0 $ 1,985.5
Net realized
capital losses.... (53.5) (7.8) - (36.3) (97.6)
Plus recognition of
front-end fee
revenues............. 0.7 - - - 0.7
------------------------------- --------------- --------------- ---------------
------------------------------- --------------- --------------- ---------------
Revenues................. $ 768.6 $ 968.0 $ 164.3 $ (12.3) $ 1,888.6
=============================== =============== =============== ===============
=============================== =============== =============== ===============
Net income:
Operating earnings..... $ 86.6 $ 48.4 $ 38.8 $ 14.0 $ 187.8
Net realized capital
losses, as adjusted.. (33.4) (4.1) - (23.7) (61.2)
Non-recurring items.... - - - (10.9) (10.9)
------------------------------- --------------- --------------- ---------------
------------------------------- --------------- --------------- ---------------
Net income (loss)........ $ 53.2 $ 44.3 $ 38.8 $ (20.6) $ 115.7
=============================== =============== =============== ===============
=============================== =============== =============== ===============
Assets................... $ 66,146.7 $10,637.2 $ 2,168.9 $1,942.9 $ 80,895.7
=============================== =============== =============== ===============
=============================== =============== =============== ===============
Other segment data:
Revenues from external
customers............ $ 761.8 $ 969.0 $ 166.1 $ (8.3) $ 1,888.6
Intersegment revenues.. 6.8 (1.0) (1.8) (4.0) -
Interest expense....... 0.8 (0.1) - 5.0 5.7
Income tax expense
(benefit)............ (0.3) 22.3 21.1 (12.1) 31.0
Amortization of
goodwill and other
intangibles.......... 0.3 1.1 0.2 (0.2) 1.4
8. Segment Information (continued)
The following tables summarize selected financial information by segment as of
or for the six months ended, June 30, 2002 and 2001, and reconciles segment
totals to those reported in the consolidated financial statements (in millions):
U.S. Asset
Management Life and
and Health Mortgage Corporate and
Accumulation Insurance Banking Other Consolidated
--------------- --------------- --------------- ------------------------------
--------------- --------------- --------------- ------------------------------
2002
Revenues:
Operating revenues...... $ 1,951.4 $ 1,963.0 $ 385.9 $ 20.6 $ 4,320.9
Net realized capital
gains
(losses).............. (162.9) (50.4) - 173.8 (39.5)
Plus recognition of
front-end fee revenues 4.0 - - - 4.0
Less capital gains
distributed as market
value adjustment...... (13.2) - - - (13.2)
--------------- --------------- --------------- ------------------------------
Revenues.................. $ 1,779.3 $ 1,912.6 $ 385.9 $ 194.4 $ 4,272.2
=============== =============== =============== ==============================
=============== =============== =============== ==============================
Net income:
Operating earnings...... $ 199.8 $ 116.0 $ 30.8 $ 6.4 $ 353.0
Net realized capital
gains (losses), as
adjusted.............. (105.2) (31.3) - 112.5 (24.0)
Non-recurring items..... - (4.6) - (2.0) (6.6)
--------------- --------------- --------------- ------------------------------
--------------- --------------- --------------- ------------------------------
Net income................ $ 94.6 $ 80.1 $ 30.8 $ 116.9 $ 322.4
=============== =============== =============== ==============================
=============== =============== =============== ==============================
Assets.................... $ 69,717.7 $ 11,132.5 $2,965.3 $2,050.5 $ 85,866.0
=============== =============== =============== ==============================
=============== =============== =============== ==============================
Other segment data:
Revenues from external
customers............. $ 1,762.8 $ 1,915.7 $ 385.9 $ 207.8 $ 4,272.2
Intersegment revenues... 16.5 (3.1) - (13.4) -
Interest expense........ 2.1 0.2 - 18.4 20.7
Income tax expense
(benefit)............. (2.8) 44.3 18.4 61.9 121.8
Amortization of
intangibles........... 0.1 - - - 0.1
8. Segment Information (continued)
U.S. Asset Life and Corporate and
anagement and Health Mortgage Other
MAccumulation Insurance Banking Consolidated
------------------------------- --------------- --------------- ---------------
------------------------------- --------------- --------------- ---------------
2001
Revenues:
Operating revenues..... $ 1,814.2 $ 1,978.2 $ 283.0 $ 98.1 $ 4,173.5
Net realized
capital losses.... (65.4) (9.1) - (95.6) (170.1)
Plus recognition of
front-end fee
revenues............. 0.5 - - - 0.5
------------------------------- --------------- --------------- ---------------
------------------------------- --------------- --------------- ---------------
Revenues................. $ 1,749.3 $ 1,969.1 $ 283.0 $ 2.5 $ 4,003.9
=============================== =============== =============== ===============
=============================== =============== =============== ===============
Net income:
Operating earnings..... $ 173.7 $ 90.9 $ 62.1 $ 44.8 $ 371.5
Net realized capital
losses, as adjusted.. (40.8) (4.7) - (58.2) (103.7)
Non-recurring items.... (10.8) 0.1 - (20.7) (31.4)
------------------------------- --------------- --------------- ---------------
------------------------------- --------------- --------------- ---------------
Net income (loss)........ $ 122.1 $ 86.3 $ 62.1 $ (34.1) $ 236.4
=============================== =============== =============== ===============
=============================== =============== =============== ===============
Assets................... $ 66,146.7 $ 10,637.2 $2,168.9 $1,942.9 $ 80,895.7
=============================== =============== =============== ===============
=============================== =============== =============== ===============
Other segment data:
Revenues from external
customers............ $ 1,733.9 $ 1,970.8 $ 283.0 $ 16.2 $ 4,003.9
Intersegment revenues.. 15.4 (1.7) - (13.7) -
Interest expense....... 2.1 2.2 - 9.9 14.2
Income tax expense
(benefit)............ 14.9 43.5 33.6 (29.9) 62.1
Amortization of
goodwill and other
intangibles.......... 0.5 2.0 0.4 - 2.9
The Company operates in the U.S. and, during 2001, also operated in selected
markets internationally (including Mexico, Argentina and Hong Kong). The
following table summarizes selected financial information by geographic location
as of or for the three months and six months ended June 30, 2002 and 2001 (in
millions):
For the three months For the six months
As of June 30, ended June 30, ended June 30,
-------------------------- --------------------------- ----------------------------
---------- -- ------------ ------------ ----------- ----------- -- -------------
Long-Lived Net Net
Assets Income Income
Assets Revenues (Loss) Revenues (Loss)
---------- ------------ ------------ ----------- ----------- -------------
---------- ------------ ------------ ----------- -----------
2002
United States..... $559.3 $85,866.0 $ 2,169.9 $ 98.8 $4,272.2 $ 322.4
========== ============ ============ =========== =========== =============
2001
United States..... $547.9 $80,899.2 $ 1,888.1 $116.2 $4,008.1 $ 258.7
International...... 0.3 (3.5) 0.5 (0.5) (4.2) (22.3)
---------- ------------ ------------ ----------- ----------- -------------
---------- ------------ ------------ ----------- ----------- -------------
Total............... $548.2 $80,895.7 $ 1,888.6 $115.7 $4,003.9 $ 236.4
========== ============ ============ =========== =========== =============
Long-lived assets include property and equipment, goodwill and other
intangibles.
The Company's operations are not materially dependent on one or a few customers,
brokers or agents, and revenues, assets and operating earnings are attributed to
geographic location based on the country of domicile the sales originate from.
9. Stockholder's Equity
Common Stock
In February 2002, the Company sold shares of PFG stock (reported as treasury
stock and held in the rabbi trusts), which generated proceeds of $8.0 million,
with a cost of $6.7 million.
Report of Independent Auditors
Board of Directors and Participants
Principal Life Insurance Company
We have audited the accompanying statements of assets and liabilities of each of
the divisions of Principal Life Insurance Company Variable Life Separate Account
[comprised of the AIM V.I. Growth, AIM V.I. Growth and Income, AIM V.I. Value,
American Century VP Income & Growth, American Century VP Ultra, Asset
Allocation, Balanced, Bond, Capital Value, Dreyfus Founders Discovery, Equity
Growth (formerly Aggressive Growth), Fidelity VIP II Contrafund, Fidelity VIP
Equity-Income, Fidelity VIP High Income, Government Securities, Growth, High
Yield, International, International SmallCap, INVESCO VIF Dynamics, INVESCO VIF
Health Sciences, INVESCO VIF Small Company Growth, INVESCO VIF Technology, Janus
Aspen Aggressive Growth, LargeCap Growth, LargeCap Stock Index, MicroCap,
MidCap, MidCap Growth, MidCap Growth Equity, MidCap Value, Money Market, Putnam
VT Global Asset Allocation, Putnam VT Vista, Putnam VT Voyager, Real Estate,
SmallCap, SmallCap Growth, SmallCap Value, and Utilities Divisions] as of
December 31, 2001, and the related statements of operations and changes in net
assets for each of the three years in the period then ended, except for those
divisions operating for portions of such periods as disclosed in the financial
statements. These financial statements are the responsibility of the management
of Principal Life Insurance Company. Our responsibility is to express an opinion
on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. 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, 2001, by
correspondence with the transfer agents. 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 each of the respective
divisions of Principal Life Insurance Company Variable Life Separate Account at
December 31, 2001, and the results of their operations and the changes in their
net assets for the periods described above, in conformity with accounting
principles generally accepted in the United States.
Des Moines, Iowa
February 11, 2002
Principal Life Insurance Company
Variable Life Separate Account
Statements of Assets and Liabilities
December 31, 2001
AIM V.I. Growth
AIM V.I. Growth and Income
Division Division
------------------------------------
------------------------------------
Assets
Investments in shares of mutual funds, at market $174,780 $107,483
Liabilities - -
------------------------------------
------------------------------------
Net assets $174,780 $107,483
====================================
====================================
Net assets
Accumulation units:
Flex Variable Life $ - $11,668
PrinFlex Life 170,737 89,267
Survivorship Variable Universal Life 3,894 6,548
Variable Universal Life Accumulator 149 -
------------------------------------
Total net assets $174,780 $107,483
====================================
====================================
Investments in shares of mutual funds, at cost $175,515 $105,697
Shares of mutual fund owned 10,677 5,321
Accumulation units outstanding:
Flex Variable Life - 1,398
PrinFlex Life 19,945 10,645
Survivorship Variable Universal Life 455 781
Variable Universal Life Accumulator 17 -
Accumulation unit value:
Flex Variable Life $ - $8.35
PrinFlex Life 8.56 8.39
Survivorship Variable Universal Life 8.56 8.39
Variable Universal Life Accumulator 8.56 -
See accompanying notes.
American Century
VP Income & American Century
AIM V.I. Value Growth Division VP Ultra
Division Division
------------------------------------------------------
------------------------------------------------------
Assets
Investments in shares of mutual funds, at market $426,219 $323,130 $192,825
Liabilities - - -
------------------------------------------------------
------------------------------------------------------
Net assets $426,219 $323,130 $192,825
======================================================
======================================================
Net assets
Accumulation units:
Flex Variable Life $ 8,005 $ 704 $ 933
PrinFlex Life 407,044 320,012 185,637
Survivorship Variable Universal Life 10,966 2,400 2,763
Variable Universal Life Accumulator 204 14 3,492
------------------------------------------------------
Total net assets $426,219 $323,130 $192,825
======================================================
======================================================
Investments in shares of mutual funds, at cost $434,765 $318,954 $188,591
Shares of mutual fund owned 18,254 50,020 20,234
Accumulation units outstanding:
Flex Variable Life 908 78 102
PrinFlex Life 45,956 35,419 20,200
Survivorship Variable Universal Life 1,238 266 301
Variable Universal Life Accumulator 23 2 380
Accumulation unit value:
Flex Variable Life $8.82 $8.99 $9.15
PrinFlex Life 8.86 9.03 9.19
Survivorship Variable Universal Life 8.86 9.03 9.19
Variable Universal Life Accumulator 8.86 9.03 9.19
See accompanying notes.
Asset Allocation
Division Balanced Division Bond
Division
-----------------------------------------------------
-----------------------------------------------------
Assets
Investments in shares of mutual funds, at market $ 9,649,902 $13,101,392 $14,908,876
Liabilities - - -
-----------------------------------------------------
-----------------------------------------------------
Net assets $ 9,649,902 $13,101,392 $14,908,876
=====================================================
=====================================================
Net assets
Accumulation units:
Flex Variable Life $ 1,043 $ 3,251,009 $ 2,086,474
PrinFlex Life 8,938,288 9,431,734 12,375,718
Survivorship Variable Universal Life 709,091 398,483 441,580
Variable Universal Life Accumulator 1,480 20,166 5,104
-----------------------------------------------------
Total net assets $ 9,649,902 $13,101,392 $14,908,876
=====================================================
=====================================================
Investments in shares of mutual funds, at cost $10,300,714 $14,454,023 $14,583,802
Shares of mutual fund owned 855,488 954,216 1,259,196
Accumulation units outstanding:
Flex Variable Life 109 117,537 78,312
PrinFlex Life 609,734 764,576 919,315
Survivorship Variable Universal Life 65,399 43,017 37,669
Variable Universal Life Accumulator 101 1,635 379
Accumulation unit value:
Flex Variable Life $9.59 $27.66 $26.63
PrinFlex Life 14.66 12.34 13.46
Survivorship Variable Universal Life 10.84 9.26 11.72
Variable Universal Life Accumulator 14.66 12.34 13.46
See accompanying notes.
Principal Life Insurance Company
Variable Life Separate Account
Statements of Assets and Liabilities (continued)
December 31, 2001
Dreyfus Founders
Capital Discovery Division
Value
Division
------------------------------------
------------------------------------
Assets
Investments in shares of mutual funds, at market $29,595,153 $155,009
Liabilities - -
------------------------------------
------------------------------------
Net assets $29,595,153 $155,009
====================================
====================================
Net assets
Accumulation units:
Flex Variable Life $ 6,785,163 $ -
PrinFlex Life 22,430,842 153,971
Survivorship Variable Universal Life 378,845 -
Variable Universal Life Accumulator 303 1,038
------------------------------------
Total net assets $29,595,153 $155,009
====================================
====================================
Investments in shares of mutual funds, at cost $34,388,100 $150,441
Shares of mutual fund owned 1,065,340 15,801
Accumulation units outstanding:
Flex Variable Life 203,555 -
PrinFlex Life 1,754,500 17,312
Survivorship Variable Universal Life 43,890 -
Variable Universal Life Accumulator 24 117
Accumulation unit value:
Flex Variable Life $33.33 $ -
PrinFlex Life 12.78 8.89
Survivorship Variable Universal Life 8.63 -
Variable Universal Life Accumulator 12.78 8.89
See accompanying notes.
Fidelity VIP Fidelity
Equity Growth Fidelity Equity- VIP High
Division VIP II Income Division Income Division
Contrafund
Division
-----------------------------------------------------------------------
-----------------------------------------------------------------------
Assets
Investments in shares of mutual funds, at market $50,584,441 $41,154,655 $18,129,536 $2,817,582
Liabilities - - - -
-----------------------------------------------------------------------
-----------------------------------------------------------------------
Net assets $50,584,441 $41,154,655 $18,129,536 $2,817,582
=======================================================================
=======================================================================
Net assets
Accumulation units:
Flex Variable Life $ 11,532 $ 7,956 $ 23,133 $ 1,205
PrinFlex Life 48,766,788 39,577,641 16,980,993 2,719,735
Survivorship Variable Universal Life 1,803,583 1,568,048 1,121,672 96,642
Variable Universal Life Accumulator 2,538 1,010 3,738 -
-----------------------------------------------------------------------
Total net assets $50,584,441 $41,154,655 $18,129,536 $2,817,582
=======================================================================
=======================================================================
Investments in shares of mutual funds, at cost $61,058,093 $47,521,359 $19,019,849 $3,794,051
Shares of mutual fund owned 3,105,245 2,044,444 796,903 439,560
Accumulation units outstanding:
Flex Variable Life 1,285 853 2,535 134
PrinFlex Life 3,153,875 2,468,412 1,132,160 333,471
Survivorship Variable Universal Life 193,996 168,512 111,942 14,035
Variable Universal Life Accumulator 164 63 249 -
Accumulation unit value:
Flex Variable Life $ 8.97 $ 9.33 $ 9.13 $8.96
PrinFlex Life 15.46 16.03 15.00 8.16
Survivorship Variable Universal Life 9.30 9.31 10.02 6.89
Variable Universal Life Accumulator 15.46 16.03 15.00 -
See accompanying notes.
Government
Securities Growth Division
Division
------------------------------------
------------------------------------
Assets
Investments in shares of mutual funds, at market $10,466,081 $15,258,597
Liabilities - -
------------------------------------
------------------------------------
Net assets $10,466,081 $15,258,597
====================================
====================================
Net assets
Accumulation units:
Flex Variable Life $ 34,289 $ -
PrinFlex Life 7,222,238 14,451,604
Survivorship Variable Universal Life 3,183,376 806,770
Variable Universal Life Accumulator 26,178 223
------------------------------------
Total net assets $10,466,081 $15,258,597
====================================
====================================
Investments in shares of mutual funds, at cost $10,105,682 $22,210,954
Shares of mutual fund owned 903,807 1,246,617
Accumulation units outstanding:
Flex Variable Life 3,284 -
PrinFlex Life 510,686 1,259,246
Survivorship Variable Universal Life 261,505 110,394
Variable Universal Life Accumulator 1,851 19
Accumulation unit value:
Flex Variable Life $10.44 $ -
PrinFlex Life 14.14 11.48
Survivorship Variable Universal Life 12.17 7.31
Variable Universal Life Accumulator 14.14 11.48
See accompanying notes.
Principal Life Insurance Company
Variable Life Separate Account
Statements of Assets and Liabilities (continued)
December 31, 2001
High Yield International
Division Division
------------------------------------
------------------------------------
Assets
Investments in shares of mutual funds, at market $1,710,543 $17,773,333
Liabilities - -
------------------------------------
------------------------------------
Net assets $1,710,543 $17,773,333
====================================
====================================
Net assets
Accumulation units:
Flex Variable Life $1,710,543 $ 940
PrinFlex Life - 17,094,072
Survivorship Variable Universal Life - 671,414
Variable Universal Life Accumulator - 6,907
------------------------------------
Total net assets $1,710,543 $17,773,333
====================================
====================================
Investments in shares of mutual funds, at cost $2,321,615 $23,735,645
Shares of mutual fund owned 295,431 1,691,088
Accumulation units outstanding:
Flex Variable Life 83,344 111
PrinFlex Life - 1,622,404
Survivorship Variable Universal Life - 83,630
Variable Universal Life Accumulator - 656
Accumulation unit value:
Flex Variable Life $20.52 $ 8.48
PrinFlex Life - 10.54
Survivorship Variable Universal Life - 8.03
Variable Universal Life Accumulator - 10.54
See accompanying notes.
INVESCO VIF Small
INVESCO VIF Company Growth
International INVESCO VIF Health Sciences Division
SmallCap Division Dynamics Division Division
-----------------------------------------------------------------------
-----------------------------------------------------------------------
Assets
Investments in shares of mutual funds, at market $7,597,799 $53,019 $369,374 $63,237
Liabilities - - - -
-----------------------------------------------------------------------
-----------------------------------------------------------------------
Net assets $7,597,799 $53,019 $369,374 $63,237
=======================================================================
=======================================================================
Net assets
Accumulation units:
Flex Variable Life $ - $ - $ - $ 85
PrinFlex Life 6,949,272 53,019 359,074 62,196
Survivorship Variable Universal Life 645,664 - 9,070 956
Variable Universal Life Accumulator 2,863 - 1,230 -
-----------------------------------------------------------------------
Total net assets $7,597,799 $53,019 $369,374 $63,237
=======================================================================
=======================================================================
Investments in shares of mutual funds, at cost $8,390,754 $50,094 $363,925 $58,196
Shares of mutual fund owned 700,904 4,228 20,295 4,296
Accumulation units outstanding:
Flex Variable Life - - - 10
PrinFlex Life 572,166 6,587 36,164 7,310
Survivorship Variable Universal Life 62,559 - 913 112
Variable Universal Life Accumulator 236 - 124 -
Accumulation unit value:
Flex Variable Life $ - $ - $ - $8.47
PrinFlex Life 12.14 8.05 9.93 8.51
Survivorship Variable Universal Life 10.32 - 9.93 8.51
Variable Universal Life Accumulator 12.14 - 9.93 -
See accompanying notes.
Janus Aspen
INVESCO VIF Aggressive Growth
Technology Division
Division
------------------------------------
------------------------------------
Assets
Investments in shares of mutual funds, at market $137,546 $403,359
Liabilities - -
------------------------------------
------------------------------------
Net assets $137,546 $403,359
====================================
====================================
Net assets
Accumulation units:
Flex Variable Life $ 15,816 $ 15,543
PrinFlex Life 117,196 384,245
Survivorship Variable Universal Life 4,308 1,831
Variable Universal Life Accumulator 226 1,740
------------------------------------
Total net assets $137,546 $403,359
====================================
====================================
Investments in shares of mutual funds, at cost $132,554 $426,995
Shares of mutual fund owned 8,949 18,562
Accumulation units outstanding:
Flex Variable Life 2,230 2,064
PrinFlex Life 16,447 50,785
Survivorship Variable Universal Life 605 242
Variable Universal Life Accumulator 32 230
Accumulation unit value:
Flex Variable Life $7.09 $7.53
PrinFlex Life 7.13 7.57
Survivorship Variable Universal Life 7.13 7.57
Variable Universal Life Accumulator 7.13 7.57
See accompanying notes.
Principal Life Insurance Company
Variable Life Separate Account
Statements of Assets and Liabilities (continued)
December 31, 2001
LargeCap Growth LargeCap Stock
Division Index Division
------------------------------------
------------------------------------
Assets
Investments in shares of mutual funds, at market $154,565 $17,277,953
Liabilities - -
------------------------------------
------------------------------------
Net assets $154,565 $17,277,953
====================================
====================================
Net assets
Accumulation units:
Flex Variable Life $ 6,133 $ 75,585
PrinFlex Life 145,344 15,575,618
Survivorship Variable Universal Life 2,474 1,616,807
Variable Universal Life Accumulator 614 9,943
------------------------------------
Total net assets $154,565 $17,277,953
====================================
====================================
Investments in shares of mutual funds, at cost $151,331 $19,698,933
Shares of mutual fund owned 17,485 2,084,192
Accumulation units outstanding:
Flex Variable Life 776 8,485
PrinFlex Life 18,300 1,775,448
Survivorship Variable Universal Life 312 183,566
Variable Universal Life Accumulator 77 1,133
Accumulation unit value:
Flex Variable Life $7.91 $8.91
PrinFlex Life 7.94 8.77
Survivorship Variable Universal Life 7.94 8.81
Variable Universal Life Accumulator 7.94 8.77
See accompanying notes.
MidCap Growth
MicroCap Division MidCap Division Division
------------------------------------------------------
------------------------------------------------------
Assets
Investments in shares of mutual funds, at market $1,907,964 $39,443,774 $3,431,858
Liabilities - - -
------------------------------------------------------
------------------------------------------------------
Net assets $1,907,964 $39,443,774 $3,431,858
======================================================
======================================================
Net assets
Accumulation units:
Flex Variable Life $ 8,120 $12,850,695 $ -
PrinFlex Life 1,468,375 26,199,741 3,226,436
Survivorship Variable Universal Life 425,752 392,486 201,933
Variable Universal Life Accumulator 5,717 852 3,489
------------------------------------------------------
Total net assets $1,907,964 $39,443,774 $3,431,858
======================================================
Investments in shares of mutual funds, at cost $1,858,016 $40,276,924 $3,903,523
Shares of mutual fund owned 208,066 1,229,161 404,224
Accumulation units outstanding:
Flex Variable Life 838 256,683 -
PrinFlex Life 158,891 1,684,436 334,304
Survivorship Variable Universal Life 40,896 31,869 20,694
Variable Universal Life Accumulator 619 55 362
Accumulation unit value:
Flex Variable Life $ 9.69 $50.06 $ -
PrinFlex Life 9.24 15.55 9.65
Survivorship Variable Universal Life 10.41 12.32 9.76
Variable Universal Life Accumulator 9.24 15.55 9.65
MidCap Growth
Equity Division MidCap Money
Value Market Division
Division
-----------------------------------------------------
-----------------------------------------------------
Assets
Investments in shares of mutual funds, at market $124,701 $334,689 $29,911,038
Liabilities - - -
-----------------------------------------------------
-----------------------------------------------------
Net assets $124,701 $334,689 $29,911,038
=====================================================
=====================================================
Net assets
Accumulation units:
Flex Variable Life $ - $ 2,437 $ 601,473
PrinFlex Life 123,338 315,589 26,266,573
Survivorship Variable Universal Life 1,363 10,868 2,439,863
Variable Universal Life Accumulator - 5,795 603,129
-----------------------------------------------------
Total net assets $124,701 $334,689 $29,911,038
=====================================================
Investments in shares of mutual funds, at cost $121,049 $330,229 $29,911,124
Shares of mutual fund owned 21,136 28,655 29,911,038
Accumulation units outstanding:
Flex Variable Life - 254 32,483
PrinFlex Life 14,989 32,705 2,063,192
Survivorship Variable Universal Life 166 1,126 216,836
Variable Universal Life Accumulator - 601 47,398
Accumulation unit value:
Flex Variable Life $ - $9.60 $18.52
PrinFlex Life 8.23 9.65 12.73
Survivorship Variable Universal Life 8.23 9.65 11.25
Variable Universal Life Accumulator - 9.65 12.73
Principal Life Insurance Company
Variable Life Separate Account
Statements of Assets and Liabilities (continued)
December 31, 2001
Putnam VT Global
Asset Allocation Putnam VT
Division Vista
Division
------------------------------------
------------------------------------
Assets
Investments in shares of mutual funds, at market $1,442,869 $6,598,135
Liabilities - -
------------------------------------
------------------------------------
Net assets $1,442,869 $6,598,135
====================================
====================================
Net assets
Accumulation units:
Flex Variable Life $ 9,290 $ 69
PrinFlex Life 1,293,496 6,192,328
Survivorship Variable Universal Life 140,083 405,704
Variable Universal Life Accumulator - 34
------------------------------------
Total net assets $1,442,869 $6,598,135
====================================
====================================
Investments in shares of mutual funds, at cost $1,696,386 $9,683,579
Shares of mutual fund owned 107,838 581,846
Accumulation units outstanding:
Flex Variable Life 995 9
PrinFlex Life 129,168 605,531
Survivorship Variable Universal Life 14,820 45,706
Variable Universal Life Accumulator - 3
Accumulation unit value:
Flex Variable Life $ 9.34 $ 8.06
PrinFlex Life 10.01 10.22
Survivorship Variable Universal Life 9.45 8.88
Variable Universal Life Accumulator - 10.22
See accompanying notes.
Putnam VT Voyager Real
Division Estate SmallCap Division
Division
------------------------------------------------------
------------------------------------------------------
Assets
Investments in shares of mutual funds, at market $22,400,946 $3,295,109 $3,681,969
Liabilities - - -
------------------------------------------------------
------------------------------------------------------
Net assets $22,400,946 $3,295,109 $3,681,969
======================================================
======================================================
Net assets
Accumulation units:
Flex Variable Life $ 22,112 $ 6,754 $ 6,039
PrinFlex Life 20,227,611 2,675,427 3,429,566
Survivorship Variable Universal Life 2,149,777 612,928 246,360
Variable Universal Life Accumulator 1,446 - 4
------------------------------------------------------
Total net assets $22,400,946 $3,295,109 $3,681,969
======================================================
======================================================
Investments in shares of mutual funds, at cost $34,032,574 $3,151,013 $4,025,439
Shares of mutual fund owned 784,347 305,953 458,527
Accumulation units outstanding:
Flex Variable Life 2,620 617 638
PrinFlex Life 1,822,878 210,229 330,003
Survivorship Variable Universal Life 233,042 44,748 22,786
Variable Universal Life Accumulator 130 - 1
Accumulation unit value:
Flex Variable Life $ 8.44 $10.95 $ 9.47
PrinFlex Life 11.10 12.73 10.39
Survivorship Variable Universal Life 9.22 13.70 10.81
Variable Universal Life Accumulator 11.10 - 10.39
See accompanying notes.
SmallCap Growth SmallCap
Division Value Utilities Division
Division
-----------------------------------------------------
-----------------------------------------------------
Assets
Investments in shares of mutual funds, at market $10,098,274 $5,542,468 $2,061,320
Liabilities - - -
-----------------------------------------------------
-----------------------------------------------------
Net assets $10,098,274 $5,542,468 $2,061,320
=====================================================
=====================================================
Net assets
Accumulation units:
Flex Variable Life $ 4,072 $ 4,670 $ 5,358
PrinFlex Life 9,373,483 5,224,309 1,857,845
Survivorship Variable Universal Life 718,607 307,759 198,117
Variable Universal Life Accumulator 2,112 5,730 -
-----------------------------------------------------
Total net assets $10,098,274 $5,542,468 $2,061,320
=====================================================
=====================================================
Investments in shares of mutual funds, at cost $14,727,410 $5,492,867 $2,611,241
Shares of mutual fund owned 952,667 487,464 236,119
Accumulation units outstanding:
Flex Variable Life 535 476 739
PrinFlex Life 797,228 384,039 182,355
Survivorship Variable Universal Life 77,212 21,105 23,413
Variable Universal Life Accumulator 180 421 -
Accumulation unit value:
Flex Variable Life $ 7.61 $ 9.82 $ 7.25
PrinFlex Life 11.76 13.60 10.19
Survivorship Variable Universal Life 9.31 14.58 8.46
Variable Universal Life Accumulator 11.76 13.60 -
See accompanying notes.
Principal Life Insurance Company
Variable Life Separate Account
Statements of Operations
For the Years Ended December 31, 2001, 2000 and 1999, Except as Noted
AIM V.I.
AIM V.I. Growth and
Growth Income
Division (1) Division (1)
------------------------------------
Year ended December 31, 2001 Investment income (loss) Income:
Dividends $ 360 $ 49
Expenses:
Mortality and expense risks 409 275
------------------------------------
Net investment income (loss) (49) (226)
Realized gains (losses) on investments
Realized gain (losses) on sale of fund shares (218) (3,639)
Capital gains distributions - -
------------------------------------
------------------------------------
Total realized gains (losses) on investments (218) (3,639)
Change in net unrealized appreciation or depreciation of investments (735) 1,786
-------------------------------------
Net increase (decrease) in net assets resulting from operations $(1,002) $(2,079)
====================================
Year ended December 31, 2000 Investment income (loss) Income:
Dividends $ - $ -
Capital gains distributions - -
------------------------------------
- -
Expenses:
Mortality and expense risks - -
------------------------------------
Net investment income (loss) - -
Realized and unrealized gains (losses) on investments
Net realized gains (losses) on investments - -
Change in net unrealized appreciation or depreciation of investments - -
-------------------------------------
Net increase (decrease) in net assets resulting from operations $ - $ -
====================================
Year ended December 31, 1999 Investment income (loss) Income:
Dividends $ - $ -
Capital gains distributions - -
------------------------------------
- -
Expenses:
Mortality and expense risks - -
------------------------------------
Net investment income (loss) - -
Realized and unrealized gains (losses) on investments
Net realized gains (losses) on investments - -
Change in net unrealized appreciation or depreciation of investments - -
------------------------------------
Net increase (decrease) in net assets resulting from operations $ - $ -
====================================
<FN>
(1) Commenced operations May 19, 2001
</FN>
See accompanying notes.
American
Century VP American
AIM V.I. Income & Growth Century VP
Value Division (1) Ultra
Division (1) Division (1)
-------------------------------------------------------------
Year ended December 31, 2001 Investment income (loss) Income:
Dividends $ 520 $ - $ -
Expenses:
Mortality and expense risks 1,038 793 453
---------------------------------------------------------
Net investment income (loss) (518) (793) (453)
Realized gains (losses) on investments
Realized gain (losses) on sale of fund shares (3,100) (71) (9,757)
Capital gains distributions 7,899 - -
---------------------------------------------------------
---------------------------------------------------------
Total realized gains (losses) on investments 4,799 (71) (9,757)
Change in net unrealized appreciation or depreciation of investments (8,546) 4,176 4,234
---------------------------------------------------------
Net increase (decrease) in net assets resulting from operations $(4,265) $3,312 $(5,976)
=========================================================
Year ended December 31, 2000 Investment income (loss) Income:
Dividends $ - $ - $ -
Capital gains distributions - - -
---------------------------------------------------------
- - -
Expenses:
Mortality and expense risks - - -
---------------------------------------------------------
Net investment income (loss) - - -
Realized and unrealized gains (losses) on investments
Net realized gains (losses) on investments - - -
Change in net unrealized appreciation or depreciation of investments - - -
---------------------------------------------------------
Net increase (decrease) in net assets resulting from operations $ - $ - $ -
=========================================================
Year ended December 31, 1999 Investment income (loss) Income:
Dividends $ - $ - $ -
Capital gains distributions - - -
---------------------------------------------------------
- - -
Expenses:
Mortality and expense risks - - -
---------------------------------------------------------
Net investment income (loss) - - -
Realized and unrealized gains (losses) on investments
Net realized gains (losses) on investments - - -
Change in net unrealized appreciation or depreciation of investments - - -
---------------------------------------------------------
Net increase (decrease) in net assets resulting from operations $ - $ - $ -
=========================================================
<FN>
(1) Commenced operations May 19, 2001
</FN>
See accompanying notes.
Asset
Allocation Balanced Bond
Division Division Division
--------------------------------------------------
Year ended December 31, 2001 Investment income (loss) Income:
Dividends $ 201,541 $ 365,554 $ 691,129
Expenses:
Mortality and expense risks 66,382 106,648 92,970
--------------------------------------------------
Net investment income (loss) 135,159 258,906 598,159
Realized gains (losses) on investments
Realized gain (losses) on sale of fund shares (230,483) (128,442) (6,436)
Capital gains distributions 13,288 167,396 -
--------------------------------------------------
--------------------------------------------------
Total realized gains (losses) on investments (217,195) 38,954 (6,436)
Change in net unrealized appreciation or depreciation of investments (251,071) (1,262,149) 140,352
---------------------------------------------------
Net increase (decrease) in net assets resulting from operations $(333,107) $ (964,289) $ 732,075
==================================================
Year ended December 31, 2000 Investment income (loss) Income:
Dividends $ 140,582 $ - $ -
Capital gains distributions 401,133 - -
--------------------------------------------------
541,715 - -
Expenses:
Mortality and expense risks 37,864 104,162 70,481
--------------------------------------------------
Net investment income (loss) 503,851 (104,162) (70,481)
Realized and unrealized gains (losses) on investments
Net realized gains (losses) on investments 9,480 (52,909) (67,172)
Change in net unrealized appreciation or depreciation of investments (522,565) 67,563 710,421
---------------------------------------------------
Net increase (decrease) in net assets resulting from operations (9,234) $ (89,508) $ 572,768
==================================================
Year ended December 31, 1999 Investment income (loss) Income:
Dividends $ 72,994 $ 421,363 $ 423,106
Capital gains distributions 220,018 458,007 -
--------------------------------------------------
293,012 879,370 423,106
Expenses:
Mortality and expense risks 20,257 93,638 47,388
--------------------------------------------------
Net investment income (loss) 272,755 785,732 375,718
Realized and unrealized gains (losses) on investments
Net realized gains (losses) on investments 18,368 77,332 (8,182)
Change in net unrealized appreciation or depreciation of investments 136,643 (695,498) (552,153)
--------------------------------------------------
Net increase (decrease) in net assets resulting from operations $ 427,766 $ 167,566 $(184,617)
==================================================
<FN>
(1) Commenced operations May 19, 2001
</FN>
See accompanying notes.
Principal Life Insurance Company
Variable Life Separate Account
Statements of Operations (continued)
For the Years Ended December 31, 2001, 2000 and 1999, Except as Noted
Dreyfus
Capital Founders
Value Discovery
Division Division (1)
------------------------------------
Year ended December 31, 2001 Investment income (loss) Income:
Dividends $ 354,739 $ -
Expenses:
Mortality and expense risks 260,206 543
------------------------------------
Net investment income (loss) 94,533 (543)
Realized gains (losses) on investments
Realized gain (losses) on sale of fund shares (420,531) (3,645)
Capital gains distributions 128,530 -
------------------------------------
------------------------------------
Total realized gains (losses) on investments (292,001) (3,645)
Change in net unrealized appreciation or depreciation of investments (2,498,976) 4,568
-------------------------------------
Net increase (decrease) in net assets resulting from operations $(2,696,444) $ 380
====================================
Year ended December 31, 2000 Investment income (loss) Income:
Dividends $ 448,738 $ -
Capital gains distributions 135,404 -
------------------------------------
584,142 -
Expenses:
Mortality and expense risks 253,147 -
------------------------------------
Net investment income (loss) 330,995 -
Realized and unrealized gains (losses) on investments
Net realized gains (losses) on investments (899,891) -
Change in net unrealized appreciation or depreciation of investments 950,640 -
-------------------------------------
Net increase (decrease) in net assets resulting from operations $ 381,744 $ -
====================================
Year ended December 31, 1999 Investment income (loss) Income:
Dividends $ 631,298 $ -
Capital gains distributions 3,121,167 -
------------------------------------
3,752,465 -
Expenses:
Mortality and expense risks 227,884 -
------------------------------------
Net investment income (loss) 3,524,581 -
Realized and unrealized gains (losses) on investments
Net realized gains (losses) on investments 207,213 -
Change in net unrealized appreciation or depreciation of investments (5,167,258) -
------------------------------------
Net increase (decrease) in net assets resulting from operations $(1,435,464) $ -
====================================
<FN>
(1) Commenced operations May 19, 2001
(2) Represented the operations of the Aggressive Growth Division until May 19,
2001 when the name changed to Equity Growth Division
</FN>
See accompanying notes.
Fidelity VIP
Equity Fidelity VIP II Equity-
Growth Contrafund Income
Division (2) Division Division
-------------------------------------------------------
Year ended December 31, 2001 Investment income (loss) Income:
Dividends $ 42,527 $ 266,237 $ 235,916
Expenses:
Mortality and expense risks 413,828 305,601 121,385
--------------------------------------------------------
Net investment income (loss) (371,301) (39,364) 114,531
Realized gains (losses) on investments
Realized gain (losses) on sale of fund shares (594,851) (530,711) (100,524)
Capital gains distributions 2,923,876 939,660 662,811
--------------------------------------------------------
--------------------------------------------------------
Total realized gains (losses) on investments 2,329,025 408,949 562,287
Change in net unrealized appreciation or depreciation of investments (9,726,755) (5,327,117) (1,553,952)
--------------------------------------------------------
Net increase (decrease) in net assets resulting from operations $(7,769,031) $(4,957,532) $ (877,134)
========================================================
Year ended December 31, 2000 Investment income (loss) Income:
Dividends $ - $ 84,138 $ 167,161
Capital gains distributions 1,219,532 3,054,223 629,770
--------------------------------------------------------
1,219,532 3,138,361 796,931
Expenses:
Mortality and expense risks 357,859 254,559 100,688
--------------------------------------------------------
Net investment income (loss) 861,673 2,883,802 696,243
Realized and unrealized gains (losses) on investments
Net realized gains (losses) on investments 146,570 32,714 (36,409)
Change in net unrealized appreciation or depreciation of investments (7,649,724) (5,395,041) 320,251
--------------------------------------------------------
Net increase (decrease) in net assets resulting from operations $(6,641,481) $(2,478,525) $ 980,085
========================================================
Year ended December 31, 1999 Investment income (loss) Income:
Dividends $ - $ 45,256 $ 81,671
Capital gains distributions 2,005,405 331,881 180,535
--------------------------------------------------------
2,005,405 377,137 262,206
Expenses:
Mortality and expense risks 182,021 115,541 66,774
--------------------------------------------------------
Net investment income (loss) 1,823,384 261,596 195,432
Realized and unrealized gains (losses) on investments
Net realized gains (losses) on investments 88,148 36,522 26,811
Change in net unrealized appreciation or depreciation of investments 6,010,958 3,000,192 51,551
--------------------------------------------------------
Net increase (decrease) in net assets resulting from operations $ 7,922,490 $ 3,298,310 $ 273,794
========================================================
Fidelity VIP Government
High Income Securities Growth
Division Division Division
----------------------------------------------------
Year ended December 31, 2001 Investment income (loss) Income:
Dividends $ 233,699 $216,752 $ -
Expenses:
Mortality and expense risks 22,546 44,697 132,900
---------------------------------------------------
Net investment income (loss) 211,153 172,055 (132,900)
Realized gains (losses) on investments
Realized gain (losses) on sale of fund shares (198,377) 21,893 (200,755)
Capital gains distributions - - -
---------------------------------------------------
---------------------------------------------------
Total realized gains (losses) on investments (198,377) 21,893 (200,755)
Change in net unrealized appreciation or depreciation of investments (397,609) 190,344 (3,854,361)
----------------------------------------------------
Net increase (decrease) in net assets resulting from operations $ (384,833) $384,292 $(4,188,016)
===================================================
Year ended December 31, 2000 Investment income (loss) Income:
Dividends $ 112,140 $ - $ -
Capital gains distributions - - 2,991,447
---------------------------------------------------
112,140 - 2,991,447
Expenses:
Mortality and expense risks 16,875 24,903 120,729
---------------------------------------------------
Net investment income (loss) 95,265 (24,903) 2,870,718
Realized and unrealized gains (losses) on investments
Net realized gains (losses) on investments (46,430) (73,232) 27,791
Change in net unrealized appreciation or depreciation of investments (528,218) 358,676 (4,702,775)
----------------------------------------------------
Net increase (decrease) in net assets resulting from operations $ (479,383) $260,541 $(1,804,266)
===================================================
Year ended December 31, 1999 Investment income (loss) Income:
Dividends $ 107,614 $181,309 $ 61,438
Capital gains distributions 4,023 - 26,610
---------------------------------------------------
111,637 181,309 88,048
Expenses:
Mortality and expense risks 12,593 29,098 65,974
---------------------------------------------------
Net investment income (loss) 99,044 152,211 22,074
Realized and unrealized gains (losses) on investments
Net realized gains (losses) on investments (18,366) (23,023) 35,999
Change in net unrealized appreciation or depreciation of investments 9,792 (179,101) 1,136,770
---------------------------------------------------
Net increase (decrease) in net assets resulting from operations $ 90,470 $ (49,913) $ 1,194,843
===================================================
Principal Life Insurance Company
Variable Life Separate Account
Statements of Operations (continued)
For the Years Ended December 31, 2001, 2000 and 1999, Except as Noted
High
Yield International
Division Division
------------------------------------
Year ended December 31, 2001 Investment income (loss) Income:
Dividends $ 178,099 $ 23,800
Expenses:
Mortality and expense risks 12,750 156,274
------------------------------------
Net investment income (loss) 165,349 (132,474)
Realized gains (losses) on investments
Realized gain (losses) on sale of fund shares (35,917) (183,087)
Capital gains distributions - 3,381
------------------------------------
------------------------------------
Total realized gains (losses) on investments (35,917) (179,706)
Change in net unrealized appreciation or depreciation of investments (131,598) (4,528,498)
-------------------------------------
Net increase (decrease) in net assets resulting from operations $ (2,166) $(4,840,678)
====================================
Year ended December 31, 2000 Investment income (loss) Income:
Dividends $ 159,252 $ 115,474
Capital gains distributions - 687,531
------------------------------------
159,252 803,005
Expenses:
Mortality and expense risks 12,260 139,590
------------------------------------
Net investment income (loss) 146,992 663,415
Realized and unrealized gains (losses) on investments
Net realized gains (losses) on investments (36,162) 10,274
Change in net unrealized appreciation or depreciation of investments (199,645) (2,202,921)
------------------------------------
Net increase (decrease) in net assets resulting from operations $ (88,815) $(1,529,232)
====================================
Year ended December 31, 1999 Investment income (loss) Income:
Dividends $ 156,525 $ 331,297
Capital gains distributions - 1,187,285
------------------------------------
156,525 1,518,582
Expenses:
Mortality and expense risks 15,977 88,959
------------------------------------
Net investment income (loss) 140,548 1,429,623
Realized and unrealized gains (losses) on investments
Net realized gains (losses) on investments (83,063) 34,900
Change in net unrealized appreciation or depreciation of investments (35,529) 942,834
------------------------------------
Net increase (decrease) in net assets resulting from operations $ 21,956 $ 2,407,357
====================================
<FN>
(1) Commenced operations May 19, 2001
</FN>
See accompanying notes.
INVESCO VIF
International INVESCO VIF Health
SmallCap Dynamics Sciences
Division Division (1) Division (1)
-------------------------------------------------------
Year ended December 31, 2001 Investment income (loss) Income:
Dividends $ - $ - $ -
Expenses:
Mortality and expense risks 64,180 135 717
-------------------------------------------------------
Net investment income (loss) (64,180) (135) (717)
Realized gains (losses) on investments
Realized gain (losses) on sale of fund shares (1,822,324) (1,010) (249)
Capital gains distributions - - -
-------------------------------------------------------
-------------------------------------------------------
Total realized gains (losses) on investments (1,822,324) (1,010) (249)
Change in net unrealized appreciation or depreciation of investments 186,949 2,925 5,449
-------------------------------------------------------
Net increase (decrease) in net assets resulting from operations $(1,699,555) $1,780 $4,483
=======================================================
Year ended December 31, 2000 Investment income (loss) Income:
Dividends $ - $ - $ -
Capital gains distributions 362,609 - -
-------------------------------------------------------
362,609 - -
Expenses:
Mortality and expense risks 45,118 - -
-------------------------------------------------------
Net investment income (loss) 317,491 - -
Realized and unrealized gains (losses) on investments
Net realized gains (losses) on investments 137,726 - -
Change in net unrealized appreciation or depreciation of investments (1,565,735) - -
-------------------------------------------------------
Net increase (decrease) in net assets resulting from operations $(1,110,518) $ - $ -
=======================================================
Year ended December 31, 1999 Investment income (loss) Income:
Dividends $ - $ - $ -
Capital gains distributions 77,693 - -
-------------------------------------------------------
77,693 - -
Expenses:
Mortality and expense risks 6,069 - -
-------------------------------------------------------
Net investment income (loss) 71,624 - -
Realized and unrealized gains (losses) on investments
Net realized gains (losses) on investments 29,313 - -
Change in net unrealized appreciation or depreciation of investments 570,819 - -
-------------------------------------------------------
Net increase (decrease) in net assets resulting from operations $ 671,756 $ - $ -
=======================================================
<FN>
(1) Commenced operations May 19, 2001
</FN>
See accompanying notes.
INVESCO VIF Janus Aspen
Small Company Invesco VIF Aggressive
Growth Technology Growth
Division (1) Division (1) Division (1)
----------------------------------------------------
Year ended December 31, 2001 Investment income (loss) Income:
Dividends $ - $ - $ -
Expenses:
Mortality and expense risks 152 335 1,162
----------------------------------------------------
Net investment income (loss) (152) (335) (1,162)
Realized gains (losses) on investments
Realized gain (losses) on sale of fund shares 44 (352) (6,432)
Capital gains distributions - - -
----------------------------------------------------
----------------------------------------------------
Total realized gains (losses) on investments 44 (352) (6,432)
Change in net unrealized appreciation or depreciation of investments 5,041 4,992 (23,636)
-----------------------------------------------------
Net increase (decrease) in net assets resulting from operations $4,933 $4,305 $(31,230)
====================================================
Year ended December 31, 2000 Investment income (loss) Income:
Dividends $ - $ - $ -
Capital gains distributions - - -
----------------------------------------------------
- - -
Expenses:
Mortality and expense risks - - -
----------------------------------------------------
Net investment income (loss) - - -
Realized and unrealized gains (losses) on investments
Net realized gains (losses) on investments - - -
Change in net unrealized appreciation or depreciation of investments - - -
-----------------------------------------------------
Net increase (decrease) in net assets resulting from operations $ - $ - $ -
====================================================
Year ended December 31, 1999 Investment income (loss) Income:
Dividends $ - $ - $ -
Capital gains distributions - - -
----------------------------------------------------
- - -
Expenses:
Mortality and expense risks - - -
----------------------------------------------------
Net investment income (loss) - - -
Realized and unrealized gains (losses) on investments
Net realized gains (losses) on investments - - -
Change in net unrealized appreciation or depreciation of investments - - -
----------------------------------------------------
Net increase (decrease) in net assets resulting from operations $ - $ - $ -
====================================================
<FN>
(1) Commenced operations May 19, 2001
</FN>
See accompanying notes.
Principal Life Insurance Company
Variable Life Separate Account
Statements of Operations (continued)
For the Years Ended December 31, 2001, 2000 and 1999, Except as Noted
LargeCap LargeCap
Growth Stock Index
Division (1) Division (2)
------------------------------------
Year ended December 31, 2001 Investment income (loss) Income:
Dividends $ - $ 145,770
Expenses:
Mortality and expense risks 331 114,442
------------------------------------
Net investment income (loss) (331) 31,328
Realized gains (losses) on investments
Realized gain (losses) on sale of fund shares (1,117) (198,070)
Capital gains distributions - -
------------------------------------
------------------------------------
Total realized gains (losses) on investments (1,117) (198,070)
Change in net unrealized appreciation or depreciation of investments 3,234 (1,608,110)
-------------------------------------
Net increase (decrease) in net assets resulting from operations $ 1,786 $(1,774,852)
====================================
Year ended December 31, 2000 Investment income (loss) Income:
Dividends $ - $ 102,989
Capital gains distributions - 41,453
------------------------------------
- 144,442
Expenses:
Mortality and expense risks - 72,122
------------------------------------
Net investment income (loss) - 72,320
Realized and unrealized gains (losses) on investments
Net realized gains (losses) on investments - 153
Change in net unrealized appreciation or depreciation of investments - (1,133,899)
-------------------------------------
Net increase (decrease) in net assets resulting from operations $ - $(1,061,426)
====================================
Year ended December 31, 1999 Investment income (loss) Income:
Dividends $ - $ 27,669
Capital gains distributions - 35,810
------------------------------------
- 63,479
Expenses:
Mortality and expense risks - 15,615
------------------------------------
Net investment income (loss) - 47,864
Realized and unrealized gains (losses) on investments
Net realized gains (losses) on investments - 377
Change in net unrealized appreciation or depreciation of investments - 321,029
------------------------------------
Net increase (decrease) in net assets resulting from operations $ - $ 369,270
====================================
<FN>
(1) Commenced operations May 19, 2001
(2) Commenced operations May 1, 1999
</FN>
See accompanying notes.
MidCap
MicroCap MidCap Growth
Division Division Division
--------------------------------------------------------
Year ended December 31, 2001 Investment income (loss) Income:
Dividends $ - $ 287,538 $ -
Expenses:
Mortality and expense risks 13,429 280,737 23,388
--------------------------------------------------------
Net investment income (loss) (13,429) 6,801 (23,388)
Realized gains (losses) on investments
Realized gain (losses) on sale of fund shares (3,292) 8,298 (75,948)
Capital gains distributions - 962,939 60,176
--------------------------------------------------------
--------------------------------------------------------
Total realized gains (losses) on investments (3,292) 971,237 (15,772)
Change in net unrealized appreciation or depreciation of investments 54,466 (2,591,787) (418,816)
--------------------------------------------------------
Net increase (decrease) in net assets resulting from operations $37,745 $(1,613,749) $(457,976)
========================================================
Year ended December 31, 2000 Investment income (loss) Income:
Dividends $ 6,198 $ 96,220 $ 4,159
Capital gains distributions - 6,502,170 199,447
--------------------------------------------------------
6,198 6,598,390 203,606
Expenses:
Mortality and expense risks 7,677 272,454 13,595
--------------------------------------------------------
Net investment income (loss) (1,479) 6,325,936 190,011
Realized and unrealized gains (losses) on investments
Net realized gains (losses) on investments 32,846 396,277 26,224
Change in net unrealized appreciation or depreciation of investments (737) (2,361,754) (163,442)
--------------------------------------------------------
Net increase (decrease) in net assets resulting from operations $30,630 $ 4,360,459 $ 52,793
========================================================
Year ended December 31, 1999 Investment income (loss) Income:
Dividends $ 614 $ 93,198 $ 1,567
Capital gains distributions - 1,313,207 -
--------------------------------------------------------
614 1,406,405 1,567
Expenses:
Mortality and expense risks 2,622 228,629 5,079
--------------------------------------------------------
Net investment income (loss) (2,008) 1,177,776 (3,512)
Realized and unrealized gains (losses) on investments
Net realized gains (losses) on investments 539 142,810 9,001
Change in net unrealized appreciation or depreciation of investments (4,874) 2,019,372 82,583
--------------------------------------------------------
Net increase (decrease) in net assets resulting from operations $ (6,343) $ 3,339,958 $ 88,072
========================================================
<FN>
(1) Commenced operations May 19, 2001
(2) Commenced operations May 1, 1999
</FN>
See accompanying notes.
MidCap
Growth MidCap Money
Equity Value Market
Division (1) Division (1) Division
--------------------------------------------------------
Year ended December 31, 2001 Investment income (loss) Income:
Dividends $ - $ 284 $894,342
Expenses:
Mortality and expense risks 317 768 275,846
--------------------------------------------------------
Net investment income (loss) (317) (484) 618,496
Realized gains (losses) on investments
Realized gain (losses) on sale of fund shares (11,841) 113 -
Capital gains distributions - 9,791 -
--------------------------------------------------------
--------------------------------------------------------
Total realized gains (losses) on investments (11,841) 9,904 -
Change in net unrealized appreciation or depreciation of investments 3,652 4,460 (86)
--------------------------------------------------------
Net increase (decrease) in net assets resulting from operations $ (8,506) $13,880 $618,410
========================================================
Year ended December 31, 2000 Investment income (loss) Income:
Dividends $ - $ - $947,987
Capital gains distributions - - -
--------------------------------------------------------
- - 947,987
Expenses:
Mortality and expense risks - - 185,639
--------------------------------------------------------
Net investment income (loss) - - 762,348
Realized and unrealized gains (losses) on investments
Net realized gains (losses) on investments - - -
Change in net unrealized appreciation or depreciation of investments - - -
--------------------------------------------------------
Net increase (decrease) in net assets resulting from operations $ - $ - $762,348
========================================================
Year ended December 31, 1999 Investment income (loss) Income:
Dividends $ - $ - $407,602
Capital gains distributions - - -
--------------------------------------------------------
- - 407,602
Expenses:
Mortality and expense risks - - 93,734
--------------------------------------------------------
Net investment income (loss) - - 313,868
Realized and unrealized gains (losses) on investments
Net realized gains (losses) on investments - - -
Change in net unrealized appreciation or depreciation of investments - - -
--------------------------------------------------------
Net increase (decrease) in net assets resulting from operations $ - $ - $313,868
========================================================
<FN>
(1) Commenced operations May 19, 2001
(2) Commenced operations May 1, 1999
</FN>
See accompanying notes.
Principal Life Insurance Company
Variable Life Separate Account
Statements of Operations (continued)
For the Years Ended December 31, 2001, 2000 and 1999, Except as Noted
Putnam VT
Global Asset Putnam VT
Allocation Vista
Division Division
------------------------------------
Year ended December 31, 2001 Investment income (loss) Income:
Dividends $ 11,469 $ -
Expenses:
Mortality and expense risks 10,494 56,353
------------------------------------
Net investment income (loss) 975 (56,353)
Realized gains (losses) on investments
Realized gain (losses) on sale of fund shares (37,790) (421,989)
Capital gains distributions 117,908 679,338
------------------------------------
------------------------------------
Total realized gains (losses) on investments 80,118 257,349
Change in net unrealized appreciation or depreciation of investments (189,495) (2,557,000)
-------------------------------------
Net increase (decrease) in net assets resulting from operations $(108,402) $(2,356,004)
====================================
Year ended December 31, 2000 Investment income (loss) Income:
Dividends $ 9,533 $ -
Capital gains distributions 51,153 20,972
------------------------------------
60,686 20,972
Expenses:
Mortality and expense risks 6,544 27,026
------------------------------------
Net investment income (loss) 54,142 (6,054)
Realized and unrealized gains (losses) on investments
Net realized gains (losses) on investments (1,478) 23,433
Change in net unrealized appreciation or depreciation of investments (91,512) (730,737)
-------------------------------------
Net increase (decrease) in net assets resulting from operations $ (38,848) $ (713,358)
====================================
Year ended December 31, 1999 Investment income (loss) Income:
Dividends $ 3,412 $ -
Capital gains distributions 9,719 62,859
------------------------------------
13,131 62,859
Expenses:
Mortality and expense risks 2,385 2,960
------------------------------------
Net investment income (loss) 10,746 59,899
Realized and unrealized gains (losses) on investments
Net realized gains (losses) on investments 4,668 5,780
Change in net unrealized appreciation or depreciation of investments 23,177 181,556
------------------------------------
Net increase (decrease) in net assets resulting from operations $ 38,591 $ 247,235
====================================
See accompanying notes.
Putnam VT
Voyager Real Estate SmallCap
Division Division Division
----------------------------------------------------
Year ended December 31, 2001 Investment income (loss) Income:
Dividends $ - $120,032 $ -
Expenses:
Mortality and expense risks 185,141 15,633 23,604
----------------------------------------------------
Net investment income (loss) (185,141) 104,399 (23,604)
Realized gains (losses) on investments
Realized gain (losses) on sale of fund shares (350,488) 12,059 (24,501)
Capital gains distributions 4,288,799 - -
----------------------------------------------------
----------------------------------------------------
Total realized gains (losses) on investments 3,938,311 12,059 (24,501)
Change in net unrealized appreciation or depreciation of investments (8,868,879) 113,786 117,453
----------------------------------------------------
Net increase (decrease) in net assets resulting from operations $(5,115,709) $230,244 $ 69,348
====================================================
Year ended December 31, 2000 Investment income (loss) Income:
Dividends $ 778 $ 37,862 $ 5,550
Capital gains distributions 1,650,707 - 273,379
----------------------------------------------------
1,651,485 37,862 278,929
Expenses:
Mortality and expense risks 134,312 2,771 16,009
----------------------------------------------------
Net investment income (loss) 1,517,173 35,091 262,920
Realized and unrealized gains (losses) on investments
Net realized gains (losses) on investments 25 12,346 28,981
Change in net unrealized appreciation or depreciation of investments (5,168,799) 35,647 (618,008)
----------------------------------------------------
Net increase (decrease) in net assets resulting from operations $(3,651,601) $ 83,084 $(326,107)
====================================================
Year ended December 31, 1999 Investment income (loss) Income:
Dividends $ 1,764 $ 3,569 $ 331
Capital gains distributions 163,482 - 88,145
----------------------------------------------------
165,246 3,569 88,476
Expenses:
Mortality and expense risks 29,437 376 4,836
----------------------------------------------------
Net investment income (loss) 135,809 3,193 83,640
Realized and unrealized gains (losses) on investments
Net realized gains (losses) on investments 16,417 (785) 10,826
Change in net unrealized appreciation or depreciation of investments 2,300,449 (5,017) 145,118
----------------------------------------------------
Net increase (decrease) in net assets resulting from operations $ 2,452,675 $ (2,609) $ 239,584
====================================================
See accompanying notes.
SmallCap SmallCap
Growth Value Utilities
Division Division Division
----------------------------------------------------
Year ended December 31, 2001 Investment income (loss) Income:
Dividends $ - $ 40,659 $ 56,379
Expenses:
Mortality and expense risks 88,523 25,576 15,580
----------------------------------------------------
Net investment income (loss) (88,523) 15,083 40,799
Realized gains (losses) on investments
Realized gain (losses) on sale of fund shares (274,722) 26,614 (17,784)
Capital gains distributions - 222,712 -
----------------------------------------------------
----------------------------------------------------
Total realized gains (losses) on investments (274,722) 249,326 (17,784)
Change in net unrealized appreciation or depreciation of investments (3,028,545) (33,749) (646,422)
----------------------------------------------------
Net increase (decrease) in net assets resulting from operations $(3,391,790) $230,660 $(623,407)
====================================================
Year ended December 31, 2000 Investment income (loss) Income:
Dividends $ - $ 16,994 $ 25,998
Capital gains distributions 492,430 131,634 21,828
----------------------------------------------------
492,430 148,628 47,826
Expenses:
Mortality and expense risks 56,013 8,739 6,958
----------------------------------------------------
Net investment income (loss) 436,417 139,889 40,868
Realized and unrealized gains (losses) on investments
Net realized gains (losses) on investments 71,121 127,192 19,284
Change in net unrealized appreciation or depreciation of investments (2,338,388) (543) 97,562
----------------------------------------------------
Net increase (decrease) in net assets resulting from operations $(1,830,850) $266,538 $ 157,714
====================================================
Year ended December 31, 1999 Investment income (loss) Income:
Dividends $ - $ 3,592 $ 8,137
Capital gains distributions 19,242 - 1,773
----------------------------------------------------
19,242 3,592 9,910
Expenses:
Mortality and expense risks 5,327 2,821 1,916
----------------------------------------------------
Net investment income (loss) 13,915 771 7,994
Realized and unrealized gains (losses) on investments
Net realized gains (losses) on investments 30,664 2,968 1,155
Change in net unrealized appreciation or depreciation of investments 705,827 78,477 (3,398)
----------------------------------------------------
Net increase (decrease) in net assets resulting from operations $ 750,406 $ 82,216 $ 5,751
====================================================
See accompanying notes.
Principal Life Insurance Company
Variable Life Separate Account
Statements of Changes in Net Assets
For The Years Ended December 31, 2001, 2000 and 1999, Except as Noted
AIM V.I.
AIM V.I. Growth and AIM V.I.
Growth Income Value
Division (1) Division (1) Division (1)
--------------- --------------- ---------------
2001 2001 2001
--------------- --------------- ---------------
Net assets at beginning of period $ - $ - $ -
Increase (decrease) in net assets
Operations:
Net investment income (loss) (49) (226) (518)
Total realized gains (losses) on investments (218) (3,639) 4,799
Change in net unrealized appreciation or
depreciation of investments (735) 1,786 (8,546)
--------------- --------------- ---------------
--------------- --------------- ---------------
Net increase (decrease) in net assets
resulting from operations (1,002) (2,079) (4,265)
Policy related transactions:
Net premium payments, less sales charges
and applicable premium taxes 185,385 118,004 460,447
Contract terminations and surrenders - - (157)
Death benefit payments - (26) -
Policy loan transfers - - (113)
Transfers to other contracts (1,655) (958) (10,509)
Cost of insurance and administration charges (7,948) (7,447) (19,120)
Surrender charges - (11) (64)
--------------- --------------- ---------------
--------------- --------------- ---------------
Increase (decrease) in net assets from policy
related transactions 175,782 109,562 430,484
--------------- --------------- ---------------
--------------- --------------- ---------------
Total increase (decrease) 174,780 107,483 426,219
--------------- --------------- ---------------
--------------- --------------- ---------------
Net assets at end of period $174,780 $107,483 $426,219
=============== =============== ===============
<FN>
(1) Commenced operations May 19, 2001.
</FN>
See accompanying notes.
American Century
VP Income & American Century
Growth VP Ultra
Division (1) Division (1)
------------------ -------------------
2001 2001
------------------ -------------------
Net assets at beginning of period $ - $ -
Increase (decrease) in net assets
Operations:
Net investment income (loss) (793) (453)
Total realized gains (losses) on investments (71) (9,757)
Change in net unrealized appreciation or
depreciation of investments 4,176 4,234
------------------ -----------------------
------------------ -----------------------
Net increase (decrease) in net assets
resulting from operations 3,312 (5,976)
Policy related transactions:
Net premium payments, less sales charges
and applicable premium taxes 335,858 310,278
Contract terminations and surrenders - (67)
Death benefit payments - -
Policy loan transfers (141) -
Transfers to other contracts (6,063) (102,398)
Cost of insurance and administration charges (9,836) (8,984)
Surrender charges - (28)
------------------ -----------------------
------------------ -----------------------
Increase (decrease) in net assets from policy
related transactions 319,818 198,801
------------------ -----------------------
------------------ -----------------------
Total increase (decrease) 323,130 192,825
------------------ -----------------------
------------------ -----------------------
Net assets at end of period $323,130 $192,825
================== =======================
<FN>
(1) Commenced operations May 19, 2001.
</FN>
See accompanying notes.
<Page>
Asset Allocation Division
------------------------------------------------------
2001 2000 1999
------------------------------------------------------
Net assets at beginning of period $5,527,233 $3,132,463 $1,592,829
Increase (decrease) in net assets
Operations:
Net investment income (loss) 135,159 503,851 272,755
Total realized gains (losses) on investments (217,195) 9,480 18,368
Change in net unrealized appreciation or
depreciation of investments (251,071) (522,565) 136,643
--------------------------------------------------
--------------------------------------------------
Net increase (decrease) in net assets
resulting from operations (333,107) (9,234) 427,766
Policy related transactions:
Net premium payments, less sales charges
and applicable premium taxes 8,853,445 3,289,056 1,835,680
Contract terminations and surrenders (378,516) (65,587) (41,872)
Death benefit payments (12,348) - (2,944)
Policy loan transfers (55,035) (26,235) (64,353)
Transfers to other contracts (3,202,248) (365,808) (337,090)
Cost of insurance and administration charges (594,740) (385,961) (260,250)
Surrender charges (154,782) (41,461) (17,303)
--------------------------------------------------
--------------------------------------------------
Increase (decrease) in net assets from policy
related transactions 4,455,776 2,404,004 1,111,868
--------------------------------------------------
--------------------------------------------------
Total increase (decrease) 4,122,669 2,394,770 1,539,634
--------------------------------------------------
--------------------------------------------------
Net assets at end of period $9,649,902 $5,527,233 $3,132,463
==================================================
<FN>
(1) Commenced operations May 19, 2001.
</FN>
See accompanying notes.
<Page>
Principal Life Insurance Company
Variable Life Separate Account
Statements of Changes in Net Assets (continued)
For the Years Ended December 31, 2001, 2000 and 1999, Except as Noted
Balanced Division
-------------------------------------------
-------------------------------------------
2001 2000 1999
-------------------------------------------
Net assets at beginning of period $11,977,437 $12,297,279 $ 9,879,189
Increase (decrease) in net assets
Operations:
Net investment income (loss) 258,906 (104,162) 785,732
Total realized gains (losses) on
investments 38,954 (52,909) 77,332
Change in net unrealized appreciation or
depreciation of investments (1,262,149) 67,563 (695,498)
-------------------------------------------
-------------------------------------------
Net increase (decrease) in net assets
resulting from operations (964,289) (89,508) 167,566
Policy related transactions:
Net premium payments, less sales charges
and applicable premium taxes 4,861,852 4,313,099 6,113,533
Contract terminations and surrenders (505,834) (453,456) (449,646)
Death benefit payments (50,423) (21,288) (4,689)
Policy loan transfers (131,129) (227,75) (147,452)
Transfers to other contracts (911,089) (2,699,004) (2,132,506)
Cost of insurance and administration
charges (1,020,199) (1,007,392) (1,020,029)
Surrender charges (154,934) (134,539) (108,687)
-------------------------------------------
-------------------------------------------
Increase (decrease) in net assets from
policy related transactions 2,088,244 (230,334) 2,250,524
-------------------------------------------
-------------------------------------------
Total increase (decrease) 1,123,955 (319,842) 2,418,090
-------------------------------------------
-------------------------------------------
Net assets at end of period $13,101,392 $11,977,437 $12,297,279
===========================================
<FN>
(1) Commenced operations May 19, 2001.
</FN>
See accompanying notes.
Bond Division
-----------------------------------------
2001 2000 1999
-----------------------------------------
Net assets at beginning of period $ 9,081,333 $6,647,735 $3,953,245
Increase (decrease) in net assets
Operations:
Net investment income (loss) 598,159 (70,481) 375,718
Total realized gains (losses) on
investments (6,436) (67,172) (8,182)
Change in net unrealized appreciation or
depreciation of investments 140,352 710,421 (552,153)
--------------------------------------------
Net increase (decrease) in net assets
resulting from operations 732,075 572,768 (184,617)
Policy related transactions:
Net premium payments, less sales charges
and applicable premium taxes 10,172,015 4,695,877 5,045,651
Contract terminations and surrenders (875,588) (224,651) (341,883)
Death benefit payments (27,387) (6,705) (1,456)
Policy loan transfers (86,352) (112,479) 69,090
Transfers to other contracts (2,700,365) (1,602,705) (1,149,010)
Cost of insurance and administration
charges (1,059,253) (813,559) (691,942)
Surrender charges (327,602) (74,948) (51,343)
--------------------------------------------
--------------------------------------------
Increase (decrease) in net assets from
policy related transactions 5,095,468 1,860,830 2,879,107
--------------------------------------------
--------------------------------------------
Total increase (decrease) 5,827,543 2,433,598 2,694,490
--------------------------------------------
--------------------------------------------
Net assets at end of period $14,908,876 $9,081,333 $6,647,735
============================================
<FN>
(1) Commenced operations May 19, 2001.
</FN>
See accompanying notes.
Dreyfus
Founders
Discovery
Capital Value Division Division (1)
-------------------------------------------- ----------------
2001 2000 1999 2001
-------------------------------------------- ----------------
Net assets at beginning of period $28,529,336 $28,453,464 $22,971,942 $ -
Increase (decrease) in net assets
Operations:
Net investment income (loss) 94,533 330,995 3,524,581 (543)
Total realized gains (losses) on
investments (292,001) (899,891) 207,213 (3,645)
Change in net unrealized appreciation or
depreciation of investments (2,498,976) 950,640 (5,167,258) 4,568
----------------------------------------- ----------------
Net increase (decrease) in net assets
resulting from operations (2,696,444) 381,744 (1,435,464) 380
Policy related transactions:
Net premium payments, less sales charges
and applicable premium taxes 11,153,610 11,696,805 14,665,546 227,998
Contract terminations and surrenders (1,281,730) (992,682) (779,500) -
Death benefit payments (61,173) (43,189) (16,643) -
Policy loan transfers (248,302) (528,453) (159,843) -
Transfers to other contracts (2,698,649) (7,517,529) (4,080,476) (69,873)
Cost of insurance and administration
charges (2,697,679) (2,638,433) (2,533,293) (3,496)
Surrender charges (403,816) (282,391) (178,805) -
----------------------------------------- ----------------
----------------------------------------- ----------------
Increase (decrease) in net assets from
policy related transactions 3,762,261 (305,872) 6,916,986 154,629
----------------------------------------- ----------------
----------------------------------------- ----------------
Total increase (decrease) 1,065,817 75,872 5,481,522 155,009
----------------------------------------- ----------------
----------------------------------------- ----------------
Net assets at end of period $29,595,153 $28,529,336 $28,453,464 $155,009
========================================= ================
<FN>
(1) Commenced operations May 19, 2001.
</FN>
See accompanying notes.
Principal Life Insurance Company
Variable Life Separate Account
Statements of Changes in Net Assets (continued)
For the Years Ended December 31, 2001, 2000 and 1999, Except as Noted
Equity Growth Division(1)
-------------------------------------------
-------------------------------------------
2001 2000 1999
-------------------------------------------
Net assets at beginning of period $45,972,711 $33,093,420 $14,244,041
Increase (decrease) in net assets
Operations:
Net investment income (loss) (371,301) 861,673 1,823,384
Total realized gains (losses) on
investments 2,329,025 146,570 88,148
Change in net unrealized appreciation or
depreciation of investments (9,726,755) (7,649,724) 6,010,958
-------------------------------------------
-------------------------------------------
Net increase (decrease) in net assets
resulting from operations (7,769,031) (6,641,481) 7,922,490
Policy related transactions:
Net premium payments, less sales charges
and applicable premium taxes 26,746,436 29,758,309 16,297,188
Contract terminations and surrenders (2,138,814) (902,757) (453,060)
Death benefit payments (24,549) (19,750) (7,313)
Policy loan transfers (506,074) (797,276) (393,765)
Transfers to other contracts (5,666,291) (3,750,874) (1,675,940)
Cost of insurance and administration
charges (5,149,495) (4,191,357) (2,653,004)
Surrender charges (880,452) (575,523) (187,217)
-------------------------------------------
-------------------------------------------
Increase (decrease) in net assets from
policy related transactions 12,380,761 19,520,772 10,926,889
-------------------------------------------
-------------------------------------------
Total increase (decrease) 4,611,730 12,879,291 18,849,379
-------------------------------------------
-------------------------------------------
Net assets at end of period $50,584,441 $45,972,711 $33,093,420
===========================================
<FN>
(1) Represented the operations of the Aggressive Growth Division until May 19, 2001 when the name changed to Equity Growth Division.
2001
</FN>
See accompanying notes.
Fidelity VIP II Contrafund Division
----------------------------------------------------
2001 2000 1999
----------------------------------------------------
Net assets at beginning of period $35,385,437 $21,683,086 $ 8,023,001
Increase (decrease) in net assets
Operations:
Net investment income (loss) (39,364) 2,883,802 261,596
Total realized gains (losses) on
investments 408,949 32,714 36,522
Change in net unrealized appreciation or
depreciation of investments (5,327,117) (5,395,041) 3,000,192
----------------------------------------------------
Net increase (decrease) in net assets
resulting from operations (4,957,532) (2,478,525) 3,298,310
Policy related transactions:
Net premium payments, less sales charges
and applicable premium taxes 21,542,443 23,219,618 13,567,422
Contract terminations and surrenders (1,361,042) (498,142) (229,535)
Death benefit payments (23,859) (9,707) (4,835)
Policy loan transfers (264,336) (592,880) (182,637)
Transfers to other contracts (5,026,269) (2,678,220) (1,002,866)
Cost of insurance and administration
charges (3,575,992) (2,940,509) (1,690,923)
Surrender charges (564,195) (319,284) (94,851)
----------------------------------------------------
----------------------------------------------------
Increase (decrease) in net assets from
policy related transactions 10,726,750 16,180,876 10,361,775
----------------------------------------------------
----------------------------------------------------
Total increase (decrease) 5,769,218 13,702,351 13,660,085
----------------------------------------------------
----------------------------------------------------
Net assets at end of period $41,154,655 $35,385,437 $21,683,086
====================================================
See accompanying notes.
Fidelity VIP Equity-Income Division
---------------------------------------------------
2001 2000 1999
---------------------------------------------------
Net assets at beginning of period $13,577,072 $ 9,373,498 $4,905,541
Increase (decrease) in net assets
Operations:
Net investment income (loss) 114,531 696,243 195,432
Total realized gains (losses) on
investments 562,287 (36,409) 26,811
Change in net unrealized appreciation or
depreciation of investments (1,553,952) 320,251 51,551
---------------------------------------------------
Net increase (decrease) in net assets
resulting from operations (877,134) 980,085 273,794
Policy related transactions:
Net premium payments, less sales charges
and applicable premium taxes 9,865,998 7,043,890 6,456,166
Contract terminations and surrenders (784,047) (184,398) (156,447)
Death benefit payments (44,869) (1,690) (221)
Policy loan transfers (174,682) 94,665 (174,979)
Transfers to other contracts (1,894,293) (2,545,534) (976,597)
Cost of insurance and administration
charges (1,216,469) (1,065,441) (889,111)
Surrender charges (322,040) (118,003) (64,648)
---------------------------------------------------
---------------------------------------------------
Increase (decrease) in net assets from
policy related transactions 5,429,598 3,223,489 4,194,163
---------------------------------------------------
---------------------------------------------------
Total increase (decrease) 4,552,464 4,203,574 4,467,957
---------------------------------------------------
---------------------------------------------------
Net assets at end of period $18,129,536 $13,577,072 $9,373,498
===================================================
See accompanying notes.
Principal Life Insurance Company
Variable Life Separate Account
Statements of Changes in Net Assets (continued)
For the Years Ended December 31, 2001, 2000 and 1999, Except as Noted
Fidelity VIP High Income Division
-------------------------------------------
-------------------------------------------
2001 2000 1999
-------------------------------------------
Net assets at beginning of period $1,821,483 $1,560,663 $1,064,791
Increase (decrease) in net assets
Operations:
Net investment income (loss) 211,153 95,265 99,044
Total realized gains (losses) on
investments (198,377) (46,430) (18,366)
Change in net unrealized appreciation or
depreciation of investments (397,609) (528,218) 9,792
-------------------------------------------
-------------------------------------------
Net increase (decrease) in net assets
resulting from operations (384,833) (479,383) 90,470
Policy related transactions:
Net premium payments, less sales charges
and applicable premium taxes 2,482,751 1,436,160 1,004,457
Contract terminations and surrenders (35,914) (32,423) (70,361)
Death benefit payments - (420) (36)
Policy loan transfers 51,196 (18,764) 8,724
Transfers to other contracts (857,938) (444,922) (360,193)
Cost of insurance and administration
charges (244,065) (178,932) (148,114)
Surrender charges (15,098) (20,496) (29,075)
-------------------------------------------
-------------------------------------------
Increase (decrease) in net assets from
policy related transactions 1,380,932 740,203 405,402
-------------------------------------------
-------------------------------------------
Total increase (decrease) 996,099 260,820 495,872
-------------------------------------------
-------------------------------------------
Net assets at end of period $2,817,582 $1,821,483 $1,560,663
===========================================
See accompanying notes.
Government Securities Division
----------------------------------------------------
2001 2000 1999
----------------------------------------------------
Net assets at beginning of period $ 3,393,527 $3,117,503 $3,266,712
Increase (decrease) in net assets
Operations:
Net investment income (loss) 172,055 (24,903) 152,211
Total realized gains (losses) on
investments 21,893 (73,232) (23,023)
Change in net unrealized appreciation or
depreciation of investments 190,344 358,676 (179,101)
----------------------------------------------------
Net increase (decrease) in net assets
resulting from operations 384,292 260,541 (49,913)
Policy related transactions:
Net premium payments, less sales charges
and applicable premium taxes 8,637,064 1,932,137 2,370,343
Contract terminations and surrenders (167,887) (37,495) (11,368)
Death benefit payments (6,256) (3,138) (90)
Policy loan transfers (12,266) (102,846) 3,547
Transfers to other contracts (1,222,730) (1,496,351) (2,222,249)
Cost of insurance and administration
charges (470,635) (253,121) (234,781)
Surrender charges (69,028) (23,703) (4,698)
----------------------------------------------------
----------------------------------------------------
Increase (decrease) in net assets from
policy related transactions 6,688,262 15,483 (99,296)
----------------------------------------------------
----------------------------------------------------
Total increase (decrease) 7,072,554 276,024 (149,209)
----------------------------------------------------
----------------------------------------------------
Net assets at end of period $10,466,081 $3,393,527 $3,117,503
====================================================
See accompanying notes.
Growth Division
-----------------------------------------------------
2001 2000 1999
-----------------------------------------------------
Net assets at beginning of period $14,740,033 $10,738,427 $ 4,760,835
Increase (decrease) in net assets
Operations:
Net investment income (loss) (132,900) 2,870,718 22,074
Total realized gains (losses) on
investments (200,755) 27,791 35,999
Change in net unrealized appreciation or
depreciation of investments (3,854,361) (4,702,775) 1,136,770
-----------------------------------------------------
Net increase (decrease) in net assets
resulting from operations (4,188,016) (1,804,266) 1,194,843
Policy related transactions:
Net premium payments, less sales charges
and applicable premium taxes 8,263,846 9,674,355 7,116,531
Contract terminations and surrenders (433,577) (275,368) (174,656)
Death benefit payments (30,346) (10,239) (80)
Policy loan transfers (139,063) (262,492) (137,542)
Transfers to other contracts (1,006,228) (1,629,892) (933,539)
Cost of insurance and administration
charges (1,760,758) (1,514,952) (1,015,792)
Surrender charges (187,294) (175,540) (72,173)
-----------------------------------------------------
-----------------------------------------------------
Increase (decrease) in net assets from
policy related transactions 4,706,580 5,805,872 4,782,749
-----------------------------------------------------
-----------------------------------------------------
Total increase (decrease) 518,564 4,001,606 5,977,592
-----------------------------------------------------
-----------------------------------------------------
Net assets at end of period $15,258,597 $14,740,033 $10,738,427
=====================================================
See accompanying notes.
Principal Life Insurance Company
Variable Life Separate Account
Statements of Changes in Net Assets (continued)
For the Years Ended December 31, 2001, 2000 and 1999, Except as Noted
High Yield Division
-------------------------------------------
-------------------------------------------
2001 2000 1999
-------------------------------------------
Net assets at beginning of period $1,617,658 $1,689,069 $2,269,099
Increase (decrease) in net assets
Operations:
Net investment income (loss) 165,349 146,992 140,548
Total realized gains (losses) on
investments (35,917) (36,162) (83,063)
Change in net unrealized appreciation or
depreciation of investments (131,598) (199,645) (35,529)
-------------------------------------------
-------------------------------------------
Net increase (decrease) in net assets
resulting from operations (2,166) (88,815) 21,956
Policy related transactions:
Net premium payments, less sales charges
and applicable premium taxes 261,163 301,781 435,443
Contract terminations and surrenders (31,601) (78,725) (706,562)
Death benefit payments - - (1,481)
Policy loan transfers (3,538) 2,087 (19,235)
Transfers to other contracts (25,002) (107,800) (136,183)
Cost of insurance and administration
charges (104,483) (95,536) (128,426)
Surrender charges (1,488) (4,403) (45,542)
-------------------------------------------
-------------------------------------------
Increase (decrease) in net assets from
policy related transactions 95,051 17,404 (601,986)
-------------------------------------------
-------------------------------------------
Total increase (decrease) 92,885 (71,411) (580,030)
-------------------------------------------
-------------------------------------------
Net assets at end of period $1,710,543 $1,617,658 $1,689,069
===========================================
See accompanying notes.
International Division
----------------------------------------------------
2001 2000 1999
----------------------------------------------------
Net assets at beginning of period $17,342,064 $13,191,433 $ 7,800,249
Increase (decrease) in net assets
Operations:
Net investment income (loss) (132,474) 663,415 1,429,623
Total realized gains (losses) on
investments (179,706) 10,274 34,900
Change in net unrealized appreciation or
depreciation of investments (4,528,498) (2,202,921) 942,834
----------------------------------------------------
Net increase (decrease) in net assets
resulting from operations (4,840,678) (1,529,232) 2,407,357
Policy related transactions:
Net premium payments, less sales charges
and applicable premium taxes 9,563,738 10,086,587 6,417,856
Contract terminations and surrenders (341,846) (302,768) (171,017)
Death benefit payments (12,973) (10,052) (403)
Policy loan transfers (175,748) (232,123) (167,118)
Transfers to other contracts (1,938,667) (2,294,330) (1,986,291)
Cost of insurance and administration
charges (1,681,770) (1,374,849) (1,038,531)
Surrender charges (140,787) (192,602) (70,669)
----------------------------------------------------
----------------------------------------------------
Increase (decrease) in net assets from
policy related transactions 5,271,947 5,679,863 2,983,827
----------------------------------------------------
----------------------------------------------------
Total increase (decrease) 431,269 4,150,631 5,391,184
----------------------------------------------------
----------------------------------------------------
Net assets at end of period $17,773,333 $17,342,064 $13,191,433
====================================================
See accompanying notes.
<Page>
International SmallCap Division
----------------------------------------------------
2001 2000 1999
----------------------------------------------------
Net assets at beginning of period $ 6,917,944 $ 1,960,477 $ 316,190
Increase (decrease) in net assets
Operations:
Net investment income (loss) (64,180) 317,491 71,624
Total realized gains (losses) on
investments (1,822,324) 137,726 29,313
Change in net unrealized appreciation or
depreciation of investments 186,949 (1,565,735) 570,819
----------------------------------------------------
Net increase (decrease) in net assets
resulting from operations (1,699,555) (1,110,518) 671,756
Policy related transactions:
Net premium payments, less sales charges
and applicable premium taxes 15,986,152 10,571,353 1,229,935
Contract terminations and surrenders (181,804) (68,238) (11,949)
Death benefit payments (5,825) (1,345) -
Policy loan transfers (69,818) (92,701) (97,474)
Transfers to other contracts (12,388,722) (3,708,043) (49,357)
Cost of insurance and administration
charges (885,234) (589,904) (93,687)
Surrender charges (75,339) (43,137) (4,937)
----------------------------------------------------
----------------------------------------------------
Increase (decrease) in net assets from
policy related transactions 2,379,410 6,067,985 972,531
----------------------------------------------------
----------------------------------------------------
Total increase (decrease) 679,855 4,957,467 1,644,287
----------------------------------------------------
----------------------------------------------------
Net assets at end of period $ 7,597,799 $ 6,917,944 $1,960,477
====================================================
See accompanying notes.
<Page>
Principal Life Insurance Company
Variable Life Separate Account
Statements of Changes in Net Assets (continued)
For the Years Ended December 31, 2001, 2000 and 1999, Except as Noted
INVESCO VIF
INVESCO VIF Small Company
INVESCO VIF Health Growth
Dynamics Sciences Division (1)
Division (1) Division (1)
--------------- --------------- ---------------
2001 2001 2001
--------------- --------------- ---------------
Net assets at beginning of period $ - $ - $ -
Increase (decrease) in net assets
Operations:
Net investment income (loss) (135) (717) (152)
Total realized gains (losses) on
investments (1,010) (249) 44
Change in net unrealized appreciation or
depreciation of investments 2,925 5,449 5,041
--------------- --------------- ---------------
--------------- --------------- ---------------
Net increase (decrease) in net assets
resulting from operations 1,780 4,483 4,933
Policy related transactions:
Net premium payments, less sales charges
and applicable premium taxes 78,780 422,243 62,744
Contract terminations and surrenders (23) (65) (28)
Death benefit payments - - -
Policy loan transfers (172) 21 -
Transfers to other contracts (24,605) (40,580) (587)
Cost of insurance and administration charges (2,732) (16,701) (3,813)
Surrender charges (9) (27) (12)
--------------- --------------- ---------------
--------------- --------------- ---------------
Increase (decrease) in net assets from
policy related transactions 51,239 364,891 58,304
--------------- --------------- ---------------
--------------- --------------- ---------------
Total increase (decrease) 53,019 369,374 63,237
--------------- --------------- ---------------
--------------- --------------- ---------------
Net assets at end of period $53,019 $369,374 $63,237
=============== =============== ===============
<FN>
(1) Commenced operations May 19, 2001.
(2) Commenced operations May 1, 1999.
</FN>
See accompanying notes.
Janus Aspen
INVESCO VIF Aggressive LargeCap Growth
Technology Growth Division Division (1)
Division (1) (1)
----------------- ------------------ -----------------
2001 2001 2001
----------------- ------------------ -----------------
Net assets at beginning of period $ - $ - $ -
Increase (decrease) in net assets
Operations:
Net investment income (loss) (335) (1,162) (331)
Total realized gains (losses) on
investments (352) (6,432) (1,117)
Change in net unrealized appreciation or
depreciation of investments 4,992 (23,636) 3,234
----------------- ------------------ -----------------
Net increase (decrease) in net assets
resulting from operations 4,305 (31,230) 1,786
Policy related transactions:
Net premium payments, less sales charges
and applicable premium taxes 147,748 506,226 196,358
Contract terminations and surrenders (48) (22) (22)
Death benefit payments - - -
Policy loan transfers - 938 -
Transfers to other contracts (6,849) (49,770) (35,223)
Cost of insurance and administration charges (7,590) (22,774) (8,325)
Surrender charges (20) (9) (9)
----------------- ------------------ -----------------
----------------- ------------------ -----------------
Increase (decrease) in net assets from
policy related transactions 133,241 434,589 152,779
----------------- ------------------ -----------------
----------------- ------------------ -----------------
Total increase (decrease) 137,546 403,359 154,565
----------------- ------------------ -----------------
----------------- ------------------ -----------------
Net assets at end of period $137,546 $403,359 $154,565
================= ================== =================
<FN>
(1) Commenced operations May 19, 2001.
(2) Commenced operations May 1, 1999.
</FN>
See accompanying notes.
LargeCap Stock Index Division (2)
--------------------------------------------------
2001 2000 1999
--------------------------------------------------
Net assets at beginning of period $12,276,884 $ 6,704,714 $ -
Increase (decrease) in net assets
Operations:
Net investment income (loss) 31,328 72,320 47,864
Total realized gains (losses) on
investments (198,070) 153 377
Change in net unrealized appreciation or
depreciation of investments (1,608,110) (1,133,899) 321,029
--------------------------------------------------
Net increase (decrease) in net assets
resulting from operations (1,774,852) (1,061,426) 369,270
Policy related transactions:
Net premium payments, less sales charges
and applicable premium taxes 10,027,318 7,825,895 6,494,864
Contract terminations and surrenders (306,450) (34,473) (13,946)
Death benefit payments (300,788) (259) -
Policy loan transfers (35,555) (92,383) 5,779
Transfers to other contracts (1,507,223) (452,491) (44,128)
Cost of insurance and administration charges (974,711) (589,691) (101,362)
Surrender charges (126,670) (23,002) (5,763)
--------------------------------------------------
--------------------------------------------------
Increase (decrease) in net assets from
policy related transactions 6,775,921 6,633,596 6,335,444
--------------------------------------------------
--------------------------------------------------
Total increase (decrease) 5,001,069 5,572,170 6,704,714
--------------------------------------------------
--------------------------------------------------
Net assets at end of period $17,277,953 $12,276,884 $6,704,714
==================================================
<FN>
(1) Commenced operations May 19, 2001.
(2) Commenced operations May 1, 1999.
</FN>
See accompanying notes.
Principal Life Insurance Company
Variable Life Separate Account
Statements of Changes in Net Assets (continued)
For the Years Ended December 31, 2001, 2000 and 1999, Except as Noted
MicroCap Division
-------------------------------------------
-------------------------------------------
2001 2000 1999
-------------------------------------------
Net assets at beginning of period $1,269,013 $ 452,739 $149,378
Increase (decrease) in net assets
Operations:
Net investment income (loss) (13,429) (1,479) (2,008)
Total realized gains (losses) on
investments (3,292) 32,846 539
Change in net unrealized appreciation or
depreciation of investments 54,466 (737) (4,874)
-------------------------------------------
-------------------------------------------
Net increase (decrease) in net assets
resulting from operations 37,745 30,630 (6,343)
Policy related transactions:
Net premium payments, less sales charges
and applicable premium taxes 935,120 1,556,542 368,670
Contract terminations and surrenders (33,408) (13,200) (1,103)
Death benefit payments (1,301) - -
Policy loan transfers 1,306 (461) (6,935)
Transfers to other contracts (154,517) (672,095) (8,950)
Cost of insurance and administration
charges (130,270) (76,798) (41,522)
Surrender charges (15,724) (8,344) (456)
-------------------------------------------
-------------------------------------------
Increase (decrease) in net assets from
policy related transactions 601,206 785,644 309,704
-------------------------------------------
-------------------------------------------
Total increase (decrease) 638,951 816,274 303,361
-------------------------------------------
-------------------------------------------
Net assets at end of period $1,907,964 $1,269,013 $452,739
===========================================
See accompanying notes.
MidCap Division
----------------------------------------------------
2001 2000 1999
----------------------------------------------------
Net assets at beginning of period $37,522,641 $30,767,163 $25,463,610
Increase (decrease) in net assets
Operations:
Net investment income (loss) 6,801 6,325,936 1,177,776
Total realized gains (losses) on
investments 971,237 396,277 142,810
Change in net unrealized appreciation or
depreciation of investments (2,591,787) (2,361,754) 2,019,372
----------------------------------------------------
Net increase (decrease) in net assets
resulting from operations (1,613,749) 4,360,459 3,339,958
Policy related transactions:
Net premium payments, less sales charges
and applicable premium taxes 12,119,253 11,608,618 11,141,276
Contract terminations and surrenders (1,602,008) (1,516,159) (1,108,369)
Death benefit payments (42,287) (69,784) (23,450)
Policy loan transfers (1,075,094) (603,290) (579,695)
Transfers to other contracts (2,850,649) (4,166,416) (4,628,585)
Cost of insurance and administration
charges (2,715,722) (2,529,480) (2,628,217)
Surrender charges (298,611) (328,470) (209,365)
----------------------------------------------------
----------------------------------------------------
Increase (decrease) in net assets from
policy related transactions 3,534,882 2,395,019 1,963,595
----------------------------------------------------
----------------------------------------------------
Total increase (decrease) 1,921,133 6,755,478 5,303,553
----------------------------------------------------
----------------------------------------------------
Net assets at end of period $39,443,774 $37,522,641 $30,767,163
====================================================
See accompanying notes.
MidCap Growth Division
-----------------------------------------------------
2001 2000 1999
-----------------------------------------------------
Net assets at beginning of period $2,396,679 $ 978,046 $315,903
Increase (decrease) in net assets
Operations:
Net investment income (loss) (23,388) 190,011 (3,512)
Total realized gains (losses) on
investments (15,772) 26,224 9,001
Change in net unrealized appreciation or
depreciation of investments (418,816) (163,442) 82,583
-----------------------------------------------------
Net increase (decrease) in net assets
resulting from operations (457,976) 52,793 88,072
Policy related transactions:
Net premium payments, less sales charges
and applicable premium taxes 2,424,587 1,843,915 878,861
Contract terminations and surrenders (108,375) (25,571) (10,284)
Death benefit payments (780) - -
Policy loan transfers (35,716) (10,834) (5,191)
Transfers to other contracts (405,618) (251,257) (195,196)
Cost of insurance and administration
charges (336,627) (174,248) (89,869)
Surrender charges (44,316) (16,165) (4,250)
-----------------------------------------------------
-----------------------------------------------------
Increase (decrease) in net assets from
policy related transactions 1,493,155 1,365,840 574,071
-----------------------------------------------------
-----------------------------------------------------
Total increase (decrease) 1,035,179 1,418,633 662,143
-----------------------------------------------------
-----------------------------------------------------
Net assets at end of period $3,431,858 $2,396,679 $978,046
=====================================================
See accompanying notes.
Principal Life Insurance Company
Variable Life Separate Account
Statements of Changes in Net Assets (continued)
For the Years Ended December 31, 2001, 2000 and 1999, Except as Noted
MidCap
Growth MidCap
Equity Value
Division (1) Division (1)
----------------- -----------------
2001 2001
----------------- -----------------
Net assets at beginning of period $ - $ -
Increase (decrease) in net assets
Operations:
Net investment income (loss) (317) (484)
Total realized gains (losses) on
investments (11,841) 9,904
Change in net unrealized appreciation or
depreciation of investments 3,652 4,460
----------------- -----------------
----------------- -----------------
Net increase (decrease) in net assets
resulting from operations (8,506) 13,880
Policy related transactions:
Net premium payments, less sales charges
and applicable premium taxes 190,253 357,254
Contract terminations and surrenders (56) (76)
Death benefit payments - -
Policy loan transfers - 147
Transfers to other contracts (51,184) (21,607)
Cost of insurance and administration
charges (5,783) (14,878)
Surrender charges (23) (31)
----------------- -----------------
----------------- -----------------
Increase (decrease) in net assets from policy
related transactions 133,207 320,809
----------------- -----------------
----------------- -----------------
Total increase (decrease) 124,701 334,689
----------------- -----------------
----------------- -----------------
Net assets at end of period $124,701 $334,689
================= =================
<FN>
(1) Commenced operations May 19, 2001.
</FN>
See accompanying notes.
Money Market Division
----------------------------------------------------
2001 2000 1999
----------------------------------------------------
Net assets at beginning of period $18,255,616 $14,455,480 $ 8,335,116
Increase (decrease) in net assets
Operations:
Net investment income (loss) 618,496 762,348 313,868
Total realized gains (losses) on
investments - - -
Change in net unrealized appreciation or
depreciation of investments (86) - -
----------------------------------------------------
Net increase (decrease) in net assets
resulting from operations 618,410 762,348 313,868
Policy related transactions:
Net premium payments, less sales charges
and applicable premium taxes 79,238,720 72,946,715 40,630,667
Contract terminations and surrenders (966,272) (535,850) (526,416)
Death benefit payments (214,508) - (31)
Policy loan transfers (154,267) (61,746) (280,402)
Transfers to other contracts (62,751,766) (66,548,940) (31,813,986)
Cost of insurance and administration
charges (3,706,667) (2,665,403) (1,987,469)
Surrender charges (408,228) (96,988) (215,867)
----------------------------------------------------
----------------------------------------------------
Increase (decrease) in net assets from policy
related transactions 11,037,012 3,037,788 5,806,496
----------------------------------------------------
----------------------------------------------------
Total increase (decrease) 11,655,422 3,800,136 6,120,364
----------------------------------------------------
----------------------------------------------------
Net assets at end of period $29,911,038 $18,255,616 $14,455,480
====================================================
<FN>
(1) Commenced operations May 19, 2001.
</FN>
See accompanying notes.
Putnam VT Global Asset Allocation Division
-----------------------------------------------------
2001 2000 1999
-----------------------------------------------------
Net assets at beginning of period $ 944,197 $422,470 $ 75,231
Increase (decrease) in net assets
Operations:
Net investment income (loss) 975 54,142 10,746
Total realized gains (losses) on
investments 80,118 (1,478) 4,668
Change in net unrealized appreciation or
depreciation of investments (189,495) (91,512) 23,177
-----------------------------------------------------
Net increase (decrease) in net assets
resulting from operations (108,402) (38,848) 38,591
Policy related transactions:
Net premium payments, less sales charges
and applicable premium taxes 929,244 829,996 441,210
Contract terminations and surrenders (26,087) (12,947) (2,330)
Death benefit payments - - -
Policy loan transfers (2,776) (1,036) (601)
Transfers to other contracts (133,536) (149,689) (85,053)
Cost of insurance and administration
charges (149,078) (96,360) (43,615)
Surrender charges (10,693) (9,389) (963)
-----------------------------------------------------
-----------------------------------------------------
Increase (decrease) in net assets from policy
related transactions 607,074 560,575 308,648
-----------------------------------------------------
-----------------------------------------------------
Total increase (decrease) 498,672 521,727 347,239
-----------------------------------------------------
-----------------------------------------------------
Net assets at end of period $1,442,869 $944,197 $422,470
=====================================================
<FN>
(1) Commenced operations May 19, 2001.
</FN>
See accompanying notes.
Principal Life Insurance Company
Variable Life Separate Account
Statements of Changes in Net Assets (continued)
For the Years Ended December 31, 2001, 2000 and 1999, Except as Noted
Putnam VT Vista Division
-------------------------------------------
-------------------------------------------
2001 2000 1999
-------------------------------------------
Net assets at beginning of period $5,249,045 $ 895,165 $123,051
Increase (decrease) in net assets
Operations:
Net investment income (loss) (56,353) (6,054) 59,899
Total realized gains (losses) on
investments 257,349 23,433 5,780
Change in net unrealized appreciation or
depreciation of investments (2,557,000) (730,737) 181,556
-------------------------------------------
-------------------------------------------
Net increase (decrease) in net assets
resulting from operations (2,356,004) (713,358) 247,235
Policy related transactions:
Net premium payments, less sales charges
and applicable premium taxes 6,357,039 5,897,773 628,024
Contract terminations and surrenders (98,457) (36,043) (6,403)
Death benefit payments (4,795) (6,712) -
Policy loan transfers (58,115) (91,942) (5,925)
Transfers to other contracts (1,647,186) (345,652) (32,861)
Cost of insurance and administration
charges (801,378) (327,401) (55,310)
Surrender charges (42,014) (22,785) (2,646)
-------------------------------------------
-------------------------------------------
Increase (decrease) in net assets from
policy related transactions 3,705,094 5,067,238 524,879
-------------------------------------------
-------------------------------------------
Total increase (decrease) 1,349,090 4,353,880 772,114
-------------------------------------------
-------------------------------------------
Net assets at end of period $6,598,135 $5,249,045 $895,165
===========================================
See accompanying notes.
Putnam VT Voyager Division
----------------------------------------------------
2001 2000 1999
----------------------------------------------------
Net assets at beginning of period $19,058,561 $ 8,742,337 $ 899,548
Increase (decrease) in net assets
Operations:
Net investment income (loss) (185,141) 1,517,173 135,809
Total realized gains (losses) on
investments 3,938,311 25 16,417
Change in net unrealized appreciation or
depreciation of investments (8,868,879) (5,168,799) 2,300,449
----------------------------------------------------
Net increase (decrease) in net assets
resulting from operations (5,115,709) (3,651,601) 2,452,675
Policy related transactions:
Net premium payments, less sales charges
and applicable premium taxes 14,000,975 18,048,445 6,453,995
Contract terminations and surrenders (412,007) (302,693) (30,704)
Death benefit payments (4,549) (5,327) -
Policy loan transfers (158,880) (319,487) (47,124)
Transfers to other contracts (2,303,977) (1,421,158) (354,009)
Cost of insurance and administration
charges (2,490,655) (1,837,210) (619,356)
Surrender charges (172,813) (194,745) (12,688)
----------------------------------------------------
----------------------------------------------------
Increase (decrease) in net assets from
policy related transactions 8,458,094 13,967,825 5,390,114
----------------------------------------------------
----------------------------------------------------
Total increase (decrease) 3,342,385 10,316,224 7,842,789
----------------------------------------------------
----------------------------------------------------
Net assets at end of period $22,400,946 $19,058,561 $8,742,337
====================================================
See accompanying notes.
Real Estate Division
-----------------------------------------------------
2001 2000 1999
-----------------------------------------------------
Net assets at beginning of period $1,001,550 $ 73,623 $31,709
Increase (decrease) in net assets
Operations:
Net investment income (loss) 104,399 35,091 3,193
Total realized gains (losses) on
investments 12,059 12,346 (785)
Change in net unrealized appreciation or
depreciation of investments 113,786 35,647 (5,017)
-----------------------------------------------------
Net increase (decrease) in net assets
resulting from operations 230,244 83,084 (2,609)
Policy related transactions:
Net premium payments, less sales charges
and applicable premium taxes 3,324,796 1,174,224 62,476
Contract terminations and surrenders (20,244) (6,695) (586)
Death benefit payments (159) (109) -
Policy loan transfers (7,056) (1,248) (75)
Transfers to other contracts (971,701) (232,118) (6,771)
Cost of insurance and administration
charges (254,043) (84,979) (10,279)
Surrender charges (8,278) (4,232) (242)
-----------------------------------------------------
-----------------------------------------------------
Increase (decrease) in net assets from
policy related transactions 2,063,315 844,843 44,523
-----------------------------------------------------
-----------------------------------------------------
Total increase (decrease) 2,293,559 927,927 41,914
-----------------------------------------------------
-----------------------------------------------------
Net assets at end of period $3,295,109 $1,001,550 $73,623
=====================================================
See accompanying notes.
Principal Life Insurance Company
Variable Life Separate Account
Statements of Changes in Net Assets (continued)
For the Years Ended December 31, 2001, 2000 and 1999, Except as Noted
SmallCap Division
-------------------------------------------
-------------------------------------------
2001 2000 1999
-------------------------------------------
Net assets at beginning of period $1,958,266 $1,099,108 $ 250,636
Increase (decrease) in net assets
Operations:
Net investment income (loss) (23,604) 262,920 83,640
Total realized gains (losses) on
investments (24,501) 28,981 10,826
Change in net unrealized appreciation or
depreciation of investments 117,453 (618,008) 145,118
-------------------------------------------
-------------------------------------------
Net increase (decrease) in net assets
resulting from operations 69,348 (326,107) 239,584
Policy related transactions:
Net premium payments, less sales charges
and applicable premium taxes 2,422,686 1,965,594 782,251
Contract terminations and surrenders (39,344) (31,790) (2,802)
Death benefit payments (444) (23) -
Policy loan transfers (23,996) 53,381 17,498
Transfers to other contracts (356,879) (584,563) (121,595)
Cost of insurance and administration
charges (329,879) (197,216) (65,306)
Surrender charges (17,789) (20,118) (1,158)
-------------------------------------------
-------------------------------------------
Increase (decrease) in net assets from
policy related transactions 1,654,355 1,185,265 608,888
-------------------------------------------
-------------------------------------------
Total increase (decrease) 1,723,703 859,158 848,472
-------------------------------------------
-------------------------------------------
Net assets at end of period $3,681,969 $1,958,266 $1,099,108
===========================================
See accompanying notes.
SmallCap Growth Division
----------------------------------------------------
2001 2000 1999
----------------------------------------------------
Net assets at beginning of period $ 8,419,398 $2,161,250 $ 209,695
Increase (decrease) in net assets
Operations:
Net investment income (loss) (88,523) 436,417 13,915
Total realized gains (losses) on
investments (274,722) 71,121 30,664
Change in net unrealized appreciation or
depreciation of investments (3,028,545) (2,338,388) 705,827
----------------------------------------------------
Net increase (decrease) in net assets
resulting from operations (3,391,790) (1,830,850) 750,406
Policy related transactions:
Net premium payments, less sales charges
and applicable premium taxes 8,281,086 9,746,782 1,479,309
Contract terminations and surrenders (166,952) (73,949) (7,272)
Death benefit payments (3,561) (1,523) -
Policy loan transfers (57,461) (105,922) (95,917)
Transfers to other contracts (1,733,699) (731,700) (79,325)
Cost of insurance and administration
charges (1,177,938) (697,943) (92,641)
Surrender charges (70,809) (46,747) (3,005)
----------------------------------------------------
----------------------------------------------------
Increase (decrease) in net assets from
policy related transactions 5,070,666 8,088,998 1,201,149
----------------------------------------------------
----------------------------------------------------
Total increase (decrease) 1,678,876 6,258,148 1,951,555
----------------------------------------------------
----------------------------------------------------
Net assets at end of period $10,098,274 $8,419,398 $2,161,250
====================================================
See accompanying notes.
SmallCap Value Division
----------------------------------------------------
2001 2000 1999
----------------------------------------------------
Net assets at beginning of period $1,737,646 $ 623,561 $144,138
Increase (decrease) in net assets
Operations:
Net investment income (loss) 15,083 139,889 771
Total realized gains (losses) on
investments 249,326 127,192 2,968
Change in net unrealized appreciation or
depreciation of investments (33,749) (543) 78,477
----------------------------------------------------
Net increase (decrease) in net assets
resulting from operations 230,660 266,538 82,216
Policy related transactions:
Net premium payments, less sales charges
and applicable premium taxes 5,332,498 2,323,152 496,663
Contract terminations and surrenders (30,784) (9,286) (6,635)
Death benefit payments - - -
Policy loan transfers (42,215) (22,793) (518)
Transfers to other contracts (1,406,624) (1,335,069) (36,013)
Cost of insurance and administration
charges (266,125) (102,587) (53,548)
Surrender charges (12,588) (5,870) (2,742)
----------------------------------------------------
----------------------------------------------------
Increase (decrease) in net assets from
policy related transactions 3,574,162 847,547 397,207
----------------------------------------------------
----------------------------------------------------
Total increase (decrease) 3,804,822 1,114,085 479,423
----------------------------------------------------
----------------------------------------------------
Net assets at end of period $5,542,468 $1,737,646 $623,561
====================================================
See accompanying notes.
Principal Life Insurance Company
Variable Life Separate Account
Statements of Changes in Net Assets (continued)
For the Years Ended December 31, 2001, 2000 and 1999, Except as Noted
Utilities Division
-------------------------------------------
-------------------------------------------
2001 2000 1999
-------------------------------------------
Net assets at beginning of period $1,392,047 $ 437,284 $ 45,596
Increase (decrease) in net assets
Operations:
Net investment income (loss) 40,799 40,868 7,994
Total realized gains (losses) on
investments (17,784) 19,284 1,155
Change in net unrealized appreciation or
depreciation of investments (646,422) 97,562 (3,398)
-------------------------------------------
-------------------------------------------
Net increase (decrease) in net assets
resulting from operations (623,407) 157,714 5,751
Policy related transactions:
Net premium payments, less sales charges
and applicable premium taxes 1,996,976 1,406,479 477,154
Contract terminations and surrenders (38,743) (15,551) (842)
Death benefit payments (6,804) (2,000) -
Policy loan transfers (7,531) (6,001) (9,038)
Transfers to other contracts (422,466) (472,609) (35,545)
Cost of insurance and administration
charges (212,532) (101,782) (45,444)
Surrender charges (16,220) (11,487) (348)
-------------------------------------------
-------------------------------------------
Increase (decrease) in net assets from
policy related transactions 1,292,680 797,049 385,937
-------------------------------------------
-------------------------------------------
Total increase (decrease) 669,273 954,763 391,688
-------------------------------------------
-------------------------------------------
Net assets at end of period $2,061,320 $1,392,047 $437,284
===========================================
See accompanying notes.
Principal Life Insurance Company
Variable Life Separate Account
Notes to Financial Statements
December 31, 2001
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) 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, 2001, contractholder investment options
include the following diversified open-end management investment companies:
Principal Variable Contracts Fund, Inc. (3):
Asset Allocation Account
Balanced Account AIM V.I. Growth Fund (2)
Bond Account AIM V.I. Growth and Income Fund (2)
Capital Value Account AIM V.I. Value Fund (2)
Equity Growth Account, formerly the Aggressive American Century Variable Portfolios Inc.:
Growth Account until VP Income & Growth (2)
May 19, 2001 name change VP Ultra (2)
Government Securities Account Dreyfus Investment Portfolios - Founders
Growth Account Discovery Portfolio (2)
High Yield Account Fidelity Variable Insurance Products Fund:
International Account Equity-Income Portfolio
International SmallCap Account High Income Portfolio
LargeCap Growth Account (2) Fidelity Variable Insurance Products Fund II -
LargeCap Stock Index Account (1) Contrafund Portfolio
MicroCap Account Janus Aspen Aggressive Growth Portfolio (2)
MidCap Account INVESCO Variable Investment Funds:
MidCap Growth Account VIF Dynamics (2)
MidCap Growth Equity Account (2) VIF Health Sciences (2)
MidCap Value Account (2) VIF Small Company Growth (2)
Money Market Account VIF Technology (2)
Real Estate Account Putnam Variable Trust:
Small Cap Account Global Asset Allocation Fund
Small Cap Growth Account Vista Fund
Small Cap Value Account Voyager Fund
Utilities Account
<FN>
(1) Additional investment option available to contractholders as of May 1, 1999.
(2) Additional investment option available to contractholders as of May 19, 2001.
(3) Organized by Principal Life Insurance Company.
</FN>
1. Investment and Accounting Policies (continued)
Investments are stated at the closing net asset values per share on December 31,
2001. 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.
The Separate Account supports the following variable life insurance contracts of
Principal Life: Flex Variable Life Contracts, PrinFlex Life Contracts,
Survivorship Variable Universal Life Insurance Contracts, and Variable Universal
Life Accumulator Contracts.
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.
Change in Presentation
The Separate Account has presented the 2001 financial information in accordance
with the AIPCA Audit and Accounting Guide for Investment Companies (Audit
Guide), which was effective January 1, 2001. As permitted by the Audit Guide,
the 2000 and 1999 financial information has not been reclassified.
2. Expenses and Related Party Transactions
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
$207,666, $140,787 and $1,800,848, respectively in 2001; $214,797, $155,185,
and $1,828,386, respectively, in 2000; and $214,984, $174,324, and
$1,994,681, respectively, in 1999. A sales charge of 5.0% and a tax charge of
2.0%
2. Expenses and Related Party Transactions (continued)
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 - 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 $2,604,232, $2,775,046 and $28,079,777,
respectively in 2001; $2,074,990, $2,378,313, and $21,498,565, respectively,
in 2000; and $1,148,956, $1,744,117 and $14,262,467, respectively, in 1999. 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.
Survivorship Variable Universal Life Insurance Contracts (beginning in 1999)
- Mortality and expenses risk assumed by Principal Life are compensated for
by a charge equivalent to an annual rate of .80% of the asset value of each
policy. A monthly administration charge of $8.00 is deducted from policies.
There is an additional monthly administration charge in the first ten years
(and ten years after an increase in the face amount) of $.07 per $1,000 of
face amount. The charge of $.07 is increased by $.005 per $1,000 for each
insurer classified as a smoker. 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 expense risk,
administration and insurance charges amounted to $124,485, $630,309 and
$695,936, respectively in 2001; $58,307, $357,210 and $313,385, respectively,
in 2000; and $3,970, $30,083 and $26,149, respectively, in 1999. A sales
charge of 5.0% of premiums less than or equal to target premium and 2.0% of
premiums in excess of target is deducted from each payment on behalf of each
participant. A tax charge of
2. Expenses and Related Party Transactions (continued)
2.2% for state and local taxes and 1.25% for federal taxes is deducted from
each payment on behalf of each participant. The sale and tax charge is
deducted from contributions by Principal Life prior to their transfer to the
Separate Account.
Variable Universal Life Accumulator Contracts (beginning in 2001) - Mortality
and expenses risk assumed by Principal Life are compensated for by a charge
equivalent to an annual rate of .70% of the asset value of each policy. The
current monthly administrative charge is $25.00 per month during the first
policy year. After the first policy year, the administrative charge is $10.00
per month. A cost of insurance charge, which is based on the Company's
expected future mortality experience, is deducted as compensation for
insurance charges. The mortality expense risk, administration, and insurance
charges amounted to: $156, $4,700 and $18,792, respectively, in 2001. A sales
charge of 3.00% of premiums paid 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 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.
In addition, during the year ended December 31, 2001, management fees were paid
indirectly to Principal Management Corporation (wholly owned by Princor
Financial Services Corporation, a subsidiary of Principal Financial Services,
Inc.), an affiliate of Principal Life Insurance Company, in its capacity as
advisor to Principal Variable Contracts Fund, Inc. Investment advisory and
management fees are computed at the annual rate of .35% of the average daily net
assets of the Large Cap Stock Index Account and 1.00% of the average daily net
assets of the MidCap Growth Equity Account.
2. Expenses and Related Party Transactions (continued)
The investment advisory and management fees for certain Accounts of the
Principal Variable Contracts Fund, Inc. are based on an annual rate of the
average daily net assets, which decreases by .05% for each $100 million increase
in net asset value above the initial $100 million of net assets for each
Account, with the final decrease in the annual rate occurring when net assets
exceed $400 million. This rate structure applies to the Accounts in the
following table, which discloses the fee range for each Account from the first
$100 million of net asset value to net asset values of over $400 million.
Account Fee Range
--------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------
Bond, Government Securities, Money Market 0.50% - 0.30%
Balanced, High Yield, Utilities 0.60 - 0.40
MidCap 0.65 - 0.45
Asset Allocation, Equity Growth 0.80 - 0.60
SmallCap 0.85 - 0.65
MidCap Growth, Real Estate 0.90 - 0.70
MicroCap, SmallCap Growth 1.00 - 0.80
SmallCap Value 1.10 - 0.90
International SmallCap 1.20 - 1.00
The investment advisory and management fees for certain Accounts of the
Principal Variable Contracts Fund, Inc. are based on an annual rate of the
average daily net assets, which decreases by .05% for each $250 million increase
in net asset value above the initial $250 million of net assets for each
Account, with the final decrease in the annual rate occurring when net assets
exceed $1 billion. This rate structure applies to the Accounts in the following
table, which discloses the fee range for each Account from the first $250
million of net asset value to net asset values of over $1 billion:
Account Fee Range
--------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------
Capital Value, Growth 0.60% - 0.40%
International 0.85 - 0.65
MidCap Value 1.05 - 0.85
LargeCap Growth 1.10 - 0.90
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 Investments
The aggregate cost of purchases and proceeds from sales of investments were as
follows for the year ended December 31, 2001:
Division Purchase Sales
--------------------------------------------------------------------------------------------------------
AIM V.I. Growth:
Flex Variable Life $ - $ -
PrinFlex Life 181,788 9,893
Survivorship Variable Universal Life 3,791 101
Variable Universal Life Accumulator 166 18
AIM V.I. Growth and Income:
Flex Variable Life 11,966 183
PrinFlex Life 99,514 8,346
Survivorship Variable Universal Life 6,571 186
Variable Universal Life Accumulator - -
AIM V.I. Value:
Flex Variable Life 8,199 48
PrinFlex Life 447,939 29,865
Survivorship Variable Universal Life 12,523 1,087
Variable Universal Life Accumulator 204 -
American Century VP Income & Growth:
Flex Variable Life 818 120
PrinFlex Life 332,526 16,714
Survivorship Variable Universal Life 2,500 -
Variable Universal Life Accumulator 15 -
American Century UP Ultra:
Flex Variable Life 1,019 35
PrinFlex Life 302,955 111,786
Survivorship Variable Universal Life 2,785 32
Variable Universal Life Accumulator 3,519 77
4. Purchases and Sales of Investments (continued)
Division Purchase Sales
--------------------------------------------------------------------------------------------------------
Asset Allocation:
Flex Variable Life $ 1,076 $ 28
PrinFlex Life 8,749,180 4,415,917
Survivorship Variable Universal Life 316,509 48,094
Variable Universal Life Accumulator 1,511 14
Balanced:
Flex Variable Life 584,462 563,464
PrinFlex Life 4,549,703 2,286,883
Survivorship Variable Universal Life 240,473 29,910
Variable Universal Life Accumulator 20,165 -
Bond:
Flex Variable Life 891,171 463,567
PrinFlex Life 9,669,270 4,669,534
Survivorship Variable Universal Life 297,568 36,355
Variable Universal Life Accumulator 5,134 60
Capital Value:
Flex Variable Life 962,395 1,454,197
PrinFlex Life 10,373,072 6,159,323
Survivorship Variable Universal Life 301,072 37,995
Variable Universal Life Accumulator 340 40
Dreyfus Founders Discovery:
Flex Variable Life - -
PrinFlex Life 226,953 73,901
Survivorship Variable Universal Life - -
Variable Universal Life Accumulator 1,045 11
Equity Growth:
Flex Variable Life 12,324 740
PrinFlex Life 28,607,950 14,572,866
Survivorship Variable Universal Life 1,089,957 205,839
Variable Universal Life Accumulator 2,608 58
4. Purchases and Sales of Investments (continued)
Division Purchase Sales
--------------------------------------------------------------------------------------------------------
Fidelity VIP II Contrafund:
Flex Variable Life $ 7,833 $ 141
PrinFlex Life 21,970,812 10,905,358
Survivorship Variable Universal Life 768,649 215,746
Variable Universal Life Accumulator 1,047 50
Fidelity VIP Equity-Income:
Flex Variable Life 23,364 446
PrinFlex Life 9,941,107 4,444,260
Survivorship Variable Universal Life 796,520 113,029
Variable Universal Life Accumulator 3,733 49
Fidelity VIP High Income:
Flex Variable Life 1,530 223
PrinFlex Life 2,639,867 1,113,314
Survivorship Variable Universal Life 75,052 10,827
Variable Universal Life Accumulator - -
Government Securities:
Flex Variable Life 33,565 285
PrinFlex Life 5,780,469 1,962,067
Survivorship Variable Universal Life 3,012,830 30,343
Variable Universal Life Accumulator 26,231 83
Growth:
Flex Variable Life - -
PrinFlex Life 7,791,723 3,600,883
Survivorship Variable Universal Life 470,940 88,322
Variable Universal Life Accumulator 249 27
High Yield:
Flex Variable Life 439,263 178,863
4. Purchases and Sales of Investments (continued)
Division Purchase Sales
--------------------------------------------------------------------------------------------------------
International:
Flex Variable Life $ 1,101 $ 92
PrinFlex Life 9,061,858 4,353,459
Survivorship Variable Universal Life 519,735 93,066
Variable Universal Life Accumulator 6,861 84
International SmallCap:
Flex Variable Life - -
PrinFlex Life 15,673,596 13,599,060
Survivorship Variable Universal Life 309,444 71,576
Variable Universal Life Accumulator 2,858 32
INVESCO VIF Dynamics:
Flex Variable Life - -
PrinFlex Life 78,781 27,677
Survivorship Variable Universal Life - -
Variable Universal Life Accumulator - -
INVESCO VIF Health Sciences:
Flex Variable Life - -
PrinFlex Life 411,934 57,782
Survivorship Variable Universal Life 9,064 280
Variable Universal Life Accumulator 1,246 8
INVESCO VIF Small Company Growth:
Flex Variable Life 184 104
PrinFlex Life 61,559 4,487
Survivorship Variable Universal Life 1,000 -
Variable Universal Life Accumulator - -
INVESCO VIF Technology:
Flex Variable Life 14,668 612
PrinFlex Life 128,731 14,030
Survivorship Variable Universal Life 4,099 172
Variable Universal Life Accumulator 249 27
4. Purchases and Sales of Investments (continued)
Division Purchase Sales
--------------------------------------------------------------------------------------------------------
Janus Aspen Aggressive Growth:
Flex Variable Life $ 18,723 $ 499
PrinFlex Life 483,725 72,149
Survivorship Variable Universal Life 1,997 104
Variable Universal Life Accumulator 1,780 46
LargeCap Growth: 6,312 321
Flex Variable Life 186,833 43,543
PrinFlex Life 2,585 32
Survivorship Variable Universal Life 626 12
Variable Universal Life Accumulator
LargeCap Stock Index:
Flex Variable Life 74,973 3,459
PrinFlex Life 8,701,985 3,015,009
Survivorship Variable Universal Life 1,385,935 347,249
Variable Universal Life Accumulator 10,196 123
MicroCap:
Flex Variable Life 8,028 189
PrinFlex Life 898,731 323,406
Survivorship Variable Universal Life 22,645 23,748
Variable Universal Life Accumulator 5,716 -
MidCap:
Flex Variable Life 2,539,332 2,869,905
PrinFlex Life 10,476,550 5,953,152
Survivorship Variable Universal Life 351,846 40,900
Variable Universal Life Accumulator 858 7
MidCap Growth:
Flex Variable Life - -
PrinFlex Life 2,344,286 940,766
Survivorship Variable Universal Life 136,238 13,286
Variable Universal Life Accumulator 3,520 49
4. Purchases and Sales of Investments (continued)
Division Purchase Sales
--------------------------------------------------------------------------------------------------------
MidCap Growth Equity:
Flex Variable Life Division $ - $ -
PrinFlex Life 188,735 57,335
Survivorship Variable Universal Life 1,518 28
Variable Universal Life Accumulator - -
MidCap Value:
Flex Variable Life 2,624 88
PrinFlex Life 347,735 36,925
Survivorship Variable Universal Life 11,175 200
Variable Universal Life Accumulator 5,795 -
Money Market:
Flex Variable Life 280,099 150,744
PrinFlex Life 70,352,926 61,028,068
Survivorship Variable Universal Life 8,752,121 7,153,955
Variable Universal Life Accumulator 740,162 137,033
Putnam VT Global Asset Allocation:
Flex Variable Life 8,886 114
PrinFlex Life 941,900 299,972
Survivorship Variable Universal Life 107,809 32,552
Variable Universal Life Accumulator - -
Putnam VT Vista:
Flex Variable Life 71 6
PrinFlex Life 6,597,467 2,581,003
Survivorship Variable Universal Life 438,798 127,282
Variable Universal Life Accumulator 41 7
Putnam VT Voyager:
Flex Variable Life 24,064 435
PrinFlex Life 16,664,355 5,495,619
Survivorship Variable Universal Life 1,599,890 231,952
Variable Universal Life Accumulator 1,464 15
4. Purchases and Sales of Investments (continued)
Division Purchase Sales
--------------------------------------------------------------------------------------------------------
Real Estate:
Flex Variable Life $ 7,019 $ 211
PrinFlex Life 3,001,367 1,162,890
Survivorship Variable Universal Life 436,442 114,013
Variable Universal Life Accumulator - -
SmallCap:
Flex Variable Life 5,700 38
PrinFlex Life 2,238,616 761,458
Survivorship Variable Universal Life 178,366 30,439
Variable Universal Life Accumulator 4 -
SmallCap Growth:
Flex Variable Life 3,759 64
PrinFlex Life 7,825,412 3,132,072
Survivorship Variable Universal Life 449,761 166,767
Variable Universal Life Accumulator 2,153 39
SmallCap Value:
Flex Variable Life 5,257 367
PrinFlex Life 5,353,879 1,761,741
Survivorship Variable Universal Life 231,003 21,805
Variable Universal Life Accumulator 5,731 -
Utilities:
Flex Variable Life 6,897 208
PrinFlex Life 1,894,755 692,679
Survivorship Variable Universal Life 151,705 26,991
Variable Universal Life Accumulator - -
5. Changes in Units Outstanding
Transactions in units were as follows for each of the years ended December 31:
2001 2000 1999
------------------------- ------------------------------------------------
------------------------- ------------------------------------------------
Division Purchased Redeemed Purchased Redeemed Purchased Redeemed
-------------------------------------------------------- ------------------------------------------------
AIM V.I. Growth:
Flex Variable Life - - - - - -
PrinFlex Life 21,124 1,179 - - - -
Survivorship Variable
Universal Life 467 12 - - - -
Variable Universal Life
Accumulator 20 3 - - - -
AIM V.I. Growth & Income:
Flex Variable Life 1,419 21 - - - -
PrinFlex Life 11,676 1,031 - - - -
Survivorship Variable
Universal Life 803 22 - - - -
Variable Universal Life
Accumulator - - - - - -
AIM V.I. Value:
Flex Variable Life 912 4 - - - -
PrinFlex Life 49,434 3,478 - - - -
Survivorship Variable
Universal Life 1,363 125 - - - -
Variable Universal Life
Accumulator 23 - - - - -
American Century VP Income &
Growth:
Flex Variable Life 92 14 - - - -
PrinFlex Life 37,354 1,935 - - - -
Survivorship Variable
Universal Life 266 - - - - -
Variable Universal Life
Accumulator 2 - - - - -
American Century VP Ultra:
Flex Variable Life 105 3 - - - -
PrinFlex Life 31,751 11,551 - - - -
Survivorship Variable
Universal Life 304 3 - - - -
Variable Universal Life
Accumulator 388 8 - - - -
5. Changes in Units Outstanding (continued)
2001 2000 1999
------------------------- ------------------------------------------------
------------------------- ------------------------------------------------
Division Purchased Redeemed Purchased Redeemed Purchased Redeemed
-------------------------------------------------------- ------------------------------------------------
Asset Allocation:
Flex Variable Life 112 3 - - - -
PrinFlex Life 571,494 292,702 191,564 58,310 970,302 331,686
Survivorship Variable
Universal Life 27,445 4,395 29,144 1,695 7,867 732
Variable Universal Life
Accumulator 102 1 - - - -
Balanced:
Flex Variable Life 15,028 18,996 22,620 29,829 32,343 31,633
PrinFlex Life 336,029 183,846 264,429 281,698 385,145 225,867
Survivorship Variable
Universal Life 24,294 3,182 15,115 1,252 8,197 155
Variable Universal Life
Accumulator 1,635 - - - - -
Bond:
Flex Variable Life 29,174 17,360 31,163 43,557 21,722 24,329
PrinFlex Life 692,888 356,162 327,188 160,197 385,603 139,681
Survivorship Variable
Universal Life 24,469 3,160 13,731 1,432 4,133 72
Variable Universal Life
Accumulator 384 5 - - - -
Capital Value:
Flex Variable Life 24,669 41,690 41,792 65,294 58,379 44,706
PrinFlex Life 766,251 474,114 772,832 752,345 865,446 424,784
Survivorship Variable
Universal Life 33,165 4,339 14,484 3,713 5,115 822
Variable Universal Life
Accumulator 27 3 - - - -
Dreyfus Founders Discovery:
Flex Variable Life - - - - - -
PrinFlex Life 26,123 8,811 - - - -
Survivorship Variable
Universal Life - - - - - -
Variable Universal Life
Accumulator 118 1 - - - -
5. Changes in Units Outstanding (continued)
2001 2000 1999
------------------------- ------------------------------------------------
------------------------- ------------------------------------------------
Division Purchased Redeemed Purchased Redeemed Purchased Redeemed
-------------------------------------------------------- ------------------------------------------------
Equity Growth:
Flex Variable Life 1,366 81 - - - -
PrinFlex Life 1,606,308 916,948 1,361,577 501,754 970,302 331,686
Survivorship Variable
Universal Life 103,844 21,544 112,002 7,441 7,867 732
Variable Universal Life
Accumulator 168 4 - - - -
Fidelity VIP II Contrafund:
Flex Variable Life 868 15 - - - -
PrinFlex Life 1,269,025 670,721 1,144,457 374,650 784,899 194,124
Survivorship Variable
Universal Life 76,449 23,010 111,833 10,478 14,058 340
Variable Universal Life
Accumulator 66 3 - - - -
Fidelity VIP Equity-Income:
Flex Variable Life 2,580 45 - - - -
PrinFlex Life 598,407 295,131 458,716 269,431 442,641 161,414
Survivorship Variable
Universal Life 76,070 11,289 46,772 6,219 6,673 65
Variable Universal Life
Accumulator 252 3 - - - -
Fidelity VIP High Income:
Flex Variable Life 158 24 - - - -
PrinFlex Life 268,871 126,585 124,178 63,941 86,113 51,793
Survivorship Variable
Universal Life 8,447 1,460 7,470 422 - -
Variable Universal Life
Accumulator - - - - - -
Government Securities:
Flex Variable Life 3,300 16 - - - -
PrinFlex Life 402,534 141,110 148,727 160,947 194,406 209,054
Survivorship Variable
Universal Life 253,638 2,548 9,169 1,998 6,834 3,590
Variable Universal Life
Accumulator 1,857 6 - - - -
5. Changes in Units Outstanding (continued)
2001 2000 1999
------------------------- ------------------------------------------------
------------------------- ------------------------------------------------
Division Purchased Redeemed Purchased Redeemed Purchased Redeemed
-------------------------------------------------------- ------------------------------------------------
Growth:
Flex Variable Life - - - - - -
PrinFlex Life 636,276 295,066 523,375 228,808 454,302 154,162
Survivorship Variable
Universal Life 60,549 11,196 60,111 3,602 4,616 84
Variable Universal Life
Accumulator 22 3 - - - -
High Yield:
Flex Variable Life 12,329 7,914 14,246 13,471 20,298 48,184
International:
Flex Variable Life 121 10 - - - -
PrinFlex Life 788,752 384,790 656,461 304,424 492,014 272,765
Survivorship Variable
Universal Life 57,515 10,739 37,625 4,291 3,556 36
Variable Universal Life
Accumulator 664 8 - - - -
International SmallCap:
Flex Variable Life - - - - - -
PrinFlex Life 1,205,683 1,043,675 562,111 262,440 95,274 19,712
Survivorship Variable
Universal Life 27,658 6,650 41,607 1,523 1,484 17
Variable Universal Life
Accumulator 239 3 - - - -
INVESCO VIF Dynamics:
Flex Variable Life - - - - - -
PrinFlex Life 10,124 3,537 - - - -
Survivorship Variable
Universal Life - - - - - -
Variable Universal Life
Accumulator - - - - - -
INVESCO VIF Health Sciences:
Flex Variable Life - - - - - -
PrinFlex Life 42,128 5,964 - - - -
Survivorship Variable
Universal Life 942 29 - - - -
Variable Universal Life
Accumulator 125 1 - - - -
5. Changes in Units Outstanding (continued)
2001 2000 1999
------------------------- ------------------------------------------------
------------------------- ------------------------------------------------
Division Purchased Redeemed Purchased Redeemed Purchased Redeemed
-------------------------------------------------------- ------------------------------------------------
INVESCO VIF Small Company
Growth:
Flex Variable Life 23 13 - - - -
PrinFlex Life 7,880 570 - - - -
Survivorship Variable
Universal Life 112 - - - - -
Variable Universal Life - - - - - -
Accumulator
INVESCO VIF Technology:
Flex Variable Life 2,315 85 - - - -
PrinFlex Life 18,541 2,094 - - - -
Survivorship Variable
Universal Life 631 26 - - - -
Variable Universal Life
Accumulator 35 3 - - - -
Janus Aspen Aggressive Growth:
Flex Variable Life 2,122 58 - - - -
PrinFlex Life 60,330 9,545 - - - -
Survivorship Variable
Universal Life 256 14 - - - -
Variable Universal Life
Accumulator 236 6 - - - -
LargeCap Growth:
Flex Variable Life 815 39 - - - -
PrinFlex Life 23,742 5,442 - - - -
Survivorship Variable
Universal Life 316 4 - - - -
Variable Universal Life
Accumulator 79 2 - - - -
LargeCap Stock Index:
Flex Variable Life 8,868 383 - - - -
PrinFlex Life 948,390 333,375 665,489 109,385 621,329 17,000
Survivorship Variable
Universal Life 151,938 37,804 75,861 8,957 2,600 72
Variable Universal Life
Accumulator 1,147 14 - - - -
5. Changes in Units Outstanding (continued)
2001 2000 1999
------------------------- ------------------------------------------------
------------------------- ------------------------------------------------
Division Purchased Redeemed Purchased Redeemed Purchased Redeemed
-------------------------------------------------------- ------------------------------------------------
MicroCap:
Flex Variable Life 858 20 - - - -
PrinFlex Life 101,620 36,427 126,312 85,693 42,361 7,556
Survivorship Variable
Universal Life 2,279 2,423 39,160 698 2,583 5
Variable Universal Life
Accumulator 619 - - - - -
MidCap:
Flex Variable Life 42,188 55,915 70,463 70,319 69,891 78,806
PrinFlex Life 633,135 389,369 547,143 405,940 669,400 492,907
Survivorship Variable
Universal Life 28,400 3,414 7,081 426 232 4
Variable Universal Life
Accumulator 55 - - - - -
MidCap Growth:
Flex Variable Life - - - - - -
PrinFlex Life 233,985 98,460 150,366 42,392 90,323 32,058
Survivorship Variable
Universal Life 14,588 1,375 7,683 423 236 15
Variable Universal Life
Accumulator 367 5 - - - -
MidCap Growth Equity:
Flex Variable Life - - - - - -
PrinFlex Life 22,461 7,472 - - - -
Survivorship Variable
Universal Life 169 3 - - - -
Variable Universal Life
Accumulator - - - - - -
MidCap Value:
Flex Variable Life 262 8 - - - -
PrinFlex Life 36,760 4,055 - - - -
Survivorship Variable
Universal Life 1,148 22 - - - -
Variable Universal Life
Accumulator 601 - - - - -
5. Changes in Units Outstanding (continued)
2001 2000 1999
------------------------- ------------------------------------------------
------------------------- ------------------------------------------------
Division Purchased Redeemed Purchased Redeemed Purchased Redeemed
-------------------------------------------------------- ------------------------------------------------
Money Market:
Flex Variable Life 14,184 8,029 38,771 48,920 22,657 8,313
PrinFlex Life 5,548,067 4,869,243 5,179,115 4,831,329 3,259,754 2,946,933
Survivorship Variable
Universal Life 782,891 643,912 1,028,494 1,133,955 339,308 155,990
Variable Universal Life
Accumulator 58,166 10,768 - - - -
Putnam VT Global Asset Allocation:
Flex Variable Life 1,006 11 - - - -
PrinFlex Life 81,387 29,967 66,847 22,152 37,942 12,194
Survivorship Variable
Universal Life 9,279 3,485 7,668 2,529 3,901 14
Variable Universal Life
Accumulator - - - - - -
Putnam VT Vista:
Flex Variable Life 10 1 - - - -
PrinFlex Life 506,114 226,945 316,101 44,910 52,210 8,751
Survivorship Variable
Universal Life 41,959 13,555 20,759 4,233 782 6
Variable Universal Life
Accumulator 4 1 - - - -
Putnam VT Voyager:
Flex Variable Life 2,665 45 - - - -
PrinFlex Life 1,064,737 469,444 969,010 243,104 505,025 86,311
Survivorship Variable
Universal Life 129,924 23,448 124,973 8,740 10,457 124
Variable Universal Life
Accumulator 132 2 - - - -
Real Estate:
Flex Variable Life 635 18 - - - -
PrinFlex Life 244,749 97,325 80,043 25,478 6,892 2,042
Survivorship Variable
Universal Life 32,478 8,899 25,948 4,779 - -
Variable Universal Life
Accumulator - - - - - -
5. Changes in Units Outstanding (continued)
2001 2000 1999
------------------------- ------------------------------------------------
------------------------- ------------------------------------------------
Division Purchased Redeemed Purchased Redeemed Purchased Redeemed
-------------------------------------------------------- ------------------------------------------------
SmallCap:
Flex Variable Life 641 3 - - - -
PrinFlex Life 222,658 76,745 157,023 67,657 82,373 19,001
Survivorship Variable
Universal Life 16,892 2,913 8,321 500 997 11
Variable Universal Life
Accumulator 1 - - - - -
SmallCap Growth:
Flex Variable Life 544 8 - - - -
PrinFlex Life 590,984 240,527 418,484 78,202 105,937 19,878
Survivorship Variable
Universal Life 43,255 16,757 54,220 4,910 1,414 10
Variable Universal Life
Accumulator 183 3 - - - -
SmallCap Value:
Flex Variable Life 512 36 - - - -
PrinFlex Life 390,303 133,997 197,188 125,832 50,737 11,295
Survivorship Variable
Universal Life 15,281 1,620 5,708 1,951 3,695 8
Variable Universal Life
Accumulator 421 - - - - -
Utilities:
Flex Variable Life 764 25 - - - -
PrinFlex Life 149,552 56,519 100,607 46,955 39,617 7,891
Survivorship Variable
Universal Life 14,644 2,646 11,059 1,210 1,571 5
Variable Universal Life
Accumulator - - - - - -
6. Financial Highlights
Principal Life sells a number of variable life insurance products, which have
unique combinations of features and fees that are charged against the contract
owner's account balance. Differences in the fee structures result in a variety
of unit values, expense ratios, and total returns.
Effective with these 2001 annual financial statements, the Separate Account has
presented the following disclosures required by AICPA Audit and Accounting Guide
for Investment Companies. The following table was developed by determining which
products offered by Principal Life have the lowest and highest total return.
Only product designs within each subaccount that had units outstanding during
the respective periods were considered when determining the lowest and highest
total return. The summary may not reflect the minimum and maximum contract
charges offered by the Company as contract owners may not have selected all
available and applicable contract options as discussed in Note 2.
December 31, 2001 For the Year Ended December 31, 2001
---------------------------------------------------------------------------------------
Unit Fair Expense Total
Value Net Investment Ratio (2) Lowest Return (3)
Units Lowest to Highest Assets Income to Highest Lowest to
Division (000's) (000's) Ratio (1) Highest
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
AIM V.I. Growth (4) 20 $8.56 to $8.56 $ 175 0.80% 0.70% to 0.90% (26.85)% to 14.22%
AIM V.I. Growth &
Income (4) 13 8.35 to 8.39 107 0.17 0.75 to 0.90 (32.24) to (31.58)
AIM V.I. Value (4) 48 8.82 to 8.86 426 0.37 0.70 to 0.90 (22.82) to 0.99
American Century VP
Income & Growth (4) 36 8.99 to 9.03 323 - 0.70 to 0.90 (19.39) to 12.75
American Century VP
Ultra (4) 21 9.15 to 9.19 193 - 0.70 to 0.90 (17.09) to 18.56
Asset Allocation 675 9.59 to 14.66 9,650 2.57 0.70 to 0.90 (8.33) to (3.94)
Balanced 927 9.26 to 27.66 13,101 3.00 0.70 to 0.90 (8.12) to (6.97)
Bond 1,036 11.72 to 26.63 14,909 5.74 0.70 to 0.90 (8.64) to 8.14
Capital Value 2,002 8.63 to 33.33 29,595 1.25 0.70 to 0.90 (8.75) to 26.32
6. Financial Highlights (continued)
December 31, 2001 For the Year Ended December 31, 2001
---------------------------------------------------------------------------------------
Unit Fair Expense Total
Value Net Investment Ratio (2) Lowest Return (3)
Units Lowest to Highest Assets Income to Highest Lowest to
Division (000's) (000's) Ratio (1) Highest
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
Dreyfus Founders
Discovery (4) 17 $8.89 to $8.89 $ 155 -% 0.70% to 0.90% (23.53)% to 85.87%
Equity Growth 3,349 8.97 to 15.46 50,584 0.09 0.70 to 0.90 (20.92) to (10.68)
Fidelity VIP II
Contrafund 2,638 9.31 to 16.03 41,155 0.71 0.70 to 0.90 (12.63) to 32.45
Fidelity VIP
Equity-Income 1,247 9.13 to 15.00 18,130 1.48 0.70 to 0.90 (15.90) to 18.54
Fidelity VIP High
Income 348 6.89 to 8.96 2,818 9.20 0.75 to 0.90 (17.81) to (11.72)
Government Securities 777 10.44 to 14.14 10,466 3.22 0.70 to 0.90 (3.19) to 7.63
Growth 1,370 7.31 to 11.48 15,259 - 0.70 to 0.90 (25.50) to (15.95)
High Yield 83 20.52 1,711 10.44 0.75 0.12
International 1,707 8.03 to 10.54 17,773 0.14 0.70 to 0.90 (26.71) to 14.47
International SmallCap 635 10.32 to 12.14 7,598 - 0.70 to 0.90 (21.87) to 40.51
INVESCO VIF Dynamics
(4) 7 8.05 53 - 0.90 (39.39)
INVESCO VIF Health
Sciences (4) 37 9.93 to 9.93 369 - 0.70 to 0.90 (23.80) to (4.72)
INVESCO VIF Small
Company Growth (4) 7 8.47 to 8.51 63 - 0.75 to 0.90 (30.61) to (29.95)
INVESCO VIF Technology(4)
19 7.09 to 7.13 138 - 0.70 to 0.90 (57.69) to (18.96)
6. Financial Highlights (continued)
December 31, 2001 For the Year Ended December 31, 2001
---------------------------------------------------------------------------------------
Unit Fair Expense Total
Value Net Investment Ratio (2) Lowest Return (3)
Units Lowest to Highest Assets Income to Highest Lowest to
Division (000's) (000's) Ratio (1) Highest
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
Janus Aspen
Aggressive Growth (4) 53 $7.53 to $7.57 $ 403 -% 0.70% to 0.90% (47.29)% to 18.71%
LargeCap Growth (4) 19 7.91 to 7.94 155 - 0.70 to 0.90 (38.95) to (10.11)
LargeCap Stock Index 1,969 8.77 to 8.91 17,278 1.07 0.70 to 0.90 (21.12) to (2.35)
MicroCap 201 9.24 to 10.41 1,908 - 0.70% to 0.90 (8.10) to 92.94
MidCap 1,973 12.32 to 50.06 39,444 0.78 0.70 to 0.90 (4.43) to 44.28
MidCap Growth 355 9.65 to 9.76 3,432 - 0.70 to 0.90 (16.95) to 61.44
MidCap Growth Equity(4) 15 8.23 to 8.23 125 - 0.80 to 0.90 (36.70)
MidCap Value (4) 35 9.60 to 9.65 335 0.30 0.70 to 0.90 (9.05) to 64.14
Money Market 2,360 11.25 to 18.52 29,911 3.69 0.70 to 0.90 2.67 to 4.11
Putnam VT Global
Asset Allocation 145 9.34 to 10.01 1,443 0.94 0.75 to 0.90 (13.07) to (8.47)
Putnam VT Vista 651 8.06 to 10.22 6,598 - 0.70 to 0.90 (39.17) to 40.64
Putnam VT Voyager 2,059 8.44 to 11.10 22,401 - 0.70 to 0.90 (29.99) to (3.76)
Real Estate 256 10.95 to 13.70 3,295 5.02 0.75 to 0.90 8.77 to 15.39
SmallCap 353 9.47 to 10.81 3,682 - 0.70 to 0.90 (13.05) to 89.62
SmallCap Growth 875 7.61 to 11.76 10,098 - 0.70 to 0.90 (45.56) to 55.16
SmallCap Value 406 9.82 to 14.58 5,542 1.05 0.70 to 0.90 (4.64) to 79.34
Utilities 207 7.25 to 10.19 2,061 2.95 0.70 to 0.90 (48.04) to (27.69)
<FN>
(1) These amounts represent the dividends, excluding distributions of capital
gains, received by the division from the underlying mutual fund, net of
management fees assessed by the fund manager, divided by the average net
assets. These ratios exclude those expenses, such as mortality and
expense charges, that result in direct reductions in the unit values. The
recognition of investment income by the division is affected by the
timing of the declaration of dividends by the underlying fund in which
the divisions invest.
(2) These ratios represent the annualized contract expenses of the separate
account, consisting primarily of mortality and expense charges, for each
period indicated. The ratios include only those expenses that result in a
direct reduction to unit values. Charges made directly to contract owner
accounts through the redemption of units and expenses of the underlying
fund are excluded.
(3) These amounts represent the total return for the periods indicated,
including changes in the value of the underlying fund, and reflect
deductions for all items included in the expense ratio. The total return
does not include any expenses assessed through the redemption of units;
inclusion of these expenses in the calculation would result in a
reduction in the total return presented. Investment options with a date
notation indicate the effective date of that investment option in the
variable account. The total return is calculated for the period indicated
or from the effective date through the end of the reporting period.
(4) Commencement of operations, May 19, 2001. Investment income ratio and
expense ratio have been annualized.
</FN>
CONSOLIDATED FINANCIAL STATEMENTS
Principal Life Insurance Company
Years Ended December 31, 2001, 2000, and 1999
Report of Independent Auditors
The Board of Directors and Stockholder
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 Financial Group, Inc.) as of December 31, 2001 and 2000,
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, 2001.
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 auditing standards generally accepted
in the United States. 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, 2001 and 2000, and the consolidated results of
its operations and its cash flows for each of the three years in the period
ended December 31, 2001, in conformity with accounting principles generally
accepted in the United States.
As discussed in Note 1 to the consolidated financial statements, the Company
changed its method of accounting for derivative instruments and hedging
activities in response to a new accounting standard that became effective
January 1, 2001.
Des Moines, Iowa
February 1, 2002
Principal Life Insurance Company
Consolidated Statements of Financial Position
December 31,
2001 2000
-------------- ------------------
(in millions, except
per share data)
Assets
Fixed maturities, available-for-sale......... $29,007.4 $26,142.1
Fixed maturities, trading.................... 17.8 -
Equity securities, available-for-sale........ 798.7 710.3
Mortgage loans............................... 10,884.6 11,325.8
Real estate.................................. 950.5 1,391.7
Policy loans................................. 831.9 803.6
Other investments............................ 615.5 532.8
-------------- ------------------
Total investments......................... 43,106.4 40,906.3
Cash and cash equivalents.................... 1,077.7 1,842.1
Accrued investment income.................... 593.5 530.4
Premiums due and other receivables........... 468.3 401.8
Deferred policy acquisition costs............ 1,322.3 1,333.3
Property and equipment....................... 480.6 471.2
Goodwill and other intangibles............... 72.2 94.1
Mortgage loan servicing rights............... 1,778.5 1,084.4
Separate account assets...................... 34,028.9 33,180.4
Other assets................................. 642.2 558.9
-------------- ------------------
-------------- ------------------
Total assets.............................. $83,570.6 $80,402.9
============== ==================
============== ==================
Liabilities
Contractholder funds......................... $24,664.6 $24,300.2
Future policy benefits and claims............ 13,011.7 12,579.6
Other policyholder funds..................... 576.6 597.4
Short-term debt.............................. 1,378.4 1,339.9
Long-term debt............................... 617.6 672.3
Income taxes currently payable............... - 124.5
Deferred income taxes........................ 782.7 399.0
Separate account liabilities................. 34,028.9 33,180.4
Other liabilities............................ 3,167.9 1,909.4
-------------- ------------------
-------------- ------------------
Total liabilities......................... 78,228.4 75,102.7
Stockholder's equity
Common stock, par value $.01 per share -
5.0 million shares authorized, 2.5
million shares issued and outstanding
(wholly owned indirectly by Principal
Financial Group, Inc.). 2.5 2.5
Additional paid-in capital................... 5,004.6 21.0
Retained earnings (deficit).................. (26.6) 5,188.6
Accumulated other comprehensive income....... 368.4 88.1
Treasury stock, at cost (363.7 thousand
shares of Principal
Financial Group, Inc. common stock)....... (6.7) -
-------------- ------------------
Total stockholder's equity................... 5,342.2 5,300.2
-------------- ------------------
-------------- ------------------
Total liabilities and stockholder's
equity.......................... $83,570.6 $80,402.9
============== ==================
See accompanying notes.
Principal Life Insurance Company
Consolidated Statements of Operations
For the year ended December 31,
2001 2000 1999
------------------ ------------------ ------------------
(in millions)
Revenues
Premiums and other considerations............... $3,795.7 $3,929.3 $3,937.6
Fees and other revenues......................... 1,502.3 1,214.5 1,126.0
Net investment income........................... 3,210.7 3,115.5 3,045.8
Net realized capital gains (losses)............. (492.7) 151.8 456.6
------------------ ------------------ ------------------
------------------ ------------------ ------------------
Total revenues.................................. 8,016.0 8,411.1 8,566.0
Expenses
Benefits, claims, and settlement expenses....... 5,092.4 5,147.1 5,260.9
Dividends to policyholders...................... 313.7 312.7 304.6
Operating expenses.............................. 2,139.7 2,060.9 1,867.3
------------------ ------------------ ------------------
------------------ ------------------ ------------------
Total expenses.................................. 7,545.8 7,520.7 7,432.8
------------------ ------------------ ------------------
------------------ ------------------ ------------------
Income before income taxes and cumulative
effect of accounting change.................. 470.2 890.4 1,133.2
Income taxes.................................... 92.4 248.8 323.5
------------------ ------------------ ------------------
------------------ ------------------ ------------------
Income before cumulative effect of accounting 377.8 641.6 809.7
change.......................................
Cumulative effect of accounting change, net of
related income taxes......................... (10.7) - -
------------------ ------------------ ------------------
------------------ ------------------ ------------------
Net income...................................... $ 367.1 $ 641.6 $ 809.7
================== ================== ==================
See accompanying notes.
Principal Life Insurance Company
Consolidated Statements of Stockholder's Equity
Accumulated
Additional Retained other Total
Common paid-in earnings comprehensive Treasury stockholder's
stock capital (deficit) income (loss) stock equity
----------- ------------- ----------- ------------------ ------------ ----------------
(in millions)
Balances at January 1, 1999.......... $2.5 $ - $4,749.9 $ 717.0 $ - $5,469.4
Dividends to parent.................. - - (449.0) - - (449.0)
Comprehensive loss: - -
Net income........................ - - 809.7 - - 809.7
Net unrealized gains (losses)..... - - - (1,301.2) - (1,301.2)
Provision for deferred income
tax benefit..................... - - - 453.2 - 453.2
Foreign currency translation
adjustment...................... - - - (31.1) - (31.1)
-----------
-----------
Comprehensive loss................... (69.4)
------- ------------- -------- -------------- ---------- -----------
Balances at December 31, 1999........ 2.5 - 5,110.6 (162.1) - 4,951.0
Reclassification of retained earnings )
to additional paid-in capital..... - 21.0 (21.0 - - -
Dividends to parent.................. - - (542.6) - - (542.6)
Comprehensive income:
Net income........................ - - 641.6 - - 641.6
Net unrealized gains (losses)..... - - - 344.6 - 344.6
Provision for deferred income
taxes........................... - - - (121.4) - (121.4)
Foreign currency translation
adjustment...................... - - - 27.0 - 27.0
-----------
-----------
Comprehensive income................. 891.8
-------- ------------- ----------- ------------------ ------------ -----------
Balances at December 31, 2000........ 2.5 21.0 5,188.6 88.1 - 5,300.2
Contributions and distributions in
connection with Principal
Mutual Holding Company's
demutualization transaction....... - 4,976.9 (4,937.3) - - 39.6
Principal Financial Group, Inc.
shares held in rabbi trusts....... - 6.7 - - (6.7) -
Dividends to parent.................. - - (645.0) 9.8 - (635.2)
Comprehensive income:
Net income before Principal
Mutual Holding Company's
demutualization................. - - 393.7 - - 393.7
Net loss after Principal
Mutual Holding Company's
demutualization................. - - (26.6) - - (26.6)
----------- ----------------
----------- ----------------
Net income for the year........... - - 367.1 - - 367.1
Net unrealized gains (losses)..... - - - 405.2 - 405.2
Provision for deferred income
taxes........................... - - - (144.4) - (144.4)
Foreign currency translation
adjustment...................... - - - 23.9 - 23.9
Cumulative effect of accounting
change, net of related income
taxes........................... - - - (14.2) - (14.2)
----------------
----------------
Comprehensive income................. 637.6
------- ------------- ----------- ------------------ ------------ ----------------
Balances at December 31, 2001........ $2.5 $5,004.6 $ (26.6) $ 368.4 $(6.7) $5,342.2
======== ============= =========== ================== ============ ================
See accompanying notes.
6
Principal Life Insurance Company
Consolidated Statements of Cash Flows
For the year ended December 31,
2001 2000 1999
----------------- ---------------- -----------------
(in millions)
Operating activities
Net income............................................ $ 367.1 $ 641.6 $ 809.7
Adjustments to reconcile net income to net cash
provided by operating activities:
Cumulative effect of accounting change,
net of related income taxes.................... 10.7 - -
Amortization of deferred policy acquisition
costs.......................................... 157.6 238.6 173.7
Additions to deferred policy acquisition costs... (249.0) (263.6) (253.8)
Accrued investment income........................ (66.8) (59.0) (37.0)
Premiums due and other receivables............... (79.7) (51.9) 84.6
Contractholder and policyholder liabilities
and dividends.................................. 1,669.7 1,456.5 1,650.6
Current and deferred income taxes................ 62.2 127.9 45.8
Net realized capital gains....................... 492.7 (151.8) (456.6)
Depreciation and amortization expense............ 95.3 97.0 98.8
Amortization and impairment/recovery of
mortgage servicing rights...................... 408.7 157.3 94.4
Other............................................ 819.5 495.0 (18.2)
----------------- ---------------- -----------------
----------------- ---------------- -----------------
Net adjustments....................................... 3,320.9 2,046.0 1,382.3
----------------- ---------------- -----------------
----------------- ---------------- -----------------
Net cash provided by operating activities............. 3,688.0 2,687.6 2,192.0
Investing activities Available-for-sale securities:
Purchases.......................................... (12,075.3) (12,932.5) (11,510.2)
Sales.............................................. 6,427.7 7,312.8 6,947.1
Maturities......................................... 2,501.2 2,665.3 2,599.2
Net cash flows from trading securities................ (17.0) - -
Mortgage loans acquired or originated................. (40,430.2) (10,471.3) (16,594.6)
Mortgage loans sold or repaid......................... 40,895.8 12,026.8 16,361.5
Net change in mortgage servicing rights............... - - -
Purchases of mortgage servicing rights................ (968.4) (235.9) (336.7)
Proceeds from sale of mortgage servicing rights....... 31.5 53.0 29.2
Real estate acquired.................................. (290.0) (324.3) (449.7)
Real estate sold...................................... 803.8 795.8 869.8
Net change in property and equipment.................. (86.6) (71.5) (61.8)
Net proceeds (disbursements) from sales of
subsidiaries....................................... (14.8) - 41.7
Purchases of interest in subsidiaries, net of cash
acquired........................................... (8.4) - (12.8)
Net change in other investments....................... (198.6) (95.5) 24.2
----------------- ---------------- -----------------
----------------- ---------------- -----------------
Net cash used in investing activities................. (3,429.3) (1,277.3) (2,093.1)
Principal Life Insurance Company
Consolidated Statements of Cash Flows (continued)
For the year ended December 31,
2001 2000 1999
----------------- ---------------- -----------------
(in millions)
Financing activities
Payments to eligible policyholders under Principal
Mutual Holding Company's plan of conversion....... $(1,177.5) $ - $ -
Issuance of debt..................................... 149.2 230.4 203.5
Principal repayments of debt......................... (203.9) (119.9) (40.2)
Proceeds of short-term borrowings.................... 38.5 1,373.4 4,952.4
Repayment of short-term borrowings................... - (346.8) (4,895.7)
Contribution received from parent.................... 1,689.7 - -
Dividends paid to parent............................. (498.9) (345.5) (354.5)
Investment contract deposits......................... 5,054.9 3,982.6 5,325.4
Investment contract withdrawals...................... (6,075.1) (5,011.3) (5,081.7)
----------------- ---------------- -----------------
----------------- ---------------- -----------------
Net cash provided by (used in) financing activities.. (1,023.1) (237.1) 109.2
----------------- ---------------- -----------------
Net increase (decrease) in cash and cash equivalents. (764.4) 1,173.2 208.1
Cash and cash equivalents at beginning of year....... 1,842.1 668.9 460.8
----------------- ---------------- -----------------
----------------- ---------------- -----------------
Cash and cash equivalents at end of year............. $ 1,077.7 $1,842.1 $ 668.9
================= ================ =================
================= ================ =================
Schedule of noncash transactions
Policy credits to eligible policyholders under
Principal Mutual Holding Company's plan of
conversion........................................ $ 472.6
=================
=================
Reclassification of stockholder's equity in
connection with Principal Mutual Holding Company's
plan of conversion................................ $3,287.2
=================
=================
Dividend of net remaining noncash assets and
liabilities of subsidiary - Principal
International, Inc. to Principal Financial
Services, Inc. on
April 1, 2001..................................... $ (136.3)
=================
=================
Net transfer of noncash assets and liabilities to an
unconsolidated limited liability company in
exchange for a minority interest.................. $ (255.0)
================
================
Dividend of net noncash assets and liabilities of
subsidiaries - Principal International de Chile,
S.A. and Principal Compania de Seguros de Vida
Chile, S.A. to Principal Financial Services, Inc.
on September 28, 2000............................. $ (170.6)
================
================
Dividend of net noncash assets and liabilities of
Princor Financial Services Corporation to
Principal Financial Services, Inc. on April 1, 1999 $ (12.0)
=================
See accompanying notes.
Principal Life Insurance Company
Notes to Consolidated Financial Statements
December 31, 2001
1. Nature of Operations and Significant Accounting Policies
Description of Business
Principal Life Insurance Company and its consolidated subsidiaries ("the
Company") is a diversified financial services organization engaged in promoting
retirement savings and investment and insurance products and services in the
U.S. In addition, the Company offers residential mortgage loan origination and
servicing in the U.S.
Reorganization
Under the terms of Principal Mutual Holding Company's Plan of Conversion,
effective October 26, 2001 (the "Date of Demutualization"), Principal Mutual
Holding Company, the Company's ultimate parent, converted from a mutual
insurance holding company ("MIHC") to a stock company, and Principal Financial
Group, Inc. ("PFG"), a new Delaware business corporation, completed its initial
public offering ("IPO"). All policyholder membership interests in Principal
Mutual Holding Company were extinguished on that date and eligible policyholders
of the MIHC received, in aggregate, 260.8 million shares of common stock,
$1,177.5 million of cash and $472.6 million of policy credits as compensation.
After giving effect to the reorganization resulting from the demutualization,
the Company is now a direct wholly-owned subsidiary of Principal Financial
Services, Inc. ("PFSI"), which in turn is a direct wholly-owned subsidiary of
PFG.
In PFG's IPO, 100.0 million shares of common stock were issued at a price of
$18.50 per share. Net proceeds from the IPO were $1,753.9 million, of which
$64.2 million was retained by PFG, and $1,689.7 million was contributed to the
Company to reimburse for cash, policy credits and demutualization expenses,
which were $18.6 million and $7.2 million, net of income taxes, in 2001 and
2000, respectively.
Basis of Presentation
The accompanying consolidated financial statements of the Company and its
majority-owned subsidiaries have been prepared in conformity with accounting
principles generally accepted in the U.S. ("U.S. 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 $3,769.1 million at
December 31, 2001, and $2,234.9 million at December 31, 2000. Total revenues of
the unconsolidated entities were $2,650.2 million, $2,127.9 million and $1,971.5
million in 2001, 2000 and 1999, respectively. During 2001, 2000 and 1999, the
Company included $46.1 million, $31.4 million and $107.7 million, respectively,
in net investment income representing the Company's share of current year net
income of the unconsolidated entities. The unconsolidated entities primarily
include the Company's 23% interest in Coventry Health Care, Inc. and minority
interests in domestic joint ventures and partnerships. The Company's net
investment in these Companies at December 31, 2001 and 2000, was $126.2 million
and $109.2 million, respectively.
Principal Life Insurance Company
Notes to Consolidated Financial Statements (continued)
1. Nature of Operations and Significant Accounting Policies (continued)
Closed Block
At the time the MIHC structure was created in 1998, the Company formed and began
operating a closed block ("Closed Block") for the benefit of individual
participating dividend-paying policies in force on that date. See Note 7 for
further details regarding 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.
Accounting Changes
In June 1998, the Financial Accounting Standards Board (the "FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133, Accounting for
Derivative Instruments and Hedging Activities ("SFAS 133"). In June 1999, SFAS
No. 137, Accounting for Derivative Instruments and Hedging Activities - Deferral
of the Effective Date of FASB Statement No. 133 was issued deferring the
effective date of SFAS 133 by one year, to fiscal years beginning after June 15,
2000. In June 2000, the FASB issued SFAS No. 138, Accounting for Certain
Derivative Instruments and Certain Hedging Activities - an amendment of FASB
Statement No. 133, which amended the accounting and reporting standards of SFAS
133 for certain derivative instruments and certain hedging activities.
As amended, SFAS 133 requires, among other things, that all derivatives be
recognized in the consolidated statement of financial position as either assets
or liabilities that are measured at fair value. SFAS 133 also establishes
special accounting for qualifying hedges, which allows for matching the timing
of gain or loss recognition on the hedging instrument with the recognition of
the corresponding changes in value of the hedged item. Changes in the fair value
of a derivative qualifying as a hedge are recognized in earnings or directly in
stockholder's equity depending on the instrument's intended use. For derivatives
that are not designated as hedges or that do not meet the hedge accounting
criteria in SFAS 133, changes in fair value are required to be recognized in
earnings in the period of change.
At January 1, 2001, the Company's consolidated financial statements were
adjusted to record a cumulative effect of adopting SFAS 133, as follows (in
millions):
Accumulated other
Net comprehensive income
income (loss)
------------------ ----------------------
Adjustment to fair value of derivative contracts (1)......... $(16.4) $(15.8)
Income tax impact............................................ 5.7 1.6
------------------ ----------------------
------------------ ----------------------
Total........................................................ $(10.7) $(14.2)
================== ======================
- ------------------
<FN>
(1) Amount presented is net of adjustment to hedged item.
</FN>
1. Nature of Operations and Significant Accounting Policies (continued)
SFAS No. 140, Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities ("SFAS 140") was issued in September 2000 and was
effective for transfers, servicings and extinguishments occurring after March
31, 2001. SFAS 140 replaced SFAS No. 125, Accounting for Transfers and Servicing
of Financial Assets and Extinguishments of Liabilities ("SFAS 125"). Although
SFAS 140 clarified or amended various aspects of SFAS 125, most of the
fundamental concepts from SFAS 125 were brought forward without modification.
The Company adopted SFAS 140 on April 1, 2001, and modified its securitization
trust agreements to meet the new requirements to enable it to continue
recognizing transfers of certain financial instruments as sales. As a result,
the adoption of SFAS 140 did not have a significant impact on the Company's
consolidated financial statements.
In July 2000, the Emerging Issues Task Force ("EITF") reached consensus on Issue
99-20, Recognition of Interest Income and Impairment on Certain Investments
("EITF 99-20"). This Issue requires an enterprise that invests in certain
mortgage-backed and asset-backed securities to record changes in their estimated
yield on a prospective basis and provides additional guidance in assessing these
securities for other than temporary declines in value. The Company adopted EITF
99-20 on April 1, 2001. Since adoption, the Company recognized $28.7 million of
realized capital losses related to other than temporary impairments on its
asset-backed securities.
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
In accordance with the provisions of SFAS No. 115, Accounting for Certain
Investments in Debt and Equity Securities, the Company is required to classify
its investments into one of three categories: held-to-maturity,
available-for-sale or trading. The Company determines the appropriate
classification of fixed maturity securities at the time of purchase. Fixed
maturity securities include bonds, mortgage-backed securities, and redeemable
preferred stock. The Company classifies its fixed maturity securities as either
available-for-sale or trading and, accordingly, carries them at fair value. (See
Note 15 for policies related to the determination of fair value.) Unrealized
gains and losses related to available-for-sale securities are reflected in
stockholder's equity net of related deferred policy acquisition costs and
applicable taxes. Unrealized gains and losses related to trading securities are
reflected in net realized capital gains and losses. The cost of fixed maturity
securities is adjusted for amortization of premiums and accrual of discounts,
both computed using the interest method. The cost of fixed maturity securities
is adjusted for declines in value that are other than temporary. Impairments in
value deemed to be other than temporary are reported as a component of net
realized capital gains and losses. For loan-backed and structured securities,
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.
Equity securities include common stock and non-redeemable preferred stock. The
cost of equity securities is adjusted for declines in value that are other than
temporary. Impairments in value deemed to be other than temporary are reported
as a component of net realized capital gains and losses. Equity securities are
classified as available-for-sale and, accordingly, are carried at fair value.
(See Note 15 for policies related to the determination of fair value.)
Unrealized gains and losses related to available-for-sale securities are
reflected in stockholder's equity net of related deferred policy acquisition
costs and applicable taxes.
1. Nature of Operations and Significant Accounting Policies (continued)
Real estate investments are reported at cost less accumulated depreciation. The
initial cost bases of properties acquired through loan foreclosures is the lower
of the fair market values of the properties at the time of foreclosure or the
outstanding loan balance. 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 to fair value. 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 generally 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 or the loan's observable market
price. If foreclosure is probable, the measurement of any valuation allowance is
based upon the fair value of the collateral. The Company has residential
mortgage loans held for sale in the amount of $294.9 million and $84.8 million
and commercial mortgage loans held for sale in the amount of $493.5 million and
$520.9 million at December 31, 2001 and 2000, respectively, which are carried at
lower of cost or fair value, less cost to sell, and reported as mortgage loans
in the statements of financial position.
Net realized capital gains and losses on sales of investments are determined on
the basis of specific identification. In general, in addition to realized
capital gains and losses on investment sales, unrealized gains and losses
related to other than temporary impairments, trading securities, fair value
hedge ineffectiveness, derivatives not designated as hedges and changes in the
mortgage loan allowance are reported as net realized capital gains and losses.
Unrealized gains and losses on derivatives within the Company's mortgage banking
segment are reported as either operating expenses or fees and other revenues
depending on the nature of the hedge and are excluded from net realized capital
gains and losses. Investment gains and losses on sales of certain real estate
held-for-sale are reported as net investment income and are also excluded from
net realized capital gains and losses.
Policy loans and other investments, excluding investments in unconsolidated
entities, are primarily reported at cost.
Securitizations
The Company sells commercial mortgage loans to an unconsolidated trust which
then issues mortgage-backed securities. The Company may retain interests in the
loans by purchasing portions of the securities from the issuance. Gain or loss
on the sales of the mortgages depends in part on the previous carrying amounts
of the financial assets involved in the transfer, which is allocated between the
assets sold and the retained interests based on their relative fair value at the
date of transfer. Fair values are determined by quoted market prices of external
buyers of each class of security purchased. The retained interests are
thereafter carried at fair value with other fixed maturity investments.
1. Nature of Operations and Significant Accounting Policies (continued)
The Company also sells residential mortgage loans and retains servicing rights
which are retained interests in the sold loans. Gain or loss on the sales of the
loans depends in part on the previous carrying amounts of the financial assets
sold and the retained interests based on their relative fair values at the date
of the transfer. To obtain fair values, quoted market prices are used if
available. However, quotes are generally not available for retained interests,
so the Company estimates fair value based on the present value of the future
expected cash flows using management's best estimates of the key assumptions -
prepayment speeds and option adjusted spreads commensurate with the risks
involved.
Derivatives
As a result of SFAS 133, all derivatives are recognized as either assets or
liabilities in the statement of financial position and measured at fair value.
If certain conditions are met, a derivative may be specifically designated as
one of the following:
(a) a hedge of the exposure to changes in the fair value of a recognized
asset or liability or an unrecognized firm commitment;
(b) a hedge of the exposure to variable cash flows of a forecasted
transaction; or
(c) a hedge of the foreign currency exposure of a net investment in a
foreign operation, an unrecognized firm commitment, an
available-for-sale security or a foreign-currency-denominated
forecasted transaction.
The Company's accounting for the ongoing changes in fair value of a derivative
depends on the intended use of the derivative and the designation as described
above and is determined when the derivative contract is entered into. 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.
For derivatives hedging the exposure to changes in fair value of a recognized
asset or liability, the change in fair value of the derivative is recognized in
earnings in the period of change together with the offsetting change in fair
value on the hedged item attributable to the risk being hedged. The effect of
such accounting is to reflect in earnings the extent to which the hedge is not
effective in achieving offsetting changes in fair value.
For derivatives hedging the exposure to variable cash flows, the effective
portion of the derivative's change in fair value is initially deferred and
reported as a component of other comprehensive income and subsequently
reclassified into earnings when the forecasted transaction occurs and is
recognized in earnings. The ineffective portion of the change in fair value is
reported in earnings in the period of change. In addition, if the hedged items
are sold, terminated or matured, the changes in value of the derivatives are
also included in net income.
The Company currently does not hedge the foreign currency exposure of a net
investment in a foreign operation.
1. Nature of Operations and Significant Accounting Policies (continued)
For derivatives hedging the foreign currency exposure of an unrecognized firm
commitment or an available-for-sale security, the change in fair value of the
derivative is recognized in earnings in the period of change together with the
offsetting change in fair value on the hedged item attributable to the risk
being hedged. The effect of such accounting is to reflect in earnings the extent
to which the hedge is not effective in achieving offsetting changes in fair
value.
For derivatives hedging the foreign currency exposure of a
foreign-currency-denominated forecasted transaction, the change in fair value is
initially deferred and reported as a component of other comprehensive income and
subsequently reclassified into earnings when the forecasted transaction occurs
and is recognized in earnings. The ineffective portion of the change in fair
value is reported in earnings in the period of change.
For derivatives not designated as a hedging instrument, the change in fair value
is recognized in earnings in the period of change.
Prior to the January 1, 2001, adoption of FAS 133, the Company used futures
contracts, mortgage-backed securities forwards, interest rate and principal only
swap and floor agreements, options on futures contracts and currency rate swap
agreements to hedge and manage its exposure to changes in interest rate levels
and foreign exchange rate fluctuations, and to manage duration mismatch of
assets and liabilities. Futures contracts were marked-to-market and settled
daily with the net gain or loss at expiration or termination of the contracts
recorded in realized capital gains and losses. Outstanding mortgage-backed
forwards were reported as commitments and upon settlement, the net gain or loss
was reported in realized capital gains and losses. For interest rate and
currency swaps held by the Company, the net amounts paid or received and net
amounts accrued through the end of the accounting period were included in net
investment income. Any discounts or premiums related to these instruments were
amortized to net investment income over the life of the contract. Gains or
losses on contracts terminated early were recognized immediately in realized
capital gains and losses. Unrealized gains or losses on interest rate swap
contracts and currency swaps were not recognized in income. The Company
primarily utilized interest rate floors, futures and options on futures
contracts, and interest rate and principal only swaps in hedging its portfolio
of mortgage servicing rights. The realized and unrealized gains and losses on
servicing derivatives accounted for as effective hedges were considered in the
periodic assessment of mortgage servicing rights impairment. The realized and
unrealized gains and losses on servicing derivatives not considered effective
hedges were recorded in the Company's results of operations. The Company managed
interest rate 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, futures contracts and options on treasury futures
contracts. The unrealized gains and losses on these derivatives were included in
the lower of cost or market calculation of mortgage loans held for sale.
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.
1. Nature of Operations and Significant Accounting Policies (continued)
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 policyholders. 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 varies 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.
Participating business represented approximately 36%, 34% and 34% of the
Company's life insurance in force and 80%, 80% and 78% of the number of life
insurance policies in force at December 31, 2001, 2000 and 1999, respectively.
Participating business represented approximately 76%, 64% and 63% of life
insurance premiums for the years ended December 31, 2001, 2000 and 1999,
respectively.
The amount of dividends to policyholders is approved annually by the Company's
board of directors. The amount of dividends to be paid to policyholders is
determined after consideration of several factors including interest, mortality,
morbidity and other expense experience for the year and judgment as to the
appropriate level of statutory surplus to be retained by the Company. At the end
of the reporting period, the Company establishes a dividend liability for the
pro-rata portion of the dividends expected to be paid on or before the next
policy anniversary date.
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 policyholder 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 in relation
to the emergence of estimated gross profit margins.
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 and Other Considerations, Fees and Other Revenues 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. Premiums from these products are
recognized as premium revenue when due.
Immediate annuities with life contingencies include products with fixed and
guaranteed annuity considerations and benefits, and consist principally of group
and individual single premium annuities with life contingencies. Annuity
considerations from these products are recognized as revenue when due.
1. Nature of Operations and Significant Accounting Policies (continued)
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, annuity 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
policyholder mortality or morbidity, and consist primarily of Guaranteed
Investment Contracts ("GICs"), funding agreements 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.
Fees and other revenues are earned for asset management services provided to
retail and institutional clients based largely upon contractual rates applied to
the market value of the client's portfolio. Additionally, fees and other
revenues are earned for administrative services performed including
recordkeeping and reporting services for retirement savings plans. Fees and
other revenues received for performance of asset management and administrative
services are recognized as revenue when the service is performed.
Fees and other revenues arising from the residential mortgage banking operations
consist of revenues earned for servicing and originating residential mortgage
loans as well as marketing other products to servicing portfolio customers. Net
revenues are also recognized upon the sale of residential mortgage loans and
residential mortgage loan servicing rights and are recorded in fees and other
revenues and determined using the specific identification basis. Servicing
revenues are recognized as the mortgage loan is serviced over the life of the
mortgage loan. Mortgage loans originated are sold in the secondary mortgage
markets, shortly after origination. As a result, mortgage loan origination fee
revenues are recognized when the mortgage loans are sold. Fee revenues received
for marketing other products to servicing portfolio customers are recognized
when the service is performed.
Deferred Policy Acquisition Costs
Commissions and other costs (underwriting, issuance and agency expenses and
first-year bonus interest) 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. Maintenance costs and
acquisition costs that are not deferrable are charged to operations as incurred.
1. Nature of Operations and Significant Accounting Policies (continued)
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 policyholder 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. Assets and liabilities related to reinsurance
ceded are reported on a gross basis. 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. At December 31, 2001, 2000 and 1999,
respectively, the Company had reinsured $15.6 billion, $13.2 billion, and $10.2
billion of life insurance in force, representing 12%, 9% and 7% of total net
life insurance in force through a single third-party reinsurer. 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 other considerations and policy and
contract benefits and changes in reserves is as follows (in millions):
For the year ended December 31,
2001 2000 1999
------------------ ------------------ ------------------
------------------ ------------------ ------------------
Premiums and other considerations:
Direct...................................... $3,999.8 $4,074.8 $3,990.0
Assumed..................................... 56.0 24.6 4.1
Ceded....................................... (260.1) (170.1) (56.5)
------------------ ------------------ ------------------
------------------ ------------------ ------------------
Net premiums and other considerations......... $ 3,795.7 $3,929.3 $3,937.6
================== ================== ==================
Benefits, claims and settlement expenses:
Direct...................................... $5,308.2 $5,302.6 $5,296.1
Assumed..................................... 7.4 1.9 (1.3)
Ceded....................................... (223.2) (157.4) (33.9)
------------------ ------------------ ------------------
Net benefits, claims and settlement expenses.. $5,092.4 $5,147.1 $5,260.9
================== ================== ==================
Guaranty-Fund Assessments
Guaranty-fund assessments are accrued 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.
1. Nature of Operations and Significant Accounting Policies (continued)
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. Net 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.
At December 31, 2001, the Separate Accounts included a separate account valued
at $1.3 billion which primarily included shares of PFG stock that were allocated
and issued to eligible participants of qualified employee benefit plans
administered by the Company as part of the policy credits issued under the PFG
demutualization. These shares are included in both basic and diluted earnings
per share calculations. The separate account shares are recorded at fair value
and are reported as separate account assets and separate account liabilities in
the consolidated statement of financial position. Activity of the separate
account shares is reflected in both the separate account assets and separate
account liabilities and does not impact the Company's results of operations.
Income Taxes
PFG files a U.S. 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 generally 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.
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.
1. Nature of Operations and Significant Accounting Policies (continued)
Property and Equipment
Property and equipment includes home office properties, related leasehold
improvements, purchased and internally developed software and other fixed
assets. Property and equipment use is shown in the consolidated statements of
financial position at cost less allowances for accumulated depreciation.
Provisions for depreciation of property and equipment are computed principally
on the straight-line method over the estimated useful lives of the assets.
Property and equipment and related accumulated depreciation are as follows (in
millions):
December 31,
2001 2000
------------ ------------------
------------ ------------------
Property and equipment................ $883.0 $846.3
Accumulated depreciation.............. (402.4) (375.1)
------------ ------------------
------------ ------------------
Property and equipment, net........... $480.6 $471.2
============ ==================
Goodwill and Other Intangibles
Goodwill and other intangibles include the cost of acquired subsidiaries in
excess of the fair value of the tangible net assets recorded in connection with
acquisitions. These assets are amortized on a straight-line basis generally over
8 to 40 years. At December 31, 2001, the weighted-average amortization period
for goodwill and other intangibles was 11.9 years and 5.2 years, respectively.
The carrying amounts of goodwill and other intangibles are reviewed periodically
for indicators of impairment in value, which in the view of management are other
than temporary, including unexpected or adverse changes in the economic or
competitive environments in which the Company operates and profitability
analyses on the relevant subsidiary. If facts and circumstances suggest that a
subsidiary's goodwill and other intangibles are impaired, the Company determines
whether the sum of the estimated undiscounted future cash flows of the
subsidiary are less than the carrying value. If the undiscounted future cash
flows are less than the carrying value, an impairment loss is recognized for the
excess of the carrying amount of assets over their fair value.
Goodwill and other intangibles, and related accumulated amortization, are as
follows (in millions):
December 31,
2001 2000
---------------- ------------------
---------------- ------------------
Goodwill................................. $ 97.2 $102.7
Other intangibles........................ 15.4 35.5
---------------- ------------------
112.6 138.2
Accumulated amortization................. (40.4) (44.1)
---------------- ------------------
Total goodwill and other
intangibles, net.................... $ 72.2 $ 94.1
================ ==================
Effective January 1, 2002, the Company will adopt a non-amortization,
impairment-only approach for goodwill and indefinite-lived intangible assets
based on new accounting guidance issued in 2001 described later in Note 1.
Premiums Due and Other Receivables
Premiums due and other receivables include life and health insurance premiums
due, reinsurance recoveries, guaranty funds receivable or on deposit,
receivables from the sale of securities and other receivables.
1. Nature of Operations and Significant Accounting Policies (continued)
Mortgage Loan Servicing Rights
Mortgage loan servicing rights 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 loan 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. For purposes of performing its impairment evaluation, the
Company stratifies the servicing portfolio on the basis of specified predominant
risk characteristics, including loan type and note rate. A valuation model is
used to determine the fair value of each stratum. Cash flows are calculated
using an internal prepayment model and discounted at a spread to London
Inter-Bank Offer Rates. External valuations are obtained for comparison
purposes.
Activity in the valuation allowance for mortgage loan servicing rights is
summarized as follows (in millions):
For the year ended December 31,
2001 2000 1999
--------------- --------------- ---------------
--------------- --------------- ---------------
Balance at beginning of year........................... $ 2.3 $2.9 $56.1
Impairments............................................ 196.0 1.1 1.7
Recoveries............................................. (0.2) (1.7) (54.9)
--------------- --------------- ---------------
--------------- --------------- ---------------
Balance at end of year................................. $198.1 $2.3 $2.9
=============== =============== ===============
During 2001, impairments reflect the results of increased mortgage loan
prepayments due to the continued reduction in market interest rates during the
year.
Other Assets
Other assets are reported primarily at cost.
Reclassifications
Reclassifications have been made to the 1999 and 2000 consolidated financial
statements to conform to the 2001 presentation.
Accounting Pronouncements Pending Adoption
In August 2001, the FASB issued SFAS No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets ("SFAS 144"). This Statement supersedes SFAS No.
121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of, and amends Accounting Principles Board ("APB") Opinion
No. 30, Reporting the Results of Operations - Reporting the Effects of Disposal
of a Segment of a Business, and Extraordinary, Unusual and Infrequently
Occurring Events and Transactions ("Opinion 30"), establishing a single
accounting model for the disposal of long-lived assets. SFAS 144 generally
retains the basic provisions of existing guidance, but broadens the presentation
of any discontinued operations to include a component of an entity (rather than
a segment of a business as defined in Opinion 30). The provisions of SFAS 144
are effective for fiscal years beginning after December 15, 2001, and are not
expected to have a significant impact on the Company's consolidated financial
statements.
1. Nature of Operations and Significant Accounting Policies (continued)
In June 2001, the FASB issued SFAS No. 141, Business Combinations ("SFAS 141"),
and SFAS No. 142, Goodwill and Other Intangible Assets ("SFAS 142"). SFAS 141
requires that the purchase method of accounting be used for all business
combinations initiated after June 30, 2001. SFAS 141 also includes guidance on
the initial recognition and measurement of goodwill and other intangible assets
arising from business combinations completed after June 30, 2001. SFAS 142,
effective January 1, 2002, prohibits the amortization of goodwill and intangible
assets with indefinite useful lives. Intangible assets with finite useful lives
will continue to be amortized over their estimated useful lives. In 2001, the
Company's amortization expense for goodwill and intangible assets was $7.8
million, of which $4.9 million will not continue after January 1, 2002.
Additionally, SFAS 142 requires that goodwill and indefinite-lived intangible
assets be reviewed for impairment at least annually. This includes a more
stringent impairment test methodology (fair value based on discounted cash
flows) for measuring and recognizing impairment losses. The Company has
estimated that the impairment amount resulting from the adoption of SFAS 142 on
January 1, 2002, will not have a material effect on the Company's consolidated
financial statements.
2. Related Party Transactions
The Company has entered into various related party transactions with its parent
and the parent's other affiliates. During the years ended December 31, 2001,
2000 and 1999, the Company incurred $70.5 million, $55.8 million and $32.6
million, respectively, of expense reimbursements from affiliated entities.
During 2001, the Company received a capital contribution of $1,689.7 million for
reimbursement from its parent for the payments and costs related to Principal
Mutual Holding Company's demutualization. During 2001, the Company was also
reimbursed $16.0 million for expenses paid related to PFG's initial public
offering.
The Company and its direct parent, PFSI, are parties to a cash advance
agreement, which allows those entities to pool their available cash in order to
more efficiently and effectively invest their cash. The cash advance agreement
allows (i) the Company to advance cash to PFSI in aggregate principal amounts
not to exceed $1.0 billion, with such advanced amounts earning interest at the
daily 30-day "AA" Financial Commercial Paper Discount Rate published by the
Federal Reserve (the "Internal Crediting Rate"); and (ii) PFSI to advance cash
to the Company in aggregate principal amounts not to exceed $250.0 million, with
such advance amounts earning interest at the Internal Crediting Rate plus 5
basis points to reimburse PFSI for the costs incurred in maintaining short-term
investing and borrowing programs. Under this cash advance agreement, the Company
had a receivable from PFSI of $584.5 million and $843.6 million at December 31,
2001 and 2000, respectively. Interest earned by the Company was $30.7 million
and $11.3 million during 2001 and 2000, respectively.
Pursuant to certain regulatory requirements or otherwise in the ordinary course
of business, the Company guarantees certain payments of its subsidiaries and has
agreements with affiliates to provide and/or receive management, administrative
and other services, all of which, individually and in the aggregate, are
immaterial as to the Company's business, financial condition and results of
operations.
3. Mergers, Acquisitions, and Divestitures
Mergers and Acquisitions
During the past three years, the Company has acquired a number of businesses,
all of which were recorded using the purchase method of accounting. Accordingly,
the results of operations of the acquired companies have been included in the
consolidated results from their respective acquisition dates.
3. Mergers, Acquisitions, and Divestitures (continued)
The Company made various acquisitions during 2001 at purchase prices aggregating
$9.2 million. Such acquired companies had total assets at December 31, 2001, and
total 2001 revenue of $10.8 million and $3.7 million, respectively.
During 1999, various other acquisitions were made by the Company at purchase
prices aggregating $13.5 million. Such acquired companies had total assets of
$17.0 million at December 31, 1999, and total revenue of $11.6 million during
1999.
Divestitures
On November 30, 2001, the Company announced it had entered into an agreement to
sell its remaining stake of approximately 15.0 million shares of Coventry Health
Care, Inc. common stock. The transaction was completed in the first quarter of
2002 (see Note 19 for details of the transaction). Effective April 1, 1998, the
Company transferred substantially all of its managed care operations to Coventry
Corporation in exchange for a non-majority ownership position in the resulting
entity, Coventry Health Care, Inc. In September 2000, the Company sold a portion
of its equity ownership position, which reduced its ownership to approximately
25% and resulted in a realized capital gain of $13.9 million, net of tax. The
investment in Coventry Health Care, Inc. was $146.0 million and $122.9 million
at December 31, 2001 and 2000, respectively.
On September 25, 2001, the Company disposed of all the stock of PT Asuransi Jiwa
Principal Indonesia, a subsidiary in Indonesia. The Company currently has no
business operations in Indonesia. Total assets of the Company's operations in
Indonesia as of June 30, 2001, were $3.4 million. The Company included nominal
revenues and net loss from operations in Indonesia in the consolidated results
of operations for the years ended December 31, 2000 and 1999.
On April 1, 2001, the Company paid a dividend of $176.2 million to its parent,
PFSI, consisting of the outstanding capital stock of Principal International,
Inc. and Principal International, Inc.'s subsidiaries.
On February 15, 2001, the Company disposed of all the stock of Principal
International Espana, S.A. de Seguros de Vida, a subsidiary in Spain, for
nominal proceeds, resulting in a net realized capital loss of $38.4 million,
ceasing the business operations in Spain. Total assets of the operations in
Spain as of December 31, 2000, were $222.7 million. The Company included
revenues of $49.4 million and $51.7 million in the results of operations for the
years ended December 31, 2000 and 1999, respectively. The Company included a net
loss of $1.2 million and net income of $0.9 million in the results of operations
for the years ended December 31, 2000 and 1999, respectively.
On August 24, 2000, the Company paid a dividend of $171.3 million to its parent,
PFSI, consisting of the outstanding capital stock of Principal International de
Chile, S.A. and Principal Compania de Seguros de Vida Chile, S.A.
Beginning January 1, 2000, the Company ceased new sales of Medicare supplement
insurance and effective July 1, 2000, the Company entered into a reinsurance
agreement to reinsure 100% of the Medicare supplement insurance block of
business. Medicare supplement insurance premiums were $98.4 million for the six
months ended June 30, 2000, and $164.6 million for the year ended December 31,
1999.
4. Investments
Fixed Maturities and Equity Securities
The cost, gross unrealized gains and losses and fair value of fixed maturities
and equity securities available-for-sale as of December 31, 2001 and 2000, are
summarized as follows (in millions):
Gross Gross
unrealized unrealized Fair
Cost gains losses value
---------------- ---------------- ---------------- ----------------
---------------- ---------------- ---------------- ----------------
December 31, 2001 Fixed maturities:
U.S. Government and agencies..... $ 15.1 $ 0.1 $ 0.1 $ 15.1
Foreign governments.............. 555.5 49.3 1.3 603.5
States and political subdivisions 302.1 20.2 4.7 317.6
Corporate - public............... 12,695.2 504.0 160.5 13,038.7
Corporate - private.............. 8,967.0 325.0 123.5 9,168.5
Mortgage-backed and other
asset-backed securities........ 5,642.5 247.6 26.1 5,864.0
---------------- ---------------- ---------------- ----------------
---------------- ---------------- ---------------- ----------------
Total fixed maturities............. $28,177.4 $1,146.2 $316.2 $29,007.4
================ ================ ================ ================
================ ================ ================ ================
Total equity securities............ $ 860.6 $ 15.2 $ 77.1 $ 798.7
================ ================ ================ ================
================ ================ ================ ================
December 31, 2000 Fixed maturities:
U.S. Government and agencies..... $ 23.2 $ 0.1 $ 0.2 $ 23.1
Foreign governments.............. 692.8 25.0 5.3 712.5
States and political subdivisions 287.4 12.5 4.2 295.7
Corporate - public............... 8,795.2 216.5 129.3 8,882.4
Corporate - private.............. 9,807.6 208.9 206.0 9,810.5
Mortgage-backed and other
asset-backed securities........ 6,244.2 208.0 34.3 6,417.9
---------------- ---------------- ---------------- ----------------
Total fixed maturities............. $25,850.4 $ 671.0 $379.3 $26,142.1
================ ================ ================ ================
Total equity securities............ $ 773.9 $ 190.6 $254.2 $ 710.3
================ ================ ================ ================
The cost and fair value of fixed maturities available-for-sale at December 31,
2001, by expected maturity, were as follows (in millions):
Cost Fair value
------------------- ------------------
------------------- ------------------
Due in one year or less.......................................... $ 1,358.2 $ 1,367.3
Due after one year through five years............................ 10,481.7 10,812.4
Due after five years through ten years........................... 5,535.7 5,722.0
Due after ten years.............................................. 5,159.3 5,241.7
------------------- ------------------
------------------- ------------------
22,534.9 23,143.4
Mortgage-backed and other asset-backed securities................ 5,642.5 5,864.0
------------------- ------------------
------------------- ------------------
Total............................................................ $28,177.4 $29,007.4
=================== ==================
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.
4. Investments (continued)
Corporate private placement bonds represent a primary area of credit risk
exposure. The corporate private placement bond portfolio is diversified by
issuer and industry. The Company monitors the restrictive bond covenants which
are intended to regulate the activities of issuers and control their leveraging
capabilities.
Net Investment Income
Major categories of net investment income are summarized as follows (in
millions):
For the year ended December 31,
2001 2000 1999
------------------ ------------------ ------------------
------------------ ------------------ ------------------
Fixed maturities, available-for-sale.......... $2,120.8 $1,856.5 $1,711.1
Equity securities, available-for-sale......... 27.6 72.5 46.1
Mortgage loans................................ 855.7 1,005.0 1,111.1
Real estate................................... 177.5 171.0 187.5
Policy loans.................................. 57.5 55.1 50.2
Cash and cash equivalents..................... 58.3 69.9 20.9
Other......................................... 44.2 38.3 43.3
------------------ ------------------ ------------------
------------------ ------------------ ------------------
3,341.6 3,268.3 3,170.2
Less investment expenses...................... (130.9) (152.8) (124.4)
------------------ ------------------ ------------------
------------------ ------------------ ------------------
Net investment income......................... $3,210.7 $3,115.5 $3,045.8
================== ================== ==================
Net Realized Capital Gains and Losses
The major components of net realized capital gains (losses) on investments are
summarized as follows (in millions):
For the year ended December 31,
2001 2000 1999
------------------ ------------------ ------------------
------------------ ------------------ ------------------
Fixed maturities, available-for-sale:
Gross gains................................. $ 69.6 $ 28.9 $ 31.2
Gross losses................................ (380.4) (155.0) (125.4)
Fixed maturities, trading:
Gross gains................................. 0.9 - -
Gross losses................................ (0.1) - -
Equity securities, available-for-sale:
Gross gains................................. 5.7 84.2 408.7
Gross losses................................ (76.1) (3.9) (25.7)
Mortgage loans................................ 10.6 8.6 (8.9)
Real estate................................... (19.0) 82.3 56.4
Other, including unrealized derivative gains
(losses).................................... (103.9) 106.7 120.3
------------------ ------------------ ------------------
------------------ ------------------ ------------------
Net realized capital gains (losses)........... $(492.7) $151.8 $456.6
================== ================== ==================
4. Investments (continued)
Proceeds from sales of investments (excluding call and maturity proceeds) in
fixed maturities were $5.4 billion, $5.5 billion and $5.5 billion in 2001, 2000
and 1999, respectively. Of the 2001, 2000 and 1999 proceeds, $1.6 billion, $2.6
billion and $3.8 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 $22.5 million, $2.0 million
and $2.1 million and gross losses of $5.0 million, $40.1 million and $60.3
million in 2001, 2000 and 1999, respectively, were realized on sales of
mortgage-backed securities.
The Company recognizes impairment losses for fixed maturities and equity
securities when declines in value are other than temporary. Realized losses
related to other than temporary impairments were $227.4 million and $6.1 million
in 2001 and 2000, respectively. There were no other than temporary impairments
in 1999.
In December 2001, Enron Corp., along with certain of its subsidiaries, filed
voluntary petitions for Chapter 11 reorganization with the U.S. Bankruptcy
Court. Included in the $227.4 million of realized losses in 2001 for other than
temporary impairments, $71.9 million related to the Company's exposure to Enron
Corp. and Enron related entities. Also included in net realized capital gains
and losses in 2001 was $65.8 million related to the sale of Enron investments.
As of December 31, 2001, the remaining carrying amount of the Company's
investment in Enron Corp. and Enron related entities was $45.5 million.
On September 11, 2001, terrorist attacks in the U.S. resulted in significant
loss of life and property, as well as interruption of business activities and an
overall disruption of the world economy. Some of the assets in the Company's
investment portfolio may be adversely affected by further declines in the
securities markets and economic activity caused by the terrorist attacks and
heightened security measures.
On December 31, 2001, the Company held corporate fixed maturity securities in
the following sectors impacted most significantly by the September 11, 2001
terrorist attacks (carrying amounts noted in parenthesis): airlines ($245.9
million in public debt and $208.3 million in private debt), comprised mostly of
equipment trust certificate transactions secured by aircraft; airline
manufacturers and equipment providers ($239.0 million), comprised of public and
private unsecured debt; property and casualty insurance companies ($28.9
million), comprised of public unsecured debt; and hotels and gaming companies
($168.9 million), comprised of public and private debt secured by hotel
properties. As of December 31, 2001, the Company has not recognized any related
other-than-temporary impairment of these assets.
Net Unrealized Gains and Losses
The net unrealized gains and losses on investments in fixed maturities and
equity securities available-for-sale are 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.
4. Investments (continued)
The cumulative amount of net unrealized gains and losses on available-for-sale
securities is as follows (in millions):
December 31,
2001 2000
----------------- ----------------
----------------- ----------------
Net unrealized gains on fixed maturities, available-for-sale (1).... $827.2 $284.3
Net unrealized losses on equity securities, available-for-sale,
including seed money in separate accounts......................... (60.9) (57.2)
Adjustments for assumed changes in amortization patterns:
Deferred policy acquisition costs................................. (104.6) (43.2)
Unearned revenue reserves......................................... 7.2 2.9
Net unrealized losses on derivative instruments..................... (89.5) (6.7)
Provision for deferred income taxes................................. (202.0) (59.0)
----------------- ----------------
----------------- ----------------
Net unrealized gains on available-for-sale securities............... $377.4 $121.1
================= ================
<FN>
(1) Excludes net unrealized gains (losses) on fixed maturities,
available-for-sale included in fair value hedging relationships.
</FN>
Commercial Mortgage Loans
Commercial mortgage loans represent a primary area of credit risk exposure. At
December 31, 2001 and 2000, the commercial mortgage portfolio is diversified by
geographic region and specific collateral property type as follows (dollars in
millions):
December 31,
2001 2000
--------------------------------------------------------------------
Carrying Percent Carrying Percent
amount of total amount of total
--------------------------------------------------------------------
--------------------------------------------------------------------
Geographic distribution
New England........................ $ 327.4 3.4% $ 495.9 4.6%
Middle Atlantic.................... 1,606.3 16.5 1,664.9 15.5
East North Central................. 930.1 9.5 1,006.2 9.3
West North Central................. 397.8 4.1 439.9 4.1
South Atlantic..................... 2,403.0 24.7 2,630.5 24.4
East South Central................. 338.5 3.5 384.5 3.6
West South Central................. 769.0 7.9 886.4 8.2
Mountain........................... 637.7 6.5 600.2 5.6
Pacific............................ 2,421.3 24.8 2,774.8 25.7
Valuation allowance................ (90.7) (0.9) (108.0) (1.0)
--------------------------------------------------------------------
--------------------------------------------------------------------
Total.............................. $9,740.4 100.0% $10,775.3 100.0%
====================================================================
--------------------------------------------------------------------
4. Investments (continued)
December 31,
2001 2000
--------------------------------------------------------------------
----------------------------------
Carrying amount Percent Carrying amount Percent
of total of total
--------------------------------------------------------------------
Property type distribution
Office............................. $3,252.5 33.4% $ 3,273.5 30.4%
Retail............................. 3,106.5 31.9 3,612.7 33.5
Industrial......................... 2,948.9 30.3 3,381.6 31.4
Apartments......................... 349.8 3.6 419.7 3.9
Hotel.............................. 61.6 0.6 65.6 0.6
Mixed use/other.................... 111.8 1.1 130.2 1.2
Valuation allowance................ (90.7) (0.9) (108.0) (1.0)
--------------------------------------------------------------------
--------------------------------------------------------------------
Total.............................. $9,740.4 100.0% $10,775.3 100.0%
====================================================================
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 commercial and residential mortgage loan
allowance for losses is as follows (in millions):
December 31,
2001 2000 1999
------------------ ------------------ ------------------
------------------ ------------------ ------------------
Balance at beginning of year.................. $110.4 $117.8 $113.0
Provision for losses.......................... 11.2 5.4 9.2
Releases due to write-downs, sales and
foreclosures................................ (29.3) (12.8) (4.4)
------------------ ------------------ ------------------
------------------ ------------------ ------------------
Balance at end of year........................ $92.3 $110.4 $117.8
================== ================== ==================
4. Investments (continued)
Residential Mortgage Banking Activities
The Company was servicing approximately 741,000 and 582,000 residential mortgage
loans with aggregate principal balances of approximately $80,530.5 million and
$55,987.4 million at December 31, 2001 and 2000, respectively. In connection
with these mortgage servicing activities, the Company held funds in trust for
others totaling approximately $508.9 million and $343.8 million at December 31,
2001 and 2000, respectively. As of December 31, 2001, $457.1 million of the
funds held in trust were held in the Company's banking subsidiary. 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.
In June 2000, the Company, through its mortgage banking segment, created a
special purpose bankruptcy remote entity, Principal Residential Mortgage Capital
Resources, LLC ("PRMCR"), to provide an off-balance sheet source of funding for
the Company's residential mortgage loan production. The Company sells eligible
residential mortgage loans to PRMCR, where they are warehoused until sold to the
final investor. The Company sold $38.0 billion and $5.3 billion in mortgage
loans to PRMCR in 2001 and 2000, respectively. The maximum amount of mortgage
loans, which can be warehoused in PRMCR, has increased from $1.0 billion at
inception to $4.0 billion as of December 31, 2001. PRMCR held $3.0 billion in
mortgage loans held for sale as of December 31, 2001. The portfolio of loans
held for sale by PRMCR must meet portfolio criteria, eligibility
representations, and portfolio aging limitations. Based on these eligibility
representations, the Company is required to repurchase ineligible loans from
PRMCR.
PRMCR is capitalized by equity certificates owned by third party investors not
affiliated with the Company or its affiliates, directors or officers and thus,
is not consolidated with the Company. The equity holders bear the risk of loss
on defaulted mortgages. At December 31, 2001, PRMCR had outstanding equity
certificates of $193.0 million. PRMCR also issues short-term secured liquidity
notes as well as medium term notes to provide funds for its purchase of mortgage
loans from the Company. At December 31, 2001, PRMCR had outstanding secured
liquidity notes of $1.3 billion, three-year fixed term notes of $800.0 million
and five-year variable term notes of $800.0 million. All borrowings are
collateralized by the assets of PRMCR.
The Company paid a commitment fee to PRMCR based on the overall warehouse limit.
PRMCR used a portion of the fee to fund a cash collateral account maintained at
PRMCR. These funds are available as additional collateral to cover credit
related losses on defaulted loans. The balance in the account was $24.0 million
at December 31, 2001. Any remaining amounts in the cash collateral account will
be returned to the Company upon the termination of PRMCR. This right to the
return of the cash collateral amount is reflected in other assets on the
Company's consolidated statements of financial position.
The Company maintains a right to the servicing of the mortgage loans held by
PRMCR and upon the sale of the majority of the mortgage loans to the final
investors. In addition, the Company performs certain secondary marketing,
accounting and various administrative functions on behalf of PRMCR. As servicer,
the Company receives a monthly servicing fee, and may receive an excess
servicing fee if funds are available within PRMCR. Additionally, as servicer the
Company is required to advance to PRMCR those payments due from borrowers, but
not received, as of specified cut-off dates. The Company received $12.6 million
and $2.2 million in servicing fees from PRMCR in 2001 and 2000, respectively.
4. Investments (continued)
In order to hedge interest rate risk and non-credit related market value risk
associated with its inventory of mortgage loans held for sale, PRMCR entered
into swaps with counterparties not affiliated with the Company or PRMCR. The
swap counterparties are required to maintain certain minimum ratings as approved
by the rating agencies. Through a separate swap agreement with the swap
counterparties that mirror the original swaps with PRMCR, the non-credit related
market value component is swapped back to the Company.
In October 2000, the Company, through its mortgage banking segment, created a
wholly-owned, unconsolidated qualifying special purpose entity, Principal
Residential Mortgage Funding, LLC ("PRMF"), to provide an off-balance sheet
source of funding for up to $250.0 million of qualifying delinquent mortgage
loans. The limit was increased to $357.0 million in December 2001. The Company
sells qualifying delinquent loans to PRMF which then transfers the loans to
Principal Residential Mortgage EBO Trust ("Trust"), an unaffiliated Delaware
business trust. The Trust funds its acquisitions of the mortgage loans by
selling participation certificates, representing an undivided interest in the
Trust, to commercial paper conduit purchasers, who are not affiliated with the
Company or any of its affiliates, directors or officers. At December 31, 2001,
PRMF held $273.5 million in mortgage loans and had outstanding participation
certificates of $256.9 million.
Mortgage loans typically remain in the Trust until they are processed through
the foreclosure claim process, are paid-off or reinstate. Loans that reinstate
are no longer eligible to remain in the Trust and are required to be removed by
the Company at fair market value at the monthly settlement date following
reinstatement.
The Company is retained as the servicer of the mortgage loans and also performs
accounting and various administrative functions on behalf of PRMF, in its
capacity as the managing member of PRMF. As the servicer, the Company receives a
servicing fee pursuant to the pooling and servicing agreement. The Company may
also receive a successful servicing fee only after all other conditions in the
monthly cash flow distribution are met. At December 31, 2001, the Company's
residual interest in such cash flows was $21.5 million and was recorded in other
investments on the Company's consolidated statements of financial position. The
value of the residual interest was based on the net present value of expected
cash flows from PRMF, as well as estimates of foreclosure losses associated with
the related loans. The Company is required to advance funds for payment of
interest on the participation certificates and other carrying costs, if
sufficient cash is not available in the collection account to meet this
obligation.
The Company and the Trust are parties to a cost of funds hedge agreement. The
Company pays the weighted average cost of funds on the participation
certificates plus fees and expenses and receives the indicated swap bid rate,
subject to a cap.
Real Estate
Real estate holdings and related accumulated depreciation are as follows (in
millions):
December 31,
2001 2000
-------------- ------------------
-------------- ------------------
Investment real estate............. $673.8 $ 813.4
Accumulated depreciation........... (114.1) (117.1)
-------------- ------------------
559.7 696.3
Properties held for sale........... 390.8 695.4
-------------- ------------------
Real estate, net................... $950.5 $1,391.7
============== ==================
4. Investments (continued)
Other Investments
Other investments include minority interests in unconsolidated entities and
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 $347.7 million and $612.1 million at December 31, 2001 and 2000,
respectively. The Company is committed to providing additional mortgage
financing for such joint ventures aggregating $171.8 million and $71.5 million
at December 31, 2001 and 2000, respectively.
5. Securitization Transactions
Commercial Mortgage Loans
The Company sells commercial mortgage loans in securitization transactions and
retains primary servicing responsibilities and other interests. The Company
receives annual servicing fees approximating 0.01 percent, which approximates
cost. The investors and the securitization trusts have no recourse to the
Company's other assets for failure of debtors to pay when due. The value of the
Company's retained interests is subject primarily to credit risk.
In 2001 and 2000, the Company recognized gains of $18.3 million and $0.7
million, respectively, on the securitization of commercial mortgage loans.
Key economic assumptions used in measuring the retained interests at the date of
securitization resulting from transactions completed included a cumulative
default rate between four and eight percent during 2001 and between five and
eight percent during 2000. The assumed range of the loss severity, as a
percentage of defaulted loans, was between 12 and 25 percent during 2001 and
between 13 and 25 percent during 2000. The low end of the loss severity range
relates to a portfolio of seasoned loans. The high end of the loss severity
range relates to a portfolio of newly issued loans.
At December 31, 2001, the fair values of retained interests related to the
securitizations of commercial mortgage loans were $170.5 million. Key economic
assumptions and the sensitivity of the current fair values of residual cash
flows were tested to one and two standard deviations from the expected rates.
The changes in the fair values at December 31, 2001 as a result of these
assumptions were not significant.
Residential Mortgage Loans
The Company sells residential mortgage loans and retains servicing
responsibilities pursuant to the terms of the applicable servicing agreements.
The Company receives annual servicing fees approximating 0.4 percent of the
outstanding principal balances on the underlying loans. These sales are
generally transacted on a non-recourse basis. The value of the servicing rights
is subject to prepayment and interest rate risks on the transferred assets.
In 2001 and 2000, the Company recognized gains of $218.8 million and $9.4
million, respectively, on the sales of residential mortgage loans.
5. Securitization Transactions (continued)
The key economic assumptions used in determining the fair value of mortgage
servicing rights at the date of loan sale for sales completed in 2001 and 2000
were as follows:
2001 2000
---------------------------------
---------------------------------
Weighted average life (years).......... 7.84 6.87
Weighted average prepayment speed...... 9.48% 11.81%
Yield to maturity discount rate........ 7.45% 10.74%
Prepayment speed is the constant prepayment rate that results in the weighted
average life disclosed above.
At December 31, 2001, key economic assumptions and the sensitivity of the
current fair value of the mortgage servicing rights to immediate 10 and 20
percent adverse changes in those assumptions are as follows (dollars in
millions):
Fair value of mortgage servicing rights................... $1,811.0
Expected weighted average life (in years)................. 6.8
Prepayment speed.......................................... 11.10%
Decrease in fair value of 10% adverse change.............. $ 67.3
Decrease in fair value of 20% adverse change.............. $ 128.9
Yield to maturity discount rate........................... 8.86%
Decrease in fair value of 10% adverse change.............. $ 130.0
Decrease in fair value of 20% adverse change.............. $ 260.1
These sensitivities are hypothetical and should be used with caution. As the
figures indicate, changes in fair value based on a 10% variation in assumptions
generally cannot be extrapolated because the relationship of the change in the
assumption to the change in fair value may not be linear. Also, in the above
table, the effect of a variation in a particular assumption on the fair value of
the servicing rights is calculated independently without changing any other
assumption. In reality, changes in one factor may result in changes in another,
which might magnify or counteract the sensitivities. For example, changes in
prepayment speed estimates could result in changes in the discount rate.
Securitization Transactions Cash Flow
The table below summarizes cash flows for securitization transactions and cash
flows received from and paid to securitization trusts (in millions):
For the year ended December 31,
2001 2000
---------------------- ----------------------
---------------------- ----------------------
Proceeds from new securitizations........................ $39,200.6 $9,624.5
Servicing fees received.................................. 307.8 237.5
Other cash flows received on retained interests.......... 51.6 29.4
6. Derivatives Held or Issued for Purposes Other Than Trading
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 risk of loss is typically limited to the fair value of its
derivative instruments and not to the notional or contractual amounts of these
derivatives. Risk arises from changes in the fair value of the underlying
instruments. The Company is also exposed to credit losses in the event of
nonperformance of the counterparties. The Company's current credit exposure is
limited to the value of derivatives that have become favorable to the Company.
This credit risk is minimized by purchasing such agreements from financial
institutions with high credit ratings and by establishing and monitoring
exposure limits.
The Company's derivative transactions are generally documented under
International Swaps and Derivatives Association, Inc. Master Agreements.
Management believes that such agreements provide for legally enforceable set-off
and close out netting of exposures to specific counterparties. Under such
agreements, in connection with an early termination of a transaction, the
Company is permitted to set off its receivable from a counterparty against its
payables to the same counterparty arising out of all included transactions.
The notional amounts and credit exposure of the Company's derivative financial
instruments by type are as follows (in millions):
December 31,
2001 2000
------------------ ------------------
Notional amounts of derivative instruments with
regard to U.S. operations
Foreign currency swaps.......................................... $ 3,426.9 $ 2,745.0
Interest rate floors............................................ 3,400.0 2,450.0
Interest rate swaps............................................. 2,857.5 2,391.5
Mortgage-backed forwards and options............................ 9,250.7 1,898.3
Swaptions....................................................... 3,570.0 697.7
Bond forwards................................................... 357.4 -
Interest rate lock commitments.................................. 2,565.9 -
Call options.................................................... 30.0 30.0
U.S. Treasury futures........................................... 186.6 183.2
Currency forwards............................................... - 39.4
Treasury rate guarantees........................................ 88.0 60.0
Other........................................................... 25.0 -
------------------ ------------------
------------------ ------------------
$25,758.0 $10,495.1
================== ==================
Credit exposure of derivative instruments with
regard to U.S. operations
Foreign currency swaps........................................... $ 41.4 $ 45.3
Interest rate floors............................................. 13.2 20.0
Interest rate swaps.............................................. 28.1 14.1
Mortgage-backed forwards and options............................. 41.7 -
Swaptions........................................................ 8.7 11.8
Call options..................................................... 8.9 12.3
Currency forwards................................................ - 5.5
Other............................................................ 0.1 -
------------------- ------------------
------------------- ------------------
$ 142.1 $ 109.0
=================== ==================
6. Derivatives Held or Issued for Purposes Other Than Trading (continued)
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 derivative
instruments related to residential mortgage loan servicing rights is included in
the basis of the derivatives. These derivatives are marked-to-market with the
changes in market value reported in operating expenses on the consolidated
statements of operations.
The fair value of the Company's derivative instruments, identified as hedges and
classified as assets at December 31, 2001, was $283.1 million. Of this amount,
the fair value of derivatives related to investment hedges was $100.8 million
and was reported with other invested assets on the consolidated statement of
financial position. The fair value of derivatives related to residential
mortgage loan servicing rights and residential mortgage loans was $182.3 million
and is reported with other assets on the consolidated statement of financial
position. The fair value of derivative instruments classified as liabilities at
December 31, 2001, was $449.7 million and was reported with other liabilities on
the consolidated statement of financial position.
Fair Value Hedges
The Company uses fixed-to-floating rate interest rate swaps to more closely
align the interest rate characteristics of certain assets and liabilities. In
general, these swaps are used in asset and liability management to modify
duration.
The Company also enters into currency exchange swap agreements to convert
certain foreign denominated assets and liabilities into U.S. dollar
floating-rate denominated instruments to eliminate the exposure to future
currency volatility on those items.
In 2001, the Company recognized a pre-tax net gain of $95.5 million relating to
its fair value hedges. This includes a net gain of $151.7 million related to the
ineffective portion of its fair value hedges of residential mortgage loan
servicing rights and a net loss of $43.6 million related to the change in the
value of the servicing hedges that was excluded from the assessment of hedge
effectiveness. The net gain on servicing hedges was reported with operating
expenses on the consolidated statement of operations. The net gain of $95.5
million also includes a net loss of $12.6 million related to the ineffective
portion of the Company's investment hedges, which was reported with net realized
capital gains (losses) on the consolidated statement of operations.
Cash Flow Hedges
The Company also utilizes floating-to-fixed rate interest rate swaps to match
cash flows.
The Company enters into currency exchange swap agreements to convert both
principal and interest payments of certain foreign denominated assets and
liabilities into U.S. dollar denominated fixed-rate instruments to eliminate the
exposure to future currency volatility on those items.
In 2001, the Company recognized a $11.2 million after-tax decrease in value
related to cash flow hedges in accumulated other comprehensive income. During
this time period, none of the Company's cash flow hedges have been discontinued
because it was probable that the original forecasted transaction would not occur
by the end of the originally specified time period. The Company has not
reclassified amounts from accumulated comprehensive income into earnings in the
past twelve months, and it does not expect to reclassify any amounts in the next
twelve months.
6. Derivatives Held or Issued for Purposes Other Than Trading (continued)
In most cases, zero hedge ineffectiveness for cash flow hedges is assumed
because the derivative instrument was constructed such that all terms of the
derivative match the hedged risk in the hedged item. As a result, the Company
has recognized an immaterial amount in earnings due to cash flow hedge
ineffectiveness.
The transition adjustment for the adoption of SFAS 133 resulted in a decrease to
other comprehensive income of $36.9 million ($24.0 million after tax)
representing the accumulation in other comprehensive income of the effective
portion of the Company's cash flow hedges as of January 1, 2001. In 2001, $46.0
million ($29.9 million after tax) of loss representing the effective portion of
the change in fair value of derivative instruments designated as cash flow
hedges decreased accumulated other comprehensive income resulting in an ending
balance of $(82.9) million ($(53.9) million after tax) at December 31, 2001.
Derivatives Not Designated as Hedging Instruments
The Company attempts to match the timing of when interest rates are committed on
insurance products, residential mortgage loans and other new investments.
However, timing differences may occur and can expose the Company to fluctuating
interest rates. To offset this risk, the Company uses mortgage-backed forwards,
over-the-counter options on mortgage-backed securities, U.S. Treasury futures
contracts, options on Treasury futures, Treasury rate guarantees and interest
rate floors to economically hedge anticipated transactions and to manage
interest rate risk. Futures contracts are marked-to-market and settled daily,
which minimizes the counterparty risk. Forward contracts are marked-to-market no
less than quarterly. The Company's interest rate lock commitments on residential
mortgage loans are also accounted for as derivatives.
Occasionally, the Company will sell a callable investment-type contract and may
use interest rate swaptions or similar instruments to transform the callable
liability into a fixed term liability. In addition, the Company may sell an
investment-type contract with attributes tied to market indices in which case
the Company writes an equity call option to convert the overall contract into a
fixed rate liability, essentially eliminating the equity component altogether.
Although the above-mentioned derivatives are effective hedges from an economic
standpoint, they do not meet the requirements for hedge accounting treatment
under SFAS 133. As such, periodic changes in the market value of these
instruments flow directly into net income. In 2001, gains of $68.3 million were
recognized in income from market value changes of derivatives not receiving
hedge accounting treatment.
7. Closed Block
In connection with the 1998 MIHC formation, the Company formed a Closed Block to
provide reasonable assurance to policyholders included therein that, after the
formation of the MIHC, assets would be available to maintain dividends in
aggregate in accordance with the 1997 policy dividend scales, if the experience
underlying such scales continued. The Company's assets were allocated to the
Closed Block in an amount that produces cash flows which, together with
anticipated revenue from policies and contracts included in the Closed Block,
were expected to be sufficient to support the Closed Block policies, including
but not limited to, provisions for payment of claims, certain expenses, charges
and taxes, and to provide for continuation of policy and contract dividends in
aggregate in accordance with the 1997 dividend scales, if the experience
underlying such scales continues, and to allow for appropriate adjustments in
such scales, if such experience changes. Due to adjustable life policies being
included in the Closed Block, the Closed Block is charged with amounts necessary
to properly fund for certain adjustments, such as face amount and premium
increases, that are made to these policies after the Closed Block inception
date. These amounts are referred to as Funding Adjustment Charges and are
treated as capital transfers from the Closed Block.
7. Closed Block (continued)
Assets allocated to the Closed Block inure solely to the benefit 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 Company will continue to pay guaranteed benefits under all
policies, including the policies within the Closed Block, in accordance with
their terms. If the assets allocated to the Closed Block, the investment cash
flows from those assets and the revenues from the policies included in the
Closed Block, including investment income thereon, prove to be insufficient to
pay the benefits guaranteed under the policies included in the Closed Block, the
Company will be required to make such payments from its general funds. No
additional policies were added to the Closed Block, nor was the Closed Block
affected in any other way, as a result of the demutualization.
A policyholder dividend obligation is required to be established for earnings in
the Closed Block that are not available to shareholders. A model of the Closed
Block was established to produce the pattern of expected earnings in the Closed
Block (adjusted to eliminate the impact of related amounts in accumulated other
comprehensive income). If actual cumulative earnings of the Closed Block are
greater than the expected cumulative earnings of the Closed Block, only the
expected cumulative earnings will be recognized in income with the excess
recorded as a policyholder dividend obligation. This policyholder dividend
obligation represents undistributed accumulated earnings that will be paid to
Closed Block policyholders as additional policyholder dividends unless offset by
future performance of the Closed Block that is less favorable than originally
expected. If actual cumulative performance is less favorable than expected, only
actual earnings will be recognized in income. At December 31, 2001, cumulative
actual earnings, including consideration of net unrealized gains, has been less
than cumulative expected earnings. Therefore, no policyholder dividend
obligation has been recognized.
Closed Block liabilities and assets designated to the Closed Block are as
follows:
December 31,
2001 2000
------------------------- -------------------------
(in millions)
Closed Block liabilities
Future policy benefits and claims................. $5,248.7 $5,051.5
Other policyholder funds.......................... 20.3 4.8
Policyholder dividends payable.................... 376.6 402.2
Other liabilities................................. 11.8 22.6
------------------------- -------------------------
------------------------- -------------------------
Total Closed Block liabilities.................. 5,657.4 5,481.1
7. Closed Block (continued)
December 31,
2001 2000
------------------------- -------------------------
(in millions)
Assets designated to the Closed Block
Fixed maturities, available-for-sale.............. $2,466.3 $2,182.2
Equity securities, available-for-sale............. 23.4 -
Mortgage loans.................................... 880.0 919.4
Real estate....................................... - 0.2
Policy loans...................................... 792.5 770.0
Other investments................................. 6.9 1.1
------------------------- -------------------------
------------------------- -------------------------
Total investments............................... 4,169.1 3,872.9
Cash and cash equivalents (deficit)............... (8.0) 22.7
Accrued investment income......................... 77.2 72.3
Deferred tax asset................................ 80.8 97.8
Premiums due and other receivables................ 33.3 33.8
------------------------- -------------------------
------------------------- -------------------------
Total assets designated to the Closed Block..... 4,352.4 4,099.5
------------------------- -------------------------
------------------------- -------------------------
Excess of Closed Block liabilities over assets
designated to the Closed Block.................. 1,305.0 1,381.6
Amounts included in other comprehensive
income.......................................... 43.6 27.2
------------------------- -------------------------
------------------------- -------------------------
Maximum future earnings to be recognized from
Closed Block assets and liabilities............. $1,348.6 $1,408.8
========================= =========================
Closed Block revenues and expenses were as follows:
For the year ended December 31,
2001 2000 1999
------------------ ------------------ ----------------------
(in millions)
Revenues
Premiums and other considerations....... $ 742.1 $ 752.4 $ 764.4
Net investment income................... 311.8 289.9 269.2
Net realized capital losses............. (19.7) (4.9) (2.0)
------------------ ------------------ ----------------------
------------------ ------------------ ----------------------
Total revenues........................ 1,034.2 1,037.4 1,031.6
Expenses
Benefits, claims, and settlement
expenses.............................. 614.4 601.2 614.6
Dividends to policyholders.............. 305.8 307.7 295.9
Operating expenses...................... 12.7 13.6 13.2
------------------ ------------------ ----------------------
------------------ ------------------ ----------------------
Total expenses........................ 932.9 922.5 923.7
------------------ ------------------ ----------------------
------------------ ------------------ ----------------------
Closed Block revenue, net of Closed
Block expenses, before income taxes... 101.3 114.9 107.9
Income taxes............................ 33.5 38.4 37.0
------------------ ------------------ ----------------------
------------------ ------------------ ----------------------
Closed Block revenue, net of Closed 67.8 76.5 70.9
Block expenses and income taxes.......
Funding adjustment charges.............. (7.6) (12.0) (12.2)
------------------ ------------------ ----------------------
------------------ ------------------ ----------------------
Closed Block revenue, net of Closed $ 60.2 $ 64.5 $ 58.7
Block expenses, income tax and funding
adjustment charges.................... ================== ================== ======================
7. Closed Block (continued)
The change in maximum future earnings of the Closed Block was as follows:
December 31,
2001 2000
----------------------- -------------------------
(in millions)
Beginning of year.................................. $1,408.8 $1,473.3
End of year........................................ 1,348.6 1,408.8
----------------------- -------------------------
----------------------- -------------------------
Change in maximum future earnings.................. $ (60.2) $ (64.5)
======================= =========================
The Company charges the Closed Block with federal income taxes, payroll taxes,
state and local premium taxes and other state or local taxes, licenses and fees
as provided in the plan of reorganization.
8. Deferred Policy Acquisition Costs
Policy acquisition costs deferred and amortized in 2001, 2000 and 1999 are as
follows (in millions):
December 31,
2001 2000 1999
------------------ ------------------ ------------------
------------------ ------------------ ------------------
Balance at beginning of year.................. $1,333.3 $1,430.9 $1,104.7
Cost deferred during the year................. 249.0 263.9 253.8
Amortized to expense during the year.......... (198.5) (239.2) (173.7)
Effect of unrealized (gains) losses........... (61.5) (122.3) 246.1
------------------ ------------------ ------------------
------------------ ------------------ ------------------
Balance at end of year........................ $1,322.3 $1,333.3 $1,430.9
================== ================== ==================
9. Insurance Liabilities
Contractholder Funds
Major components of contractholder funds in the consolidated statements of
financial position, are summarized as follows (in millions):
December 31,
2001 2000
------------------- ------------------
------------------- ------------------
Liabilities for investment-type contracts:
Guaranteed investment contracts................................ $14,123.5 $14,779.6
U.S. funding agreements........................................ 307.1 772.1
International funding agreements backing medium-term notes..... 3,298.4 2,475.3
International funding agreements............................... 723.9 -
Other investment-type contracts................................ 2,272.1 2,537.0
------------------- ------------------
Total liabilities for investment-type contracts................. 20,725.0 20,564.0
Liabilities for individual annuities............................ 2,557.6 2,442.7
Universal life and other reserves............................... 1,382.0 1,293.5
------------------- ------------------
Total contractholder funds...................................... $24,664.6 $24,300.2
=================== ==================
9. Insurance Liabilities (continued)
The Company's guaranteed investment contracts and funding agreements contain
provisions limiting early surrenders, including penalties for early surrenders
and minimum notice requirements. Put provisions give customers the option to
terminate a contract prior to maturity, provided they give a minimum notice
period.
The following table presents U.S. GAAP reserves for guaranteed investment
contracts and funding agreements by withdrawal provisions (in millions):
December 31, 2001
------------------
------------------
Book Value Out (1)
Puttable:
Less than 30 days' put.............................. $ -
30 to 89 days' put.................................. -
90 to 180 days' put................................. -
More than 180 days' put............................. 55.1
No active put provision (2)......................... -
------------------
------------------
Total puttable........................................ 55.1
Surrenderable:
Book value out without surrender charge............. 22.9
Book value out with surrender charge................ 396.3
------------------
------------------
Total surrenderable................................... 419.2
------------------
------------------
Total book value out.................................. 474.3
Market Value Out (3)
Less than 30 days' notice............................. 26.9
30 to 89 days' notice................................. 281.9
90 to 180 days' notice................................ 1,133.6
More than 180 days' notice............................ 4,795.6
No active surrender provision......................... 238.5
------------------
------------------
Total market value out................................
Not puttable or surrenderable......................... 11,502.1
------------------
------------------
Total GICs and funding agreements..................... $18,452.9
==================
- ------------------
(1) Book Value Out: The amount equal to the sum of deposits less withdrawals
with interest accrued at the contractual interest rate.
(2) Contracts currently in initial lock-out period but which will become
puttable with 90 days' notice at some time in the future.
(3) Market Value Out: The amount equal to the book value out plus a market
value adjustment to adjust for changes in interest rates.
9. Insurance Liabilities (continued)
Funding agreements are issued to non-qualified institutional investors both in
domestic and international markets. The Company has a $4.0 billion international
program, under which a consolidated offshore special purpose entity was created
to issue nonrecourse medium-term notes. Under the program, the proceeds of each
note series issuance are used to purchase a funding agreement from the Company,
which is used to secure that particular series of notes. The payment terms of
any particular series of notes match the payment terms of the funding agreement
that secures that series. Claims for principal and interest under those
international funding agreements are afforded equal priority to claims of life
insurance and annuity policyholders under insolvency provisions of Iowa
Insurance Laws and, accordingly, are reported as contractholder funds
liabilities in the Company's consolidated statement of financial position. In
general, the medium-term note funding agreements do not give the contractholder
the right to terminate prior to contractually stated maturity dates, absent the
existence of certain circumstances which are largely within the Company's
control. As of December 31, 2001, the contractual maturities were 2002 - $160.2
million; 2003 - $496.1 million; 2004 - $470.2 million; 2005 - $714.5 million;
2006 - $98.9 million; and thereafter - $1,358.5 million.
In February 2001, the Company agreed to issue up to $3.0 billion of funding
agreements under another program to support the prospective issuance by an
unaffiliated entity of medium-term notes in both domestic and international
markets. The unaffiliated entity is not consolidated in the Company's financial
statements. The funding agreements issued to the unaffiliated entity are
reported as contractholder funds liabilities in the Company's consolidated
statement of financial position. As of December 31, 2001, $723.9 million has
been issued under this program.
Future Policy Benefits and Claims
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):
December 31,
2001 2000 1999
------------------ ------------------ ------------------
------------------ ------------------ ------------------
Balance at beginning of year.................. $ 705.0 $ 721.7 $ 641.4
Incurred:
Current year................................ 1,597.1 1,788.1 1,872.2
Prior years................................. (17.5) (17.8) (6.2)
------------------ ------------------ ------------------
------------------ ------------------ ------------------
Total incurred................................ 1,579.6 1,770.3 1,866.0
Payments:
Current year................................ 1,283.2 1,447.3 1,466.3
Prior years................................. 286.6 339.7 319.4
------------------ ------------------ ------------------
------------------ ------------------ ------------------
Total payments................................ 1,569.8 1,787.0 1,785.7
Balance at end of year:
Current year................................ 313.9 340.8 405.9
Prior years................................. 400.9 364.2 315.8
------------------ ------------------ ------------------
------------------ ------------------ ------------------
Total balance at end of year.................. $ 714.8 $ 705.0 $ 721.7
================== ================== ==================
9. Insurance Liabilities (continued)
The activity summary in the liability for unpaid accident and health claims
shows a decrease of $17.5 million, $17.8 million and $6.2 million to the
December 31, 2000, 1999 and 1998 liability for unpaid accident and health
claims, respectively, arising in prior years. Such liability adjustments, which
affected current operations during 2001, 2000 and 1999, 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.
On September 11, 2001, terrorist attacks in the U.S. resulted in significant
loss of life and property, as well as interruption of business activities and an
overall disruption of the world economy. As of December 31, 2001, the Company
recognized $6.7 million (net of income tax and reinsurance) in losses from
individual and group life and disability insurance claims as a result of these
events.
10. Debt
Short-Term Debt
Short-term debt consists primarily of a payable to Principal Financial Services,
Inc. of $1,087.8 million and $926.9 million as of December 31, 2001 and 2000,
respectively. Interest paid on intercompany debt was $39.7 million and $46.8
million during 2001 and 2000, respectively. Short-term debt also consists of
outstanding balances on revolving credit facilities with various financial
institutions. At December 31, 2001, the Company and certain subsidiaries had
credit facilities with various financial institutions in an aggregate amount of
$825.0 million. These credit facilities include $780.0 million to finance a CMBS
pipeline, of which $290.6 million is outstanding at December 31, 2001, and $45.0
million of unused lines of credit for short-term debt used for general corporate
purposes.
The weighted average interest rates on short-term borrowings as of December 31,
2001 and 2000, were 2.46% and 7.41%, respectively.
Long-Term Debt
The components of long-term debt as of December 31, 2001 and December 31, 2000
are as follows (in millions):
December 31,
2001 2000
------------- ------------------
------------- ------------------
7.875% surplus notes payable, due 2024..... $199.0 $198.9
8% surplus notes payable, due 2044......... 99.1 99.1
Non-recourse mortgages and notes payable... 150.3 149.8
Other mortgages and notes payable.......... 169.2 224.5
------------- ------------------
------------- ------------------
Total long-term debt....................... $617.6 $672.3
============= ==================
The amounts included above are net of the discount and direct costs associated
with issuing these notes, which are being amortized to expense over their
respective terms using the interest method.
10. Debt (continued)
On March 10, 1994, Principal Life issued $300.0 million of surplus notes,
including $200.0 million due March 1, 2024, at a 7.875% annual interest rate and
the remaining $100.0 million due March 1, 2044, at an 8% annual interest rate.
No affiliates of the Company hold any portion of the notes. 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 Principal Life has sufficient
surplus earnings to make such payments. For each of the years ended December 31,
2001, 2000 and 1999, interest of $23.8 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 Principal Life'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 Principal Life'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, 2001,
range from $0.1 million to $101.9 million per development with interest rates
generally ranging from 7.2% to 8.6%. Outstanding principal balances as of
December 31, 2000, range from $0.5 million to $102.8 million per development
with interest rates generally ranging from 6.9% to 8.6%.
At December 31, 2001, future annual maturities of the long-term debt are as
follows (in millions):
2002................................................. $165.1
2003................................................. 5.6
2004................................................. 2.4
2005................................................. 2.6
2006................................................. 2.8
Thereafter........................................... 439.1
-------------------
-------------------
Total future maturities of the long-term debt........ $617.6
==================
Cash paid for interest for 2001, 2000 and 1999, was $43.9 million, $42.0 million
and $95.5 million, respectively. These amounts include interest paid on taxes
during these years.
11. Income Taxes
The Company's income tax expense (benefit) is as follows (in millions):
For the year ended December 31,
2001 2000 1999
------------------ ------------------ ------------------
------------------ ------------------ ------------------
Current income taxes:
Federal..................................... $ 30.0 $195.2 $ 84.1
State and foreign........................... 30.0 12.2 12.6
Net realized capital gains (losses)......... (210.1) 29.6 162.3
------------------ ------------------ ------------------
------------------ ------------------ ------------------
Total current income taxes (benefit).......... (150.1) 237.0 259.0
Deferred income taxes......................... 242.5 11.8 64.5
------------------ ------------------ ------------------
------------------ ------------------ ------------------
Total income taxes............................ $ 92.4 $248.8 $323.5
================== ================== ==================
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:
For the year ended December 31,
2001 2000 1999
------------------ ------------------ ------------------
------------------ ------------------ ------------------
Statutory corporate tax rate.................. 35% 35% 35%
Dividends received deduction.................. (13) (5) (3)
Interest exclusion from taxable income........ (3) (1) -
Other......................................... 1 (1) (3)
------------------ ------------------ ------------------
Effective tax rate............................ 20% 28% 29%
================== ================== ==================
Significant components of the Company's net deferred income taxes are as follows
(in millions):
December 31,
2001 2000
------------------- ------------------
------------------- ------------------
Deferred income tax assets (liabilities):
Insurance liabilities.......................................... $ 131.6 $ 181.1
Deferred policy acquisition costs.............................. (373.1) (360.1)
Net unrealized gains on available for sale securities.......... (202.0) (59.1)
Mortgage loan servicing rights................................. (355.2) (206.3)
Other.......................................................... 16.0 52.3
------------------- ------------------
------------------- ------------------
Total deferred income tax liabilities............................ $(782.7) $(392.1)
=================== ==================
At December 31, 2001, the Company's net deferred tax liability was $782.7
million. There were no international net deferred tax assets in 2001. At
December 31, 2000, the Company's net deferred tax liability was comprised of
international net deferred tax assets of $6.9 million, which have been included
in other assets, and $399.0 million of U.S. net deferred tax liabilities. The
net deferred tax liabilities were included in deferred income taxes in the
consolidated statements of financial position.
11. Income Taxes (continued)
The Internal Revenue Service (the "Service") has completed examination of the
U.S. consolidated federal income tax returns of the Company and affiliated
companies for 1996 and prior years. The Service has also begun to examine
returns for 1997 and 1998. 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 $69.3 million in 2001, $131.9 million in 2000 and
$275.6 million in 1999.
12. Employee and Agent Benefits
The Company has defined benefit pension plans covering substantially all of its
employees and certain agents. Some of these plans provide supplemental pension
benefits to employees with salaries and/or pension benefits in excess of the
qualified plan limits imposed by federal tax law. The employees and agents are
generally first eligible for the pension plans when they reach age 21. For plan
participants employed prior to January 1, 2002, the pension benefits are based
on the greater of a final average pay benefit or a cash balance benefit. The
final average pay benefit is 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 final average pay 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
cash balance portion of the plan will start on January 1, 2002. An employee's
account will be credited with an amount based on the employee's salary, age and
service. These credits will accrue with interest. For plan participants hired on
and after January 1, 2002, only the cash balance plan applies. 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 for all plans is to deposit the U.S. GAAP-related net periodic pension
cost using long-term assumptions, unless the U.S. GAAP funded status is
positive, in which case no deposit is made. Prior to 2001, the Company's funding
policy was to deposit an amount within the range of U.S. GAAP net periodic
pension cost and the sum of the actuarial normal cost and any change in the
unfunded accrued liability over a 30-year period as a percentage of
compensation.
As a result of Principal Mutual Holding Company's demutualization, the qualified
defined benefit pension plan received $56.7 million in compensation which will
be amortized over the remaining service period of plan participants.
The Company also provides certain health care, life insurance and long-term care
benefits for retired employees. Retiree health benefits are provided for
employees hired prior to January 1, 2002, while retiree long-term care benefits
are provided for employees whose retirement was effective prior to July 1, 2000.
Covered 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 for all plans is to deposit the U.S. GAAP-related net
periodic postretirement benefit cost using long-term assumptions unless the U.S.
GAAP funded status is
12. Employee and Agent Benefits (continued)
positive, in which case no deposit is made. Prior to 2001, the Company's funding
policy was to deposit an amount within the range of U.S. GAAP net periodic
postretirement cost and the sum of the actuarial normal cost and any change in
the unfunded accrued liability over a 30-year period as a percentage of
compensation.
As a result of Principal Mutual Holding Company's demutualization, the
postretirement benefit plans received $11.3 million in compensation, which will
be used to pay benefit claims and participant contributions, with the remainder
to be amortized over the remaining service period of plan participants.
The plans' combined funded status, reconciled to amounts recognized in the
consolidated statements of financial position and consolidated statements of
operations, is as follows (dollars in millions):
Pension benefits Other postretirement benefits
------------------------------ ------------------------------
------------------------------ ------------------------------
December 31, December 31,
2001 2000 2001 2000
--------------- -------------- -------------- ---------------
Change in benefit obligation
Benefit obligation at beginning of year.. $ (797.3) $ (732.5) $(221.8) $(227.9)
Service cost............................. (31.2) (35.0) (8.3) (10.4)
Interest cost............................ (59.3) (57.5) (15.6) (19.0)
Actuarial gain (loss).................... (42.0) (2.7) (25.7) 3.7
Benefits paid............................ 31.7 30.4 9.6 -
Other.................................... 42.1 - 30.7 31.8
--------------- -------------- -------------- ---------------
Benefit obligation at end of year........ $ (856.0) $ (797.3) $(231.1) $(221.8)
=============== ============== ============== ===============
Change in plan assets
Fair value of plan assets at beginning of
year................................... $1,115.4 $1,059.8 $ 359.8 $ 345.5
Actual return (loss) on plan assets...... (15.7) 75.1 5.6 13.7
Employer contribution.................... 9.0 10.9 1.4 18.6
Benefits paid............................ (31.7) (30.4) (4.4) (18.0)
Other.................................... (124.5) - - -
--------------- -------------- -------------- ---------------
Fair value of plan assets at end of year. $ 952.5 $1,115.4 $362.4 $ 359.8
=============== ============== ============== ===============
Funded status............................ $ 96.5 $ 318.1 $131.3 $ 138.0
Unrecognized net actuarial gain.......... (65.3) (194.2) (0.6) (19.4)
Unrecognized prior service (cost) benefit 7.6 9.2 (28.2) (29.8)
Unamortized transition obligation (asset) (2.7) (14.2) - 0.3
--------------- -------------- -------------- ---------------
--------------- -------------- -------------- ---------------
Other assets - prepaid benefit cost...... $ 36.1 $ 118.9 $102.5 $ 89.1
=============== ============== ============== ===============
=============== ============== ============== ===============
Weighted-average assumptions as of
December 31
Discount rate............................ 7.50% 8.00% 7.50% 8.00%
12. Employee and Agent Benefits (continued)
Pension benefits Other postretirement benefits
------------------------------ ------------------------------
------------------------------ ------------------------------
December 31, December 31,
2001 2000 2001 2000
--------------- -------------- --------------- --------------
Components of net periodic benefit cost
Service cost............................. $ 31.2 $ 35.0 $ 8.3 $ 10.4
Interest cost............................ 59.3 57.5 15.6 19.0
Expected return on plan assets........... (99.2) (81.3) (32.3) (25.1)
Amortization of prior service (cost)
benefit................................ 1.7 1.7 (2.6) -
Amortization of transition (asset)
obligation............................. (11.5) (11.5) 0.3 2.3
Recognized net actuarial gain............ (14.1) (12.5) (1.3) (1.1)
--------------- -------------- -------------- ---------------
--------------- -------------- -------------- ---------------
Net periodic benefit cost (income)....... $ (32.6) $ (11.1) $ (12.0) $ 5.5
=============== ============== ============== ===============
Effective January 1, 2000, the Company amended the method of determining
postretirement health benefit plan contributions and terminated long-term care
coverage for participants retiring on and subsequent to July 1, 2000. The result
of these amendments decreased the postretirement benefit obligation by $31.8
million and was partially offset by the remaining portion of the original
transition obligation. During 2001, the Company reclassified assets supporting
non-qualified pension plan liabilities through a reduction in contractholder
funds and an increase in invested assets.
For 2001 and 2000, the expected long-term rates of return on plan assets for
pension benefits were 9.0% and 8.1%, respectively, on a pre-tax basis. The
assumed rate of increase in future compensation levels varies by age for both
the qualified and non-qualified pension plans.
For 2001 and 2000, the expected long-term rates of return on plan assets for
other post-retirement benefits varied by benefit type and employee group and
ranged from 7.8% to 9.3% and 8.0% to 8.1%, respectively, on a pre-tax basis.
The assumed health care cost trend rate used in measuring the accumulated
postretirement benefit obligations starts at 9% in 2001 and declines to an
ultimate rate of 6% in 2011. 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-point 1-percentage-point
increase decrease
------------------- -------------------
Effect on total of service and interest cost components....... $ 5.3 $ (6.0)
Effect on accumulated postretirement benefit obligation....... 50.1 (40.2)
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. The Company matches
the participant's contribution at a 50% contribution rate up to a maximum
Company contribution of 3% of the participant's compensation in 2001 and 2000,
and 2% of the participant's compensation in 1999. The defined contribution plan
allows employees to choose among various investment options, including PFG's
common stock. The Company contributed $17.9 million in 2001, $16.0 million in
2000 and $11.0 million in 1999 to these defined contribution plans.
12. Employee and Agent Benefits (continued)
As a result of the Principal Mutual Holding Company's demutualization, the
defined contribution plans received $19.7 million in compensation, which was
allocated to participant accounts.
13. Commitments and Contingencies
Leases
The Company, as a lessor, leases industrial, office, retail and other investment
real estate properties under various operating leases. Rental income for all
operating leases totaled $178.4 million in 2001, $292.5 million in 2000 and
$356.8 million in 1999.
At December 31, 2001, future minimum annual rental commitments under these
noncancelable operating leases are as follows (in millions):
Held for Held for Total rental
sale investment commitments
------------------ ----------------- ---------------------
------------------ ----------------- ---------------------
2002....................................... $ 51.9 $ 72.3 $124.2
2003....................................... 49.5 60.0 109.5
2004....................................... 46.5 49.0 95.5
2005....................................... 40.3 38.5 78.8
2006....................................... 36.7 25.7 62.4
Thereafter................................. 202.3 57.7 260.0
------------------ ----------------- ---------------------
------------------ ----------------- ---------------------
Total future minimum lease receipts........ $427.2 $303.2 $730.4
================== ================= =====================
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 $57.9 million in 2001,
$66.3 million in 2000 and $78.5 million in 1999. At December 31, 2001, future
minimum annual rental commitments under these noncancelable operating leases are
as follows (in millions):
2002.............................................................................. $ 44.0
2003.............................................................................. 34.8
2004.............................................................................. 22.9
2005.............................................................................. 11.1
2006.............................................................................. 7.9
Thereafter........................................................................ 15.4
-------------------
136.1
Less future sublease rental income on these noncancelable leases.................. 0.5
-------------------
Total future minimum lease payments............................................... $135.6
===================
Litigation
The Company is a plaintiff or defendant in actions arising out of its
operations. The Company is, from time to time, also involved in various
governmental and administrative proceedings. While the outcome of any pending or
future litigation cannot be predicted, management does not believe that any
pending litigation will have a material adverse effect on the Company's
business, financial condition or results of operations. However, no assurances
can be given that such litigation would not materially and adversely affect the
Company's business, financial condition or results of operations.
13. Commitments and Contingencies (continued)
Other companies in the life insurance industry have historically been subject to
substantial litigation resulting from claims disputes and other matters. Most
recently, such companies have faced extensive claims, including class-action
lawsuits, alleging improper life insurance sales practices. Negotiated
settlements of such class-action lawsuits have had a material adverse effect on
the business, financial condition and results of operations of certain of these
companies. The Company is currently a defendant in two class-action lawsuits
which allege improper sales practices.
In 2000, the Company reached an agreement in principle to settle these two
class-action lawsuits alleging improper sales practices. In April 2001, the
proposed settlement of the class-action lawsuits received court approval. In
agreeing to the settlement, the Company specifically denied any wrongdoing. The
Company has accrued a loss reserve for its best estimate based on information
available. As uncertainties continue to exist in resolving this matter, it is
reasonably possible that, as the actual cost of the claims subject to
alternative dispute resolution becomes available, the final cost of settlement
could exceed the Company's estimate. The range of any additional cost related to
the settlement cannot be presently estimated; however, the Company believes the
settlement will not have a material impact on its business, financial condition
or results of operations. A number of persons and entities who were eligible to
be class members have excluded themselves from the class (or "opted out"), as
the law permits them to do. The Company has been notified that some of those who
opted out from the class will file lawsuits and make claims similar to those
addressed by the settlement. Some of these lawsuits are presently on file.
Insurance Guaranty Assessments
The Company is also subject to insurance guaranty laws in the states in which it
writes business. These laws provide for assessments against life and health
insurance companies for the benefit of policyholders and claimants in the event
of insolvency of other life and health insurance companies. The assessments may
be partially recovered through a reduction in future premium taxes in some
states. The Company believes such assessments in excess of amounts accrued would
not materially affect its financial condition or results of operations.
Securities Held for Collateral
The Company held $759.9 million in mortgage-backed securities in trust at
December 31, 2001, to satisfy collateral requirements associated with the
Company's mortgage banking segment and derivatives credit support agreements.
14. Stockholder's Equity
Common Stock
The Company has one class of common stock ($.01 par value, 5.0 million shares
authorized, 2.5 million issued and outstanding) wholly owned indirectly by PFG.
Treasury Stock
As a result of the demutualization, the Company's ultimate parent, PFG, issued
363.7 thousand shares of its common stock with a value of $6.7 million to rabbi
trusts held by the Company for certain benefit plans. These shares were reported
as treasury stock and additional paid-in capital in the consolidated statement
of stockholder's equity at December 31, 2001.
14. Stockholder's Equity (continued)
Other Comprehensive Income
Comprehensive income (loss) includes all changes in stockholder's equity during
a period except those resulting from investments by stockholders and
distributions to stockholders.
The components of accumulated other comprehensive income are as follows (in
millions):
Net
Net unrealized unrealized
gains (losses) gains(losses) Foreign
on on currency Accumulated other
available-for-sale derivative translation comprehensive
securities instruments adjustment income (loss)
----------------- --------------------------------------------------
----------------- --------------------------------------------------
Balances at January 1, 1999....... $ 742.3 $ 3.6 $(28.9) $ 717.0
Net change in unrealized gains
(losses) on fixed maturities,
available-for-sale.............. (1,375.1) - - (1,375.1)
Net change in unrealized gains
(losses) on equity securities,
available-for-sale, including
seed money in separate accounts. (131.7) - - (131.7)
Adjustments for assumed changes
in amortization pattern:
Deferred policy acquisition
costs....................... 246.1 - - 246.1
Unearned revenue reserves..... (29.5) - - (29.5)
Net change in unrealized gains/
(losses) on derivative
instruments..................... - (11.0) - (11.0)
Provision for deferred income tax
benefit......................... 449.2 3.9 - 453.1
Change in net foreign currency
translation adjustment.......... - - (31.1) (31.1)
----------------- --------------------------------------------------
----------------- --------------------------------------------------
Balances at December 31, 1999..... (98.7) (3.5) (60.0) (162.2)
Net change in unrealized gains
(losses) on fixed maturities,
available-for-sale.............. 722.0 - - 722.0
Net change in unrealized gains
(losses) on equity securities,
available-for-sale, including
seed money in separate accounts. (268.6) - - (268.6)
Adjustments for assumed changes
in amortization pattern:
Deferred policy acquisition
costs....................... (122.6) - - (122.6)
Unearned revenue reserves..... 15.2 - - 15.2
Net change in unrealized gains/
(losses) on derivative
instruments..................... - (1.3) - (1.3)
Provision for deferred income tax
benefit......................... (121.9) 0.5 - (121.4)
Change in net foreign currency
translation adjustment.......... - - 27.0 27.0
-------------------------------- --------------- ------------------
-------------------------------- --------------- ------------------
Balances at December 31, 2000..... 125.4 (4.3) (33.0) 88.1
14. Stockholder's Equity (continued)
Net
Net unrealized unrealized
gains (losses) gains(losses) Foreign
on on currency Accumulated other
available-for-sale derivative translation comprehensive
securities instruments adjustment income (loss)
----------------- --------------------------------------------------
----------------- --------------------------------------------------
Balances at December 31, 2000..... $ 125.4 $ (4.3) $(33.0) $ 88.1
Net change in unrealized gains
(losses) on fixed maturities,
available-for-sale.............. 510.7 - - 510.7
Net change in unrealized gains
(losses) on equity securities,
available-for-sale, including
seed money in separate accounts. (2.5) - - (2.5)
Adjustments for assumed changes
in amortization pattern:
Deferred policy acquisition
costs....................... (61.3) - - (61.3)
Unearned revenue reserves..... 4.3 - - 4.3
Net change in unrealized gains
(losses) on derivative
instruments..................... - (46.0) - (46.0)
Dividends to parent............... (1.3) - 11.1 9.8
Provision for deferred income tax
benefit......................... (160.5) 16.1 - (144.4)
Change in net foreign currency
translation adjustment.......... - - 23.9 23.9
Cumulative effect of accounting
change, net of related income
taxes........................... 20.9 (24.0) (11.1) (14.2)
----------------- --------------------------------------------------
----------------- --------------------------------------------------
Balances at December 31, 2001..... $ 435.7 $(58.2) $ (9.1) $ 368.4
================= ==================================================
The following table sets forth the adjustments necessary to avoid duplication of
items that are included as part of net income for a year that had been part of
other comprehensive income in prior years (in millions):
December 31,
2001 2000 1999
--------------- -------------- ---------------
--------------- -------------- ---------------
Unrealized gains (losses) on available-for-sale $491.2 $252.6 $(1,037.9)
securities arising during the year.............
Adjustment for realized gains (losses) on
available-for-sale securities included in net
income........................................... (234.8) (29.4) 189.9
--------------- -------------- ---------------
--------------- -------------- ---------------
Unrealized gains (losses) on available-for-sale $256.4 $223.2 $ (848.0)
securities, as adjusted...........................
=============== ============== ===============
The above table is presented net of tax, related changes in the amortization
patterns of deferred policy acquisition costs and unearned revenue reserves.
14. Stockholder's Equity (continued)
Dividend Limitations
Under Iowa law, Principal Life may pay stockholder dividends only from the
earned surplus arising from its business and must receive the prior approval of
the Commissioner to pay a stockholder dividend if such a stockholder dividend
would exceed certain statutory limitations. The current statutory limitation is
the greater of 10% of Principal Life's policyholder surplus as of the preceding
year-end or the net gain from operations from the previous calendar year. Based
on this limitation and 2001 statutory results, Principal Life could pay
approximately $640.3 million in stockholder dividends in 2002 without exceeding
the statutory limitation.
In 2001 and 2000, Principal Life notified the Commissioner in advance of all
stockholder dividend payments. Total stockholder dividends paid to its parent
company in 2001 and 2000 were $734.7 million and $538.8 million, respectively.
In 1999, Principal Life notified the Commissioner in advance of all stockholder
dividend payments and received approval for an extraordinary stockholder
dividend of $250.0 million. Total stockholder dividends paid to its parent
company in 1999 were $509.0 million.
15. 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 policyholder liabilities other than
investment-type 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.
15. Fair Value of Financial Instruments (continued)
The fair values for assets classified as policy loans, other investments
excluding equity investments in subsidiaries, cash and cash equivalents and
accrued investment income in the accompanying consolidated statements of
financial position approximate their carrying amounts.
Mortgage loan servicing rights represent the present value of estimated future
net revenues from contractually specified servicing fees. The fair value was
estimated with a valuation model using an internal prepayment model and
discounted at a spread to London Inter-Bank Offer Rates.
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 policyholder 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, 2001 and 2000, are as follows (in millions):
2001 2000
---------------------------------- ---------------------------------
---------------- ----------------- ---------------- ----------------
Carrying amount Fair Carrying amount Fair
value value
---------------- ----------------- ---------------- ----------------
---------------- ----------------- ---------------- ----------------
Assets (liabilities)
Fixed maturities , available-for-
sale (see Note 4)............... $29,007.4 $29,007.4 $26,142.1 $26,142.1
Fixed maturities, trading (see
Note 4)......................... 17.8 17.8 - -
Equity securities, available-for-
sale (see Note 4)............... 798.7 798.7 710.3 710.3
Mortgage loans.................... 10,884.6 11,164.6 11,325.8 11,575.0
Policy loans...................... 831.9 831.9 803.6 803.6
Other investments................. 426.5 426.5 413.0 413.0
Cash and cash equivalents......... 1,077.7 1,077.7 998.6 998.6
Accrued investment income......... 593.5 593.5 530.4 530.4
Mortgage loan servicing rights.... 1,778.5 1,811.0 1,084.4 1,193.5
Investment-type insurance
contracts....................... (23,286.8) (23,642.4) (22,818.6) (22,688.9)
Short-term debt................... (1,378.4) (1,378.4) (1,339.9) (1,339.9)
Long-term debt.................... (617.6) (613.7) (672.3) (649.8)
16. Statutory Insurance Financial Information
Principal Life 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 (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 U.S. GAAP.
Prescribed or permitted statutory accounting practices are used by state
insurance departments to regulate Principal Life.
The NAIC revised the Accounting Practices and Procedures Manual in a process
referred to as Codification. The revised manual was effective January 1, 2001.
The State of Iowa adopted the provisions of the revised manual without
modification. The revised manual has changed, to some extent, prescribed
statutory accounting practices and has resulted in changes to the accounting
practices that Principal Life uses to prepare its statutory-basis financial
statements.
The net impact of these changes to Principal Life's statutory-basis capital and
surplus as of January 1, 2001, was not significant.
Statutory net income and statutory surplus of Principal Life are as follows (in
millions):
As of or for the year ended December 31,
2001 2000 1999
-------------- ----------------- -----------------
-------------- ----------------- -----------------
Statutory net income.......$ 415.0 $ 912.0 $ 713.7
Statutory surplus.......... 3,483.8 3,356.4 3,151.9
Life and 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 and health insurance company
is to be determined based on the various risk factors related to it. At December
31, 2001, Principal Life meets the RBC requirements.
17. Segment Information
The Company provides financial products and services through the following
segments: U.S. Asset Management and Accumulation, Life and Health Insurance and
Mortgage Banking. In addition, there is a Corporate and Other segment. The
segments are managed and reported separately because they provide different
products and services, have different strategies or have different markets and
distribution channels.
The U.S. Asset Management and Accumulation segment provides retirement and
related financial products and services primarily to businesses, their employees
and other individuals and provides asset management services to the Company's
asset accumulation business, the life and health insurance operations and
third-party clients.
The Life and Health insurance segment provides individual life and disability
insurance to the owners and employees of businesses and other individuals in the
U.S. and provides group life and health insurance to businesses in the U.S.
17. Segment Information (continued)
The Mortgage Banking segment originates and services residential mortgage loan
products for customers primarily in the U.S.
The Corporate and Other segment manages the assets representing capital that has
not been allocated to any other segment. Financial results of the Corporate and
Other segment primarily reflect financing activities for the Company, income on
capital not allocated to other segments, intersegment eliminations and
non-recurring or other income or expenses not allocated to the segments based on
review of the nature of such items. This segment also includes international
operations that offer retirement products and services, annuities, mutual funds
and life insurance through subsidiaries in Argentina, Chile, Mexico and Hong
Kong. Over the past two years, the Company disposed of, distributed or
dividended essentially all of its international operations to its parent, PFSI,
described further in Note 3.
The Corporate and Other segment includes an equity ownership interest in
Coventry Health Care, Inc. The ownership interest was initiated through a
transaction in 1998, described further in Note 3. The Corporate and Other
segment's equity in earnings of Coventry Health Care, Inc., which was included
in net investment income, was $19.8 million and $20.0 million for the years
ended December 31, 2001 and 2000, respectively.
The Company evaluates segment performance on segment operating earnings, which
excludes the effect of net realized capital gains and losses, as adjusted, and
non-recurring events and transactions. Net realized capital gains, as adjusted,
are net of tax, related changes in the amortization pattern of deferred policy
acquisition costs, recognition of front-end fee revenues for sales charges on
pension products and services, net realized capital gains credited to customers
and certain market value adjustments to fee revenues. Segment operating revenues
exclude net realized capital gains and their impact on recognition of front-end
fee revenues. Segment operating earnings is determined by adjusting U.S. GAAP
net income for net realized capital gains and losses, as adjusted, and
non-recurring items which management believes are not indicative of overall
operating trends. While these items may be significant components in
understanding and assessing the consolidated financial performance, management
believes the presentation of segment operating earnings enhances the
understanding of the Company's results of operations by highlighting earnings
attributable to the normal, recurring operations of the business. However,
segment operating earnings are not a substitute for net income determined in
accordance with U.S. GAAP.
In 2001, the Company excluded $31.1 million of non-recurring items, net of tax,
from net income for the presentation of operating earnings. The non-recurring
items included (1) the negative effects of (a) expenses related to the
demutualization; (b) a cumulative effect of change in accounting principle
related to the implementation of SFAS 133; and (c) an increase to a loss
contingency reserve for sales practices litigation; and (2) the positive effect
of investment income generated from the proceeds of the IPO.
In 2000, the Company excluded $101.0 million of non-recurring items, net of tax,
from net income for the presentation of operating earnings. The non-recurring
items included the negative effects of (a) a loss contingency reserve
established for sales practices litigation; and (b) expenses related to the
development of a plan of demutualization.
The accounting policies of the segments are similar to those as described in
Note 1, with the exception of capital allocation. The Company allocates capital
to its segments based upon an internal capital model that allows management to
more effectively manage the Company's capital.
17. Segment Information (continued)
The following table summarizes selected financial information by segment as of,
or for the year ended, December 31 and reconciles segment totals to those
reported in the consolidated financial statements (in millions):
U.S. Asset Life and
Management and Health Mortgage Corporate
Accumulation Insurance Banking and Other Consolidated
---------------- -------------------------- -------------- ---------------
---------------- -------------------------- -------------- ---------------
2001
Revenues:
Operating revenues........ $ 3,712.2 $ 3,946.4 $ 714.4 $ 142.8 $ 8,515.8
Net realized capital
losses.................. (248.6) (62.2) - (181.9) (492.7)
Plus recognition of
front-end fee revenues.. 1.5 - - - 1.5
Less capital gains
distributed as market
value adjustment........ (14.9) - - - (14.9)
Plus investment income
generated from IPO
proceeds................ - - - 6.3 6.3
---------------- -------------------------- -------------- ---------------
---------------- -------------------------- -------------- ---------------
Revenues.................... $ 3,450.2 $ 3,884.2 $ 714.4 $ (32.8) $ 8,016.0
================ ========================== ============== ===============
================ ========================== ============== ===============
Net income:
Operating earnings (loss). $ 349.0 $ 201.2 $ 99.6 $ 56.9 $ 706.7
Net realized capital
losses, as adjusted..... (164.7) (33.8) - (110.0) (308.5)
Non-recurring items....... (10.8) 0.1 - (20.4) (31.1)
---------------- -------------------------- -------------- ---------------
---------------- -------------------------- -------------- ---------------
Net income (loss)........... $ 173.5 $ 167.5 $ 99.6 $ (73.5) $ 367.1
================ ========================== ============== ===============
================ ========================== ============== ===============
Assets...................... $68,507.0 $10,776.2 $2,718.8 $1,568.6 $83,570.6
================ ========================== ============== ===============
================ ========================== ============== ===============
Other segment data:
Revenues from external
customers............... $ 3,416.9 $ 3,888.3 $ 714.4 $ (3.6) $ 8,016.0
Intersegment revenues..... 33.3 (4.1) - (29.2) -
Interest expense.......... 3.3 0.8 - 19.9 24.0
Income tax expense
(benefit)............... (8.9) 86.2 62.5 (47.4) 92.4
Amortization of goodwill
and other intangibles... 3.4 4.1 0.8 (0.5) 7.8
17. Segment Information (continued)
U.S. Asset Life and
Management and Health Mortgage Corporate
Accumulation Insurance Banking and Other Consolidated
---------------- -------------------------- -------------- ---------------
---------------- -------------------------- -------------- ---------------
2000
Revenues:
Operating revenues........ $ 3,431.6 $ 4,122.6 $ 359.4 $ 344.8 $ 8,258.4
Net realized capital gains
(losses)................ (53.8) 70.8 - 134.8 151.8
Plus recognition of
front-end fee revenues.. 0.9 - - - 0.9
---------------- -------------------------- -------------- ---------------
---------------- -------------------------- -------------- ---------------
Revenues.................... $ 3,378.7 $ 4,193.4 $ 359.4 $ 479.6 $ 8,411.1
================ ========================== ============== ===============
================ ========================== ============== ===============
Net income:
Operating earnings 162.3 49.8
(loss).................. $ 349.0 $ $ $ 80.6 $ 641.7
Net realized capital gains
(losses), as adjusted... (35.9) 47.3 - 89.5 100.9
Non-recurring items....... - - - (101.0) (101.0)
---------------- -------------------------- -------------- ---------------
---------------- -------------------------- -------------- ---------------
Net income (loss)........... $ 313.1 $ 209.6 $ 49.8 $ 69.1 $ 641.6
================ ========================== ============== ===============
================ ========================== ============== ===============
Assets...................... $65,756.3 $10,569.0 $1,556.3 $2,521.3 $80,402.9
================ ========================== ============== ===============
================ ========================== ============== ===============
Other segment data:
Revenues from external
customers............... $ 3,349.6 $ 4,196.9 $ 359.4 $ 505.2 $ 8,411.1
Intersegment revenues..... 29.0 (3.5) - (25.5) -
Interest expense.......... 7.0 2.5 - (12.2) (2.7)
Income tax expense........ 97.5 104.7 26.9 19.7 248.8
Amortization of goodwill
and other intangibles... 1.0 7.7 0.8 2.2 11.7
17. Segment Information (continued)
U.S. Asset Life and
Management and Health Mortgage Corporate
Accumulation Insurance Banking and Other Consolidated
---------------- -------------------------- -------------- ---------------
---------------- -------------------------- -------------- ---------------
1999
Revenues:
Operating revenues........ $ 3,404.5 $ 3,985.5 $ 398.3 $ 322.1 $ 8,110.4
Net realized capital gains
(losses)................ (58.0) 16.0 - 498.6 456.6
Less recognition of
front-end fee revenues.. (1.0) - - - (1.0)
---------------- -------------------------- -------------- ---------------
---------------- -------------------------- -------------- ---------------
Revenues.................... $ 3,345.5 $ 4,001.5 $ 398.3 $ 820.7 $ 8,566.0
================ ========================== ============== ===============
================ ========================== ============== ===============
Net income:
Operating earnings 90.7 56.8
(loss).................. $ 352.5 $ $ $ (10.7) $ 489.3
Net realized capital gains
(losses), as adjusted... (35.4) 10.1 - 345.7 320.4
---------------- -------------------------- -------------- ---------------
Net income (loss)........... $ 317.1 $ 100.8 $ 56.8 $ 335.0 $ 809.7
================ ========================== ============== ===============
================ ========================== ============== ===============
Assets...................... $65,058.5 $10,070.8 $1,737.7 $2,570.1 $79,437.1
================ ========================== ============== ===============
================ ========================== ============== ===============
Other segment data:
Revenues from external
customers............... $ 3,316.7 $ 4,007.9 $ 398.3 $ 843.1 $ 8,566.0
Intersegment revenues..... 28.7 (6.4) - (22.3) -
Interest expense.......... 2.1 (0.4) - 28.6 30.3
Income tax expense
(benefit)............... 123.7 18.1 30.7 151.0 323.5
Amortization of goodwill
and other intangibles... 1.0 4.0 0.8 0.7 6.5
The Company operates in the U.S. and in selected markets internationally
(including Chile, Mexico, Argentina and Hong Kong). The following table
summarizes selected financial information by geographic location as of or for
the year ended December 31 (in millions):
Long-lived
Revenues assets Assets Net income (loss)
----------------- -------------------------------------- ------------------
----------------- -------------------------------------- ------------------
2001
U.S......................... $8,021.2 $552.8 $83,570.6 $388.7
International............... (5.2) - - (21.6)
----------------- -------------------------------------- ------------------
----------------- -------------------------------------- ------------------
Total....................... $8,016.0 $552.8 $83,570.6 $367.1
================= ====================================== ==================
================= ====================================== ==================
2000
U.S......................... $8,174.2 $518.2 $79,719.1 $658.5
International............... 236.9 47.1 683.8 (16.9)
----------------- -------------------------------------- ------------------
----------------- -------------------------------------- ------------------
Total....................... $8,411.1 $565.3 $80,402.9 $641.6
================= ====================================== ==================
================= ====================================== ==================
1999
U.S......................... $8,293.8 $505.5 $78,087.3 $834.3
International............... 272.2 104.9 1,349.8 (24.6)
----------------- -------------------------------------- ------------------
----------------- -------------------------------------- ------------------
Total....................... $8,566.0 $610.4 $79,437.1 $809.7
================= ====================================== ==================
17. Segment Information (continued)
Long-lived assets include property and equipment and goodwill and other
intangibles.
The Company's operations are not materially dependent on one or a few customers,
brokers or agents, and revenues, assets and operating earnings are attributed to
geographic location based on the country of domicile the sales originate from.
18. Stock Compensation Plans
On May 21, 2001, PFG approved and adopted the Stock Incentive Plan, Board of
Directors' Stock Plan ("Directors' Stock Plan") and Employee Stock Purchase Plan
("Stock Purchase Plan"). In addition, the Long Term Performance Plan was amended
to utilize stock as an option for payment. The Plan of Conversion of Principal
Mutual Holding Company for its demutualization restricts the ability to use
stock as a form of payment for awards under the Long Term Performance Plan until
at least six months following completion of the IPO.
Under the terms of the Stock Incentive Plan, grants may be non-qualified stock
options, incentive stock options qualifying under Section 422 of the Internal
Revenue Code, restricted stock, restricted stock units and stock appreciation
rights. On November 26, 2001, a one-time, grant of non-qualified stock options
was made under the Stock Incentive Plan to essentially all employees, including
career agents who are statutory employees.
The Stock Incentive Plan has options exercisable at November 26, 2004. Total
options granted under this plan amounted to 3.7 million options in 2001. Options
outstanding under the Stock Incentive Plan were granted at a price equal to the
market value of PFG's common stock on the date of grant, cliff-vest after a
three-year period for employees still employed or under contract and expire ten
years after the grant date.
The Directors' Stock Plan provides for the grant of nonqualified stock options,
restricted stock, or restricted stock units to PFG's non-employee directors. The
total number of shares to be issued under this plan may not exceed 500,000
shares. Options granted under the Directors' Stock Plan have an exercise price
equal to the fair market value of the common stock on the date of the grant and
a term equal to the earlier of three years from the date the participant ceases
to provide service or the tenth anniversary of the date the option was granted.
Options vest quarterly over a one-year period unless services to PFG cease, at
which time, all vesting stops. There were no options, shares of restricted
stock, or restricted stock units granted under this plan in 2001.
PFG also maintains its Long Term Performance Plan, which provides the
opportunity for eligible executives to share in the success of PFG, if specified
minimum corporate performance objectives are achieved over a three-year period.
In 2001, the Company recorded compensation expense of $11.1 million related to
the plan.
Under PFG's Stock Purchase Plan, participating employees have the opportunity to
purchase shares of PFG's common stock on a quarterly basis. The Stock Purchase
Plan provides that eligible employees may contribute 10% of the employee's
salary or a maximum of $10,000 to the plan during any year. Employees may
purchase shares of PFG's common stock at a price equal to 85% of the share's
fair market value as of the beginning or end of the quarter, whichever is lower.
During 2001, employees purchased 320,406 shares under the Stock Purchase Plan at
a price of 85% of the share's fair market value of $22.33 per share.
18. Stock Compensation Plans (continued)
Pursuant to SFAS No. 123, Accounting for Stock-Based Compensation, PFG has
elected to account for its stock option and stock purchase plans under the
provisions of ABP Opinion No. 25, Accounting for Stock Issued to Employees, and,
accordingly, employee options and stock purchases were excluded from
compensation expense. However, compensation expense has been recognized for
stock option awards issued to career agents using the fair value method as
prescribed in FASB Interpretation No. 44, Accounting for Certain Transactions
Involving Stock Compensation - An Interpretation of APB Opinion No. 25. In 2001,
the Company recorded compensation expense of $13,570 related to the plan. If PFG
had adopted the fair value method of SFAS No. 123, the impact on the Company's
results of operations would not have been significant.
19. Subsequent Event
On February 1, 2002, the Company sold its remaining stake of 15.1 million shares
in Coventry Health Care, Inc. common stock and a warrant, exercisable for
approximately 3.1 million shares of Coventry common stock. Total estimated
proceeds from the completion of this transaction are $325.2 million and the
Company will recognize an estimated net realized capital gain of $183.1 million
during the first quarter of 2002.
20. Quarterly Results of Operations (Unaudited)
The following is a summary of unaudited quarterly results of operations for 2001
and 2000:
For the three months ended during 2001
March 31 June 30 September 30 December 31
----------------- ---------------- ----------------- -----------------
----------------------------------------------------------------------
(in millions)
Premiums and other considerations $1,035.7 $ 827.8 $1,071.0 $ 861.2
Net investment income............ 816.3 797.6 779.9 816.9
Net realized capital gains
(losses)....................... (72.5) (97.6) (79.7) (242.9)
Total revenue.................... 2,115.3 1,888.6 2,148.1 1,864.0
Benefits, claims, and settlement
expenses....................... 1,351.9 1,165.4 1,398.6 1,176.5
Income before taxes and
cumulative effect of
accounting change.............. 162.5 146.8 148.7 12.2
Cumulative effect of
accounting change.............. (10.7) - - -
Net income....................... 120.7 115.8 113.7 16.9
20. Quarterly Results of Operations (Unaudited) (continued)
For the three months ended during 2000
March 31 June 30 September 30 December 31
----------------- ---------------- ----------------- -----------------
----------------------------------------------------------------------
(in millions)
Premiums and other considerations $1,014.4 $ 978.3 $ 876.3 $1,060.3
Net investment income............ 788.2 760.4 754.6 812.3
Net realized capital gains
(losses)....................... 81.3 (37.0) 46.5 61.0
Total revenue.................... 2,185.4 1,989.8 2,002.8 2,233.1
Benefits, claims, and
settlement expenses............ 1,319.7 1,311.5 1,151.4 1,364.5
Income before taxes and
cumulative effect of
accounting change.............. 306.3 70.9 254.0 259.2
Cumulative effect of
accounting change.............. - - - -
Net income....................... 211.3 51.0 190.4 188.9
APPENDIX A - INVESTMENT DIVISIONS
AIM V.I. AGGRESSIVE GROWTH DIVISION
INVESTS IN: AIM V.I. Aggressive Growth Fund
INVESTMENT ADVISOR: A I M Advisors, Inc.
INVESTMENT OBJECTIVE: seeks long-term capital growth from
securities of companies expected to achieve accelerated earnings
growth.
AIM V.I. INTERNATIONAL GROWTH DIVISION
INVESTS IN: AIM V.I. International Growth Fund
INVESTMENT ADVISOR: A I M Advisors, Inc.
INVESTMENT OBJECTIVE: pursues long-term capital growth from
international equities considered to have strong earnings
momentum.
AIM V.I. PREMIER EQUITY DIVISION
INVESTS IN: AIM V.I. Premier Equity Fund
INVESTMENT ADVISOR: A I M Advisors, Inc.
INVESTMENT OBJECTIVE: seeks long-term growth of capital. Income is
a secondary objective. The Fund invests primarily in equity
securities.
AMERICAN CENTURY VP INCOME & GROWTH DIVISION
INVESTS IN: American Century Variable Portfolios, Inc. VP Income &
Growth
INVESTMENT ADVISOR: American Century Investment Management, Inc.
INVESTMENT OBJECTIVE: seeks dividend growth, current income and
appreciation. The account will seek to achieve its investment
objective by investing in common stocks.
AMERICAN CENTURY VP INTERNATIONAL DIVISION
INVESTS IN: American Century Variable Portfolios, Inc. VP
International
INVESTMENT ADVISOR: American Century Investment Management, Inc.
INVESTMENT OBJECTIVE: seeks long-term capital growth around the
world by investing in stocks of foreign companies.
AMERICAN CENTURY VP VALUE DIVISION
INVESTS IN: American Century Variable Portfolios, Inc. VP Value
INVESTMENT ADVISOR: American Century Investment Management, Inc.
INVESTMENT OBJECTIVE: seeks capital growth over time and,
secondarily, income by investing primarily in equity securities.
AMERICAN CENTURY VP ULTRA DIVISION
INVESTS IN: American Century Variable Portfolios, Inc. VP Ultra
INVESTMENT ADVISOR: American Century Investment Management, Inc.
INVESTMENT OBJECTIVE: seeks long-term capital growth by investing
primarily in stocks of U.S. companies.
BERGER IPT MIDCAP VALUE DIVISION
INVESTS IN: Berger Investment Product Trust MidCap Value Fund
INVESTMENT ADVISOR: Berger Financial Group LLC
INVESTMENT OBJECTIVE: seeks long-term capital appreciation by
investing in mid-sized companies whose stock prices have been
beaten down to low levels but still offer significant upside
potential.
DIP CORE VALUE DIVISION
INVESTS IN: Dreyfus Investment Portfolios Core Value Portfolio
INVESTMENT ADVISOR: The Boston Company through a sub-advisory
agreement
INVESTMENT OBJECTIVE: seeks long-term capital growth as a primary
objective, with current income as a secondary objective. Invests
primarily in equity securities of large-cap value companies.
DREYFUS VIF APPRECIATION DIVISION
INVESTS IN: Dreyfus Investment Portfolios Appreciation Portfolio
INVESTMENT ADVISOR: Fayez Sarofim & Co. through a sub-advisory
agreement
INVESTMENT OBJECTIVE: seeks long-term capital growth by investing
in common stocks.
DREYFUS VIF SMALL CAP DIVISION
INVESTS IN: Dreyfus Investment Portfolios SmallCap Portfolio
INVESTMENT ADVISOR: The Dreyfus Corporation
INVESTMENT OBJECTIVE: seeks capital appreciation by investing in
the stocks of companies with small market capitalizations.
DREYFUS SOCIALLY RESPONSIBLE GROWTH DIVISION
INVESTS IN: Dreyfus Socially Responsible Growth Portfolio
INVESTMENT ADVISOR: The Dreyfus Corporation
INVESTMENT OBJECTIVE: seeks capital growth by investing primarily
in large-cap stocks that meet certain financial as well as
social criteria.
DIP FOUNDERS DISCOVERY DIVISION
INVESTS IN: Dreyfus Investment Portfolios Founders Discovery
Portfolio
INVESTMENT ADVISOR: Founders Asset Management LLC through a
sub-advisory agreement
INVESTMENT OBJECTIVE: seeks capital appreciation. To pursue this
goal, the portfolio invests primarily in equity securities of
small, U.S. based companies which are characterized as "growth"
companies.
DIP FOUNDERS GROWTH DIVISION
INVESTS IN: Dreyfus Investment Portfolios Founders Growth
Portfolio
INVESTMENT ADVISOR: Founders Asset Management LLC through a
sub-advisory agreement
INVESTMENT OBJECTIVE: seeks capital appreciation by investing in
stocks of small-cap growth companies.
DREYFUS VIF QUALITY BOND DIVISION
INVESTS IN: Dreyfus Investment Portfolios Quality Bond Portfolio
INVESTMENT ADVISOR: The Dreyfus Corporation
INVESTMENT OBJECTIVE: seeks to maximize current income consistent
with the preservation of capital and maintenance of liquidity by
investing in fixed-income securities.
FIDELITY VIP ASSET MANAGER DIVISION
INVESTS IN: Fidelity VIP II Asset Manager Portfolio
INVESTMENT ADVISOR: Fidelity Management and Research Company
INVESTMENT OBJECTIVE: seeks high total return with reduced risk
over the long-term by allocating its assets among stocks, bonds
and short-term instruments.
FIDELITY VIP CONTRAFUND DIVISION
INVESTS IN: Fidelity VIP II Contrafund Portfolio
INVESTMENT ADVISOR: Fidelity Management and Research Company
INVESTMENT OBJECTIVE: seeks long-term capital appreciation by
investing primarily in common stocks.
FIDELITY VIP EQUITY-INCOME DIVISION
INVESTS IN: Fidelity VIP Equity-Income Portfolio
INVESTMENT ADVISOR: Fidelity Management and Research Company
INVESTMENT OBJECTIVE: seeks reasonable income by investing
primarily in income-producing equity securities.
FIDELITY VIP GROWTH DIVISION
INVESTS IN: Fidelity VIP Growth Portfolio
INVESTMENT ADVISOR: Fidelity Management and Research Company
INVESTMENT OBJECTIVE: seeks long-term capital appreciation by
investing primarily in common stocks.
FIDELITY VIP HIGH INCOME DIVISION
INVESTS IN: Fidelity VIP High Income Portfolio
INVESTMENT ADVISOR: Fidelity Management and Research Company
INVESTMENT OBJECTIVE: seeks a high level of current income by
investing primarily in high yielding, lower quality,
fixed-income securities, while also considering growth of
capital.
FIDELITY VIP MIDCAP DIVISION
INVESTS IN: Fidelity VIP MidCap Portfolio
INVESTMENT ADVISOR: Fidelity Management and Research Company
INVESTMENT OBJECTIVE: seeks long-term growth of capital by
investing in equity securities of companies with medium market
capitalizations.
FRANKLIN INCOME SECURITIES DIVISION
INVESTS IN: Franklin Income Securities Portfolio
INVESTMENT ADVISOR: Franklin Templeton Investments
INVESTMENT OBJECTIVE: Seeks to maximize income, while maintaining
prospects for capital appreciation. The portfolio invests in
debit and equity securities, including lower-rated "junk bonds."
May also invest in foreign securities, including emerging
markets.
FRANKLIN MUTUAL DISCOVERY DIVISION
INVESTS IN: Franklin Mutual Discovery Portfolio
INVESTMENT ADVISOR: Franklin Templeton Investments
INVESTMENT OBJECTIVE: seeks long-term capital appreciation. The
Fund invests primarily in common stocks of U.S. and foreign
companies the manager believes are undervalued.
FRANKLIN MUTUAL SHARES DIVISION
INVESTS IN: Franklin Mutual Shares Portfolio
INVESTMENT ADVISOR: Franklin Templeton Investments
INVESTMENT OBJECTIVE: seeks capital appreciation with income as a
secondary goal by emphasizing investments in equity securities
of larger and medium-sized companies
FRANKLIN RISING DIVIDENDS DIVISION
INVESTS IN: Franklin Rising Dividends Portfolio
INVESTMENT ADVISOR: Franklin Templeton Investments
INVESTMENT OBJECTIVE: seeks long-term capital appreciation by
investing primarily in financially sound companies that have
paid rising dividends.
FRANKLIN SMALL CAP VALUE SECURITIES DIVISION
INVESTS IN: Franklin Small Cap Value Securities Portfolio
INVESTMENT ADVISOR: Franklin Templeton Investments
INVESTMENT OBJECTIVE: Seeks long term total return. The portfolio
invests primarily in securities of companies which the manager
believes are selling substantially below the underlying value of
the assets or private market value.
INVESCO VIF - CORE EQUITY DIVISION
INVESTS IN: INVESCO VIF - Core Equity Fund
INVESTMENT ADVISOR: INVESCO Funds Group
INVESTMENT OBJECTIVE: seeks high current income, with a secondary
goal of long-term capital growth. The Fund invests in a mix of
equity securities and debt securities.
INVESCO VIF - DYNAMICS DIVISION
INVESTS IN: INVESCO VIF - Dynamics Fund
INVESTMENT ADVISOR: INVESCO Funds Group
INVESTMENT OBJECTIVE: seeks long-term capital growth by investing
primarily in equity securities.
INVESCO VIF - HEALTH SCIENCES DIVISION
INVESTS IN: INVESCO VIF - Health Sciences Fund
INVESTMENT ADVISOR: INVESCO Funds Group
INVESTMENT OBJECTIVE: seeks long-term capital growth. The Fund
invests primarily in equity securities.
INVESCO VIF - SMALL COMPANY GROWTH DIVISION
INVESTS IN: INVESCO VIF - Small Company Growth Fund
INVESTMENT ADVISOR: INVESCO Funds Group
INVESTMENT OBJECTIVE: seeks long-term capital growth by investing
primarily in small-capitalization companies.
INVESCO VIF - TECHNOLOGY DIVISION
INVESTS IN: INVESCO VIF - Technology Fund
INVESTMENT ADVISOR: INVESCO Funds Group
INVESTMENT OBJECTIVE: seeks long-term capital growth by investing
primarily in equity securities and equity related instruments of
companies engaged in technology related industries.
JANUS ASPEN AGGRESSIVE GROWTH DIVISION
INVESTS IN: Janus Aspen Series Aggressive Growth Portfolio
INVESTMENT ADVISOR: Janus Capital Management LLC
INVESTMENT OBJECTIVE: seeks long-term growth of capital. It
pursues its objective by investing primarily in common stocks
selected for their growth potential, and normally invests at
least 50% of its equity assets in medium-sized companies.
JANUS ASPEN BALANCED DIVISION
INVESTS IN: Janus Aspen Series Balanced Portfolio
INVESTMENT ADVISOR: Janus Capital Management LLC
INVESTMENT OBJECTIVE: seeks long-term growth of capital,
consistent with preservation of capital and balanced by current
income.
JANUS ASPEN CORE EQUITY DIVISION
INVESTS IN: Janus Aspen Series Core Equity Portfolio
INVESTMENT ADVISOR: Janus Capital Management LLC
INVESTMENT OBJECTIVE: seeks long-term growth of capital by
normally investing at least 80% of its assets in equity
securities selected for their growth potential.
JANUS ASPEN FLEXIBLE INCOME DIVISION
INVESTS IN: Janus Aspen Series Flexible Income Portfolio
INVESTMENT ADVISOR: Janus Capital Management LLC
INVESTMENT OBJECTIVE: seeks to obtain maximum total return,
consistent with preservation of capital by primarily investing
in a wide variety of income producing securities such as
corporate bonds and notes, government securities and preferred
stock.
JANUS ASPEN INTERNATIONAL GROWTH DIVISION
INVESTS IN: Janus Aspen Series International Growth Portfolio
INVESTMENT ADVISOR: Janus Capital Management LLC
INVESTMENT OBJECTIVE: seeks long-term growth of capital by
investing at least 65% of total assets in securities of issuers
from at least five different countries, excluding the United
States.
JANUS ASPEN STRATEGIC VALUE DIVISION
INVESTS IN: Janus Aspen Series Strategic Value Portfolio
INVESTMENT ADVISOR: Janus Capital Management LLC
INVESTMENT OBJECTIVE: seeks long-term growth of capital by
investing primarily in common stocks with the potential for
long-term growth of capital using a "value" approach.
JANUS ASPEN WORLDWIDE GROWTH DIVISION
INVESTS IN: Janus Aspen Series Worldwide Growth Portfolio
INVESTMENT ADVISOR: Janus Capital Management LLC
INVESTMENT OBJECTIVE: seeks long-term growth of capital in a
manner consistent with the preservation of capital by investing
primarily in common stocks of companies of any size throughout
the world.
JP MORGAN BOND DIVISION
INVESTS IN: JP Morgan Bond
INVESTMENT ADVISOR: JP Morgan Fleming Asset Management
INVESTMENT OBJECTIVE: seeks to provide a steady stream of current
income and to maintain liquidity.
JP MORGAN SMALLCAP DIVISION
INVESTS IN: JP Morgan Small Company
INVESTMENT ADVISOR: JP Morgan Fleming Asset Management
INVESTMENT OBJECTIVE: seeks long-term growth of capital from small
company stocks
MFS VIT EMERGING GROWTH DIVISION
INVESTS IN: MFS VIT Emerging Growth
INVESTMENT ADVISOR: Massachusetts Financial Services Company
INVESTMENT OBJECTIVE: seeks emerging growth companies for
long-term growth of capital.
MFS VIT MIDCAP GROWTH DIVISION
INVESTS IN: MFS VIT MidCap Growth
INVESTMENT ADVISOR: Massachusetts Financial Services Company
INVESTMENT OBJECTIVE: seeks long-term growth of capital from
mid-capitalization company stocks.
MFS VIT NEW DISCOVERY DIVISION
INVESTS IN: MFS VIT New Discovery
INVESTMENT ADVISOR: Massachusetts Financial Services Company
INVESTMENT OBJECTIVE: seeks long-term growth potential from small
company stocks.
MFS VIT VALUE DIVISION
INVESTS IN: MFS VIT Value
INVESTMENT ADVISOR: Massachusetts Financial Services Company
INVESTMENT OBJECTIVE: seeks undervalued income producing stocks
with capital appreciation potential.
NEUBERGER BERMAN AMT GUARDIAN DIVISION
INVESTS IN: Neuberger Berman AMT Guardian
INVESTMENT ADVISOR: Neuberger Berman Management Inc.
INVESTMENT OBJECTIVE: seeks long-term growth of capital and,
secondarily, current income by primarily investing in stocks of
long-established companies considered to be undervalued in
comparison to stocks of similar companies.
BOND DIVISION
INVESTS IN: Principal Variable Contracts Fund - Bond Account
INVESTMENT ADVISOR: Principal Management Corporation
INVESTMENT OBJECTIVE: to provide as high a level of income as is
consistent with preservation of capital and prudent investment
risk.
CAPITAL VALUE DIVISION
INVESTS IN: Principal Variable Contracts Fund - Capital Value
Account
INVESTMENT ADVISOR: Invista Capital Management, LLC through a
sub-advisory agreement
INVESTMENT OBJECTIVE: to provide long-term capital appreciation
and secondarily growth 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.
EQUITY GROWTH DIVISION
INVESTS IN: Principal Variable Contracts Fund - Equity Growth
Account
INVESTMENT ADVISOR: Morgan Stanley Asset Management through a
sub-advisory agreement
INVESTMENT OBJECTIVE: to provide long-term capital appreciation by
investing primarily in growth-oriented common stocks of medium
and large capitalization U.S. corporations and, to a limited
extent, foreign corporations.
GOVERNMENT SECURITIES DIVISION
INVESTS IN: Principal Variable Contracts Fund - Government
Securities Account
INVESTMENT ADVISOR: Principal Capital Income Investors, LLC
through a sub-advisory agreement
INVESTMENT OBJECTIVE: to seek a high level of current income,
liquidity and safety of principal.
GROWTH DIVISION
INVESTS IN: Principal Variable Contracts Fund - Growth Account
INVESTMENT ADVISOR: Invista Capital Management, LLC through a
sub-advisory agreement
INVESTMENT OBJECTIVE: to seek growth of capital. The Account seeks
to achieve its objective through the purchase primarily of
common stocks, but the Account may invest in other securities.
INTERNATIONAL DIVISION
INVESTS IN: Principal Variable Contracts Fund - International
Account
INVESTMENT ADVISOR: Invista Capital Management, LLC through a
sub-advisory agreement
INVESTMENT OBJECTIVE: to seek long-term growth of capital by
investing in a portfolio of equity securities domiciled in any
of the nations of the world.
INTERNATIONAL SMALLCAP DIVISION
INVESTS IN: Principal Variable Contracts Fund - International
SmallCap Account
INVESTMENT ADVISOR: Invista Capital Management, LLC through a
sub-advisory agreement
INVESTMENT OBJECTIVE: to seek long-term growth of capital. The
Account will attempt to achieve its objective by investing
primarily in equity securities of non-U.S. companies with
comparatively smaller market capitalizations.
LARGECAP BLEND DIVISION
INVESTS IN: Principal Variable Contracts Fund - LargeCap Blend
Account
INVESTMENT ADVISOR: Federated Investment Management Company
through a sub-advisory agreement
INVESTMENT OBJECTIVE: seeks long-term growth of capital.
LARGECAP GROWTH DIVISION
INVESTS IN: Principal Variable Contracts Fund - LargeCap Growth
Account
INVESTMENT ADVISOR: Janus Capital Management LLC through a
sub-advisory agreement
INVESTMENT OBJECTIVE: seeks long-term growth of capital by
investing primarily in equity securities of growth companies.
LARGECAP VALUE DIVISION
INVESTS IN: Principal Variable Contracts Fund - LargeCap Value
Account
INVESTMENT ADVISOR: Alliance Capital Management LP through its
Bernstein Investment Research and Management unit through a
sub-advisory agreement
INVESTMENT OBJECTIVE: to seek long-term growth of capital.
MIDCAP DIVISION
INVESTS IN: Principal Variable Contracts Fund - MidCap Account
INVESTMENT ADVISOR: Invista Capital Management, LLC through a
sub-advisory agreement
INVESTMENT OBJECTIVE: to achieve capital appreciation by investing
primarily in securities of emerging and other growth-oriented
companies.
MIDCAP GROWTH DIVISION
INVESTS IN: Principal Variable Contracts Fund - MidCap Growth
Account
INVESTMENT ADVISOR: The Dreyfus Corporation through a sub-advisory
agreement
INVESTMENT OBJECTIVE: to seek long-term growth of capital. The
Account will attempt to achieve its objective by investing
primarily in growth stocks of medium market capitalization
companies.
MIDCAP GROWTH EQUITY DIVISION
INVESTS IN: Principal Variable Contracts Fund - MidCap Growth
Equity Account
INVESTMENT ADVISOR: Turner Investment Partners, Inc. through a
sub-advisory agreement
INVESTMENT OBJECTIVE: seeks to achieve long-term growth of capital
by investing primarily in medium capitalization U.S. companies
with strong earnings growth potential.
MIDCAP VALUE DIVISION
INVESTS IN: Principal Variable Contracts Fund - MidCap Value
Account
INVESTMENT ADVISOR: Neuberger Berman Management, Inc. through a
sub-advisory agreement.
INVESTMENT OBJECTIVE: seeks long-term growth of capital by
investing primarily in equity securities of companies with value
characteristics and medium market capitalizations.
MONEY MARKET DIVISION
INVESTS IN: Principal Variable Contracts Fund - Money Market
Account
INVESTMENT ADVISOR: Principal Management Corporation
INVESTMENT OBJECTIVE: 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 DIVISION
INVESTS IN: Principal Variable Contracts Fund - Real Estate
Account
INVESTMENT ADVISOR: Principal Management Corporation
INVESTMENT OBJECTIVE: to seek 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 DIVISION
INVESTS IN: Principal Variable Contracts Fund - SmallCap Account
INVESTMENT ADVISOR: Invista Capital Management, LLC through a
sub-advisory agreement
INVESTMENT OBJECTIVE: to seek long-term growth of capital. The
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 DIVISION
INVESTS IN: Principal Variable Contracts Fund - SmallCap Growth
Account
INVESTMENT ADVISOR: Berger Financial Group LLC through a
sub-advisory agreement
INVESTMENT OBJECTIVE: to seek long-term growth of capital. The
Account will attempt to achieve its objective by investing
primarily in equity securities of growth companies with
comparatively smaller market capitalizations.
SMALLCAP VALUE DIVISION
INVESTS IN: Principal Variable Contracts Fund - SmallCap Value
Account
INVESTMENT ADVISOR: J.P. Morgan Investment Management, Inc.
through a sub-advisory agreement
INVESTMENT OBJECTIVE: to seek long-term growth of capital by
investing primarily in equity securities of small companies with
value characteristics and comparatively smaller market
capitalizations.
PUTNAM VT GROWTH & INCOME DIVISION
INVESTS IN: Putnam VT Growth & Income Fund
INVESTMENT ADVISOR: Putnam Investment Management, Inc.
INVESTMENT OBJECTIVE: seeks capital growth and current income by
investing mainly in common stocks of U.S. companies.
PUTNAM VT INTERNATIONAL GROWTH DIVISION
INVESTS IN: Putnam VT International Growth Fund
INVESTMENT ADVISOR: Putnam Investment Management, Inc.
INVESTMENT OBJECTIVE: seeks capital appreciation by investing
mainly in common stocks of companies outside the U.S.
PUTNAM VT VOYAGER DIVISION
INVESTS IN: Putnam VT Voyager Fund
INVESTMENT ADVISOR: Putnam Investment Management, Inc.
INVESTMENT OBJECTIVE: seeks capital appreciation by investing
primarily in common stocks of U.S. companies.
VANGUARD VIF BALANCED DIVISION
INVESTS IN: Vanguard VIF Balanced Portfolio
INVESTMENT ADVISOR: Wellington Management Company
INVESTMENT OBJECTIVE: seeks a reasonable level of income with
conservation of capital. The Portfolio invests primarily in
common stocks of large and medium size companies.
VANGUARD VIF EQUITY INDEX DIVISION
INVESTS IN: Vanguard VIF Equity Index Portfolio
INVESTMENT ADVISOR: Vanguard Quantitative Equity Group
INVESTMENT OBJECTIVE: seeks long-term growth of capital and income
to match the performance of a broad-based market index of stocks
of large U.S. companies.
VANGUARD VIF MIDCAP INDEX DIVISION
INVESTS IN: Vanguard VIF MidCap Index Portfolio
INVESTMENT ADVISOR: Vanguard Quantitative Equity Group
INVESTMENT OBJECTIVE: seeks long-term growth of capital by
attempting to match the performance of a broad-based market
index of medium size U.S. Companies.
WELLS FARGO VT ASSET ALLOCATION DIVISION
INVESTS IN: Wells Fargo VT Asset Allocation Fund
INVESTMENT ADVISOR: Wells Capital Management Incorporated through
a sub-advisory agreement
INVESTMENT OBJECTIVE: seeks to earn long-term total return
consistent with reasonable risk. The Fund invests in equity and
fixed-income securities in varying proportions, with an emphasis
on equity securities.
WELLS FARGO VT EQUITY INCOME DIVISION
INVESTS IN: Wells Fargo VT Equity Income Fund
INVESTMENT ADVISOR: Wells Capital Management Incorporated through
a sub-advisory agreement
INVESTMENT OBJECTIVE: seeks to provide long-term capital
appreciation and above average dividend income. The Fund invests
in common stocks of large U.S. companies.
WELLS FARGO VT LARGE COMPANY GROWTH DIVISION
INVESTS IN: Wells Fargo VT Large Company Growth Fund
INVESTMENT ADVISOR: Peregrine Capital Management, Inc. through a
sub-advisory agreement
INVESTMENT OBJECTIVE: seeks to provide long-term capital
appreciation. The Fund invests in common stocks of large U.S.
companies.
APPENDIX B - ILLUSTRATIONS
Illustration 1 PRINCIPAL LIFE INSURANCE COMPANY
EXECUTIVE VARIABLE UNIVERSAL LIFE
PLANNED PREMIUM $20,000 MALE AGE 45 PREFERRED NON-SMOKER Initial Face Amount $1,000,000
ASSUMING CURRENT CHARGES Death Benefit Option 1
(All States)
- ------------------------------------------------------------------------------------------------------------------
Death Benefit (2)
Assuming Hypothetical Gross
Annual Investment Return of
---------------------------------------------------------------------
End of Accumulated 0% 6% 12%
Year Premiums (1) (-.99% Net) (5.01% Net) (11.01% Net)
- -------------- ----------------- ------------------ ----------------- -----------------
1 21,000 1,000,000 1,000,000 1,000,000
2 43,050 1,000,000 1,000,000 1,000,000
3 66,203 1,000,000 1,000,000 1,000,000
4 90,513 1,000,000 1,000,000 1,000,000
5 116,038 1,000,000 1,000,000 1,000,000
6 142,840 1,000,000 1,000,000 1,000,000
7 170,982 1,000,000 1,000,000 1,000,000
8 200,531 1,000,000 1,000,000 1,000,000
9 231,558 1,000,000 1,000,000 1,000,000
10 264,136 1,000,000 1,000,000 1,000,000
11 298,343 1,000,000 1,000,000 1,000,000
12 334,260 1,000,000 1,000,000 1,000,000
13 371,973 1,000,000 1,000,000 1,000,000
14 411,571 1,000,000 1,000,000 1,000,000
15 453,150 1,000,000 1,000,000 1,000,000
20 694,385 1,000,000 1,000,000 1,359,488
25 1,002,269 1,000,000 1,000,000 2,274,815
30 1,395,216 1,000,000 1,118,145 3,594,114
- ----------------------------------------------------------------------------------------------------------------------------
Policy Value (2)
Assuming Hypothetical Gross
Annual Investment Return of
-------------------------------------------------------------------------
End of Accumulated 0% 6% 12%
Year Premiums (1) (-.99% Net) (5.01% Net) (11.01% Net)
- -------------- ----------------- -------------- --------------- ------------------
1 21,000 17,043 18,099 19,156
2 43,050 33,501 36,670 39,968
3 66,203 49,355 55,712 62,591
4 90,513 64,728 75,367 87,345
5 116,038 79,672 95,714 114,515
6 142,840 94,143 116,735 144,310
7 170,982 108,254 138,581 177,142
8 200,531 121,989 161,276 213,329
9 231,558 135,318 184,831 253,218
10 264,136 148,202 209,254 297,191
11 298,343 160,690 234,723 345,970
12 334,260 172,570 261,033 399,779
13 371,973 183,739 288,150 459,162
14 411,571 196,906 318,542 526,630
15 453,150 209,652 350,204 601,347
20 694,385 266,105 529,684 1,114,334
25 1,002,269 310,170 755,008 1,961,048
30 1,395,216 337,986 1,044,996 3,358,985
- --------------------------------------------------------------------------------------------------------------------------
Surrender Value (2)
Assuming Hypothetical Gross
Annual Investment Return of
--------------------------------------------------------------------
End of Accumulated 0% 6% 12%
Year Premiums (1) (-.99% Net) (5.01% Net) (11.01% Net)
- -------------- ----------------- --------------- --------------- ------------------
1 21,000 6,311 7,367 8,423
2 43,050 22,768 25,938 29,235
3 66,203 38,623 44,980 51,858
4 90,513 54,711 65,350 77,328
5 116,038 71,086 87,128 105,929
6 142,840 86,988 109,580 137,155
7 170,982 102,530 132,857 171,418
8 200,531 117,696 156,983 209,036
9 231,558 132,456 181,969 250,356
10 264,136 146,771 207,823 295,760
11 298,343 160,690 234,723 345,970
12 334,260 172,570 261,033 399,779
13 371,973 183,739 288,150 459,162
14 411,571 196,906 318,542 526,630
15 453,150 209,652 350,204 601,347
20 694,385 266,105 529,684 1,114,334
25 1,002,269 310,170 755,008 1,961,048
30 1,395,216 337,986 1,044,996 3,358,985
(1) Assumes net interest of 5% compounded annually.
(2) Assumes no policy loans have been made.
The death benefit, policy 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, policy 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, policy 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.
Illustration 3 PRINCIPAL LIFE INSURANCE COMPANY
EXECUTIVE VARIABLE UNIVERSAL LIFE
PLANNED PREMIUM $20,000 MALE AGE 45 PREFERRED NON-SMOKER Initial Face Amount $1,000,000
ASSUMING CURRENT CHARGES Death Benefit Option 2
(All States)
- -----------------------------------------------------------------------------------------------------------------
Death Benefit (2)
Assuming Hypothetical Gross
Annual Investment Return of
---------------------------------------------------------------------
End of Accumulated 0% 6% 12%
Year Premiums (1) (-.99% Net) (5.01% Net) (11.01% Net)
- -------------- ----------------- ------------------ ----------------- -----------------
1 21,000 1,017,029 1,018,084 1,019,139
2 43,050 1,033,445 1,036,609 1,039,901
3 66,203 1,049,219 1,055,556 1,062,413
4 90,513 1,064,467 1,075,056 1,086,978
5 116,038 1,079,236 1,095,175 1,113,855
6 142,840 1,093,480 1,115,883 1,143,224
7 170,982 1,107,308 1,137,318 1,175,465
8 200,531 1,120,697 1,159,481 1,210,850
9 231,558 1,133,604 1,182,355 1,249,659
10 264,136 1,145,976 1,205,911 1,292,189
11 298,343 1,157,830 1,230,258 1,339,016
12 334,260 1,168,927 1,255,125 1,390,016
13 371,973 1,179,129 1,280,383 1,446,049
14 411,571 1,191,794 1,309,505 1,510,622
15 453,150 1,203,930 1,339,617 1,581,701
20 694,385 1,255,033 1,504,607 2,059,378
25 1,002,269 1,288,648 1,695,722 2,833,850
30 1,395,216 1,297,829 1,910,446 4,090,690
- ---------------------------------------------------------------------------------------------------------------------
Policy Value (2)
Assuming Hypothetical Gross
Annual Investment Return of
-------------------------------------------------------------------------
End of Accumulated 0% 6% 12%
Year Premiums (1) (-.99% Net) (5.01% Net) (11.01% Net)
- -------------- ----------------- -------------- --------------- ------------------
1 21,000 17,029 18,084 19,139
2 43,050 33,445 36,609 39,901
3 66,203 49,219 55,556 62,416
4 90,513 64,467 75,056 86,978
5 116,038 79,236 95,175 113,855
6 142,840 93,480 115,883 143,224
7 170,982 107,308 137,318 175,465
8 200,531 120,697 159,481 210,850
9 231,558 133,604 182,355 249,659
10 264,136 145,976 205,911 292,189
11 298,343 157,830 230,258 339,016
12 334,260 168,927 255,125 390,200
13 371,973 179,129 280,383 446,049
14 411,571 191,794 309,505 510,622
15 453,150 203,930 339,617 581,701
20 694,385 255,033 504,607 1,059,378
25 1,002,269 288,648 695,722 1,833,850
30 1,395,216 297,829 910,446 3,090,690
- --------------------------------------------------------------------------------------------------------------
Surrender Value (2)
Assuming Hypothetical Gross
Annual Investment Return of
--------------------------------------------------------------------
End of Accumulated 0% 6% 12%
Year Premiums (1) (-.99% Net) (5.01% Net) (11.01% Net)
- -------------- ----------------- --------------- --------------- ------------------
1 21,000 6,296 7,351 8,407
2 43,050 22,713 25,877 29,168
3 66,203 38,486 44,824 51,681
4 90,513 54,450 65,039 76,961
5 116,038 70,650 86,589 105,269
6 142,840 86,325 108,728 136,069
7 170,982 101,584 131,594 169,741
8 200,531 116,404 15,518 206,557
9 231,558 130,742 179,493 246,797
10 264,136 144,545 204,480 290,758
11 298,343 157,830 230,258 339,016
12 334,260 168,927 255,125 390,200
13 371,973 179,129 280,383 446,049
14 411,571 191,794 309,505 510,622
15 453,150 203,930 339,617 581,701
20 694,385 255,033 504,607 1,059,378
25 1,002,269 288,648 695,722 1,833,850
30 1,395,216 297,829 910,446 3,090,690
(1) Assumes net interest of 5% compounded annually.
(2) Assumes no policy loans have been made.
The death benefit, policy 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, policy 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, policy 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.
Illustration 5 PRINCIPAL LIFE INSURANCE COMPANY
EXECUTIVE VARIABLE UNIVERSAL LIFE
PLANNED PREMIUM $20,000 MALE AGE 45 PREFERRED NON-SMOKER Initial Face Amount $1,000,000
ASSUMING CURRENT CHARGES Death Benefit Option 3
(All States)
- -----------------------------------------------------------------------------------------------------------------
Death Benefit (2)
Assuming Hypothetical Gross
Annual Investment Return of
---------------------------------------------------------------------
End of Accumulated 0% 6% 12%
Year Premiums (1) (-.99% Net) (5.01% Net) (11.01% Net)
- -------------- ----------------- ------------------ ----------------- -----------------
1 21,000 1,020,000 1,020,000 1,020,000
2 43,050 1,040,000 1,040,000 1,040,000
3 66,203 1,060,000 1,060,000 1,060,000
4 90,513 1,080,000 1,080,000 1,080,000
5 116,038 1,100,000 1,100,000 1,100,000
6 142,840 1,120,000 1,120,000 1,120,000
7 170,982 1,140,000 1,140,000 1,140,000
8 200,531 1,160,000 1,160,000 1,160,000
9 231,558 1,180,000 1,180,000 1,180,000
10 264,136 1,200,000 1,200,000 1,200,000
11 298,343 1,220,000 1,220,000 1,220,000
12 334,260 1,240,000 1,240,000 1,240,000
13 371,973 1,260,000 1,260,000 1,260,000
14 411,571 1,280,000 1,280,000 1,280,000
15 453,150 1,300,000 1,300,000 1,300,000
20 694,385 1,400,000 1,400,000 1,400,000
25 1,002,269 1,500,000 1,500,000 2,213,983
30 1,395,216 1,600,000 1,600,000 3,501,519
- ---------------------------------------------------------------------------------------------------------------
Policy Value (2)
Assuming Hypothetical Gross
Annual Investment Return of
-------------------------------------------------------------------------
End of Accumulated 0% 6% 12%
Year Premiums (1) (-.99% Net) (5.01% Net) (11.01% Net)
- -------------- ----------------- -------------- --------------- ------------------
1 21,000 17,027 18,082 19,138
2 43,050 33,437 36,603 39,897
3 66,203 49,195 55,541 62,409
4 90,513 64,416 75,029 86,981
5 116,038 79,145 95,133 113,878
6 142,840 93,330 115,826 143,294
7 170,982 107,079 137,245 175,620
8 200,531 120,364 159,396 211,149
9 231,558 133,136 182,265 250,188
10 264,136 145,331 205,827 293,073
11 298,343 156,952 230,199 340,443
12 334,260 167,742 255,117 392,441
13 371,973 177,537 280,466 449,495
14 411,571 189,978 309,661 515,060
15 453,150 201,836 339,889 587,483
20 694,385 250,209 506,802 1,082,792
25 1,002,269 277,160 705,015 1,908,606
30 1,395,216 270,574 940,569 3,272,448
- ----------------------------------------------------------------------------------------------------------------------
Surrender Value (2)
Assuming Hypothetical Gross
Annual Investment Return of
--------------------------------------------------------------------
End of Accumulated 0% 6% 12%
Year Premiums (1) (-.99% Net) (5.01% Net) (11.01% Net)
- -------------- ----------------- --------------- --------------- ------------------
1 21,000 6,294 7,350 8,406
2 43,050 22,704 25,871 29,165
3 66,203 38,462 44,809 51,677
4 90,513 54,399 65,012 76,964
5 116,038 70,559 86,547 105,292
6 142,840 86,175 108,671 136,139
7 170,982 101,355 131,521 169,896
8 200,531 116,071 155,103 206,856
9 231,558 130,274 179,403 247,326
10 264,136 143,900 204,396 291,642
11 298,343 156,952 230,199 340,443
12 334,260 167,742 255,117 392,441
13 371,973 177,537 280,466 449,495
14 411,571 189,978 309,661 515,060
15 453,150 201,836 339,889 587,483
20 694,385 250,209 506,802 1,082,792
25 1,002,269 277,160 705,015 1,908,606
30 1,395,216 270,574 940,569 3,272,448
(1) Assumes net interest of 5% compounded annually.
(2) Assumes no policy loans have been made.
The death benefit, policy 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, policy 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, policy 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
Illustration 2 PRINCIPAL LIFE INSURANCE COMPANY
EXECUTIVE VARIABLE UNIVERSAL LIFE
PLANNED PREMIUM $20,000 MALE AGE 45 PREFERRED NON-SMOKER Initial Face Amount $1,000,000
ASSUMING GUARANTEED CHARGES Death Benefit Option 1
(All States)
- -------------------------------------------------------------------------------------------------------
Death Benefit (2)
Assuming Hypothetical Gross
Annual Investment Return of
-------------------------------------------------------------
End of Accumulated 0% 6% 12%
Year Premiums (1) (-.99% Net) (5.01% Net) (11.01% Net)
- -------------- ----------------- ---------------- ----------------- ---------------
1 21,000 1,000,000 1,000,000 1,000,000
2 43,050 1,000,000 1,000,000 1,000,000
3 66,203 1,000,000 1,000,000 1,000,000
4 90,513 1,000,000 1,000,000 1,000,000
5 116,038 1,000,000 1,000,000 1,000,000
6 142,840 1,000,000 1,000,000 1,000,000
7 170,982 1,000,000 1,000,000 1,000,000
8 200,531 1,000,000 1,000,000 1,000,000
9 231,558 1,000,000 1,000,000 1,000,000
10 264,136 1,000,000 1,000,000 1,000,000
11 298,343 1,000,000 1,000,000 1,000,000
12 334,260 1,000,000 1,000,000 1,000,000
13 371,973 1,000,000 1,000,000 1,000,000
14 411,571 1,000,000 1,000,000 1,000,000
15 453,150 1,000,000 1,000,000 1,000,000
20 694,385 1,000,000 1,000,000 1,151,926
25 1,002,269 1,000,000 1,000,000 1,918,882
30 1,395,216 1,000,000 1,000,000 3,004,797
- --------------------------------------------------------------------------------------------------------------
Policy Value (2)
Assuming Hypothetical Gross
Annual Investment Return of
---------------------------------------------------------------------
End of Accumulated 0% 6% 12%
Year Premiums (1) (-.99% Net) (5.01% Net) (11.01% Net)
- -------------- ----------------- -------------- ---------------- ---------------
1 21,000 14,617 15,595 16,576
2 43,050 28,820 31,694 34,689
3 66,203 42,602 48,309 54,498
4 90,513 55,957 65,459 76,183
5 116,038 68,859 83,142 99,926
6 142,840 81,220 101,291 125,860
7 170,982 93,075 119,970 154,279
8 200,531 104,377 139,162 185,428
9 231,558 115,090 158,860 219,595
10 264,136 125,152 179,040 257,091
11 298,343 134,658 199,897 298,592
12 334,260 143,430 221,257 344,311
13 371,973 151,443 243,144 394,783
14 411,571 158,655 265,573 450,616
15 453,150 164,983 288,531 512,489
20 694,385 179,694 410,952 944,202
25 1,002,269 151,564 546,536 1,654,208
30 1,395,216 42,678 703,418 2,808,222
- ----------------------------------------------------------------------------------------------------------------
Surrender Value (2)
Assuming Hypothetical Gross
Annual Investment Return of
------------------------------------------------------------------
End of Accumulated 0% 6% 12%
Year Premiums (1) (-.99% Net) (5.01% Net) (11.01% Net)
- -------------- ----------------- -------------- --------------- ---------------
1 21,000 3,885 4,863 5,843
2 43,050 18,088 20,961 23,956
3 66,203 31,870 37,577 43,766
4 90,513 45,940 55,442 66,166
5 116,038 60,273 74,556 91,340
6 142,840 74,065 94,136 118,705
7 170,982 87,351 114,246 148,555
8 200,531 100,084 134,869 181,135
9 231,558 112,228 155,998 216,733
10 264,136 123,721 177,609 255,660
11 298,343 134,658 199,897 298,592
12 334,260 143,430 221,257 344,311
13 371,973 151,443 243,144 394,783
14 411,571 158,655 265,573 450,616
15 453,150 164,983 288,531 512,489
20 694,385 179,694 410,952 944,202
25 1,002,269 151,564 546,536 1,654,208
30 1,395,216 42,678 703,418 2,808,222
(1) Assumes net interest of 5% compounded annually.
(2) Assumes no policy loans have been made.
The death benefit, policy 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, policy 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, policy 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.
Illustration 4 PRINCIPAL LIFE INSURANCE COMPANY
EXECUTIVE VARIABLE UNIVERSAL LIFE
PLANNED PREMIUM $20,000 MALE AGE 45 PREFERRED NON-SMOKER Initial Face Amount $1,000,000
ASSUMING GUARANTEED CHARGES Death Benefit Option 2
(All States)
- ---------------------------------------------------------------------------------------------------------
Death Benefit (2)
Assuming Hypothetical Gross
Annual Investment Return of
--------------------------------------------------------------
End of Accumulated 0% 6% 12%
Year Premiums (1) (-.99% Net) (5.01% Net) (11.01% Net)
- -------------- ----------------- ---------------- ----------------- ----------------
1 21,000 1,014,563 1,015,538 1,016,515
2 43,050 1,028,657 1,031,513 1,034,490
3 66,203 1,042,268 1,047,925 1,054,059
4 90,513 1,055,384 1,064,774 1,075,370
5 116,038 1,067,973 1,082,040 1,098,564
6 142,840 1,079,936 1,099,630 1,123,725
7 170,982 1,091,298 1,117,578 1,151,082
8 200,531 1,101,998 1,135,830 1,180,793
9 231,558 1,111,986 1,154,337 1,213,043
10 264,136 1,121,182 1,173,019 1,248,006
11 298,343 1,129,660 1,192,007 1,286,183
12 334,260 1,137,227 1,211,059 1,327,584
13 371,973 1,143,844 1,230,127 1,372,500
14 411,571 1,149,456 1,249,140 1,421,234
15 453,150 1,153,956 1,267,973 1,474,066
20 694,385 1,155,344 1,353,755 1,810,939
25 1,002,269 1,106,188 1,403,641 2,303,886
30 1,395,216 - 1,370,644 3,013,285
- ---------------------------------------------------------------------------------------------------------------
Policy Value (2)
Assuming Hypothetical Gross
Annual Investment Return of
---------------------------------------------------------------------
End of Accumulated 0% 6% 12%
Year Premiums (1) (-.99% Net) (5.01% Net) (11.01% Net)
- -------------- ----------------- -------------- ---------------- ---------------
1 21,000 14,563 15,538 16,515
2 43,050 28,657 31,513 34,490
3 66,203 42,268 47,925 54,059
4 90,513 55,384 64,774 75,370
5 116,038 67,973 82,040 98,564
6 142,840 79,936 99,630 123,725
7 170,982 91,298 117,578 151,082
8 200,531 101,998 135,830 180,793
9 231,558 111,986 154,337 213,043
10 264,136 121,182 173,019 248,006
11 298,343 129,660 192,007 286,183
12 334,260 137,227 211,059 327,584
13 371,973 143,844 230,127 372,500
14 411,571 149,456 249,140 421,234
15 453,150 153,956 267,973 474,066
20 694,385 155,344 353,755 810,939
25 1,002,269 106,188 403,641 1,303,886
30 1,395,216 - 370,644 2,013,285
- ---------------------------------------------------------------------------------------------------------------
Surrender Value (2)
Assuming Hypothetical Gross
Annual Investment Return of
------------------------------------------------------------------
End of Accumulated 0% 6% 12%
Year Premiums (1) (-.99% Net) (5.01% Net) (11.01% Net)
- -------------- ----------------- -------------- --------------- ---------------
1 21,000 3,830 4,805 2,782
2 43,050 17,924 20,781 23,757
3 66,203 31,536 37,193 43,327
4 90,513 45,367 54,757 65,353
5 116,038 59,387 73,454 89,978
6 142,840 72,781 92,475 116,570
7 170,982 85,574 111,854 145,358
8 200,531 97,705 131,537 176,500
9 231,558 109,124 151,475 210,181
10 264,136 119,751 171,588 246,575
11 298,343 129,660 192,007 286,183
12 334,260 137,227 211,059 327,584
13 371,973 143,844 230,127 372,500
14 411,571 149,456 249,140 421,234
15 453,150 153,956 267,973 474,066
20 694,385 155,344 353,755 810,939
25 1,002,269 106,188 403,641 1,303,886
30 1,395,216 - 370,644 2,013,285
(1) Assumes net interest of 5% compounded annually.
(2) Assumes no policy loans have been made.
The death benefit, policy 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, policy 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, policy 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.
Illustration 6 PRINCIPAL LIFE INSURANCE COMPANY
EXECUTIVE VARIABLE UNIVERSAL LIFE
PLANNED PREMIUM $20,000 MALE AGE 45 PREFERRED NON-SMOKER Initial Face Amount $1,000,000
ASSUMING GUARANTEED CHARGES Death Benefit Option 3
(All States)
- ---------------------------------------------------------------------------------------------------------
Death Benefit (2)
Assuming Hypothetical Gross
Annual Investment Return of
--------------------------------------------------------------
End of Accumulated 0% 6% 12%
Year Premiums (1) (-.99% Net) (5.01% Net) (11.01% Net)
- -------------- ----------------- ---------------- ----------------- ----------------
1 21,000 1,020,000 1,020,000 1,020,000
2 43,050 1,040,000 1,040,000 1,040,000
3 66,203 1,060,000 1,060,000 1,060,000
4 90,513 1,080,000 1,080,000 1,080,000
5 116,038 1,100,000 1,100,000 1,100,000
6 142,840 1,120,000 1,120,000 1,120,000
7 170,982 1,140,000 1,140,000 1,140,000
8 200,531 1,160,000 1,160,000 1,160,000
9 231,558 1,180,000 1,180,000 1,180,000
10 264,136 1,200,000 1,200,000 1,200,000
11 298,343 1,220,000 1,220,000 1,220,000
12 334,260 1,240,000 1,240,000 1,240,000
13 371,973 1,260,000 1,260,000 1,260,000
14 411,571 1,280,000 1,280,000 1,280,000
15 453,150 1,300,000 1,300,000 1,300,000
20 694,385 1,400,000 1,400,000 1,400,000
25 1,002,269 1,500,000 1,500,000 1,718,525
30 1,395,216 - 1,600,000 2,704,655
- --------------------------------------------------------------------------------------------------------------
Policy Value (2)
Assuming Hypothetical Gross
Annual Investment Return of
---------------------------------------------------------------------
End of Accumulated 0% 6% 12%
Year Premiums (1) (-.99% Net) (5.01% Net) (11.01% Net)
- -------------- ----------------- -------------- ---------------- ---------------
1 21,000 14,551 15,527 16,506
2 43,050 28,612 31,475 34,459
3 66,203 42,166 47,841 53,998
4 90,513 55,192 64,624 75,273
5 116,038 67,651 81,800 98,436
6 142,840 79,438 99,277 123,582
7 170,982 90,564 117,084 150,955
8 200,531 100,545 135,164 180,740
9 231,558 110,545 153,465 213,155
10 264,136 119,229 171,902 248,420
11 298,343 127,054 190,599 287,099
12 334,260 133,798 209,311 329,287
13 371,973 139,389 227,982 375,383
14 411,571 143,727 246,534 425,827
15 453,150 146,651 264,830 481,089
20 694,385 132,510 345,977 852,372
25 1,002,269 38,886 381,913 1,481,487
30 1,395,216 - 295,278 2,527,715
- ---------------------------------------------------------------------------------------------------------------
Surrender Value (2)
Assuming Hypothetical Gross
Annual Investment Return of
------------------------------------------------------------------
End of Accumulated 0% 6% 12%
Year Premiums (1) (-.99% Net) (5.01% Net) (11.01% Net)
- -------------- ----------------- -------------- --------------- ---------------
1 21,000 3,819 4,795 5,773
2 43,050 17,880 20,743 23,727
3 66,203 31,433 37,109 43,265
4 90,513 45,175 54,607 65,256
5 116,038 59,065 73,214 89,850
6 142,840 72,283 92,122 116,427
7 170,982 84,840 111,360 145,231
8 200,531 96,663 130,871 176,447
9 231,558 107,683 150,603 210,293
10 264,136 117,798 170,471 246,989
11 298,343 127,054 190,599 287,099
12 334,260 133,798 209,311 329,287
13 371,973 139,389 227,982 375,383
14 411,571 143,727 246,534 425,827
15 453,150 146,651 264,830 481,089
20 694,385 132,510 345,977 852,372
25 1,002,269 38,886 381,913 1,481,487
30 1,395,216 - 295,278 2,527,715
(1) Assumes net interest of 5% compounded annually.
(2) Assumes no policy loans have been made.
The death benefit, policy 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, policy 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, policy 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.
APPENDIX C - TARGET PREMIUM
TABLE 1:
STANDARD/PREFERRED
TARGET PREMIUMS
ANNUAL PER $1000 POLICY FACE AMOUNT
NONSMOKER AND SMOKER
AGE MALE FEMALE UNISEX AGE MALE FEMALE UNISEX
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 8.25 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
APPENDIX D - APPLICABLE PERCENTAGES (FOR LIFE INSURANCE DEFINITION TEST)
GUIDELINE PREMIUM/CASH VALUE CORRIDOR TEST
INSURED'S PERCENTAGE OF INSURED'S PERCENTAGE OF INSURED'S PERCENTAGE OF
ATTAINED AGE POLICY VALUE ATTAINED AGE POLICY VALUE ATTAINED AGE POLICY VALUE
20 250.00 47 203.00 74 107.00
21 250.00 48 197.00 75 105.00
22 250.00 49 191.00 76 105.00
23 250.00 50 185.00 77 105.00
24 250.00 51 178.00 78 105.00
25 250.00 52 171.00 79 105.00
26 250.00 53 164.00 80 105.00
27 250.00 54 157.00 81 105.00
28 250.00 55 150.00 82 105.00
29 250.00 56 146.00 83 105.00
30 250.00 57 142.00 84 105.00
31 250.00 58 138.00 85 105.00
32 250.00 59 134.00 86 105.00
33 250.00 60 130.00 87 105.00
34 250.00 61 128.00 88 105.00
35 250.00 62 126.00 89 105.00
36 250.00 63 124.00 90 105.00
37 250.00 64 122.00 91 104.00
38 250.00 65 120.00 92 103.00
39 250.00 66 119.00 93 102.00
40 250.00 67 118.00 94 101.00
41 243.00 68 117.00 95 101.00
42 236.00 69 116.00 96 101.00
43 229.00 70 115.00 97 101.00
44 222.00 71 113.00 98 101.00
45 215.00 72 111.00 99 101.00
46 209.00 73 109.00
CASH VALUE ACCUMULATION TEST (PERCENTAGE OF POLICY VALUE) - MALE
RISK PREFERRED OR
CLASS: STANDARD A B C D E F G H
ATTAINED AGE:
20 639.37% 534.87% 499.92% 471.57% 427.89% 395.39% 369.97% 349.40% 317.80%
21 621.01% 520.61% 487.03% 459.79% 417.81% 386.56% 362.12% 342.32% 311.91%
22 603.00% 506.56% 474.31% 448.14% 407.80% 377.76% 354.27% 335.24% 305.99%
23 585.25% 492.64% 461.66% 436.52% 397.78% 368.92% 346.35% 328.06% 299.94%
24 567.76% 478.82% 449.08% 424.94% 387.73% 360.02% 338.34% 320.77% 293.76%
25 550.50% 465.11% 436.55% 413.38% 377.66% 351.05% 330.24% 313.37% 287.43%
26 533.49% 451.50% 424.08% 401.84% 367.55% 342.01% 322.03% 305.84% 280.93%
27 516.76% 438.04% 411.72% 390.37% 357.45% 332.95% 313.77% 298.23% 274.33%
28 500.37% 424.80% 399.53% 379.03% 347.44% 323.92% 305.52% 290.61% 267.68%
29 484.35% 411.79% 387.54% 367.86% 337.55% 314.98% 297.32% 283.02% 261.02%
30 468.73% 399.07% 375.79% 356.91% 327.82% 306.16% 289.22% 275.50% 254.40%
31 453.53% 386.65% 364.31% 346.19% 318.27% 297.49% 281.25% 268.08% 247.85%
32 438.79% 374.58% 353.14% 335.74% 308.96% 289.03% 273.44% 260.82% 241.42%
33 424.48% 362.84% 342.26% 325.57% 299.87% 280.75% 265.81% 253.70% 235.10%
34 410.64% 351.47% 331.72% 315.71% 291.05% 272.71% 258.38% 246.77% 228.94%
35 397.25% 340.46% 321.50% 306.14% 282.49% 264.90% 251.15% 240.03% 222.94%
36 384.33% 329.81% 311.63% 296.88% 274.20% 257.33% 244.15% 233.49% 217.11%
37 371.86% 319.54% 302.08% 287.94% 266.18% 250.01% 237.38% 227.15% 211.47%
38 359.85% 309.63% 292.89% 279.32% 258.46% 242.95% 230.84% 221.05% 206.02%
39 348.28% 300.10% 284.04% 271.03% 251.02% 236.15% 224.55% 215.17% 200.77%
40 337.17% 290.93% 275.53% 263.05% 243.87% 229.62% 218.50% 209.51% 195.73%
41 326.48% 282.12% 267.35% 255.38% 237.00% 223.35% 212.70% 204.09% 190.90%
42 316.22% 273.67% 259.50% 248.03% 230.41% 217.33% 207.14% 198.89% 186.27%
43 306.36% 265.54% 251.96% 240.97% 224.08% 211.56% 201.79% 193.91% 181.83%
44 296.89% 257.74% 244.72% 234.19% 218.01% 206.02% 196.68% 189.13% 177.58%
45 287.78% 250.25% 237.77% 227.68% 212.19% 200.71% 191.76% 184.54% 173.50%
46 279.04% 243.05% 231.09% 221.43% 206.59% 195.61% 187.05% 180.15% 169.60%
47 270.63% 236.13% 224.68% 215.42% 201.22% 190.71% 182.53% 175.93% 165.85%
48 262.54% 229.48% 218.51% 209.64% 196.05% 186.00% 178.18% 171.87% 162.25%
49 254.76% 223.07% 212.57% 204.08% 191.08% 181.46% 173.99% 167.97% 158.78%
50 247.28% 216.92% 206.86% 198.73% 186.30% 177.11% 169.96% 164.22% 155.45%
51 240.08% 210.99% 201.36% 193.59% 181.69% 172.91% 166.09% 160.60% 152.24%
52 233.17% 205.31% 196.09% 188.65% 177.28% 168.89% 162.38% 157.14% 149.17%
53 226.54% 199.86% 191.04% 183.93% 173.06% 165.04% 158.83% 153.84% 146.24%
54 220.19% 194.64% 186.21% 179.41% 169.02% 161.37% 155.45% 150.69% 143.45%
55 214.12% 189.67% 181.60% 175.10% 165.18% 157.88% 152.23% 147.70% 140.81%
56 208.30% 184.91% 177.20% 170.99% 161.52% 154.56% 149.17% 144.85% 138.30%
57 202.74% 180.36% 172.99% 167.06% 158.03% 151.39% 146.26% 142.15% 135.93%
58 197.41% 176.01% 168.97% 163.31% 154.69% 148.37% 143.49% 139.58% 133.66%
59 192.30% 171.83% 165.11% 159.71% 151.50% 145.48% 140.83% 137.12% 131.50%
60 187.39% 167.83% 161.41% 156.26% 148.43% 142.70% 138.29% 134.76% 129.43%
61 182.68% 163.99% 157.87% 152.96% 145.50% 140.05% 135.86% 132.51% 127.46%
62 178.18% 160.32% 154.48% 149.80% 142.70% 137.52% 133.53% 130.35% 125.57%
63 173.87% 156.81% 151.24% 146.78% 140.03% 135.10% 131.32% 128.31% 123.78%
64 169.75% 153.47% 148.17% 143.92% 137.50% 132.82% 129.23% 126.38% 122.09%
65 165.83% 150.30% 145.24% 141.20% 135.10% 130.66% 127.26% 124.56% 120.51%
66 162.10% 147.29% 142.47% 138.63% 132.83% 128.62% 125.40% 122.85% 119.02%
67 158.55% 144.42% 139.84% 136.18% 130.68% 126.69% 123.65% 121.23% 117.62%
68 155.15% 141.69% 137.33% 133.86% 128.64% 124.86% 121.98% 119.70% 116.30%
69 151.90% 139.08% 134.93% 131.64% 126.68% 123.11% 120.39% 118.25% 115.05%
70 148.80% 136.58% 132.64% 129.51% 124.82% 121.44% 118.88% 116.85% 113.85%
71 145.83% 134.19% 130.45% 127.48% 123.04% 119.85% 117.43% 115.52% 112.70%
72 143.00% 131.93% 128.37% 125.56% 121.35% 118.33% 116.05% 114.26% 111.61%
73 140.33% 129.79% 126.41% 123.74% 119.76% 116.91% 114.76% 113.07% 110.58%
74 137.81% 127.78% 124.58% 122.05% 118.28% 115.59% 113.56% 111.97% 109.63%
75 135.45% 125.92% 122.88% 120.48% 116.91% 114.37% 112.46% 110.97% 108.77%
76 133.24% 124.18% 121.30% 119.03% 115.66% 113.26% 111.46% 110.05% 107.99%
77 131.17% 122.56% 119.83% 117.68% 114.50% 112.24% 110.54% 109.22% 107.28%
78 129.21% 121.05% 118.46% 116.43% 113.42% 111.29% 109.70% 108.45% 106.64%
79 127.36% 119.61% 117.16% 115.24% 112.41% 110.40% 108.90% 107.74% 106.04%
80 125.59% 118.24% 115.93% 114.11% 111.44% 109.56% 108.15% 107.06% 105.47%
81 123.91% 116.94% 114.75% 113.04% 110.52% 108.76% 107.44% 106.42% 104.93%
82 122.31% 115.71% 113.64% 112.02% 109.65% 107.99% 106.76% 105.80% 104.42%
83 120.81% 114.55% 112.60% 111.07% 108.83% 107.27% 106.11% 105.22% 103.93%
84 119.41% 113.48% 111.63% 110.19% 108.08% 106.61% 105.52% 104.69% 103.48%
85 118.11% 112.50% 110.75% 109.38% 107.39% 106.01% 104.99% 104.20% 103.07%
86 116.91% 111.61% 109.95% 108.65% 106.77% 105.47% 104.51% 103.77% 102.71%
87 115.79% 110.79% 109.21% 107.99% 106.21% 104.98% 104.08% 103.38% 102.39%
88 114.74% 110.03% 108.55% 107.39% 105.71% 104.55% 103.69% 103.04% 102.11%
89 113.74% 109.32% 107.93% 106.84% 105.25% 104.15% 103.34% 102.73% 101.97%
90 112.77% 108.65% 107.34% 106.32% 104.82% 103.78% 103.02% 102.44% 101.00%
91 111.80% 108.00% 106.78% 105.82% 104.42% 103.44% 102.72% 102.18% 101.00%
92 110.82% 107.34% 106.22% 105.33% 104.02% 103.11% 102.44% 101.97% 101.00%
93 109.79% 106.66% 105.64% 104.82% 103.62% 102.78% 102.16% 101.00% 101.00%
94 108.68% 105.91% 105.00% 104.27% 103.19% 102.42% 101.97% 101.00% 101.00%
95 107.47% 105.07% 104.28% 103.64% 102.69% 102.01% 101.00% 101.00% 101.00%
96 106.16% 104.13% 103.48% 102.92% 102.13% 101.97% 101.00% 101.00% 101.00%
97 104.76% 103.10% 102.60% 102.13% 101.97% 101.00% 101.00% 101.00% 101.00%
98 103.33% 102.02% 101.97% 101.97% 101.00% 101.00% 101.00% 101.00% 101.00%
99 101.97% 101.97% 101.00% 101.00% 101.00% 101.00% 101.00% 101.00% 101.00%
100+ 101.00% 101.00% 101.00% 101.00% 101.00% 101.00% 101.00% 101.00% 101.00%
CASH VALUE ACCUMULATION TEST (PERCENTAGE OF POLICY VALUE) - FEMALE
RISK PREFERRED OR
CLASS: STANDARD A B C D E F G H
ATTAINED AGE:
20 762.99% 637.79% 595.38% 560.82% 507.35% 467.43% 436.19% 410.90% 372.11%
21 738.68% 618.38% 577.63% 544.40% 492.99% 454.60% 424.55% 400.21% 362.87%
22 715.05% 599.48% 560.31% 528.38% 478.96% 442.04% 413.13% 389.71% 353.78%
23 692.09% 581.06% 543.43% 512.74% 465.23% 429.74% 401.94% 379.41% 344.84%
24 669.78% 563.13% 526.97% 497.48% 451.82% 417.70% 390.96% 369.30% 336.05%
25 648.14% 545.70% 510.96% 482.63% 438.74% 405.94% 380.24% 359.41% 327.43%
26 627.11% 528.72% 495.35% 468.13% 425.96% 394.44% 369.73% 349.71% 318.95%
27 606.71% 512.22% 480.16% 454.01% 413.50% 383.20% 359.46% 340.21% 310.64%
28 586.92% 496.17% 465.39% 440.27% 401.34% 372.24% 349.42% 330.92% 302.49%
29 567.76% 480.61% 451.04% 426.91% 389.52% 361.56% 339.63% 321.85% 294.53%
30 549.18% 465.50% 437.10% 413.93% 378.02% 351.15% 330.08% 313.00% 286.74%
31 531.21% 450.86% 423.59% 401.33% 366.84% 341.03% 320.79% 304.38% 279.15%
32 513.81% 436.66% 410.48% 389.10% 355.98% 331.19% 311.75% 295.98% 271.74%
33 496.96% 422.89% 397.75% 377.23% 345.42% 321.61% 302.94% 287.79% 264.51%
34 480.65% 409.53% 385.39% 365.69% 335.14% 312.28% 294.35% 279.80% 257.43%
35 464.89% 396.62% 373.45% 354.53% 325.20% 303.25% 286.03% 272.05% 250.57%
36 449.66% 384.12% 361.87% 343.71% 315.55% 294.48% 277.94% 264.52% 243.89%
37 434.98% 372.07% 350.72% 333.29% 306.25% 286.02% 270.14% 257.26% 237.45%
38 420.85% 360.48% 339.98% 323.25% 297.30% 277.88% 262.63% 250.26% 231.25%
39 407.27% 349.33% 329.66% 313.60% 288.70% 270.06% 255.43% 243.55% 225.29%
40 394.23% 338.64% 319.77% 304.36% 280.46% 262.57% 248.53% 237.14% 219.61%
41 381.72% 328.39% 310.29% 295.51% 272.58% 255.41% 241.94% 231.01% 214.19%
42 369.72% 318.57% 301.21% 287.03% 265.04% 248.58% 235.65% 225.16% 209.03%
43 358.21% 309.16% 292.51% 278.91% 257.83% 242.04% 229.64% 219.58% 204.11%
44 347.14% 300.11% 284.14% 271.11% 250.90% 235.76% 223.88% 214.23% 199.39%
45 336.48% 291.40% 276.10% 263.61% 244.23% 229.72% 218.33% 209.09% 194.87%
46 326.22% 283.02% 268.35% 256.38% 237.82% 223.92% 213.00% 204.14% 190.52%
47 316.33% 274.93% 260.88% 249.41% 231.63% 218.31% 207.86% 199.38% 186.32%
48 306.78% 267.12% 253.67% 242.69% 225.66% 212.91% 202.90% 194.77% 182.27%
49 297.58% 259.60% 246.71% 236.20% 219.90% 207.69% 198.11% 190.33% 178.37%
50 288.71% 252.34% 240.01% 229.94% 214.34% 202.66% 193.49% 186.05% 174.61%
51 280.16% 245.35% 233.54% 223.92% 208.99% 197.82% 189.05% 181.93% 170.99%
52 271.93% 238.60% 227.31% 218.10% 203.83% 193.15% 184.77% 177.97% 167.51%
53 263.99% 232.11% 221.31% 212.50% 198.86% 188.65% 180.65% 174.15% 164.16%
54 256.36% 225.87% 215.54% 207.13% 194.09% 184.34% 176.70% 170.49% 160.96%
55 249.00% 219.85% 209.99% 201.95% 189.50% 180.20% 172.90% 166.98% 157.89%
56 241.92% 214.06% 204.64% 196.96% 185.08% 176.20% 169.25% 163.61% 154.94%
57 235.07% 208.46% 199.46% 192.14% 180.81% 172.34% 165.71% 160.34% 152.09%
58 228.45% 203.02% 194.44% 187.45% 176.65% 168.59% 162.27% 157.16% 149.31%
59 222.01% 197.74% 189.55% 182.88% 172.59% 164.91% 158.90% 154.04% 146.57%
60 215.77% 192.59% 184.78% 178.43% 168.62% 161.31% 155.60% 150.97% 143.88%
61 209.70% 187.58% 180.14% 174.08% 164.75% 157.79% 152.36% 147.96% 141.23%
62 203.84% 182.74% 175.64% 169.87% 160.98% 154.37% 149.21% 145.03% 138.65%
63 198.20% 178.06% 171.30% 165.81% 157.36% 151.07% 146.17% 142.21% 136.15%
64 192.79% 173.59% 167.16% 161.93% 153.90% 147.93% 143.27% 139.52% 133.78%
65 187.61% 169.33% 163.20% 158.24% 150.60% 144.94% 140.53% 136.98% 131.55%
66 182.67% 165.26% 159.43% 154.72% 147.47% 142.11% 137.93% 134.57% 129.45%
67 177.93% 161.37% 155.83% 151.36% 144.49% 139.41% 135.46% 132.29% 127.45%
68 173.38% 157.62% 152.37% 148.12% 141.62% 136.82% 133.09% 130.10% 125.55%
69 168.99% 154.01% 149.02% 145.00% 138.84% 134.30% 130.79% 127.97% 123.69%
70 164.74% 150.50% 145.77% 141.96% 136.14% 131.86% 128.55% 125.89% 121.87%
71 160.64% 147.11% 142.63% 139.02% 133.52% 129.48% 126.36% 123.87% 120.10%
72 156.70% 143.86% 139.61% 136.20% 131.00% 127.19% 124.26% 121.91% 118.38%
73 152.93% 140.75% 136.73% 133.50% 128.60% 125.01% 122.25% 120.05% 116.74%
74 149.37% 137.82% 134.02% 130.96% 126.34% 122.96% 120.37% 118.31% 115.21%
75 146.01% 135.06% 131.47% 128.59% 124.23% 121.05% 118.62% 116.69% 113.80%
76 142.84% 132.48% 129.09% 126.37% 122.27% 119.29% 117.01% 115.21% 112.51%
77 139.87% 130.07% 126.87% 124.31% 120.45% 117.66% 115.53% 113.84% 111.33%
78 137.06% 127.80% 124.78% 122.38% 118.76% 116.14% 114.15% 112.58% 110.24%
79 134.40% 125.66% 122.82% 120.56% 117.16% 114.72% 112.86% 111.40% 109.23%
80 131.87% 123.63% 120.96% 118.84% 115.66% 113.38% 111.65% 110.29% 108.28%
81 129.49% 121.72% 119.21% 117.22% 114.24% 112.11% 110.51% 109.24% 107.38%
82 127.23% 119.92% 117.56% 115.69% 112.91% 110.93% 109.43% 108.26% 106.54%
83 125.12% 118.24% 116.03% 114.28% 111.67% 109.82% 108.44% 107.35% 105.76%
84 123.16% 116.70% 114.62% 112.98% 110.54% 108.82% 107.53% 106.53% 105.06%
85 121.34% 115.28% 113.33% 111.79% 109.52% 107.91% 106.71% 105.78% 104.42%
86 119.66% 113.98% 112.15% 110.72% 108.59% 107.09% 105.98% 105.11% 103.86%
87 118.10% 112.79% 111.08% 109.74% 107.75% 106.36% 105.32% 104.52% 103.36%
88 116.64% 111.69% 110.10% 108.85% 107.00% 105.70% 104.73% 103.99% 102.91%
89 115.27% 110.68% 109.20% 108.03% 106.31% 105.10% 104.20% 103.51% 102.51%
90 113.97% 109.73% 108.36% 107.27% 105.67% 104.55% 103.72% 103.07% 102.16%
91 112.71% 108.83% 107.56% 106.56% 105.08% 104.04% 103.27% 102.68% 101.97%
92 111.48% 107.95% 106.80% 105.88% 104.52% 103.57% 102.85% 102.31% 101.00%
93 110.24% 107.08% 106.04% 105.21% 103.98% 103.11% 102.46% 101.97% 101.00%
94 108.97% 106.19% 105.27% 104.53% 103.43% 102.64% 102.06% 101.00% 101.00%
95 107.64% 105.23% 104.44% 103.80% 102.84% 102.16% 101.97% 101.00% 101.00%
96 106.24% 104.21% 103.56% 103.01% 102.21% 101.97% 101.00% 101.00% 101.00%
97 104.79% 103.13% 102.64% 102.17% 101.97% 101.00% 101.00% 101.00% 101.00%
98 103.34% 102.04% 101.97% 101.97% 101.00% 101.00% 101.00% 101.00% 101.00%
99 101.97% 101.97% 101.00% 101.00% 101.00% 101.00% 101.00% 101.00% 101.00%
100+ 101.00% 101.00% 101.00% 101.00% 101.00% 101.00% 101.00% 101.00% 101.00%
CASH VALUE ACCUMULATION TEST (PERCENTAGE OF POLICY VALUE) - UNISEX
PREFERRED OR
RISK CLASS: STANDARD A B C D E F G H
ATTAINED AGE:
20 660.51% 551.81% 515.46% 485.97% 440.56% 406.80% 380.43% 359.09% 326.35%
21 641.23% 536.78% 501.85% 473.50% 429.86% 397.39% 372.02% 351.49% 319.98%
22 622.33% 522.00% 488.43% 461.19% 419.25% 388.04% 363.65% 343.90% 313.59%
23 603.74% 507.36% 475.11% 448.95% 408.64% 378.66% 355.21% 336.24% 307.09%
24 585.45% 492.88% 461.91% 436.78% 398.07% 369.26% 346.74% 328.50% 300.49%
25 567.49% 478.59% 448.84% 424.71% 387.53% 359.86% 338.23% 320.72% 293.81%
26 549.81% 464.44% 435.87% 412.70% 377.00% 350.43% 329.66% 312.84% 287.00%
27 532.48% 450.50% 423.07% 400.82% 366.54% 341.04% 321.09% 304.94% 280.14%
28 515.51% 436.78% 410.45% 389.09% 356.18% 331.69% 312.55% 297.05% 273.24%
29 498.95% 423.35% 398.07% 377.56% 345.97% 322.46% 304.09% 289.21% 266.36%
30 482.82% 410.24% 385.96% 366.27% 335.95% 313.39% 295.75% 281.48% 259.55%
31 467.14% 397.44% 374.14% 355.23% 326.13% 304.48% 287.55% 273.85% 252.82%
32 451.93% 385.01% 362.63% 344.49% 316.55% 295.78% 279.54% 266.40% 246.22%
33 437.18% 372.92% 351.45% 334.03% 307.22% 287.28% 271.70% 259.09% 239.74%
34 422.91% 361.22% 340.61% 323.89% 298.16% 279.03% 264.09% 251.99% 233.43%
35 409.11% 349.88% 330.10% 314.06% 289.36% 271.01% 256.67% 245.08% 227.28%
36 395.79% 338.93% 319.94% 304.55% 280.85% 263.25% 249.50% 238.38% 221.31%
37 382.93% 328.35% 310.13% 295.35% 272.62% 255.74% 242.55% 231.89% 215.53%
38 370.55% 318.17% 300.68% 286.50% 264.70% 248.50% 235.86% 225.64% 209.96%
39 358.64% 308.36% 291.58% 277.98% 257.07% 241.54% 229.41% 219.61% 204.59%
40 347.20% 298.94% 282.84% 269.80% 249.74% 234.85% 223.23% 213.84% 199.45%
41 336.19% 289.89% 274.45% 261.94% 242.71% 228.43% 217.30% 208.30% 194.51%
42 325.63% 281.21% 266.40% 254.40% 235.97% 222.28% 211.62% 203.00% 189.80%
43 315.48% 272.87% 258.66% 247.16% 229.49% 216.38% 206.16% 197.91% 185.27%
44 305.74% 264.86% 251.24% 240.22% 223.28% 210.73% 200.94% 193.04% 180.95%
45 296.37% 257.16% 244.11% 233.54% 217.31% 205.29% 195.92% 188.36% 176.79%
46 287.36% 249.77% 237.25% 227.13% 211.59% 200.07% 191.11% 183.87% 172.81%
47 278.70% 242.66% 230.67% 220.97% 206.08% 195.06% 186.48% 179.56% 168.99%
48 270.37% 235.82% 224.33% 215.04% 200.79% 190.24% 182.03% 175.42% 165.32%
49 262.34% 229.23% 218.22% 209.33% 195.69% 185.59% 177.75% 171.42% 161.77%
50 254.63% 222.89% 212.35% 203.83% 190.78% 181.13% 173.63% 167.58% 158.37%
51 247.20% 216.79% 206.70% 198.55% 186.06% 176.83% 169.66% 163.89% 155.09%
52 240.07% 210.94% 201.28% 193.48% 181.53% 172.71% 165.86% 160.35% 151.96%
53 233.22% 205.32% 196.08% 188.61% 177.19% 168.76% 162.22% 156.96% 148.96%
54 226.66% 199.95% 191.10% 183.96% 173.04% 164.99% 158.75% 153.73% 146.10%
55 220.38% 194.81% 186.34% 179.52% 169.09% 161.40% 155.45% 150.66% 143.39%
56 214.36% 189.89% 181.80% 175.27% 165.31% 157.98% 152.30% 147.74% 140.82%
57 208.60% 185.18% 177.45% 171.22% 161.71% 154.71% 149.30% 144.96% 138.37%
58 203.06% 180.66% 173.27% 167.32% 158.25% 151.58% 146.43% 142.30% 136.04%
59 197.74% 176.32% 169.26% 163.59% 154.93% 148.58% 143.67% 139.74% 133.79%
60 192.62% 172.15% 165.41% 159.99% 151.74% 145.69% 141.02% 137.29% 131.64%
61 187.71% 168.14% 161.71% 156.54% 148.68% 142.92% 138.48% 134.93% 129.57%
62 182.99% 164.30% 158.16% 153.23% 145.74% 140.26% 136.04% 132.67% 127.59%
63 178.47% 160.62% 154.76% 150.07% 142.93% 137.72% 133.72% 130.52% 125.70%
64 174.16% 157.12% 151.53% 147.06% 140.27% 135.32% 131.52% 128.48% 123.92%
65 170.05% 153.78% 148.46% 144.20% 137.75% 133.05% 129.44% 126.57% 122.25%
66 166.14% 150.62% 145.55% 141.50% 135.36% 130.90% 127.48% 124.76% 120.69%
67 162.40% 147.60% 142.78% 138.92% 133.10% 128.87% 125.63% 123.06% 119.21%
68 158.82% 144.72% 140.13% 136.47% 130.94% 126.94% 123.87% 121.45% 117.82%
69 155.40% 141.96% 137.60% 134.12% 128.88% 125.09% 122.19% 119.90% 116.48%
70 152.11% 139.32% 135.17% 131.87% 126.90% 123.31% 120.58% 118.42% 115.20%
71 148.96% 136.78% 132.84% 129.71% 125.00% 121.61% 119.03% 117.00% 113.97%
72 145.96% 134.37% 130.63% 127.65% 123.20% 119.99% 117.56% 115.64% 112.80%
73 143.11% 132.08% 128.53% 125.71% 121.49% 118.46% 116.17% 114.36% 111.69%
74 140.42% 129.93% 126.56% 123.89% 119.90% 117.03% 114.87% 113.17% 110.66%
75 137.89% 127.93% 124.73% 122.20% 118.42% 115.72% 113.68% 112.08% 109.72%
76 135.52% 126.05% 123.02% 120.63% 117.06% 114.51% 112.59% 111.08% 108.87%
77 133.28% 124.30% 121.43% 119.17% 115.80% 113.39% 111.59% 110.17% 108.10%
78 131.18% 122.66% 119.94% 117.80% 114.62% 112.36% 110.66% 109.34% 107.39%
79 129.17% 121.10% 118.53% 116.51% 113.51% 111.39% 109.79% 108.55% 106.73%
80 127.26% 119.61% 117.18% 115.28% 112.46% 110.46% 108.97% 107.80% 106.10%
81 125.43% 118.19% 115.90% 114.10% 111.45% 109.57% 108.18% 107.09% 105.50%
82 123.70% 116.85% 114.68% 112.99% 110.49% 108.73% 107.42% 106.41% 104.93%
83 122.06% 115.59% 113.54% 111.94% 109.59% 107.94% 106.71% 105.77% 104.39%
84 120.53% 114.41% 112.48% 110.97% 108.76% 107.21% 106.06% 105.18% 103.89%
85 119.11% 113.33% 111.51% 110.09% 108.00% 106.55% 105.47% 104.64% 103.44%
86 117.79% 112.34% 110.62% 109.28% 107.31% 105.95% 104.93% 104.16% 103.04%
87 116.55% 111.43% 109.81% 108.54% 106.69% 105.40% 104.45% 103.72% 102.67%
88 115.39% 110.58% 109.06% 107.87% 106.12% 104.91% 104.02% 103.33% 102.35%
89 114.28% 109.79% 108.36% 107.24% 105.60% 104.46% 103.62% 102.98% 102.06%
90 113.20% 109.03% 107.70% 106.65% 105.12% 104.05% 103.26% 102.65% 101.97%
91 112.14% 108.30% 107.06% 106.09% 104.66% 103.65% 102.92% 102.35% 101.00%
92 111.07% 107.57% 106.43% 105.53% 104.21% 103.28% 102.59% 102.07% 101.00%
93 109.96% 106.82% 105.79% 104.97% 103.76% 102.90% 102.27% 101.97% 101.00%
94 108.79% 106.02% 105.10% 104.37% 103.28% 102.51% 101.97% 101.00% 101.00%
95 107.54% 105.14% 104.35% 103.70% 102.75% 102.07% 101.00% 101.00% 101.00%
96 106.19% 104.16% 103.51% 102.96% 102.16% 101.97% 101.00% 101.00% 101.00%
97 104.77% 103.11% 102.62% 102.15% 101.97% 101.00% 101.00% 101.00% 101.00%
98 103.34% 102.03% 101.97% 101.97% 101.00% 101.00% 101.00% 101.00% 101.00%
99 101.97% 101.97% 101.00% 101.00% 101.00% 101.00% 101.00% 101.00% 101.00%
100+ 101.00% 101.00% 101.00% 101.00% 101.00% 101.00% 101.00% 101.00% 101.00%
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 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 172 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 5/31/02)
1.A3A.a Distribution Agreement between Princor Financial Services
Corporation and Principal Life Insurance Company
(filed 8/6/02)
1.A3B.a Form of Selling Agreement (filed 5/31/02)
1.A3B.b Registered Representative Agreement (filed 5/31/02)
1.A3C Schedule of sales commissions (filed 8/6/02)
1.A5.a Form of Policy (filed 5/31/02)
1.A5.a.iii Accounting Benefit Rider (filed 5/31/02)
1.A5.a.iv Aviation Exclusion Rider (filed 5/31/02)
1.A5.a.v Change of Insured (filed 5/31/02)
1.A5.a.viii Death Benefit Guarantee Rider (filed 5/31/02)
1.A5.a.ix Extended Coverage Rider (filed 5/31/02)
1.A5.a.x Hazardous Sports Rider (filed 5/31/02)
1.A5.a.xiii Supplemental Benefit Rider (filed 5/31/02)
1.A6.a Articles of Incorporation, as Amended of Principal
Life Insurance Company (filed 5/31/02)
1.A6.b By-laws of Principal Life Insurance Company (filed 5/31/02)
1.A7.a Not applicable
1.A8.a Participation Agreements
1.A8.a.i AIM Variable Insurance Funds*
1.A8.a.ii American Century Investment Management, Inc.*
1.A8.a.iii Berger Financial Group LLC*
1.A8.a.iv Dreyfus Investment Portfolios*
1.A8.a.v Variable Insurance Products Fund, Fidelity
Distributors, Inc.*
1.A8.a.vi Franklin Templeton Variable Insurance Products Trust*
1.A8.a.vii INVESCO Funds Group, Inc.
1.A8.a.viii Janus Aspen Series*
1.A8.a.x J.P. MORGN SERIES TRUST II*
1.A8.a.xi MFS VARIABLE INSURANCE TRUST*
1.A8.a.xii Neuberger Berman Advisers Management Trust*
1.A8.a.xiii Putnam Variable Trust*
1.A8.a.xiv Vanguard Variable Insurance Fund*
1.A8.a.xv Wells Fargo Fund Management, LLC*
1.A9.a Not applicable
1.A10.a Form of Application (filed 5/31/02)
1.A10.c Form of Supplemental Application (filed 5/31/02)
2. Opinion and consent of Karen E. Shaff, Senior Vice President
and General Counsel (filed 8/6/02)
3. Financial Statement Schedules (filed 9/10/02)
4. Not applicable
5. Not applicable
6. Consent of Ernst & Young LLP (filed 9/10/02)
7. Description of Issuance, Transfer and Redemption Procedures
Pursuant to Rule 6e-3(T)(b)(12)(iii)*
8. Powers of Attorney of Directors of Principal Life
Insurance Company (filed 5/31/02)
9. Opinion and Consent of Thomas Phillips (filed 8/6/02)
- ---------------------------------
* Included in this Filing.
** To be filed by Amendment.
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 thereunto duly authorized, and its seal to be hereunto
affixed and attested, all in the city of Des Moines, and the state of Iowa, on
the 18th day of September, 2002.
PRINCIPAL LIFE INSURANCE COMPANY
VARIABLE LIFE SEPARATE ACCOUNT
(Registrant)
By: PRINCIPAL LIFE INSURANCE COMPANY
(Depositor)
/s/J. B. Griswell
By _________________________________________________
Chairman, President and Chief Executive Officer
Attest:
/s/ Joyce N. Hoffman
- -----------------------------------
Joyce N. Hoffman
Senior Vice President and
Corporate Secretary
As required by the Securities Act of 1933, this Registration Statement has been
signed by the following persons in the capacities and on the date indicated.
Signature Title Date
/s/ J. B. Griswell President, Chairman and 09/18/2002
- -------------------- Chief Executive Officer
J. B. Griswell
/s/ G. B. Elming Vice President and 09/18/2002
- -------------------- Controller (Principal
G. B. Elming Accounting Officer)
/s/ M. H. Gersie Executive Vice President 09/18/2002
- -------------------- and Chief Financial Officers
M. H. Gersie (Principal Financial
Officer)
(B. J. Bernard)* Director 09/18/2002
- --------------------
B. J. Bernard
(J. Carter-Miller)* Director 09/18/2002
- --------------------
J. Carter-Miller
(G. E. Costley)* Director 09/18/2002
- --------------------
G. E. Costley
(D. J. Drury)* Director 09/18/2002
- --------------------
D. J. Drury
(C. D. Gelatt, Jr.)* Director 09/18/2002
- --------------------
C. D. Gelatt, Jr.
(S. L. Helton)* Director 09/18/2002
- --------------------
S. L. Helton
(C. S. Johnson)* Director 09/18/2002
- --------------------
C. S. Johnson
(W. T. Kerr)* Director 09/18/2002
- --------------------
W. T. Kerr
(R. L. Keyser)* Director 09/18/2002
- --------------------
R. L. Keyser
(V. H. Loewenstein)* Director 09/18/2002
- --------------------
V. H. Loewenstein
(F. F. Pena)* Director 09/18/2002
- --------------------
F. F. Pena
(D. M. Stewart)* Director 09/18/2002
- --------------------
D. M. Stewart
(E. E. Tallett)* Director 09/18/2002
- --------------------
E. E. Tallett
*By /s/ J. Barry Griswell
------------------------------------
J. Barry Griswell
Chairman, President and
Chief Executive Officer
Pursuant to Powers of Attorney
Previously Filed or Included Herein