497 1 aimchgs-vuli.txt AIM CHANGES SUPPLEMENT AIM FUND CHANGES The investment options of certain contracts include the AIM VI Growth, AIM VI Aggressive Growth and the AIM VI Premier Equity Funds. NOT ALL CONTRACTS OFFER ALL OF THESE FUNDS. The Board of Trustees of AIM Variable Insurance Funds ("AVIF") has approved Plans of Reorganization ("Plans"). Each Plan requires approval by the Fund's shareholders and will be submitted to the shareholders for their consideration at meetings to be held on or about April 4, 2006. If the Plans are approved, the following changes will be made. . If the Plan is approved by shareholders of AIM V.I. Aggressive Growth Fund ("V.I. Aggressive Growth Fund") and certain conditions required by the Plan are satisfied, the reorganization is expected to be consummated shortly after the meeting. V.I. Aggressive Growth Fund, a series of AVIF, will transfer all of its assets to AIM V.I. Capital Appreciation Fund ("V.I. Capital Appreciation Fund"), also a series of AVIF. Upon closing of the transaction, shareholders of V.I. Aggressive Growth Fund will receive a corresponding class of shares of V.I. Capital Appreciation Fund in exchange for their shares of V.I. Aggressive Growth Fund, and V.I. Aggressive Growth Fund will cease operations. . If the Plan is approved by shareholders of AIM V.I. Growth Fund ("V.I. Growth Fund") and certain conditions required by the Plan are satisfied, the reorganization is expected to be consummated shortly after the meeting. V.I. Growth Fund, a series of AVIF, will transfer all of its assets to V.I. Capital Appreciation Fund. Upon closing of the transaction, shareholders of V.I. Growth Fund will receive a corresponding class of shares of V.I. Capital Appreciation Fund in exchange for their shares of V.I. Growth Fund, and V.I. Growth Fund will cease operations. . If the Plan is approved by shareholders of AIM V.I. Premier Equity Fund ("V.I. Premier Equity Fund") and certain conditions required by the Plan are satisfied, the reorganization is expected to be consummated shortly after the meeting. V.I. Premier Equity Fund, a series of AVIF, will transfer all of its assets to AIM V.I. Core Equity Fund ("V.I. Core Equity Fund"), also a series of AVIF. Upon closing of the transaction, shareholders of V.I. Premier Equity Fund will receive a corresponding class of shares of V.I. Core Equity Fund in exchange for their shares of V.I. Premier Equity Fund, and V.I. Premier Equity Fund will cease operations. Accordingly, as of May 1, 2006, the V.I. Aggressive Growth Fund, V.I. Growth Fund and V.I. Premier Equity Fund Divisions will no longer be available as investment options. On May 1, 2006, any of your contract's value in the: . AIM V.I. Aggressive Growth Division will be transferred to the same class of shares of the AIM V.I. Capital Appreciation Division . AIM V.I. Growth Division will be transferred to the same class of shares of the AIM V.I. Capital Appreciation Division . AIM V.I. Premier Equity Division will be transferred to the same class of shares of the AIM V.I. Core Equity Division In applying our policies and procedures to identify abusive trading practices, these transfers will not be considered. For a copy of the prospectus for the V.I. Capital Appreciation Fund or the V.I. Core Equity Fund, please call. Annuity contract owners1-800-852-4450 Life insurance policy holders1-800-247-9988 SUPPLEMENT DATED NOVEMBER 17, 2005 TO THE PRINCIPAL VARIABLE UNIVERSAL LIFE INCOME/SM/ POLICY (THE "POLICY") PROSPECTUS DATED APRIL 29, 2005 Effective February 20, 2006, the following changes are effective: on page 4, the following replaces the first section under the heading "SUMMARY: BENEFITS AND RISKS": This prospectus describes a flexible variable universal life insurance policy offered by the Company. This is a brief summary of the Policy's features. More detailed information follows later in the prospectus. PRINCIPAL VARIABLE UNIVERSAL LIFE INCOME PLUS . When the Policy is sold with the Surrender Charge Adjustment Rider, it is referred to as Principal Variable Universal Life Income Plus. This rider is only available on business cases qualifying under our then current underwriting guidelines. For a description of the rider, please see Additional Insurance Benefits. on page 6, the following replaced the first section of the Transaction Fees Table under the heading "SUMMARY: FEE TABLES":
TRANSACTION FEES ------------------------------------------------------------------------------ CHARGE CHARGE IS DEDUCTED: AMOUNT DEDUCTED ------------------------------------------------------------------------------ Maximum Sales Charge: Guaranteed from each premium paid 5.00% of premium paid Current - without the Surrender Charge from each premium Adjustment Rider paid 3.00% of premium paid Current - with the from each premium Surrender Charge paid Adjustment Rider 3.25% of premium paid 1st policy year 3.00% of premium paid after 1st policy year ------------------------------------------------------------------------------
on page 7, the following is added to the table of periodic charges under the heading "SUMMARY: FEE TABLES:
PERIODIC CHARGES OTHER THAN UNDERLYING MUTUAL FUND OPERATING EXPENSES ------------------------------------------------------------------------------ WHEN CHARGE CHARGE IS DEDUCTED AMOUNT DEDUCTED ------------------------------------------------------------------------------ annually Maximum rate permitted by state Death Benefit (accrued daily) law/*/ Advanced Rider ------------------------------------------------------------------------------
* The maximum annual lien interest rate applicable to the portion of the lien in excess of the net policy value will not exceed the higher of (a) or (b) where: (a) is the Moody's Corporate Bond Yield Average - Monthly Average Corporates for the calendar month ending two months prior to the date that the rate is determined; and (b) is the current yield on 90-day treasury bills. The interest rate on the portion of the lien equal to the net policy value will be the policy loan interest rate. on page 12, the following definition is added to the GLOSSARY: PRINCIPAL VARIABLE UNIVERSAL LIFE INCOME PLUS - the Policy with the Surrender Charge Adjustment Rider (referred to in marketing materials as "Principal Variable Universal Life Income Plus"). For a description of the rider, please see Additional Insurance Benefits. on page 16, the following is added as the last paragraph to the section entitled "Surrender Charge" For Policies issued with the Surrender Charge Adjustment Rider, the rider provides for a waiver of a portion of the surrender charges for a limited time. For a description of the rider, please see Additional Insurance Benefits.
WAIVER OF SURRENDER CHARGE PERCENTAGE TABLE ------------------------------------------- POLICY YEAR WAIVER PERCENTAGE ----------- ----------------- 1 100.00% 2 80.00 3 60.00 4 40.00
Example: The amount of surrender charge waived is determined by multiplying the amount of the surrender charge by the applicable waiver percentage. If the amount of the surrender charge is $200 and you surrender your Policy in year 3, we would waive 60% of that charge ($120). The amount we would collect is $80. on page 21, the following changes are made to Additional Insurance Benefits . addition of: Surrender Charge Adjustment Rider --------------------------------- This rider provides for a waiver of a portion of the surrender charges for a limited time. If you fully surrender your Policy within the first four policy years, we will adjust the amount of surrender charge we collect. The rider is available for all Policies issued for business cases (employer sponsored and/or employer owned Policies) subject to our then current underwriting guidelines. The rider may not be added after the Policy has been issued. If the Policy is issued with the rider, an additional sales charge is imposed in the first policy year. Death Benefit Advance Rider --------------------------- This rider provides the option of receiving an advance of a portion of the death benefit if the insured is diagnosed with a terminal illness or catastrophic health condition (as defined in the rider) or is permanently confined to a nursing home. The maximum amount available is based on the death benefit as of the date the claim is approved. The death proceeds payable upon the death of the insured will be reduced by the amount of the death proceeds advanced (the lien) plus interest charged on the lien. This rider is added automatically to all Policies issued on or after February 20, 2006 with a risk classification of standard or better. Subject to our underwriting guidelines, the rider may be elected at any time prior to the insured's death. There is no charge for this rider other than the interest charged during the time period death proceeds are advanced. You should consult your tax advisor prior to this rider being exercised. . deletion of all references to the Accounting Benefit Rider. PRINCIPAL VARIABLE UNIVERSAL LIFE INCOME/SM/ FLEXIBLE PREMIUM VARIABLE UNIVERSAL LIFE INSURANCE POLICY Issued by Principal Life Insurance Company (the "Company") through its Principal Life Insurance Company Variable Life Separate Account This prospectus is dated April 29, 2005. 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 current prospectuses 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. Not all the contract provisions, benefits, programs, features and investment options described in this prospectus are available or approved for use in every state. This prospectus offers a Policy which may not be available in all states and 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 SUMMARY: BENEFITS AND RISKS ............................................. Policy Benefits ........................................................ Policy Risks ........................................................... SUMMARY: FEE TABLES..................................................... GLOSSARY ................................................................ CORPORATE ORGANIZATION AND OPERATION .................................... CHARGES AND DEDUCTIONS .................................................. Premium Expense Charge ................................................. Surrender Charge ....................................................... Monthly Policy Charge .................................................. Underlying Mutual Fund Charges ......................................... GENERAL DESCRIPTION OF THE POLICY ....................................... The Contract ........................................................... Rights Under the Policy ................................................ Policy Limitations ..................................................... Additional Insurance Benefits .......................................... Reservation of Rights .................................................. Right to Exchange Policy ............................................... Suicide ................................................................ Delay of Payments ...................................................... PREMIUMS ................................................................ Payment of Premiums .................................................... Premiums Affecting Guarantee Provisions ................................ Premium Limitations .................................................... Allocation of Premiums ................................................. DEATH BENEFITS AND POLICY VALUES ........................................ Death Proceeds ......................................................... Death Benefit Option ................................................... Change in Death Benefit Option ......................................... IRS Definition of Life Insurance ....................................... Maturity Proceeds ...................................................... Adjustment Options ..................................................... Policy Values .......................................................... SURRENDERS AND PARTIAL SURRENDERS ....................................... Surrenders ............................................................. Examination Offer (Free-Look Provision) ................................ LOANS ................................................................... Policy Loans........................................................... Loan Account........................................................... Loan Payments.......................................................... POLICY TERMINATION AND REINSTATEMENT.................................... TAX ISSUES RELATED TO THE POLICY ........................................ GENERAL PROVISIONS ...................................................... Frequent Trading and Market-Timing (Abusive Trading Practices)......... Purchase Procedures .................................................... Statement of Values .................................................... Services Available via the Internet and Telephone ...................... Misstatement of Age or Gender .......................................... Non-Participating Policy ............................................... Incontestability ....................................................... Independent Registered Public Accounting Firm.......................... LEGAL PROCEEDINGS ....................................................... TABLE OF SEPARATE ACCOUNT DIVISIONS..................................... APPENDIX A - SURRENDER TARGET PREMIUMS.................................. APPENDIX B - ILLUSTRATIONS .............................................. APPENDIX C - APPLICABLE PERCENTAGES (FOR LIFE INSURANCE DEFINITION TEST) ADDITIONAL INFORMATION.................................................. SUMMARY: BENEFITS AND RISKS This prospectus describes a flexible variable universal life insurance policy offered by the Company. This is a brief summary of the Policy's features. More detailed information follows later in this prospectus. POLICY BENEFITS DEATH BENEFITS AND PROCEEDS The Company guarantees to pay a death benefit for as long as the Policy is in force. 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 BENEFITS AND POLICY VALUES - Death Proceeds); . minus loan indebtedness; . minus any overdue monthly policy charges (Overdue monthly policy charges arise when a Policy is in a grace period and the net surrender value is insufficient to cover the sum of the cost of insurance and of additional benefits provided by any rider plus other policy charges). Death proceeds are paid in cash or applied under a benefit payment option. 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. PREMIUM PAYMENT FLEXIBILITY You may choose the amount and frequency of premium payments (subject to certain limitations). POLICY VALUES The policy value reflects your premium payments, partial surrenders, policy loans, unpaid loan interest, policy expenses, interest credited to the fixed account and/or the investment experience of the divisions. There is no guaranteed minimum division value. POLICY LOANS A loan may be taken using the Policy as collateral. The maximum loan amount is 90% of the net surrender value. FULL SURRENDER The Policy may be surrendered and any net surrender value paid to the owner. If the full surrender is within ten years of the policy date or a policy face amount increase, a surrender charge is imposed. PARTIAL SURRENDER On or after the first policy anniversary, a Policy may be partially surrendered and the proceeds paid to the owner. The surrender charge does not apply to partial surrenders. ADJUSTMENT OPTIONS The total face amount may be increased or decreased unless the Policy is in a grace period or if monthly policy charges are being waived under a rider. Total Face Amount Increase -------------------------- The minimum amount of an increase is $50,000 and is subject to our underwriting guidelines in effect at the time the increase is requested. Total Face Amount Decrease -------------------------- On or after the first policy anniversary, a decrease in total face amount may be requested if the request does not decrease the policy face amount below $100,000. MATURITY PROCEEDS If the insured is living on the maturity date and you do not have an Extended Coverage Rider, we will pay the owner an amount equal to the net surrender value. Maturity proceeds are paid in cash lump sum or applied under a benefit payment option. The Policy terminates on the maturity date. POLICY RISKS RISKS OF POOR INVESTMENT PERFORMANCE Policy charges and surrender charges are among the reasons why the Policy is not intended to be a short-term savings vehicle. It is possible that investment performance could cause a loss of the entire amount allocated to the divisions. Without additional premium payments, investments in the fixed account, the fixed DCA account or a death benefit guarantee rider, it is possible that no death benefit would be paid upon the insured's death. NOTE: Each division invests in a corresponding underlying mutual fund. The underlying mutual funds are NOT available to the general public directly but 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. POLICY TERMINATION (LAPSE) On an ongoing basis, the Policy's net surrender value must be sufficient to cover the monthly policy charges and any loan indebtedness. It is possible that poor investment performance could cause the Policy to terminate unless additional premiums are paid. Partial surrenders or policy loans may increase the risk of the policy terminating because the amount of either or both is not available to generate investment return or pay for policy charges. When the Policy terminates, it has no value and no longer provides any life insurance benefit upon the death of the insured. During the first five policy years, if the no-lapse guarantee premium requirement is met, the Policy will not terminate even if the Policy's net surrender value is insufficient to cover the monthly policy charge. LIMITATIONS ON ACCESS TO SURRENDER VALUE Unscheduled Partial Surrenders ------------------------------ . Two unscheduled partial surrenders may be made in a policy year. The total of the amount(s) surrendered may not be greater than 75% of the net surrender value (as of the date of the request for the first unscheduled partial surrender in that policy year). . The face amount may be reduced by the amount of the unscheduled partial surrender. Scheduled Partial Surrender --------------------------- . Partial surrenders may be scheduled on a monthly, quarterly, semiannual or annual basis. . Each scheduled partial surrender may not be greater than 90% of the net surrender value (as of the date of the scheduled partial surrender). . The face amount may be reduced by the amount of the scheduled partial surrender. Full Surrenders --------------- If the full surrender is within ten years of the policy date or a policy face amount increase, a surrender charge is imposed. Surrender charges are calculated based on the number of years the Policy was in force. Adverse Tax Consequences ------------------------ Termination of the Policy for any reason other than death of the insured may have adverse tax consequences. If the amount received by the owner plus any loan indebtedness exceeds the premiums paid into the Policy, then the excess generally will be treated as taxable income. In certain employer-sponsored life insurance arrangements, participants may be required to report for income tax purposes, one or more of the following: . the value each year of the life insurance protection provided; . an amount equal to any employer-paid premiums; or . some or all of the amount by which the current value exceeds the employer's interest in the Policy. Participants should consult with the sponsor or the administrator of the plan, and/or with their personal tax or legal adviser, to determine the tax consequences, if any, of their employer-sponsored life insurance arrangements. RISKS OF UNDERLYING MUTUAL FUNDS A comprehensive discussion of the risks of each underlying mutual fund may be found in the underlying mutual fund's prospectus. As with all mutual funds, as the value of an underlying mutual fund's assets rise or fall, the fund's share price changes. If you sell your units in a division (each of which invests in an underlying mutual fund) when their value is less than the price you paid, you will lose money. Equity Funds ------------ The biggest risk is that the fund's returns may vary, and you could lose money. The equity funds are each designed for long-term investors who can accept the risks of investing in a portfolio with significant common stock holdings. Common stocks tend to be more volatile than other investment choices. The value of an underlying mutual fund's portfolio may decrease if the value of an individual company in the portfolio decreases. The value of an underlying mutual fund's portfolio could also decrease if the stock market goes down. Income Funds ------------ A fundamental risk of fixed-income securities is that their value will fall if interest rates rise. Since the value of a fixed-income portfolio will generally decrease when interest rates rise, the underlying mutual fund's share price may likewise decrease. Another fundamental risk associated with fixed-income securities is credit risk, which is the risk that an issuer will be unable to make principal and interest payments when due. International Funds ------------------- The international underlying mutual funds have significant exposure to foreign markets. As a result, their returns and price per share may be affected to a large degree by fluctuations in currency exchange rates or political or economic conditions in a particular country. SUMMARY: FEE TABLES 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 or surrender the Policy.
TRANSACTION FEES ------------------------------------------------------------------------------ CHARGE CHARGE IS DEDUCTED: AMOUNT DEDUCTED ------------------------------------------------------------------------------ Maximum Sales Charge: Guaranteed from each premium paid 5.00% of premium paid Current from each premium paid 3.00% of premium paid Taxes (federal, state from each premium paid 3.25% of premium paid and local) ------------------------------------------------------------------------------ Deferred Surrender Charge* (full surrender of from surrender proceeds Policy) Maximum $48.24 per $1,000 of policy face amount Minimum $2.26 per $1,000 of policy face amount Current Charge for Representative $19.38 per $1,000 of Insured** policy face amount upon each unscheduled transfer after the first Transfer Fees/*//*//*/ unscheduled transfer in a policy year Guaranteed $25.00 per unscheduled transfer Current None ------------------------------------------------------------------------------ Additional Insurance Benefits Life Paid-Up Rider rider exercise date Guaranteed Minimum 3.5% of policy value Guaranteed Maximum 7.5% of policy value Current Charge for Representative 3.5% of policy value Insured** ------------------------------------------------------------------------------
* Deferred surrender charges decline over time. ** The representative insured is a 45-year old male with a risk classification of preferred non-smoker. *** Please note that in addition to the fees shown, additional transfer fees or restrictions may be imposed by federal regulators, state regulators and/or sponsors of the underlying mutual funds. 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:* monthly Guaranteed Minimum $0.06 per $1,000 of net amount at risk Guaranteed Maximum $83.33 per $1,000 of net amount at risk Current Charge for $0.28 per $1,000 of net amount at Representative risk Insured** ------------------------------------------------------------------------------ Asset Based Charge monthly equivalent to: Guaranteed: policy years 1-10 0.70% of the total of policy value per year after policy year 10 0.20% of the total of policy value per year Current: policy years 1-10 0.70% of the total of policy value per year after policy year 10 none Administration Charge Guaranteed Maximum: $25.00 per month Current: during the first policy year monthly $25.00 per month after the first monthly $10.00 per month policy year ------------------------------------- Policy loan interest annually (accrued daily) policy years 1-10 2.20% of the loan balance per year (the difference between the interest charged on the loan balance and the interest credited to the loan account) after policy year 10 none Additional Insurance Benefits*** ------------------------------------------------------------------------------ Accidental Death Benefit Rider monthly Guaranteed Minimum $0.03 per $1,000 of rider benefit Guaranteed Maximum $0.14 per $1,000 of rider benefit Current Charge for Representative $0.07 per $1,000 of rider benefit Insured** ------------------------------------------------------------------------------ Accelerated Benefits annually Rider (accrued daily) policy years 1-10 5.5% of death proceeds advanced per year after policy year 10 4.0% of death proceeds advanced per year ------------------------------------------------------------------------------ Salary Increase Rider monthly $0.13 per $1,000 of rider benefit in excess of $30,000 ------------------------------------------------------------------------------ Supplemental Benefit Rider monthly Guaranteed Minimum $0.08 per $1,000 of net amount at risk Guaranteed Maximum $83.33 per $1,000 of net amount at risk Current Charge for $0.11 per $1,000 of net amount at Representative risk Insured** ------------------------------------------------------------------------------ Waiver of Monthly Policy Charges Rider monthly Guaranteed Minimum $0.01 per $1,000 of net amount at risk Guaranteed Maximum $0.51 per $1,000 of net amount at risk Current Charge for $0.04 per $1,000 of net amount at Representative risk Insured** ------------------------------------------------------------------------------ Waiver of Specified Premium Rider monthly Guaranteed Minimum $0.15 per $1,000 of planned periodic premium Guaranteed Maximum $0.94 per $1,000 of planned periodic premium Current Charge for $0.47 per $1,000 of planned periodic Representative premium Insured** ------------------------------------------------------------------------------
* 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. The charge shown in the table may not be representative of the charge that a particular owner will pay. Typically, cost of insurance rates are lower for insureds who: are non-smokers; have a risk classification of preferred; are younger; and are fully underwritten. 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 representative insured is a 45-year old male with a risk classification of preferred non-smoker. *** The rates shown assume that the insured's risk classification is standard or better. The next item shows the minimum and maximum total operating expenses charged by the underlying mutual funds that you may pay periodically during the time that you own the contract. More detail concerning the fees and expenses of each underlying mutual fund is contained in its prospectus. Annual Underlying Mutual Fund Operating Expenses as of December 31, 2004.
MINIMUM MAXIMUM ----------------------------------------------------------------------------------------------------- Total annual underlying mutual fund operating expenses (expenses that are deducted from underlying mutual fund assets, including management 0.37% 10.09% fees, distribution and/or service (12b-1) fees and other expenses) -----------------------------------------------------------------------------------------------------
The following table shows the fees and expenses (before waiver or reimbursement) charged by each underlying mutual fund for the fiscal year ended December 31, 2004.
TOTAL CONTRACTUAL MANAGEMENT OTHER GROSS NET UNDERLYING MUTUAL FUNDS FEES 12B-1 FEES/(1)/ EXPENSES EXPENSES /(//2//)/ EXPENSES ----------------------- ---- --------------- -------- ------------------ ----------- AIM V.I. Core Equity Fund - Series II Shares 0.61% 0.25% 0.30% 1.16%/(3)/ AIM V.I. Health Sciences (effective July 1, 2005 AIM V.I. Global Health Care) Fund - Series I 0.75 N/A 0.36 1.11 1.10/(3)(4)/ AIM V.I. Growth - Series II Shares 0.63 0.25 0.28 1.16 AIM V.I. Premier Equity Fund - Series II Shares 0.61 0.25 0.30 1.16 American Century VP Income & Growth - Class II 0.70 0.25 0.00 0.95/(5)/ American Century VP Ultra - Class II 0.90 0.25 0.00 1.15/(5)/ American Century VP Value - Class II 0.83 0.25 0.00 1.08/(5)/ Dreyfus VIF Developing Leaders - Service Class 0.75 0.25 0.04 1.04 Fidelity VIP Contrafund - Service Class 2 0.57 0.25 0.11 0.93/(//6//)/ Fidelity VIP Equity-Income - Service Class 2 0.47 0.25 0.11 0.83/(//6//)/ Fidelity VIP Growth - Service Class 2 0.58 0.25 0.10 0.93/(//6//)/ Fidelity VIP High Income - Service Class 2 0.58 0.25 0.14 0.97/(//6//)/ Fidelity VIP Mid Cap - Service Class 2 0.57 0.25 0.14 0.96/(//6//)/ MFS VIT New Discovery Series - Service Class 0.90 0.25 0.11 1.26/(//7//)/ Principal VCF Asset Allocation 0.80 N/A 0.04 0.84 Principal VCF Balanced 0.59 N/A 0.04 0.63/(//8//)/ Principal VCF Bond 0.46 N/A 0.01 0.47 Principal VCF Capital Value 0.60 N/A 0.00 0.60/(//8//)/ Principal VCF Diversified International 0.85 N/A 0.12 0.97/(//8//)/ Principal VCF Equity Growth 0.76 N/A 0.01 0.77/(//8//)/ Principal VCF Equity Income 0.60 N/A 0.02 0.62 Principal VCF Government Securities 0.44 N/A 0.00 0.44 Principal VCF Growth 0.60 N/A 0.00 0.60/(//8//)/ Principal VCF International Emerging Markets 1.25 N/A 0.30 1.55/(//9//)/ Principal VCF International SmallCap 1.20 N/A 0.11 1.31/(//8//)/ Principal VCF LargeCap Blend 0.75 N/A 0.03 0.78/(//10//)/ Principal VCF LargeCap Growth Equity 1.00 N/A 0.05 1.05/(1//1//)/ Principal VCF LargeCap Stock Index 0.35 N/A 0.02 0.37/(//1//2//)//(13 //)/ Principal VCF LargeCap Value 0.75 N/A 0.01 0.76/(//10//)/ Principal VCF Limited Term Bond 0.50 N/A 0.03 0.53/(//1//4//)/ Principal VCF MidCap 0.58 N/A 0.01 0.59/(//8//)/ Principal VCF MidCap Growth 0.90 N/A 0.02 0.92/(//1//5//)/ Principal VCF MidCap Value 1.05 N/A 0.03 1.08/(//1//5//)/ Principal VCF Money Market 0.48 N/A 0.01 0.49 Principal VCF Principal LifeTime 2010 0.12 N/A 9.90 10.02/(//1//2//)//(16 //) Principal VCF Principal LifeTime 2020 0.12 N/A 8.60 8.72/(12)(16//)/ Principal VCF Principal LifeTime 2030 0.12 N/A 2.02 2.14/(12)(16//)/ Principal VCF Principal LifeTime 2040 0.12 N/A 1.35 1.47/(12)(16//)/ Principal VCF Principal LifeTime 2050 0.12 N/A 1.37 1.49/(//(12)(16//)/ Principal VCF Principal LifeTime Strategic Income 0.12 N/A 9.97 10.09/(12)(16//)/ Principal VCF Real Estate Securities 0.90 N/A 0.00 0.90/(//8//)/ Principal VCF SmallCap 0.85 N/A 0.01 0.86/(//8//)/ Principal VCF SmallCap Growth 1.00 N/A 0.01 1.01/(//1//5//)/ Principal VCF SmallCap Value 1.10 N/A 0.03 1.13/(//1//5//)/ Wells Fargo Advantage VT Asset Allocation Fund 0.55 0.25 0.22 1.02 1.00/(17 Wells Fargo Advantage VT Equity Income Fund 0.55 0.25 0.23 1.03 1.00/(17 Wells Fargo Advantage VT Large Company Growth Fund 0.55 0.25 0.25 1.05 1.00/(17
/ //(1)/ Because the 12b-1 fee is charged as an ongoing fee, over time the fee will increase the cost of your investment and may cost you more than paying other types of sales charges. / //(2)/ The Company and Princor Financial Services Corporation may receive a portion of the underlying fund expenses for record keeping, marketing and distribution services. / //(3)/ The fund's advisor has contractually agreed to waive advisory fees and/or reimburse expenses of Series I shares to the extent necessary to limit Total Annual Fund Operating Expenses (excluding certain items discussed below) to 1.30% of average daily net assets. In determining the advisor's obligation to waive advisory fees and/or reimburse expenses, the following expenses are not taken into account, and could cause the Total Annual Fund Operating Expenses to exceed the 1.30% cap: (i) interest; (ii) taxes; (iii) dividend expense on short sales; (iv) extraordinary items (these are expenses that are not anticipated to arise from the fund's day-to-day operations), or items designated as such by the fund's board of trustees; (v) expenses related to a merger or reorganization, as approved by the fund's board of trustees; (vi) expenses related to a merger or reorganization, a approved by the fund's board of trustees; and (vii) expenses that the fund has incurred but did not actually pay because of an expense offset arrangement. Currently, the only expense offset arrangements from which the fund benefits are in the form of credits that the fund receives from banks where the fund or its transfer agent has deposit accounts in which it holds uninvested cash. Those credits are used to pay certain expenses incurred by the fund. This expense limitation agreement is in effect through April 30, 2006. / //(4)/ Effective January 1, 2005 through June 30, 2006, the advisor has contractually agreed to waive a portion of its advisory fees. The fee waiver reflects this agreement. / //(5)/ Based on expenses incurred by the fund, as stated in the most recent shareholder report. The fund has a stepped fee schedule, As a result, the fund's management fee rate generally decreases as fund assets increase. / //(6)/ A portion of the brokerage commissions that the fund pays may be reimbursed and used to reduce the fund's expenses. In addition, through arrangements with the fund's custodian, credits realized as a result of uninvested cash balances are used to reduce the fund's custodian expenses. Including these reductions, the total class operating expenses would have been VIP Contrafund 0.91%; VIP Equity-Income 0.82%; VIP Growth 0.90%; and VIP Mid Cap 0.93%. These offsets may be discontinued at any time. / //(7)/ An expense offset arrangement that reduces the series' custodian fee based upon the amount of cash maintained by the series with its custodian and dividend disbursing agent. Each series may enter into other such arrangements and directed brokerage arrangements, which would also have the effect of reducing the series' expenses. "Other Expenses" do not take into account these fee reductions, and are therefore higher than the actual expenses of the series. Had these fee reductions been taken into account, "Net Expenses" would be lower for certain series and would equal 1.25% for New Discovery Series. / //(8) /Expense ratio without fees paid indirectly through a commission recapture agreement or a custodial agreement. If such fees were included, the expense ratio shown would be lower. / //(9) /Expense ratio without fees paid indirectly through a commission recapture agreement or a custodial agreement and the Manager's voluntary expense limit (which increased May 1, 2002, and May 1, 2003 and ceased on May 1, 2004). If such fees were included, the expense ratio shown would be lower. / //(10) /Expense ratio without fees paid indirectly through a commission recapture agreement or a custodial agreement and the Manager's voluntary expense limit (which ceased on May 1, 2004). If such fees were included, the expense ratio shown would be lower. / //(11) /Expense ratio without fees paid indirectly through a commission recapture agreement or a custodial agreement and the Manager's voluntary expense limit (which ceased on May 1, 2002). If such fees were included, the expense ratio shown would be lower. / //(12) /Expense ratio without the Manager's voluntary expense limit. / //(13) /Principal Management Corporation voluntarily agreed to reimburse the total annual expenses through April 30, 2005. With the expense limit, the total annual expenses through April 30, 2005 was 0.40%. This expense limitation has terminated. / //(14) /Expense ratio without the Manager's voluntary expense limit (which ceased on May 1, 2004). / //(15) /Expense ratio without fees paid indirectly through a commission recapture agreement or a custodial agreement and the Manager's voluntary expense limit (which ceased on January 1, 2001). If such fees were included, the expense ratio shown would be lower. / //(16)/ Principal Management Corporation has voluntarily agreed to reimburse the total annual expenses through April 30, 2006 so that they will not exceed 0.16% for Principal LifeTime 2010 Account; 0.13% for Principal LifeTime 2020 Account; 0.16% for Principal LifeTime 2030 Account; 0.13% for Principal LifeTime 2040 Account; 0.12% for Principal LifeTime 2050 Account and 0.14% for Principal LifeTime Strategic Income Account. These agreements may be discontinued by Principal Management Corporation at any time. Each Principal LifeTime Account, as shareholders of underlying funds, indirectly bears its pro rata share of the operating expenses incurred by each underlying fund. As of December 31, 2004, the operating expenses of the underlying funds ranged from 0.39% to 1.55%. / //(17)/ Wells Fargo has implemented a breakpoint schedule for the Funds' management fees. The management fees charged to the Funds will decline as a Fund's assets grow and will continue to be based on a percentage of the Fund's average daily net assets. Other expenses may include expenses payable to affiliates of Wells Fargo & Company. Wells Fargo has committed through April 30, 2006 to contractually waive fees and/or reimburse expenses to the extent necessary to maintain each Fund's net operating expense ratio shown. GLOSSARY ADJUSTMENT - change to your Policy resulting from an increase or decrease in policy face amount or a change in: smoking status; death benefit option; rating or riders. ADJUSTMENT DATE - the monthly date on or next following the Company's approval of a requested adjustment. ATTAINED AGE - 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. DEATH BENEFIT GUARANTEE PREMIUM REQUIREMENT- a premium which is required to be paid in order to guarantee the Policy will not terminate for a specific number of years. DIVISION - a part of the Separate Account which invests in shares of a mutual fund. DOLLAR COST AVERAGING - a program in which premiums are systematically transferred from one account or division, typically the fixed account or money market division, into other division(s). DOLLAR COST AVERAGING DURATION (DCA DURATION) - the length of time over which the entire fixed DCA account value is transferred to the fixed account and/or divisions. EFFECTIVE DATE - the date on which all requirements for issuance of a Policy have been satisfied. FACE AMOUNT - life insurance coverage amount. It is referred to as the total face amount. FIXED ACCOUNT - that part of the Policy that is not in the divisions, fixed DCA account or loan account. FIXED DCA ACCOUNT - an account to which net premiums may be allocated and from which a portion of the policy value is transferred on a monthly basis over the DCA duration. 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 most recent application for the Policy. The insured may or may not be the owner. LOAN ACCOUNT - that part of the policy value that reflects the value transferred from the division(s), fixed DCA account and/or fixed account as collateral for a policy loan. LOAN INDEBTEDNESS - the amount of any policy loan and unpaid loan interest. MATURITY DATE - the policy anniversary nearest the insured's 100th birthday. MAXIMUM PREMIUM EXPENSE CHARGE - the maximum charge deducted from premium payments to cover a sales charge and taxes (federal, state and local). MONTHLY DATE - the day of the month which is the same day as the policy date. Example: If the policy date is September 5, 2005, the first monthly date is October 5, 2005. MONTHLY POLICY CHARGE - the amount subtracted from the policy value on each monthly date equal to the sum of the cost of insurance and of additional benefits provided by any rider plus the monthly administration charge and asset based charge in effect on the monthly date. NET AMOUNT AT RISK - the amount upon which cost of insurance charges are based. It is the result of: . the death benefit (as described in the Policy) at the beginning of the policy month, divided by 1.0024663; minus . the policy value at the beginning of the policy month calculated as if the monthly policy charge was zero. NET POLICY VALUE - the policy value minus any loan indebtedness. NET PREMIUM - the gross premium less the deductions for the premium expense charge. It is the amount of premium allocated to the divisions, fixed account and/or fixed DCA account. NET SURRENDER VALUE - surrender value minus any loan indebtedness. NO LAPSE GUARANTEE PREMIUM - a premium which is required to be paid in order to guarantee the Policy will not terminate in the first five years. NOTICE - any form of communication received in our home office which provides the information we need which may be in writing sent to us by mail, or another manner that we approve in advance. OWNER - the person, including joint owner, who owns all the rights and privileges of this Policy. POLICY DATE - the date from which monthly dates, policy years and policy anniversaries are determined. POLICY FACE AMOUNT - the insurance benefit provided by the Policy without any riders. POLICY VALUE - the sum of the values in the divisions, the fixed account, the fixed DCA account and the loan account. POLICY YEAR - the one-year period beginning on the policy date and ending one day before the policy anniversary and any subsequent one year period beginning on a policy anniversary. Example: If the policy date is September 5, 2005, the first policy year ends on September 4, 2006. The first policy anniversary falls on September 5, 2006. PREMIUM EXPENSE CHARGE - the charge deducted from premium payments to cover a sales charge and state, local and federal taxes. PRORATED BASIS - in the proportion that the value of a particular division, the fixed account or the fixed DCA account bears to the total value of all divisions, the fixed account and the fixed DCA account. SURRENDER VALUE - policy value minus any surrender charge. SURRENDER TARGET PREMIUM - a premium amount which is used to determine any applicable surrender charge under a Policy. Surrender target premiums are provided in Appendix A. 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 investment account or portfolio thereof, in which a division invests. UNIT - the accounting measure used to calculate the value of each division. 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 at our home office of a written notice or request, signed and dated, on a form we supply or approve. Your notices may be mailed to us at: Principal Life Insurance Company P O Box 9296 Des Moines, Iowa 50306-9296 Phone: 1-800-247-9988 YOU - the owner of the Policy. CORPORATE ORGANIZATION AND OPERATION 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 July 1, 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, credited to or charged against the Separate Account reflect the Separate Account's own investment experience and not the investment experience of the Company's other assets. Assets of the Separate Account may not be used to pay any liabilities of the Company other than those arising from the policies funded by the Separate Account. The Company is obligated to pay all amounts promised to owners under the Policy. THE FUNDS The assets of each division of the Separate Account invest in a corresponding underlying mutual fund. The Company purchases and sells fund shares for the Separate Account at their net asset value. 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 funds are mutual funds registered under the Investment Company Act of 1940 as open-end management investment companies. 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 WITHOUT CHARGE FROM A SALES REPRESENTATIVE OR BY CONTACTING OUR HOME OFFICE AT 1-800-247-9988. Appendix A contains a brief summary of the investment objectives of, and sub-advisor for, each division. New divisions may be added and made available. Divisions may also be eliminated from the Separate Account following SEC approval. 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 or to the fixed account; . 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) and/or the fixed account 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). 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(s). Fractional votes are allocated for amounts less than $100. The number of votes on which you have the right to instruct us is determined as of a date established by the mutual fund for setting the shareholders eligible to vote. According to procedures adopted by the mutual fund, voting instructions are solicited by a written proxy statement before a shareholder meeting. We vote other 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 contracts. 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 mutual fund. THE FIXED ACCOUNT AND FIXED DCA ACCOUNT The fixed account and the fixed DCA account are part of our general account. Because of exemptions and exclusions contained in the Securities Act of 1933 and the Investment Company Act of 1940, the fixed account, the fixed DCA account and any interest in them are not subject to the provisions of these acts. As a result the SEC has not reviewed the disclosures in this prospectus relating to the fixed accounts. However, disclosures relating to them are subject to generally applicable provisions of the federal securities laws relating to the accuracy and completeness of statements made in prospectuses. You may obtain more information regarding the fixed accounts from our home office or from a sales representative. Our obligations with respect to the fixed accounts are supported by our general account. Subject to applicable law, we have sole discretion over the investment of assets in the general account. We guarantee that net premiums allocated to the fixed accounts accrue interest daily at an effective annual rate of 3% compounded annually. We may, in our sole discretion, credit interest at a higher rate. We may defer payment of proceeds payable out of the fixed accounts for a period of up to six months. The Fixed Account ----------------- The value of your fixed account on any business day is: . net premiums allocated to the fixed account . plus transfers from the division(s) and/or fixed DCA account . plus interest credited to the fixed account . minus surrenders, surrender charges and monthly policy charges . minus transfers to the loan account . minus transfers to the division(s). The Fixed Dollar Cost Averaging (DCA) Account --------------------------------------------- You may elect to have net premiums allocated to a fixed DCA account. The fixed DCA account must be selected at the time of application and requires an initial minimum net premium of $1,000. You may select either a 6-month or a 12-month DCA duration. The DCA duration cannot be renewed or extended. During the DCA duration, subsequent net premiums may be allocated to the fixed DCA account. After the examination offer period, a portion of the value in the fixed DCA account is transferred each monthly date during the DCA duration. If the monthly date is not a business day, the transfer occurs on the next business day. The transfers are allocated to the divisions and/or to the fixed account according to your Fixed DCA allocation instructions. The transfers do not count against any limitations on the number of free transfers. On each monthly date, the amount of the transfer is (a) divided by (b) where (a) is the value of your fixed DCA account (which includes net premiums and interest credited); and (b) is the number of months remaining in the DCA duration. For example, if your fixed DCA account has a value of $4,000 and four months remain in the DCA duration, the transfer amount would be $1,000 ($4,000 / 4). The credited interest rate on the fixed DCA account is generally higher than the rate on the fixed account. Net premiums are credited at the interest rate in effect on the date the net premium is allocated to the fixed DCA account. The 6-month DCA duration and the 12-month DCA duration generally have different credited interest rates. You may make unscheduled transfers from the fixed DCA account to divisions and/or the fixed account. Transfers into the fixed DCA account are not permitted. After the DCA duration, net premiums may not be allocated to the fixed DCA account. If at the end of the DCA duration your premium allocation percentages include allocating a portion of net premiums to the fixed DCA account, that portion will be allocated to the Money Market Division until you give us instructions otherwise. CHARGES AND DEDUCTIONS We make certain charges and deductions to support operation of the Policy and the Separate Account. Some charges are deducted from premium payments when they are received. Other charges are deducted on a monthly basis while others are deducted at the time a Policy is surrendered or terminated. These charges are intended to cover distribution expenses (commissions paid to registered representatives, printing of prospectuses and advertising), administrative expenses (processing applications; conducting medical examinations; determining insurability; establishing and maintaining records; processing death benefit claims and policy changes, reporting and overhead), mortality expenses and profit. PREMIUM EXPENSE CHARGE (COMBINATION OF MAXIMUM SALES CHARGE AND TAXES) When we receive your premium payment, we deduct a premium expense charge. The sales charge is intended to pay us for distribution expenses including commissions paid to sales representatives, printing of prospectuses and sales literature and advertising. Deductions from premiums equal: . sales charge of 3.00% of premiums paid . (up to a maximum of 5% of premiums paid) . plus 1.25% (of premiums paid) for federal taxes. . plus 2.00% (of premiums paid) for state and local taxes*. * The actual taxes we pay vary from state to state. We approximate the average tax rate we expect to pay on premiums we receive from all states. SURRENDER CHARGE A surrender charge is imposed upon full surrender of the Policy within ten years of the policy date or of a policy face amount increase. In addition, if you reinstate your Policy and then it is fully surrendered, a surrender charge may be imposed. Surrender charges vary based on the surrender target premium* of the Policy, age at issue or adjustment, state of issue and 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 on an early surrender or Policy termination 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. The surrender charge compensates us for expenses relating to the sale of the Policy. * The surrender target premium is based on the gender, if applicable, age and risk classification of the insured (see APPENDIX A - SURRENDER TARGET PREMIUM). The surrender target premium is a calculated premium amount used to determine the surrender charge. The surrender target premium is not a required premium. The surrender charge is (a) multiplied by (b) multiplied by (c) where: (a) is the applicable percentage from Appendix A, (b) is the surrender target premium calculated using the rates in Appendix A; (c) is the applicable surrender charge percentage shown below:
SURRENDER CHARGE PERCENTAGE TABLE --------------------------------- NUMBER OF YEARS SINCE POLICY THE FOLLOWING PERCENTAGE OF DATE AND/OR FACE AMOUNT INCREASE SURRENDER CHARGE IS PAYABLE -------------------------------- --------------------------- 0 through 5 100.00% 6 95.24 7 85.71 8 71.43 9 52.38 10 28.57 11 and later 00.00
MONTHLY POLICY CHARGE The monthly policy charge is made up of: . a charge for the cost of insurance; . a monthly administration charge; . an asset based charge; and . any charge for an additional insurance benefit added by rider(s). On the policy date and each monthly date thereafter, we deduct the charge from your policy value in the divisions, fixed account and/or fixed DCA account (but not your loan account). The deduction is made using your current monthly policy charge allocation percentages. Your 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. For each division, the fixed account and/or fixed DCA account, the allocation percentage must be zero or a whole number. The total of the allocation percentages must equal 100. Allocation percentages may be changed without charge. A request for an allocation change is effective once approved by us, as of the next monthly date. If we cannot follow your instructions because of insufficient value in any fixed account, fixed DCA account and/or the division, the monthly policy charge is deducted on a prorated basis. Cost of Insurance Charge ------------------------ This charge compensates us for providing insurance protection under the Policy. The monthly cost of insurance charge is (a) multiplied by (b) where: (a) is the cost of insurance rate (described below) divided by 1,000; and (b) is the net amount at risk. The net amount at risk is the difference between the death benefit and policy value (see Glossary for exact formula). The lower the policy value, the higher the net amount at risk thus higher cost of insurance charges. The net amount at risk is affected by investment performance, policy loans, payment of premiums fees and charges under the Policy, death benefit option chosen, partial surrenders and face amount adjustments. Different cost of insurance rates may apply to policy face amount increases and to supplemental benefit riders. The cost of insurance for the increase is based on the insured's gender*, issue age, duration since issue, smoking status, and risk classification at the time of the increase. The guaranteed maximum cost of insurance rate for the increase is based on the insured's gender*, attained age and risk classification at the time of the increase. * The cost of insurance rate for Policies issued in states which require unisex pricing or in connection with employment related insurance and benefit plans is not based on the gender of the insured. Groups and persons buying Policies under a sponsored arrangement 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. Special underwriting programs are offered that provide simplified underwriting. The cost of insurance rates for healthy individuals are greater under simplified underwriting than on Policies subjected to full underwriting. Monthly Administration Charge ----------------------------- This charge reimburses us for the costs of maintaining the Policy, including for accounting and record keeping. CURRENT CHARGES . 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. GUARANTEED ADMINISTRATION CHARGES . In all policy years, the guaranteed maximum monthly administration charge is $25.00 per month. Asset Based Charge ------------------ The asset based charge compensates us for distribution and administration expenses. In the first ten policy years, each month we deduct an asset based charge at an annual rate of 0.70% of the policy value. After the tenth policy year, we do not collect an asset based charge. We reserve the right to impose an asset based charge after the tenth policy year but guarantee that the maximum annual rate after the tenth policy year will not exceed 0.20%. UNDERLYING MUTUAL FUND 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 a mutual fund are shown in the prospectus for the underlying mutual fund. GENERAL DESCRIPTION OF THE POLICY THE CONTRACT The entire contract is made up of applications, amendments, riders and endorsements attached to the Policy, data pages, copies of any supplemental applications, amendments, and endorsements 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. The descriptions that follow are based on provisions of the Policy offered by this prospectus. RIGHTS UNDER THE POLICY Ownership --------- Unless changed, the owner(s) is as named in the application. The owner(s) may exercise every right and privilege of the Policy, subject to the rights of any irrevocable beneficiary(ies) and any assignee(s). All rights and privileges of ownership of a Policy end if: . the death proceeds are paid; . the maturity proceeds are paid; . the Policy is surrendered; or . 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. With our consent, you may specify a different arrangement for contingent ownership. You may change your ownership designation at any time. Your request must be in writing and approved by us. After approval, the change is effective as of the date you signed the request for change. We reserve the right to require that you send us the Policy so that we can record the change. Beneficiary ----------- If the insured dies before the maturity date, we pay death proceeds to your named beneficiary(ies). You have the right to name a beneficiary(ies) and contingent beneficiary(ies). This may be done as part of the application process or by sending us a written request. Unless you have named an irrevocable beneficiary, you may change your beneficiary designation by sending us a written request. After approval, the change is effective as of the date you signed the request for change. We reserve the right to require that you send us the Policy so that we can record the change. If no beneficiary(ies) survives the insured, the death proceeds are paid to the owner(s) or the estate of the owner(s) in equal percentages unless otherwise specified. Assignment ---------- You may assign your Policy. Each assignment is subject to any payments made or action taken by the Company prior to our notification of the assignment. We assume no responsibility for the validity of any assignment. An assignment must be made in writing and filed with us at our home office. The irrevocable beneficiary(ies), if any, must authorize any assignment in writing. Your rights, as well as those of the beneficiary(ies), are subject to any assignment on file with us. POLICY LIMITATIONS Division Transfers ------------------ You may transfer amounts between the divisions and/or the fixed account. You must specify the dollar amount or whole percentage to transfer from each division. The transfer is made, and the values determined as of the end of the valuation period in which we receive your 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. You may request an unscheduled transfer or set up a periodic transfer by: . sending us a written request; . calling us if telephone privileges apply (1-800-247-9988); or . visiting www.principal.com (if internet privileges apply). You may not make a transfer to the fixed account if: . a transfer has been made from the fixed account to a division within six months; or . immediately after the transfer, the fixed account value would be more than $1,000,000 (without our prior approval). UNSCHEDULED TRANSFERS . You may make unscheduled transfers from a division to another division or to the fixed account. The minimum transfer amount is the lesser of $100 or the value of your division. We reserve the right to impose a transfer fee on each unscheduled transfer after the first unscheduled transfer in a policy year. SCHEDULED TRANSFERS . You may elect to have automatic transfers made out of one division into one or more of the other divisions and/or the fixed account. You choose the investment options, the dollar amount and timing of the transfers. There is no transfer fee on scheduled transfers. There is no charge for participation in the scheduled transfer program. Automatic transfers are designed to reduce the risks that result from market fluctuations. They do 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. 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 $110.00 35
In the example above, the average share price is $18.33 (total of share prices ($110.00) divided by number of purchases (6)) and the average share cost is $17.14 (amount invested ($600.00) divided by number of shares purchased (35)). Automatic transfers are made on a periodic basis. . The amount of the transfer is: . the dollar amount you select (the minimum is the lesser of $100 or the value of the division); or . a percentage of the division value as of the date you specify (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. . The value of the division must be equal to or more than $2,500 when your scheduled transfers begin. . Transfers continue until your interest in the division has a zero balance or we receive notice to stop them. . 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. Fixed Account Transfers ----------------------- Transfers from your investment in the fixed account to your division(s) are subject to certain limitations. You may transfer amounts by making either a scheduled or unscheduled fixed account transfer. You may not make both a scheduled and an unscheduled fixed account transfer in the same policy year. UNSCHEDULED TRANSFERS . You may make one unscheduled fixed account to division(s) transfer within the 30-day period following the policy date and following each policy anniversary. . You must specify the dollar amount or percentage to be transferred (not to exceed 25% of the fixed account value as of the most recent policy anniversary). . The minimum transfer amount must be at least $100 (or the entire value of your fixed account if less). . If your fixed account value is less than $1,000, you may transfer up to 100% of your fixed account. . There is no transaction charge imposed on the transfer(s). SCHEDULED TRANSFERS . You may make scheduled transfers on a monthly basis from the fixed account to your division(s) without an additional charge as follows: . The value of your fixed account must be equal to or more than $2,500 when your scheduled transfers begin. We reserve the right to change this amount but it will never be more than $10,000. . The amount of the transfer is: . the dollar amount you select (minimum of $50); or . a percentage of the fixed account value (the maximum amount of the transfer is 2% of the fixed account value as of the specified date) as of the date you specify which may be: . the later of the policy date or most recent policy anniversary date; or . the date the Company receives your request. . Transfers occur on a date you specify (other than the 29th, 30th or 31st of any month). . If the specified date is not a business day, the transfer is completed on the next business day. Scheduled transfers continue until your value in the fixed account has a zero balance or we receive your notice to stop them. If you stop the transfers, you may not start them again until six months after the last scheduled transfer. You may change the amount of the transfer once each policy year by: . sending us a written request; . calling us if telephone privileges apply (1-800-247-9988); or . visiting www.principal.com (if internet privileges apply). As transfers are made on a monthly basis, a change in the amount of transfer is effective with the scheduled transfer after our receipt of notice of the change Automatic Portfolio Rebalancing (APR) ------------------------------------- APR allows you to maintain a specific percentage of your 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 your value to be in the Bond division and 40% in the Capital Value division. By rebalancing, units from the Bond division are sold and 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. You may elect APR at the time of application or after the Policy has been issued. There is no charge for participation in the APR program. The APR transfers: . do not begin until the later of expiration of the examination offer period or the DCA duration, if applicable; . are done without charge; . may be done on the frequency you specify: . quarterly (on a calendar year or policy year basis); or . semiannual or annual (on a policy year basis). . may be done by: . calling us (if telephone privileges apply (1-800-247-9988)); . mailing us your written request; . faxing your request to us; or . visiting www.principal.com (if internet privileges apply). . are made at the end of the next valuation period after we receive your instruction; . are not available for values in the fixed account; and . are not available if you have scheduled transfers from the same divisions. ADDITIONAL INSURANCE BENEFITS Subject to certain conditions, you may add one or more additional insurance benefits to your Policy. Detailed information concerning additional insurance benefits may be obtained from an authorized agent or our home office. NOT ALL ADDITIONAL INSURANCE BENEFITS ARE AVAILABLE IN ALL STATES. SOME PROVISIONS MAY VARY FROM STATE TO STATE. The cost, if any, of an additional insurance benefit is deducted from your policy value. Accelerated Benefits Rider -------------------------- This rider provides the option of receiving the death proceeds before death if the insured becomes terminally ill. Up to 75 percent of the total face amount may be requested, up to a maximum of $1,000,000, provided that the insured has been diagnosed as terminally ill and has a life expectancy of less than 12 months. The death proceeds payable upon the death of the insured will be reduced by the amount of the death proceeds advanced plus interest charged. The rider is available to all Policies at issue or may be elected at any time prior to the insured's death. There is no charge for this rider other than interest charged during the time period death proceeds are advanced. Receipt of a death benefit advance may be taxable. Before you make a claim for a death benefit advance, you should seek assistance from your personal tax advisor. Accidental Death Benefit Rider ------------------------------ This rider provides an additional death benefit if the insured's death is caused by accidental means. The rider must be elected at the time of application or any time before the Policy is issued. There is a charge for this rider. Accounting Benefit Rider ------------------------ This rider is available on business cases only and provides if the Policy is surrendered in the first ten years, 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 Internal Revenue Code Section 1035 exchanges. Our approval, under our then current underwriting guidelines, is required to add this rider. The rider must be elected at the time of application or any time prior to issue. There is no charge for this rider. Change of Insured Rider ----------------------- This rider is available on business cases only and allows the business to change the insured when an employee leaves employment or ownership of the business changes. The rider may be added at any time prior to the proposed insured's age 69. Until the effective date of the change of insured application, coverage remains in effect on the life of the prior insured. We must receive satisfactory evidence of insurability (according to our underwriting guidelines then in effect) for the newly named insured. Future cost of insurance rates are based on the gender, issue age, smoking status, and risk classification of the newly named insured. The death proceeds are paid when the newly named insured dies. There is no charge for this rider. Cost of Living Increase Rider ----------------------------- This rider provides increases in the face amount every three years without requiring evidence of insurability. This rider is added automatically to all Polices with a risk classification of standard or better and where the insured's issue age is 52 or younger. When exercised, the monthly policy charge and surrender charge will be increased to cover the costs and charges for any increase in the total face amount made under this rider. There is no charge for this rider. Death Benefit Guarantee Rider ----------------------------- This rider extends the no-lapse guarantee provision if premiums paid equal or exceed the death benefit guarantee premium requirement. This rider is automatically made a part of the Policy at issue as long as the premium (planned or paid) is equal to or greater than the annual death benefit guarantee premium requirement. The level of premium (planned or paid) at issue determines whether the no-lapse guarantee is extended to the insured's attained age 65, attained age 85 or attained age 100. An illustration (available at no charge from your sales representative or our home office) will provide the death benefit guarantee premium requirement applicable to your Policy. The death benefit guarantee premium requirement is described in the section "PREMIUMS." The use of this rider disqualifies the use of the Supplemental Benefit Rider. There is no charge for this rider. If on any monthly date, the death benefit guarantee premium is not met, we send you a notice stating the premium required to keep the rider in effect. If the premium required to maintain the rider is not received in our home office before the expiration of the 61 days (which begins when the notice is mailed), the death benefit guarantee is no longer in effect and the rider is terminated. If the rider terminates, it may not be reinstated. The rider may not be added after the Policy has been issued. Extended Coverage Rider ----------------------- This rider extends the Policy beyond the maturity date as long as the Policy is still in-force and the insured is living on the maturity date. The Policy will then terminate upon the insured's death. No monthly policy charges are deducted after the maturity date. No additional premium payments are allowed, adjustment options are not available and the death benefit option is changed to Death Benefit Option 1. All investment account and fixed account values will be transferred to the Money Market division and no further transfers are allowed. This rider is added automatically to all Policies when issued. You may choose not to extend the maturity date and instead receive the maturity proceeds by requesting the rider not be attached to your Policy. There is no charge for this rider. Life Paid-Up Rider ------------------ Under certain circumstances, this rider can guarantee the Policy will not terminate when there is a large loan outstanding. The rider benefit begins on the monthly date when the loan balance reaches 96% of the surrender value. There is a one-time charge (guaranteed not to exceed 7.5% of policy value) taken from the policy value on the date the rider is exercised. Afterwards, no further monthly policy charges are deducted. Adjustments or changes to the Policy are not allowed once the rider benefit goes into effect. The Internal Revenue Service has not taken a position on the Life Paid-Up rider. You should consult your tax advisor prior to this rider being exercised. The rider may be elected at the time of application or anytime prior to the maturity date. Return of Cost of Insurance Rider --------------------------------- This rider provides for the return of the cost of insurance charges. The returned charges are credited to the policy value annually on the policy anniversary in equal amounts over a period of five years. The total amount credited is the sum of the cost of insurance charges for the total face amount paid up to the time this benefit begins. The benefits begin as of the later of the last day of the 20th policy year or the last day of the insured's attained age 59 policy year. The benefit is applied according to the premium allocation instructions in effect at that time. If the policy terminates or becomes paid-up due to the Life Paid-Up Rider, any benefit not credited is forfeited. This rider is added automatically to all Policies where the insured's issue age is 75 or younger. There is no charge for this rider. Salary Increase Rider --------------------- This rider is available on business cases only and provides increases in the face amount based on salary adjustments without requiring evidence of insurability. When exercised, the monthly policy charge and surrender charge will be increased to cover the costs and charges for any increase in the total face amount made under this rider. The rider must be elected at the time of application or any time prior to issue. There is a charge for this rider. Supplemental Benefit Rider -------------------------- This rider provides additional insurance (face amount) at a reduced cost. The use of this rider disqualifies the use of the Death Benefit Guarantee Rider. Our approval, under our then current underwriting guidelines, is required to add this rider. The rider may be added at anytime that the insured's attained age is at least 20 but no more than 80 (75 in New York). There is a charge for this rider. Waiver of Monthly Policy Charges Rider -------------------------------------- This rider pays the monthly policy charges of the Policy if you become disabled and lose your ability to earn an income. Our approval, under our then current underwriting guidelines, is required to add this rider. The rider may be added at anytime that the insured's attained age is not greater than 59. There is a charge for this rider. Waiver of Specified Premium Rider --------------------------------- This rider pays the planned scheduled premium on the Policy if you become disabled and lose your ability to earn an income. Our approval, under our then current underwriting guidelines, is required to add this rider. The rider may be added at anytime that the insured's attained age is not greater than 59. There is a charge for this rider. RESERVATION OF RIGHTS We reserve the right to change the Policy to assure it continues to qualify as life insurance for tax purposes. However, we cannot make any guarantee regarding the future tax treatment of any Policy. We also reserve the right to amend or terminate the special plans described in this prospectus, for example preauthorized premium payments. You would be notified of any such action to the extent required by law. RIGHT TO EXCHANGE During the first 24 months after the effective date (except during a grace period), you have the right to make an irrevocable, one-time election to transfer all of your division and fixed DCA account values to the fixed account. No charge is imposed on this transfer. The policy value immediately after the transfer will be the same as immediately before the transfer. From the exchange date forward, the policy value will no longer be affected by the investment performance of the divisions. Your request must be in writing and be signed by the owner(s). The request must be postmarked or delivered to our home office before the end of the 24-month period. The transfer is effective when we receive your written request. 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 policy 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 loan indebtedness and partial surrenders. In the event of suicide within two years of a policy 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 due to exercise of your rights under the examination offer provision, surrenders, policy loans, death or maturity proceeds, and transfers to or from a division are generally made within five days after we receive your instructions in a form acceptable to us. This period may be shorter where required by law. However, payment of any amount upon return of the Policy, full or partial surrender, policy loan, death, maturity or the transfer to or from a division 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. 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 for the protection of security holders. If payments are delayed and your instruction is not canceled by your written instruction, the amount of the transaction is determined the first 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. We may defer payment of proceeds payable out of the fixed account and/or fixed DCA account for a period of up to six months. PREMIUMS PAYMENT OF PREMIUMS The amount and frequency of your premium payments affects the policy value, the net surrender value and how long the Policy remains in force. Generally, the higher the policy face amount the higher the premium should be. You must pay premiums to us at our home office, Principal Life Insurance Company, 801 Grand (IDPC), Des Moines, Iowa 50392. Planned periodic premiums are premiums in the amount and on the frequency you plan to pay. You may set up monthly preauthorized withdrawals to allow us to automatically deduct premium payments from your checking or other financial institution account. We send premium reminder notices if you establish an annual, semiannual or quarterly planned payment schedule) Premium payments may also be made through payroll deduction where permitted by state law and approved by us. You may also make unscheduled premium payments. PREMIUMS AFFECTING GUARANTEE PROVISIONS Your initial premium must be at least the no-lapse guarantee premium. After the initial premium, you may determine the amount and timing of subsequent premium payments (with certain restrictions): however, we recommend you continue to pay at least the no-lapse guarantee premium. By meeting the no-lapse guarantee premium requirement, your Policy is guaranteed not to terminate during the first five policy years even if the net surrender value is insufficient to cover the monthly policy charge. The no-lapse guarantee premium requirement is met if ((a) minus (b)) is greater than or equal to (c) where: (a) is the sum of premiums paid; (b) is the sum of all loan indebtedness and partial surrenders; and (c) is the sum of the no-lapse guarantee monthly premiums since the policy date to the most recent monthly date. If the no-lapse premium requirement is not met and the net surrender value is insufficient to cover the monthly policy charge, the Policy may terminate in the first five policy years. If the Death Benefit Guarantee rider is made a part of your Policy and you pay at least the death benefit guarantee premium requirement, the death benefit guarantee period will last longer than the five year period provided by the no-lapse guarantee provision. You choose whether you want the no-lapse guarantee period to extend to the insured's attained age 65, attained age 85 or attained age 100. Generally, a longer death benefit guarantee period will have a higher premium requirement. The premium requirement is ((a) divided by 1,000) times (b) where: (a) is the policy face amount; and (b) is the premium rate.
EXAMPLE If the policy face amount is $250,000 with Death Benefit Option 2 and the insured is a 45-year old male with a risk classification of preferred non-smoker: ------------------------------- ------------------------------------------------------------------------------- PREMIUM RATE PREMIUM REQUIREMENT ------------------------------------------------------------------------------- No-Lapse Guarantee $9.33 $2,332.50 ------------------------------------------------------------------------------- Death Benefit Guarantee to $15.02 $3,755.00 attained age 65 ------------------------------------------------------------------------------- Death Benefit Guarantee to $25.35 $6,337.50 attained age 85 ------------------------------------------------------------------------------- Death Benefit Guarantee to $29.45 $7,362.50 attained age 100 -------------------------------------------------------------------------------
You choose the death benefit guarantee period based on your scheduled premium payments. The death benefit guarantee premium requirement is met if ((a) minus (b)) is greater than or equal to (c) where: (a) is the sum of premiums paid; (b) is the sum of all loan indebtedness and partial surrenders; and (c) is the sum of the death benefit guarantee monthly premiums since the policy date to the most recent monthly date. If the death benefit guarantee premium requirement is not met, the Death Benefit Guarantee Rider will terminate. If in the first five policy years, the Policy will still have the no-lapse guarantee as long as the premiums paid are sufficient to meet the no-lapse guarantee premium requirement. Both the no-lapse guarantee premium and the death benefit guarantee premium rates are per $1000 of face amount and vary by issue age, gender* and smoking status. The no-lapse guarantee premium and the death benefit guarantee premium are shown on the current data pages. * For Policies issued in states which require unisex pricing or in connection with employment related insurance and benefit plans, the premiums are not based on the gender of the insured. PREMIUM LIMITATIONS In no event may the total of all premiums paid, both scheduled and unscheduled, be more than the maximum premium payments allowed for life insurance under the Internal Revenue Code. If you make a premium payment that would result in total premiums exceeding the 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 are accepted until allowed by the current maximum premium limitations. ALLOCATION OF PREMIUMS Your initial net premium (and other net premiums we receive prior to the effective date and twenty days after the effective date) is allocated to the Money Market division at the end of the business day we receive the premium. Twenty-one days after the effective date, the money is reallocated to the divisions, fixed account and/or fixed DCA account according to your instructions. If the twenty-first day is not a business day, the transfer will occur on the first business day following the twenty-first day from the effective date. Example: The effective date of your Policy is February 1st. Your net premium is allocated to the Money Market division at the end of the valuation period we receive the premium. At the close of business on February 21st, the net premium is reallocated to the divisions, fixed account and/or fixed DCA account that you selected. Net premium payments received after the twenty-day period are allocated to the divisions, the fixed account and/or fixed DCA account according to your premium allocation instructions. For each division, fixed account and fixed DCA account, the allocation percentage must be zero or a whole number. The total of all allocation percentages must equal 100. Net premium payments are allocated as of the valuation period in which they are received. At any time, you may change the percentage allocation for future premium payments by: . sending a written request to us; . calling us at 1-800-247-9988 (if telephone privileges apply); or . visiting www.principal.com (if internet privileges apply). The allocation changes are effective at the end of the valuation period in which your new instructions are received. NOTE: We reserve the right to keep the initial premium payment in the Money Market division longer than 20 days to correspond to the examination offer periods of a particular state's replacement requirements. Division Valuation ------------------ 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 premiums payments or a Death Benefit Guarantee rider, it is possible that no death benefit would be paid upon the insured's death. At the end of any valuation period, your value in a division is: . the number of units you have in the division . 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: . your initial premium payment (less premium expense charges); . plus subsequent premium payments (less premium expense charges); . plus transfers from another division, the fixed account or the fixed DCA account minus units sold: . for partial surrenders from the division; . as part of a transfer to another division, the fixed account or the loan account; and . to pay monthly policy charges and any transaction fees. We calculate unit values on days that the NYSE is open for trading and trading is not restricted. We do not calculate unit values on these recognized holidays: New Year's Day; Labor Day; Martin Luther King, Jr. Day; Thanksgiving; President's Day; Christmas; Good Friday, Memorial Day and Independence Day. In addition, we do not calculate unit values if an emergency exists making disposal or valuation of securities held in the underlying mutual funds impracticable or if the SEC, by order, permits a suspension or postponement for the protection of security holders. 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 you own in the division. DEATH BENEFITS AND POLICY VALUES DEATH PROCEEDS If coverage is in effect and 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)*; and . 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 office and a current Board resolution providing the name of the officer 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 your named beneficiary(ies) under your designated benefit payment option (see GENERAL DESCRIPTION OF THE POLICY - Rights Under the Policy). The payments are made in cash lump sum or under a benefit payment option. Death proceeds are calculated as of the date of the insured's death and include: . the death benefit described below; . minus loan indebtedness; . 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. Benefit Instructions -------------------- While the insured is alive, you may give us instructions for payment of death proceeds under one of the benefit payment options of the Policy. If at the insured's death, you have not provided benefit payment option instructions, the beneficiary(ies) select the benefit payment option to be used. If a benefit payment option is not selected, the death proceeds are paid in a cash lump sum. These choices are also available if the Policy matures or is surrendered. The instructions or changes to the instructions must be in writing. If you change the beneficiary(ies), prior benefit payment option instructions are revoked. The benefit payment options include: . Custom Benefit Arrangement A customized benefit payment option may be arranged with our approval. . Life Income We pay income during a person's lifetime. Without a guaranteed period, it is possible that only one payment is made under this option if the person dies before the second payment is due. A guaranteed period of from 5 to 30 years may be used (if the person dies before all of the guaranteed payments have been made, the guaranteed remaining payments are made to the beneficiary named in the benefit payment option instructions). . Joint and Survivor Life Income We pay income during the lifetime of two people and continue until the death of the survivor. Without a guaranteed period, it is possible that only one payment is made under this option if both of the people die before the second payment is due. A guaranteed period of from 5 to 30 years may be used (if both of the people die before all of the guaranteed payments have been made, the guaranteed remaining payments are made to the beneficiary named in the benefit payment option instructions). If no beneficiary(ies) survive the insured, the death proceeds will be paid to the owner or 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 above benefit payment options. DEATH BENEFIT OPTION The death benefit option is selected at the time of application. If a death benefit option is not chosen or you elect the cash value accumulation test, 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 C and are based on our interpretation of Section 7702 of the Internal Revenue Code as set forth below. 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 C. Death Benefit Option: 1 Face Amount: $250,000 Policy Value: $150,000 Definition of Life Insurance Test: Guideline Premium/Cash Value Corridor Test Attained Age: 45 Risk Class: Preferred Non-Smoker Applicable Percentage: 215% Death Benefit = $322,500 ($150,000 x 215%) If the Definition of Life Insurance Test was the Cash Value Accumulation Test, the applicable percentage would be 287.78% (assuming the insured is a male) and the death benefit would be $431,670. CHANGE IN DEATH BENEFIT OPTION (FOR POLICIES USING THE GUIDELINE PREMIUM/CASH VALUE CORRIDOR TEST) You may change the death benefit option on or after the first policy anniversary. Up to two changes are allowed per policy year. Your request must be made in writing and approved by us. The effective date of the change will be the monthly date that coincides with, or next follows, our approval. If the death benefit option change involves a face amount decrease, you may elect to keep the current face amount, subject to underwriting review and approval. 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 immediately after the change equals the death benefit 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 BENEFI POLICY VALU T E ----------------------------------------------------------------------------------------------------------------------------------- BEFORE THE CHANGE BEFORE THE CHANG BEFORE THE CHANG E E ----------------------------------------------------------------------------------------------------------------------------------- $1,000,000 $1,050,000 $50,000 ($1,000,000+$50,000) ----------------------------------------------------------------------------------------------------------------------------------- AFTER THE CHANGE AFTER THE CHANG AFTER THE CHANG E E ----------------------------------------------------------------------------------------------------------------------------------- $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 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 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 ------------------------------------------------------------------------------------- $970,000 $1,020,000 $50,000 ($1,000,000 + ($30,000 - ($970,000+$50,000) $10,000) - $50,000) -------------------------------------------------------------------------------------
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 Internal Revenue 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 but 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 C. 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. The example below is based on the following: . The insured is a male with an attained age of 45 at the time the Policy was issued. He 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 MINIMUM RISK USED IN FACE DEATH CALCULATING THE COST AMOUNT 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; and . $185,460 for the cash value accumulation test.
THE DEATH BENEFIT PAYABLE IS THE LARGER OF THESE TWO AMOUNTS --------------------------------- NET AMOUNT AT MINIMUM RISK USED IN FACE DEATH CALCULATING THE COST AMOUNT 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 Internal Revenue 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. 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, the Policy is in force and you do not want the maturity date extended by the Extended Coverage Rider, maturity proceeds equal to the net surrender value are paid. If the Extended Coverage Rider is attached but you wish to receive the maturity proceeds at the Policy's maturity and avoid conversion to Death Benefit Option 1, you must send notice to our home office. The maturity proceeds are paid either as a cash lump sum on the maturity date or under the benefit payment option you have selected. 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 DESCRIPTION OF THE POLICY - Additional Insurance Benefits). ADJUSTMENT OPTIONS Increase in policy face amount ------------------------------ You may request an increase at any time provided that the Policy is not in a grace period and monthly policy charges are not being waived under a rider. The minimum increase in policy face amount is $50,000. A policy face amount increase request made in the first 60 policy months will increase the no-lapse guarantee premium for the remainder of the 60 months. The request must be made on an adjustment application. The application must be signed by the owner(s) and the insured. If your request is not approved, no changes are made to your Policy. We will approve your request if: . the insured is alive at the time of your request; and . the attained age of the insured is 85 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 your request. The increase in policy face amount is in a risk classification determined by us. The adjustment is effective on the monthly date on or next following our approval of your request. No examination offer period applies to an increase in policy face amount. We calculate an "adjustment conditional receipt premium deposit" (payment that accompanies request) based on your request for an increase. If you make a payment with your adjustment application of at least as much as the adjustment conditional receipt premium deposit, we issue a conditional receipt. The conditional receipt shows receipt of the payment and outlines any interim insurance coverage. Any payment made with the adjustment application is held in our general account without interest for up to 60 days. If we approve the adjustment, on the effective date of the adjustment, the amount of the premium payment being held minus the premium expense charge is moved to the divisions, fixed account and/or fixed DCA account. Your current premium allocation percentages are used to make this allocation. The cost of insurance charge will increase in the event of an increase in a Policy's face amount. If there is insufficient value to pay the higher charges after an increase in face amount, the entire Policy (not just the incremental increase in face amount) will terminate, unless the no-lapse or death benefit guarantees are in effect. Decrease in policy face amount ------------------------------ On or after the first policy anniversary, you may request a decrease in the policy face amount. No transaction fee is imposed on decreases in the policy face amount. A decrease in face amount lowers the cost of insurance charges but does not reduce surrender charges nor the no-lapse guarantee premium requirement. A decrease is requested as follows: . the request must be made on an adjustment application; . the application must be signed by the owner(s); . the Policy is not in a grace period; . monthly policy charges are not being waived under a waiver rider; . the decrease is at least the minimum amount as determined by our underwriting guidelines in place at the time of your request; and . the decrease may not reduce the policy 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 Internal Revenue Code relating to the definition of life insurance. POLICY VALUES Your policy value is equal to the sum of the values in your divisions, fixed account, fixed DCA account and loan account. . Your policy value increases as premiums are applied and when interest is credited. . Your policy value decreases as policy loans, partial surrenders, unpaid loan interest and policy expenses are deducted. . Your policy value can increase or decrease as the investment experience of your chosen divisions fluctuates. SURRENDERS AND PARTIAL SURRENDERS SURRENDERS You must send us a written request for any surrender. The request must be signed by all owners, irrevocable beneficiary(ies), if any, and any assignees. The surrender is effective and the surrender value calculated as of the end of the valuation period during which we receive the written request for surrender. Partial surrenders may negatively affect your no-lapse guarantee provision and your Death Benefit Guarantee rider, if applicable. 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 DESCRIPTION OF THE POLICY - Delay of Payments). Full surrender -------------- You may surrender the Policy while the Policy is in effect. If the full surrender is within ten years of the policy date or a policy face amount increase, a surrender charge is imposed. There is no refund of any monthly policy charges deducted before the full surrender effective date. We reserve the right to require you to return the Policy to us prior to making any payment though this does not affect the amount of the surrender value. Unscheduled partial surrender ----------------------------- On or after the first policy anniversary and prior to the maturity date, you may surrender a part of the net surrender value. Up to two unscheduled partial surrenders may be made during a policy year. The total of your two unscheduled partial surrenders during a policy year may not be greater than 75% of the net surrender value (as of the date of the request for the first unscheduled partial surrender in that policy year). The unscheduled partial surrender may not decrease the policy face amount to less than $100,000. Your policy value is reduced by the amount of the surrender. We surrender units from the divisions and/or values from the fixed account to equal the dollar amount of the surrender request. The surrender is deducted from your division(s) and/or fixed account according to the surrender allocation percentages you specify. If surrender allocation percentages are not specified, the deduction is made using your monthly policy charge allocation percentages. No surrender charge is imposed on an unscheduled partial surrender. An unscheduled partial surrender may cause a reduction in total face amount. If the total face amount had been increased, any reduction of the total face amount is made on a last in, first out basis. . If the Death Benefit Option 1 is in effect and the death benefit equals the total face amount, the total face amount is reduced by the amount of the unscheduled partial surrender that is not deemed to be a preferred partial surrender. In situations where the death benefit is greater than the total face amount, the total face amount is reduced by the amount the unscheduled partial surrender exceeds the difference between the death benefit and total face amount. Preferred Partial Surrender (pertains only if Death Benefit Option 1 is in -------------------------------------------------------------------------- effect) ------- During policy years two through fifteen, 10% 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 10% causes a reduction in the total face amount. The 10% preferred partial surrender privilege is not cumulative from year-to-year and cannot exceed $100,000 in any policy year or $250,000 over the life of the Policy. The maximum amount of preferred partial surrenders in a policy year is the lesser of ((a) plus (b)) or (c) where: (a) is the amount of the unscheduled partial surrender; (b) is the amount of any preferred partial surrenders in the same policy year; and (c) is 10% of the net surrender value at the end of the prior policy year. . If the Death Benefit Option 2 is in effect, there is no reduction in the total face amount upon an unscheduled partial surrender. . If the Death Benefit Option 3 is in effect and the death benefit equals 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. In situations where the death benefit is greater than the total face amount, the total face amount is reduced by the amount determined above which exceeds the difference between the death benefit and total face amount. * The face amount reduction will be less if the face amount has already been reduced due to prior partial surrenders. Scheduled Partial Surrender --------------------------- On or after the first policy anniversary and prior to the maturity date, you may elect to receive part of your net surrender value automatically on any monthly date. . You select the amount of the surrender and the surrender frequency (annually, semi-annually, quarterly or monthly (based on policy year)). . The surrender is deducted from your division(s) and/or fixed account according to your monthly policy charge allocation percentages. . Each scheduled partial surrender may not be greater than 90% of the net surrender value (as of the date of the scheduled partial surrender). . Scheduled partial surrenders will continue until we receive your instructions to stop them or until the sum of your premiums has been surrendered. When all of your net premiums have been surrendered, policy loans will automatically begin so as to provide you the same dollar amount at the same frequency as you had received under the scheduled partial surrenders. . A scheduled partial surrender may cause a reduction in total face amount: . If Death Benefit Option 1 is in effect and the death benefit equals the total face amount: . on the first monthly date a scheduled partial surrender is effective (and each subsequent policy anniversary) the total face amount is reduced, . the amount of the reduction is the sum of the scheduled partial surrenders planned for that policy year that are not deemed to be a preferred partial surrender. . If the amount of the scheduled partial surrender is increased, the total face amount is reduced on the monthly date the change is effective. If the amount of the scheduled partial surrender is decreased, there is no change to the total face amount. If the death benefit is greater than the total face amount, the total face amount is reduced by the amount determined above which exceeds the difference between the death benefit and total face amount. Preferred Partial Surrender (pertains only if Death Benefit Option 1 is in -------------------------------------------------------------------------- effect) ------- During policy years two through fifteen, 10% 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 10% causes a reduction in the total face amount. The 10% preferred partial surrender privilege is not cumulative from year-to-year and cannot exceed $100,000 in any policy year or $250,000 over the life of the Policy. The maximum amount of preferred partial surrenders in a policy year is the lesser of ((a) plus (b)) or (c) where: (a) is the sum of the scheduled partial surrenders; (b) is the amount of any preferred partial surrenders in the same policy year; and (c) is 10% of the net surrender value at the end of the prior policy year. . If the Death Benefit Option 2 is in effect, there is no reduction in the total face amount due to scheduled partial surrenders. . If the Death Benefit Option 3 is in effect and the death benefit equals the total face amount, on the first monthly date a scheduled partial surrender is effective or changed (and each subsequent policy anniversary) 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. In situations where the death benefit is greater than the total face amount, the total face amount is reduced by the amount determined above which exceeds the difference between the death benefit and total face amount. * The face amount reduction will be less if the face amount has already been reduced due to prior partial surrenders. EXAMINATION OFFER (FREE-LOOK PROVISION) Under state law, you have the right to return the Policy for any reason during the examination offer period. If you return the Policy, we will refund your premium in states where required. In states where permitted, we will refund the net policy value plus any fees or charges taken (which may be more or less than premiums paid). Your request to return the Policy must be in writing. The request and the Policy must be mailed to us or returned to the agent no later (as determined by the postmark) than the last day of the examination offer period as shown below. The examination offer period is the later of: . 10 days after the Policy is delivered to you; or . such later date as specified by applicable state law. NOTE: See GENERAL DESCRIPTION OF THE POLICY - Delay of Payments. LOANS POLICY LOANS While your Policy is in effect (but after the examination offer period) and has a net surrender value, you may borrow money from us with the Policy as the security for the policy loan. . The maximum amount you may borrow is 90% of the net surrender value as of the date we process the policy loan. . You may request a policy loan of $5,000 or less by calling us at 1-800-247-9988. If you are requesting a policy loan of more than $5,000, your request must be made in writing. . Generally, policy loan proceeds are sent within five business days from the date we receive your request (see GENERAL DESCRIPTION OF THE POLICY - Delay of Payments). . Requests for policy loans from any joint owner are binding on all joint owners. . Policy loans may negatively affect your no-lapse guarantee provision and your Death Benefit Guarantee rider, if applicable (see POLICY TERMINATION AND REINSTATEMENT - Policy Termination (Lapse)). You are charged interest on your policy loan. During the first ten policy years, the interest rate is 5.50% per year. After policy year ten, 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 policy loan amount causes additional amounts to be withdrawn from your fixed account, fixed DCA account and/or division(s) and transferred to the loan account. Withdrawals are made in the same proportion as the allocation used for the most recent monthly policy charge. 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) and the interest credited to the fixed account and fixed DCA account. In addition, loan indebtedness is subtracted from: . death proceeds at the death of the insured; . surrender value upon full surrender or termination of a Policy; and . maturity proceeds paid. Policy loans and unpaid loan interest reduce your net surrender value. If the net surrender value is less than the monthly policy charges on a monthly date, the 61-day grace period provision applies (see POLICY TERMINATION AND REINSTATEMENT - Policy Termination (Lapse)). If the Policy terminates with an outstanding loan balance, there may be tax consequences. LOAN ACCOUNT When a policy loan is taken, a loan account is established. An amount equal to the loan is transferred from your division(s), fixed account and fixed DCA account to your loan account. Loan accounts are part of our general account. There are no restrictions from which accounts the loan amount can be transferred. Any loan interest due and unpaid is transferred in the same proportion as the allocation used for the most recent monthly policy charge. Unscheduled Loans ----------------- Unscheduled loans are available in all policy years. You may instruct us on the proportions to be taken from your accounts. If you do not provide such instruction, the loan amount is withdrawn in the same proportion as the allocation used for the most recent monthly policy charge. Scheduled Loans --------------- After the first policy year, scheduled policy loans are available on any monthly date. Scheduled loans may occur on a monthly, quarterly, semiannual or annual basis (based on the policy year). Before scheduled loans are available, you must have withdrawn, through partial surrenders, an amount equal to or exceeding total premiums paid. The loan amount is withdrawn in the same proportion as the allocation used for the most recent monthly policy charge. Your loan account earns interest from the date of transfer. The loan account interest rate is 4.00% per year. Interest accrues daily and is paid at the end of the policy year. LOAN PAYMENTS While the Policy is in force and before the insured dies, you may pay the loan indebtedness as follows: . policy loans may be repaid totally or in part; . repayments are allocated to the division(s), fixed account and fixed DCA account in the proportions used for allocation of premium payments; . payments that we receive that are not designated as premium payments are applied as loan repayments if a policy loan is outstanding; . the repayments are allocated as of the valuation period in which we receive the repayment; and . repayments are to be sent to our home office. POLICY TERMINATION AND REINSTATEMENT POLICY TERMINATION (LAPSE) If the net surrender value on any monthly date is less than the monthly policy charge, a 61-day grace period begins. However, during the first 60 policy months, the Policy will not enter a grace period if ((a) minus (b)) is greater than or equal to (c) where: (a) is the sum of the premiums paid; (b) is the sum of all loan indebtedness and partial surrenders; and (c) is the sum of the no-lapse guarantee premiums since the policy date to the most recent monthly date. After the first 60 policy months, making premium payments under your planned periodic premium schedule does not guarantee that your Policy will stay in force unless: . your Policy's net surrender value is at least equal to the monthly policy charge on the current monthly date; or . the death benefit guarantee rider is in effect. Grace Period ------------ If the net surrender value on a monthly date is less than the current monthly charge and neither the no-lapse guarantee provision nor the death benefit guarantee rider is in effect, we will send you a notice of pending termination and a grace period begins. We will send you a notice at the start of the grace period (to your last known post office address) stating the required premium to avoid policy termination. The grace period will end 61 days after the day the notice is mailed. If the required premium is not received by us by the end of the grace period, the Policy will terminate without value. During the first 60 policy months, the required premium is the greater of (a) or (b) where: (a) is three monthly policy charges divided by (1 minus the maximum premium expense charge); and (b) is three no-lapse guarantee monthly premiums. After the first 60 policy months, the required premium is (a) plus (b) where: (a) is the amount by which the surrender charge is more than the Policy value less loan indebtedness on the monthly date on or immediately preceding the start of the grace period; and (b) is three monthly policy charges divided by (1 minus the maximum premium expense charge). When the required premium is paid during the grace period, monthly charges are not deducted until the monthly anniversary following the payment. Therefore, during the grace period, the net surrender value may be overstated. The determination of three monthly policy charges is made by taking three times the "failed" monthly deduction that could not be made due to insufficient net surrender value. Example: Policy Value: $5,000 Loan Indebtedness: $4,000 Surrender Charge: $500 Net Surrender Value: $500 (Policy Value minus Loan Indebtedness minus Surrender Charge) Monthly Policy Charge: $1,000 No-Lapse Guarantee Premium: $1,200 Maximum Premium Expense Charge in the first policy year: 8.25% (5.0% sales charge, 1.25% federal taxes, 2.0% state and local taxes) During the first 60 policy months, the required premium is $3,600 ($1,200 x 3) After the first 60 policy months, the required premium is $3,270 [($1,000 x 3)/(1 - 0.0825)] The required premium is intended to a) reimburse us for the monthly policy charges during the grace period, and b) provide enough policy value to pay the monthly policy charge on the first monthly date after the grace period. If the grace period ends before we receive the required premium, we keep any remaining value in the Policy to cover past due policy charges. Adverse market fluctuations may cause the Policy to enter into subsequent grace periods. If the insured dies during a grace period, the death benefit is paid and the amount is reduced by: . all monthly policy charges due and unpaid at the death of the insured; and . any loan indebtedness. The Policy also terminates: . when you make a full Policy surrender; . when death proceeds are paid; and . when the maturity proceeds are paid. When the Policy terminates, all of the owners' Policy rights and privileges end. Neither partial surrenders, face amount adjustments nor policy loans may be made during a grace period. REINSTATEMENT Subject to certain conditions, you may reinstate a Policy that terminated because of insufficient value. 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 you make a payment of a reinstatement premium; 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 required premium formulas found above in the Grace Period section. The required premium formula in effect on the date the Policy was terminated will be used in this calculation. If a policy loan or loan interest was unpaid when the Policy terminated, the policy loan must be reinstated or repaid (loan interest does not accrue over the period the Policy was terminated). We do not require payment of monthly policy charges during the period the Policy was terminated. Reinstatement is effective on the next monthly date following our approval of the reinstatement application. Premiums received with your reinstatement application are held in our general account without interest. If the reinstatement is approved, premiums are allocated to your selected division(s), fixed account and/or fixed DCA account on the reinstatement date. We will use the premium allocation percentages in effect at the time of termination of the Policy unless you provide new allocation instructions. The reinstated Policy has the same policy date as the original Policy. Your rights and privileges as owner(s) are restored upon reinstatement. If you reinstate your Policy and then it is fully surrendered, a surrender charge may be imposed. The surrender charge, if any, and premium expense charge are calculated based on the number of years the Policy was in force. The period of time during which the Policy was terminated is not included in these calculations. If you reinstate your Policy, the Return of Cost of Insurance Rider is not reinstated. TAX ISSUES RELATED TO THE POLICY The following description is a general summary of the tax rules pertaining to life insurance policies. This section relates primarily to federal income taxes rules, regulations and interpretations, which in our opinion are currently in effect but which 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. NOTE: DUE TO THE COMPLEXITY OF THESE RULES AND BECAUSE THEY ARE AFFECTED BY THE FACTS AND CIRCUMSTANCES OF EACH POLICY, YOU SHOULD CONSULT WITH LEGAL AND TAX COUNSEL AND OTHER COMPETENT ADVISORS REGARDING THESE MATTERS. TAXATION OF DEATH PROCEEDS The death proceeds payable under a Policy are generally excludable from the gross income of the beneficiary(ies) under the Internal Revenue Code. However, if the Policy is transferred for valuable consideration, then a portion of the death proceeds may be includable in the beneficiary's gross income. TAXATION OF MATURITY PROCEEDS A taxable event may occur if the net surrender value at maturity plus any loan indebtedness is greater than the remaining premiums paid (premiums paid less partial surrenders and premium refunds) but not less than zero). The taxable amount is the difference between the surrender value and the remaining premiums in the policy. TAXATION OF GROWTH IN POLICY VALUE Any increase in policy value is not included in gross income while the Policy is in-force and continues to meet the definition of life insurance as defined under Section 7702 of the Internal Revenue Code. If a contract does not meet the definition of life insurance, the owner will be subject to income tax on annual increases in cash value. TAXATION OF POLICY SURRENDERS AND PARTIAL SURRENDERS A surrender or termination of the Policy may have income tax consequences. Upon surrender, the owner(s) 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 loan indebtedness, upon surrender or termination, 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 your investment in the Policy. Partial surrenders generally are not taxable unless the total of such surrenders exceeds total premiums paid to the date of partial surrender less the untaxed portion of any prior partial surrenders. If within the first fifteen policy years you make a partial surrender with a corresponding reduction in the total face amount, special rules apply. Under those circumstances, the Internal Revenue Code has defined a special formula under which you may be taxed on all or a portion of the surrender amount. 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. A full surrender of the Policy will, and a partial surrender may, be included in your gross income to the extent the distribution exceeds your investment in the Policy. Transfers between the division(s) fixed account and/or fixed DCA account are not considered as distributions from the Policy and would not be considered taxable income. NOTE: The tax treatment of partial surrenders described above also applies to preferred partial surrenders. TAXATION OF POLICY LOANS AND LOAN INTEREST If the Policy is not a modified endowment contract, loans received under the Policy are not generally 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. If the Policy is a modified endowment contract, loans received under the Policy are considered to be distributions subject to tax. If the Policy terminates with an outstanding loan balance, there may be tax consequences. TAXATION OF CHANGE OF OWNER If an ownership change occurs, the taxable amount is calculated by taking the policy value less net premiums paid. A transfer of ownership by gift is not subject to income tax unless there is loan indebtedness that exceeds net premiums paid. A transfer of ownership by gift may have gift tax implications. TAXATION OF CHANGE OF INSURED For tax purposes, changing the insured is considered to be the same as a surrender of the policy. The taxable amount is the difference between the policy value and the net premiums paid. MODIFIED ENDOWMENT CONTRACT STATUS A Policy becomes a Modified Endowment Contract when premiums paid exceed certain premium limits as defined by Section 7702A of the Internal Revenue Code. There is no change regarding the tax-deferred internal build-up of policy value or the income tax-free death benefit to your beneficiary(ies), however, distributions from a Modified Endowment Contract are taxed as if the Policy is a deferred annuity. Thus, taxation on partial surrenders, policy loans and other defined distributions will occur if your policy value is greater than your premiums paid. In addition, taxable distributions are subject to a federal income tax penalty of 10% unless the distribution is . made after the owner attains age 591/2; or . attributable to the taxpayer becoming disabled; or . part of a series of substantially equal periodic payments (made not less frequently than annually) made for the life or life expectancy of the taxpayer or the joint lives or joint life expectancy of the taxpayer and beneficiary. Once a Policy is classified as a Modified Endowment Contract, the classification cannot be changed. 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. TAXATION OF 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. 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 Internal Revenue 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. SPECIAL CONSIDERATIONS FOR CORPORATIONS Section 264 of the Internal Revenue Code imposes numerous limitations on the interest and other business deductions that may otherwise be available to businesses that own life insurance policies. In addition, the premium paid by a business for a life insurance policy is not deductible as a business expense or otherwise if the business is directly or indirectly a beneficiary of the policy. For purposes of the alternative minimum tax ("AMT") that may be imposed on corporations, the death benefit from a life insurance policy, even though excluded from gross income for normal tax purposes, is included in "adjusted current earnings" for AMT purposes. In addition, although increases to the cash surrender value of a life insurance policy are generally excluded from gross income for normal income tax purposes, such increases are included in adjusted current earnings for income tax purposes. 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. WITHHOLDING Withholding is generally required on certain taxable distributions under insurance contracts. In the case of periodic payments, the withholding is at graduated rates. With respect to non-periodic distributions, withholding is a flat rate of 10%. You may elect to have either non-periodic or periodic payments made without withholding except if your tax identification number has not been furnished to us or if the IRS has notified us that the number you furnished is incorrect. GENERAL PROVISIONS FREQUENT TRADING AND MARKET-TIMING (ABUSIVE TRADING PRACTICES) This Contract is not designed for frequent trading or market timing activity of the investment options. If you intend to trade frequently and/or use market timing investment strategies, you should not purchase this Contract. We consider frequent trading and market timing activities to be abusive trading practices because they: . Disrupt the management of the underlying mutual funds by; . forcing the fund to hold short-term (liquid) assets rather than investing for long term growth, which results in lost investment opportunities for the fund; and . causing unplanned portfolio turnover; . Hurt the portfolio performance of the underlying mutual funds; and . Increase expenses of the underlying mutual fund and separate account due to; . increased broker-dealer commissions; and . increased recordkeeping and related costs. We have adopted policies and procedures to help us identify and prevent abusive trading practices. In addition, the underlying mutual funds monitor trading activity to identify and take action against abuses. While our policies and procedures are designed to identify and protect against abusive trading practices, there can be no certainty that we will identify and prevent abusive trading in all instances. When we do identify abusive trading, we will apply our policies and procedures in a fair and uniform manner. If we, or an underlying mutual fund that is an investment option with the Contract, deem abusive trading practices to be occurring, we will take action that may include, but is not limited to: . Rejecting transfer instructions from a Contract owner or other person authorized by the owner to direct transfers; . Restricting submission of transfer requests by, for example, allowing transfer requests to be submitted by 1/st/ class U.S. mail only and disallowing requests made via the internet, by facsimile, by overnight courier or by telephone; . Limiting the number of unscheduled transfer during a Contract year to no more than 12; . Requiring a holding period of a minimum of thirty days before permitting transfers among the divisions where there is evidence of at least one round-trip transaction by the owner; and . Taking such other action as directed by the underlying mutual fund. The underlying mutual funds have reserved the right to accept or reject, without prior written notice, any transfer requests. In some instances, a transfer may be completed prior to a determination of abusive trading. In those instances, we will reverse the transfer and return the Contract to the investment option holdings it had prior to the transfer. We will give you notice in writing in this instance. PURCHASE PROCEDURES A completed application and required supplements must be submitted to us through an agent or broker selling the Policy. The minimum policy face amount when the Policy is originally issued is $100,000. We reserve the right to increase or decrease the minimum policy face amount. The increased minimum face amount would apply only to Policies issued after the effective date of the increase. To issue a Policy, we require that the age of the insured be 85 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, you must send a payment with your completed application. The amount is based on the face amount of the Policy, the death benefit option and the charges and expenses of the Policy. This amount is shown on the policy illustration provided to you by us or 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. Any premium submitted will be returned no later than five business days from the date the application was rejected. Important Information about Procedures -------------------------------------- To help the government fight the funding of terrorism and money laundering activities, Federal law requires financial institutions to obtain, verify, and record information that identifies each person who opens an account. When you open an account, we will ask for your name, address, date of birth, and other information that will allow us to verify your identity. We may also ask to see your driver's license or other identifying documents. If concerns arise with verification of your identification, no transactions will be permitted while we attempt to reconcile the concerns. If we are unable to verify your identity within 30 days of our receipt of your initial premium payment, the account(s) will be closed and redeemed in accordance with normal redemption procedures. 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 cash on delivery (COD) basis and that would otherwise be dated on the 29th, 30th or 31st of a month will be dated on the first day of the following month. Your policy date is shown on the current data pages. Current data pages are the most recent policy specification pages issued to an owner and are located in the Policy. Upon specific request and our approval, your Policy may be backdated. The policy date may not be more than six months prior to the date of application (or shorter period if required by state law). Payment of 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 receive at least one monthly policy charge); or . application amendments are required (the effective date is the date we receive, review and accept amendments. Unless otherwise instructed by the owner, the policy date and the effective date are the same as the date the application for insurance coverage is approved.). The insurance coverage does not take effect until you actually receive the Policy. If the insured was to die before the owner actually receives the Policy, there is no coverage under the Policy (coverage is determined solely under the terms of conditional receipt, if any). STATEMENT OF VALUES You receive an annual statement at the end of each policy year. The statement will show: . current death benefit; . current policy value and surrender value; . all premiums paid since the last statement; . all charges since the last statement; . any loan indebtedness; . any partial surrenders since the last statement; . the number of units and unit value; . total value of each of your divisions, the fixed DCA account and the fixed account; . designated beneficiary(ies); and . all riders included in the Policy. You will also receive a statement as of the end of each calendar quarter. At any time, you may request a free current statement by telephoning 1-800-247-9988. We also send you the reports required by the Investment Company Act of 1940 (as amended). SERVICES AVAILABLE VIA THE INTERNET AND TELEPHONE If you elect internet and/or telephone privileges, instructions for the following transactions may be given to us via the internet or telephone: . change in allocations of future premium payments; . change in allocation of the monthly policy charge; . change to your APR instructions; . change to your scheduled transfer instructions; . unscheduled transfers; and . policy loan (not available via the internet) (loan proceeds are mailed to the owner's address of record). If the Policy is owned by a trust, an authorized individual (with the proper password) may use these services and provide us with instructions. Your instructions: . may be given by calling us at 1-800-247-9988 between 7 a.m. and 9 p.m. Central Time on any day that the NYSE is open; . may be given by accessing us at www.principal.com (for security purposes, you need a password to use any of the internet services, including viewing your Policy information on-line. If you don't have a password, you can obtain one at www.principal.com); . must be received by us before the close of the NYSE (generally 3:00 p.m. Central Time) to be effective the day you call; . are effective the next business day if not received until after the close of the NYSE; and . from one joint owner are binding on all joint owners. Direct Dial ----------- You may receive information about your Policy from our Direct Dial system between 7 a.m. and 9 p.m. Central Time, Monday through Saturday. The Direct Dial number is 1-800-247-9988. Through this automated system, you can: . obtain information about unit values and policy values; . initiate certain changes to your Policy; and . change your password. Instructions from one joint owner are binding on all joint owners. If the Policy is owned by a trust, an authorized individual (with the proper password) may use these services and provide us with instructions. Although neither the Separate Account nor the Company is responsible for the authenticity of telephone transaction or internet requests, the Separate Account and the Company reserve the right to refuse telephone and/or internet orders. You are liable for a loss resulting from a fraudulent telephone or internet order that we reasonably believe is genuine. We use reasonable procedures to assure instructions are genuine. If the procedures are not followed, we may be liable for loss due to unauthorized or fraudulent transactions. The procedures for telephone instructions include: recording all telephone instructions, requesting personal identification information (name, phone number, social security number, birth date, etc.) and sending written confirmation to the owner's address of record. The procedures for internet and Direct Dial include requesting the same personal identification information as well as your password, logging all internet and Direct Dial activity and sending written transaction confirmations to the owner's address of record. 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 your Policy to reflect the amount that would have been payable at the correct age and gender. NON-PARTICIPATING POLICY The Policies do not share in any divisible surplus of the Company. INCONTESTABILITY We will not contest the insurance coverage provided by the Policy, except for any increases in face amount, after the Policy has been in force during the lifetime of the insured for a period of two years from the policy date. Any policy 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. INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM 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 the Statement of Additional Information. Those statements have been audited by Ernst & Young LLP, independent registered public accounting firm, 801 Grand Avenue, Des Moines, Iowa 50309, for the periods indicated in their reports. LEGAL PROCEEDINGS There are no legal proceedings pending to which the Separate Account is a party or which would materially affect the Separate Account. TABLE OF SEPARATE ACCOUNT DIVISIONS The following is a brief summary of the investment objectives of each division. There is no guarantee that the objectives will be met. AIM V.I. CORE EQUITY DIVISION INVESTS IN: AIM V.I. Core Equity Fund - Series II Shares INVESTMENT ADVISOR: A I M Advisors, Inc. INVESTMENT OBJECTIVE: seeks growth of capital. The Fund invests normally at least 80% of its net assets, plus the amount of any borrowings for investment purposes, in equity securities, including convertible securities, of established companies that have long-term above-average growth in earnings, and growth companies that are believed to have the potential for above-average growth in earnings. AIM V.I. GROWTH DIVISION INVESTS IN: AIM V.I. Growth Fund - Series II Shares INVESTMENT ADVISOR: A I M Advisors, Inc. INVESTMENT OBJECTIVE: seeks growth of capital while investing principally in seasoned and better capitalized companies considered to have strong earnings momentum. AIM V.I. HEALTH SCIENCES DIVISION (EFFECTIVE JULY 1, 2005 THE AIM V.I. GLOBAL HEALTH CARE DIVISION) INVESTS IN: AIM V.I. Global Health Care Fund - Series I Shares INVESTMENT ADVISOR: A I M Advisors, Inc. INVESTMENT OBJECTIVE: seeks long-term capital growth. The Fund invests normally 80% of its assets in securities of healthcare industry companies. AIM V.I. PREMIER EQUITY DIVISION INVESTS IN: AIM V.I. Premier Equity Fund - Series II Shares INVESTMENT ADVISOR: A I M Advisors, Inc. INVESTMENT OBJECTIVE: seeks to achieve long-term growth of capital. Income is a secondary objective. The Fund invests normally at least 80% of its net assets, plus the amount of any borrowings for investment purposes, in equity securities, including convertible securities. AMERICAN CENTURY VP INCOME & GROWTH DIVISION INVESTS IN: American Century Variable Portfolios, Inc. VP Income & Growth Fund - Class II 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 ULTRA DIVISION INVESTS IN: American Century Variable Portfolios, Inc. VP Ultra Fund - Class II INVESTMENT ADVISOR: American Century Investment Management, Inc. INVESTMENT OBJECTIVE: seeks long-term capital growth by investing primarily in stocks of U.S. companies. AMERICAN CENTURY VP VALUE DIVISION INVESTS IN: American Century Variable Portfolios, Inc. VP Value Fund - Class II INVESTMENT ADVISOR: American Century Investment Management, Inc. INVESTMENT OBJECTIVE: seeks capital growth over time and, secondarily, income by investing primarily in equity securities. DREYFUS VIF DEVELOPING LEADERS DIVISION (FORMERLY DREYFUS VIF SMALL CAP DIVISION) INVESTS IN: Dreyfus Variable Investment Fund Developing Leaders Portfolio - Service Class INVESTMENT ADVISOR: The Dreyfus Corporation INVESTMENT OBJECTIVE: seeks capital appreciation by investing in the stocks of companies with small market capitalizations. FIDELITY VIP CONTRAFUND DIVISION INVESTS IN: Fidelity VIP Contrafund Portfolio - Service Class 2 INVESTMENT ADVISOR: Fidelity Management & Research Company INVESTMENT OBJECTIVE: seeks long-term capital appreciation. FIDELITY VIP EQUITY-INCOME DIVISION INVESTS IN: Fidelity VIP Equity-Income Portfolio - Service Class 2 INVESTMENT ADVISOR: Fidelity Management & Research Company INVESTMENT OBJECTIVE: seeks reasonable income. The fund will also consider the potential for capital appreciation. The fund's goad is to achieve a yield which exceeds the composite yield on the securities comprising the S&P 500 Index. FIDELITY VIP GROWTH DIVISION INVESTS IN: Fidelity VIP Growth Portfolio - Service Class 2 INVESTMENT ADVISOR: Fidelity Management & Research Company INVESTMENT OBJECTIVE: seeks to achieve capital appreciation. FIDELITY VIP HIGH INCOME DIVISION INVESTS IN: Fidelity VIP High Income Portfolio - Service Class 2 INVESTMENT ADVISOR: Fidelity Management & Research Company INVESTMENT OBJECTIVE: seeks a high level of current income while also considering growth of capital. The fund invests primarily in income-producing debt securities, preferred stocks and convertible securities, with an emphasis on lower-quality debt securities. FIDELITY VIP MID CAP DIVISION INVESTS IN: Fidelity VIP Mid Cap Portfolio - Service Class 2 INVESTMENT ADVISOR: Fidelity Management & Research Company INVESTMENT OBJECTIVE: seeks long-term growth of capital. MFS VIT NEW DISCOVERY DIVISION INVESTS IN: MFS VIT New Discovery Series - Service Class INVESTMENT ADVISOR: Massachusetts Financial Services Company INVESTMENT OBJECTIVE: seeks long-term growth potential from small company stocks. ASSET ALLOCATION DIVISION INVESTS IN: Principal Variable Contracts Fund - Asset Allocation Account INVESTMENT ADVISOR: Morgan Stanley Asset Management through a sub-advisory agreement INVESTMENT OBJECTIVE: to generate a total investment return consistent with the preservation of capital. The Account intends to pursue a flexible investment policy in seeking to achieve this investment objective by investing primarily in equity and fixed-income securities. BALANCED DIVISION INVESTS IN: Principal Variable Contracts Fund - Balanced Account INVESTMENT ADVISOR: Principal Global Investors, LLC through a sub-advisory agreement INVESTMENT OBJECTIVE: to generate a total return consisting of current income and capital appreciation while assuming reasonable risks in furtherance of this objective by investing primarily in equity and fixed-income securities. 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: Principal Global Investors, 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. DIVERSIFIED INTERNATIONAL DIVISION INVESTS IN: Principal Variable Contracts Fund - Diversified International Account INVESTMENT ADVISOR: Principal Global Investors, 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. EQUITY GROWTH DIVISION INVESTS IN: Principal Variable Contracts Fund - Equity Growth Account INVESTMENT ADVISOR: T. Rowe Price Associates, Inc. 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. EQUITY INCOME DIVISION INVESTS IN: Principal Variable Contracts Fund - Equity Income Account INVESTMENT ADVISOR: Principal Global Investors, LLC through a sub-advisory agreement INVESTMENT OBJECTIVE: to seek to provide current income and long-term growth of income and capital. The Account seeks to achieve its objective by investing primarily in equity securities, preferred securities, real estate investment trusts and convertible securities. GOVERNMENT SECURITIES DIVISION INVESTS IN: Principal Variable Contracts Fund - Government Securities Account INVESTMENT ADVISOR: Principal Global 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: Columbus Circle Investors 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 EMERGING MARKETS DIVISION INVESTS IN: Principal Variable Contracts Fund - International Emerging Markets Account INVESTMENT ADVISOR: Principal Global Investors, LLC through a sub-advisory agreement INVESTMENT OBJECTIVE: seeks long-term growth of capital by investing in equity securities of issuers in emerging market countries. INTERNATIONAL SMALLCAP DIVISION INVESTS IN: Principal Variable Contracts Fund - International SmallCap Account INVESTMENT ADVISOR: Principal Global Investors, 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: T. Rowe Price Associates, Inc. through a sub-advisory agreement INVESTMENT OBJECTIVE: seeks long-term growth of capital. LARGECAP GROWTH EQUITY DIVISION INVESTS IN: Principal Variable Contracts Fund - LargeCap Growth Equity Account INVESTMENT ADVISOR: Grantham, Mayo, Van Otterloo & Co. LLC through a sub-advisory agreement INVESTMENT OBJECTIVE: to seek long-term growth of capital by investing in stocks of U.S. companies, with a focus on growth stocks. LARGECAP STOCK INDEX DIVISION INVESTS IN: Principal Variable Contracts Fund - LargeCap Stock Index Account INVESTMENT ADVISOR: Principal Global Investors, LLC through a sub-advisory agreement INVESTMENT OBJECTIVE: to seek long-term growth of capital by investing in stocks of large U.S. companies. The Account attempts to mirror the investment results of the Standard & Poor's 500 Index. LARGECAP VALUE DIVISION INVESTS IN: Principal Variable Contracts Fund - LargeCap Value Account INVESTMENT ADVISOR: Alliance Capital Management L.P. through its Bernstein Investment Research and Management unit through a sub-advisory agreement INVESTMENT OBJECTIVE: to seek long-term growth of capital. LIMITED TERM BOND DIVISION INVESTS IN: Principal Variable Contracts Fund - Limited Term Bond Account INVESTMENT ADVISOR: Principal Global Investors, LLC through a sub-advisory agreement INVESTMENT OBJECTIVE: to provide current income. MIDCAP DIVISION INVESTS IN: Principal Variable Contracts Fund - MidCap Account INVESTMENT ADVISOR: Principal Global Investors, 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: Mellon Equity Associates, LLP 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 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. PRINCIPAL LIFETIME 2010 DIVISION INVESTS IN: Principal Variable Contracts Fund - Principal LifeTime 2010 Account INVESTMENT ADVISOR: Principal Global Investors, LLC through a sub-advisory agreement INVESTMENT OBJECTIVE: seeks a total return consisting of long-term growth of capital and current income by investing primarily in shares of other Principal Variable Contracts Fund accounts. PRINCIPAL LIFETIME 2020 DIVISION INVESTS IN: Principal Variable Contracts Fund - Principal LifeTime 2020 Account INVESTMENT ADVISOR: Principal Global Investors, LLC through a sub-advisory agreement INVESTMENT OBJECTIVE: seeks a total return consisting of long-term growth of capital and current income by investing primarily in shares of other Principal Variable Contracts Fund accounts. PRINCIPAL LIFETIME 2030 DIVISION INVESTS IN: Principal Variable Contracts Fund - Principal LifeTime 2030 Account INVESTMENT ADVISOR: Principal Global Investors, LLC through a sub-advisory agreement INVESTMENT OBJECTIVE: seeks a total return consisting of long-term growth of capital and current income by investing primarily in shares of other Principal Variable Contracts Fund accounts. PRINCIPAL LIFETIME 2040 DIVISION INVESTS IN: Principal Variable Contracts Fund - Principal LifeTime 2040 Account INVESTMENT ADVISOR: Principal Global Investors, LLC through a sub-advisory agreement INVESTMENT OBJECTIVE: seeks a total return consisting of long-term growth of capital and current income by investing primarily in shares of other Principal Variable Contracts Fund accounts. PRINCIPAL LIFETIME 2050 DIVISION INVESTS IN: Principal Variable Contracts Fund - Principal LifeTime 2050 Account INVESTMENT ADVISOR: Principal Global Investors, LLC through a sub-advisory agreement INVESTMENT OBJECTIVE: seeks a total return consisting of long-term growth of capital and current income by investing primarily in shares of other Principal Variable Contracts Fund accounts. PRINCIPAL LIFETIME STRATEGIC INCOME DIVISION INVESTS IN: Principal Variable Contracts Fund - Principal LifeTime Strategic Income Account INVESTMENT ADVISOR: Principal Global Investors, LLC through a sub-advisory agreement INVESTMENT OBJECTIVE: seeks high current income by investing primarily in shares of other Principal Variable Contracts Fund accounts. REAL ESTATE SECURITIES DIVISION INVESTS IN: Principal Variable Contracts Fund - Real Estate Securities 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: Principal Global Investors, 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: Emerald Advisors, Inc. through a sub-advisory agreement and UBS Global Asset Management (Americas) Inc. 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. WELLS FARGO ADVANTAGE VT ASSET ALLOCATION DIVISION INVESTS IN: Wells Fargo Advantage VT Funds 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 ADVANTAGE VT EQUITY INCOME DIVISION INVESTS IN: Wells Fargo Advantage VT Funds 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 ADVANTAGE VT LARGE COMPANY GROWTH DIVISION INVESTS IN: Wells Fargo Advantage VT Funds Large Company Growth Fund INVESTMENT ADVISOR: Wells Capital Management Incorporated 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 A - SURRENDER CHARGE APPLICABLE PERCENTAGE TABLE
AGE AT ISSUE OR FACE POLICY WRITTEN IN POLICY WRITTEN IN OTHER AMOUNT INCREASE NEW YORK THAN NEW YORK -------------------- ----------------- ----------------------- 0 - 55 130% 130% 56 127% 130% 57 124% 130% 58 121% 130% 59 118% 130% 60 115% 130% 61 112% 130% 62 109% 130% 63 106% 130% 64 103% 130% 65 100% 130% 66 99% 128% 67 98% 126% 68 97% 124% 69 96% 122% 70 95% 120% 71 95% 118% 72 95% 116% 73 95% 114% 74 95% 112% 75 95% 109% 76 92% 105% 77 89% 101% 78 86% 97% 79 83% 93% 80 80% 90% 81 78% 88% 82 76% 86% 83 74% 84% 84 72% 82% 85 70% 78%
SURRENDER TARGET PREMIUMS
SURRENDER TARGET PREMIUMS (PER $1,000 POLICY FACE AMOUNT) ISSUE AGE MALE FEMALE UNISEX ISSUE AGE MALE FEMALE UNISEX --------- ---- ------ ------ --------- ---- ------ ------ 0 $ 2.18 $1.74 $ 2.09 43 $13.66 $10.40 $13.01 1 2.18 1.74 2.09 44 14.29 10.88 13.61 2 2.18 1.74 2.09 45 14.91 11.37 14.20 3 2.18 1.74 2.09 46 15.89 11.86 15.08 4 2.18 1.74 2.09 47 16.86 12.35 15.96 5 2.18 1.74 2.09 48 17.84 12.85 16.84 6 2.18 1.74 2.09 49 18.81 13.34 17.72 7 2.18 1.74 2.09 50 19.79 13.83 18.60 8 2.18 1.74 2.09 51 20.77 14.32 19.48 9 2.18 1.74 2.09 52 21.74 14.81 20.35 10 2.18 1.74 2.09 53 22.72 15.30 21.24 11 2.29 1.83 2.20 54 23.69 15.79 22.11 12 2.40 1.91 2.30 55 24.67 16.28 22.99 13 2.51 2.00 2.41 56 25.91 17.56 24.24 14 2.62 2.08 2.51 57 27.16 18.85 25.50 15 2.73 2.17 2.62 58 28.40 20.13 26.75 16 2.96 2.36 2.84 59 29.65 21.42 28.00 17 3.20 2.54 3.07 60 30.89 22.70 29.25 18 3.43 2.73 3.29 61 32.13 23.98 30.50 19 3.67 2.91 3.52 62 33.38 25.27 31.76 20 3.90 3.10 3.74 63 34.62 26.55 33.01 21 3.92 3.11 3.76 64 35.87 27.84 34.26 22 3.94 3.13 3.78 65 37.11 29.12 35.51 23 3.95 3.14 3.79 66 37.47 29.68 35.91 24 3.97 3.16 3.81 67 37.83 30.25 36.31 25 3.99 3.17 3.83 68 38.19 30.81 36.71 26 4.46 3.50 4.27 69 38.55 31.37 37.11 27 4.93 3.84 4.71 70 38.91 31.94 37.52 28 5.39 4.17 5.15 71 39.46 32.50 38.07 29 5.86 4.51 5.59 72 40.02 33.06 38.63 30 6.33 4.84 6.03 73 40.58 33.62 39.19 31 6.80 5.17 6.47 74 41.14 34.19 39.75 32 7.26 5.51 6.91 75 41.70 34.75 40.31 33 7.73 5.84 7.35 76 43.10 35.92 41.66 34 8.19 6.18 7.79 77 44.49 37.08 43.01 35 8.66 6.51 8.23 78 45.88 38.24 44.35 36 9.29 7.00 8.83 79 47.27 39.40 45.70 37 9.91 7.48 9.42 80 48.66 40.56 47.04 38 10.54 7.97 10.03 81 50.05 41.73 48.39 39 11.16 8.45 10.62 82 51.44 42.89 49.73 40 11.79 8.94 11.22 83 52.83 44.05 51.07 41 12.41 9.43 11.81 84 54.22 45.21 52.42 42 13.04 9.91 12.41 85 55.61 46.37 53.76
APPENDIX B - ILLUSTRATIONS SAMPLE ILLUSTRATIONS OF POLICY VALUES, SURRENDER VALUES AND DEATH BENEFITS The following tables illustrate how the policy value, surrender value and death proceeds of the Policy may change with the investment experience of the divisions. The tables show how these amounts in the Policy vary over time if planned periodic premiums are paid annually and if the investment return of the divisions were a uniform, gross, after-tax, annual rate of 0%, 6% or 12%. The death benefits and values would be different from those shown if the return averaged 0%, 6% or 12%, but fluctuated above and below those averages during the year. Death benefit options 1, 2 and 3 are illustrated. The illustrations reflect a hypothetical Policy issued to a 45 year-old male non-smoker, Preferred class. Illustrations for younger males or for females would be more favorable than those presented. Illustrations for older males or smokers would be less favorable. . Illustrations 1, 3 and 5 reflect current policy charges. . Illustrations 2, 4 and 6 reflect the guaranteed maximum policy charges. The illustrations reflect all Policy charges including: . deductions from premiums for sales load and state and federal taxes; . monthly administration charge; . cost of insurance charge; . asset based charge; and . contingent deferred sales load that may be deducted if the Policy was fully surrendered or if it lapsed. In addition, the illustrations reflect the average of fees and expenses of the divisions during the fiscal year ending December 31, 2004. The Managers of certain divisions have agreed to reimburse operating expenses, if necessary, to limit total operating expenses for those divisions. More information about the expense reimbursements can be found in the prospectuses for the underlying mutual funds which accompany this prospectus. There is no assurance that the fee reimbursement programs will continue. In the future, fees and expenses of the divisions may be more or less than those shown. Such changes would make the operating expenses actually incurred by a division differ from the average rate used in the illustrations. The illustrations are based on the assumption that: . $250,000 initial face amount; . payments are made according to the $3,250 annual premium schedule; . no values are allocated to the fixed account or the fixed DCA account; . no changes are made to the death benefit option or face amount; . no policy loans and/or partial surrenders are made; and . no riders are in effect. Upon request, we will prepare a comparable illustration based upon the proposed insured's actual age, gender, smoking status, risk classification and desired Policy features. For those illustrations, you have option of selecting which divisions (and their specific fees and expenses) are used. If no selection is made, the illustration is run using a hypothetical average. In advertisements or sales literature for the Policies that include performance data for one of more of the divisions, we may include policy values, surrender values and death benefit figures computed using the same methods that were used in creating the following illustrations. However, the actual average total rate of return for the specific division(s) will be used instead of the average used in the following illustrations. This information may be shown in the form of graphs, charts, tables and examples. It may include data for periods prior to the offering of the Policy for a division that has had performance during such prior period (with policy charges assumed to be equal to current charges for any period(s) prior to the offering of the Policy).
Illustration 1 PRINCIPAL LIFE INSURANCE COMPANY VUL INCOME PLANNED PREMIUM $3,250 MALE AGE 45 PREFERRED NON-SMOKER Initial Face Amount $250,000 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) (-.92% Net) (5.08% Net) (11.08% Net) -------------- ----------------- --------------- --------------- ---------------- 1 3,413 250,000 250,000 250,000 2 6,996 250,000 250,000 250,000 3 10,758 250,000 250,000 250,000 4 14,708 250,000 250,000 250,000 5 18,856 250,000 250,000 250,000 6 23,212 250,000 250,000 250,000 7 27,785 250,000 250,000 250,000 8 32,586 250,000 250,000 250,000 9 37,628 250,000 250,000 250,000 10 42,922 250,000 250,000 250,000 11 48,481 250,000 250,000 250,000 12 54,317 250,000 250,000 250,000 13 60,446 250,000 250,000 250,000 14 66,880 250,000 250,000 250,000 15 73,637 250,000 250,000 250,000 20 112,838 250,000 250,000 250,000 25 162,869 250,000 250,000 309,446 30 226,723 250,000 250,000 501,159
Illustration 1 PRINCIPAL LIFE INSURANCE COMPANY VUL INCOME PLANNED PREMIUM $3,250 MALE AGE 45 PREFERRED NON-SMOKER Initial Face Amount $250,000 ASSUMING CURRENT CHARGES Death Benefit Option 1 (All States) ------------------------------------------------------------------------------------------------------------------------------------ Policy Value (2) Surrender Value (2) Assuming Hypothetical Gross Assuming Hypothetical Gross Annual Investment Return of Annual Investment Return of ---------------------------------------------- -------------------------------------------- End of Accumulated 0% 6% 12% 0% 6% 12% Year Premiums (1) (-.92% Net) (5.08% Net) (11.08% Net) (-.92% Net) (5.08% Net) (11.08% Net) ---------- ----------------- ---------------------------- ----------------- -------------- ------------------------------ 1 3,413 1,889 2,035 2,182 - - - 2 6,996 3,867 4,282 4,717 - - - 3 10,758 5,750 6,564 7,449 905 1,718 2,603 4 14,708 7,536 8,878 10,396 2,690 4,032 5,550 5 18,856 9,217 11,217 13,573 4,372 6,371 8,728 6 23,212 10,792 13,579 17,003 6,177 8,964 12,388 7 27,785 12,261 15,968 20,715 8,108 11,815 16,562 8 32,586 13,645 18,403 24,761 10,184 14,942 21,299 9 37,628 14,947 20,891 29,180 12,408 18,352 26,642 10 42,922 16,168 23,434 34,017 14,783 22,050 32,633 11 48,481 17,434 26,223 39,599 17,434 26,223 39,599 12 54,317 18,630 29,107 45,775 18,630 29,107 45,775 13 60,446 19,756 32,092 52,622 19,756 32,092 52,622 14 66,880 20,810 35,184 60,217 20,810 35,184 60,217 15 73,637 21,797 38,392 68,660 21,797 38,392 68,660 20 112,838 31,497 61,990 132,681 31,497 61,990 132,681 25 162,869 58,867 113,882 266,764 58,867 113,882 266,764 30 226,723 58,580 154,681 468,373 58,580 154,681 468,373 (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 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 the 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 of 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 2 PRINCIPAL LIFE INSURANCE COMPANY VUL INCOME PLANNED PREMIUM $3,250 MALE AGE 45 PREFERRED NON-SMOKER Initial Face Amount $250,000 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) (-.92% Net) (5.08% Net) (11.08% Net) -------------- ----------------- --------------- --------------- ---------------- 1 3,413 250,000 250,000 250,000 2 6,996 250,000 250,000 250,000 3 10,758 250,000 250,000 250,000 4 14,708 250,000 250,000 250,000 5 18,856 250,000 250,000 250,000 6 23,212 250,000 250,000 250,000 7 27,785 250,000 250,000 250,000 8 32,586 250,000 250,000 250,000 9 37,628 250,000 250,000 250,000 10 42,922 250,000 250,000 250,000 11 48,481 250,000 250,000 250,000 12 54,317 250,000 250,000 250,000 13 60,446 250,000 250,000 250,000 14 66,880 250,000 250,000 250,000 15 73,637 250,000 250,000 250,000 20 112,838 250,000 250,000 250,000 25 162,869 250,000 250,000 250,000 30 226,723 - 250,000 353,601
Illustration 2 PRINCIPAL LIFE INSURANCE COMPANY VUL INCOME PLANNED PREMIUM $3,250 MALE AGE 45 PREFERRED NON-SMOKER Initial Face Amount $250,000 ASSUMING GUARANTEED CHARGES Death Benefit Option 1 (All States) ----------------------------------------------------------------------------------------------------------------------------------- Policy Value (2) Surrender Value (2) Assuming Hypothetical Gross Assuming Hypothetical Gross Annual Investment Return of Annual Investment Return of ------------------------------------------------ ------------------------------------------------- End of Accumulated 0% 6% 12% 0% 6% 12% Year Premiums (1) (-.92% Net) (5.08% Net) (11.08% Net) (-.92% Net) (5.08% Net) (11.08% Net) ---------- ----------------- -------------- -------------- --------------- -------------- -------------- -------------- 1 3,413 1,825 1,967 2,110 - - - 2 6,996 3,561 3,958 4,375 - - - 3 10,758 5,205 5,972 6,808 359 1,126 1,962 4 14,708 6,754 8,004 9,423 1,908 3,159 4,578 5 18,856 8,201 10,048 12,233 3,355 5,203 7,387 6 23,212 9,543 12,101 15,255 4,928 7,486 10,640 7 27,785 10,767 14,148 18,497 6,613 9,995 14,344 8 32,586 11,857 16,173 21,970 8,396 12,712 18,509 9 37,628 12,803 18,164 25,688 10,264 15,626 23,150 10 42,922 13,585 20,100 29,662 12,200 18,715 28,277 11 48,481 14,266 22,078 34,083 14,266 22,078 34,083 12 54,317 14,755 23,982 38,841 14,755 23,982 38,841 13 60,446 15,044 25,798 43,972 15,044 25,798 43,972 14 66,880 15,116 27,508 49,516 15,116 27,508 49,516 15 73,637 14,944 29,083 55,507 14,944 29,083 55,507 20 112,838 14,958 39,001 98,803 14,958 39,001 98,803 25 162,869 20,578 60,883 191,235 20,578 60,883 191,235 30 226,723 - 46,340 330,468 - 46,340 330,468 (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 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 the 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 of 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 VUL INCOME PLANNED PREMIUM $3,250 MALE AGE 45 PREFERRED NON-SMOKER Initial Face Amount $250,000 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) (-.92% Net) (5.08% Net) (11.08% Net) -------------- ----------------- --------------- --------------- ---------------- 1 3,413 251,881 252,026 252,172 2 6,996 253,843 254,256 254,687 3 10,758 255,702 256,509 257,385 4 14,708 257,455 258,780 260,280 5 18,856 259,093 261,061 263,381 6 23,212 260,613 263,347 266,704 7 27,785 262,016 265,638 270,272 8 32,586 263,324 267,952 274,129 9 37,628 264,538 270,292 278,308 10 42,922 265,662 272,660 282,841 11 48,481 266,814 275,235 288,032 12 54,317 267,884 277,867 293,721 13 60,446 268,873 280,558 299,964 14 66,880 269,775 283,306 306,817 15 73,637 270,597 286,120 314,354 20 112,838 279,759 307,519 371,466 25 162,869 307,123 357,605 495,292 30 226,723 303,099 386,849 664,419
Illustration 3 PRINCIPAL LIFE INSURANCE COMPANY VUL INCOME PLANNED PREMIUM $3,250 MALE AGE 45 PREFERRED NON-SMOKER Initial Face Amount $250,000 ASSUMING CURRENT CHARGES Death Benefit Option 2 (All States) ------------------------------------------------------------------------------------------------------------------------------------ Policy Value (2) Surrender Value (2) Assuming Hypothetical Gross Assuming Hypothetical Gross Annual Investment Return of Annual Investment Return of ------------------------------------------------- ------------------------------------------------- End of Accumulated 0% 6% 12% 0% 6% 12% Year Premiums (1) (-.92% Net) (5.08% Net) (11.08% Net) (-.92% Net) (5.08% Net) (11.08% Net) ----------- ----------------- -------------- -------------- ----------------- -------------- -------------- ---------------- 1 3,413 1,881 2,026 2,172 - - - 2 6,996 3,843 4,256 4,687 - - - 3 10,758 5,702 6,509 7,385 856 1,663 2,540 4 14,708 7,455 8,780 10,280 2,609 3,934 5,434 5 18,856 9,093 11,061 13,381 4,247 6,215 8,535 6 23,212 10,613 13,347 16,704 5,997 8,732 12,089 7 27,785 12,016 15,638 20,272 7,863 11,484 16,119 8 32,586 13,324 17,952 24,129 9,862 14,490 20,668 9 37,628 14,538 20,292 28,308 12,000 17,754 25,770 10 42,922 15,662 22,660 32,841 14,277 21,276 31,457 11 48,481 16,814 25,235 38,032 16,814 25,235 38,032 12 54,317 17,884 27,867 43,721 17,884 27,867 43,721 13 60,446 18,873 30,558 49,964 18,873 30,558 49,964 14 66,880 19,775 33,306 56,817 19,775 33,306 56,817 15 73,637 20,597 36,120 64,354 20,597 36,120 64,354 20 112,838 29,759 57,519 121,466 29,759 57,519 121,466 25 162,869 57,123 107,605 245,292 57,123 107,605 245,292 30 226,723 53,099 136,849 414,419 53,099 136,849 414,419 (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 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 the 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 of 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 VUL INCOME PLANNED PREMIUM $3,250 MALE AGE 45 PREFERRED NON-SMOKER Initial Face Amount $250,000 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) (-.92% Net) (5.08% Net) (11.08% Net) -------------- ----------------- --------------- --------------- ---------------- 1 3,413 251,817 251,958 252,100 2 6,996 253,538 253,933 254,346 3 10,758 255,159 255,919 256,747 4 14,708 256,678 257,913 259,315 5 18,856 258,086 259,904 262,054 6 23,212 259,379 261,887 264,979 7 27,785 260,543 263,845 268,089 8 32,586 261,562 265,757 271,386 9 37,628 262,424 267,607 274,872 10 42,922 263,109 269,369 278,545 11 48,481 263,675 271,130 282,570 12 54,317 264,034 272,770 286,819 13 60,446 264,175 274,271 291,302 14 66,880 264,084 275,606 296,027 15 73,637 263,735 276,737 300,988 20 112,838 263,204 283,870 335,112 25 162,869 268,073 300,260 401,785 30 226,723 - 269,022 453,599
Illustration 4 PRINCIPAL LIFE INSURANCE COMPANY VUL INCOME PLANNED PREMIUM $3,250 MALE AGE 45 PREFERRED NON-SMOKER Initial Face Amount $250,000 ASSUMING GUARANTEED CHARGES Death Benefit Option 2 (All States) ------------------------------------------------------------------------------------------------------------------------------------ Policy Value (2) Surrender Value (2) Assuming Hypothetical Gross Assuming Hypothetical Gross Annual Investment Return of Annual Investment Return of ------------------------------------------------- ---------------------------------------------- End of Accumulated 0% 6% 12% 0% 6% 12% Year Premiums (1) (-.92% Net) (5.08% Net) (11.08% Net) (-.92% Net) (5.08% Net) (11.08% Net) ----------- ----------------- -------------- -------------- --------------- -------------- -------------- -------------- 1 3,413 1,817 1,958 2,100 - - - 2 6,996 3,538 3,933 4,346 - - - 3 10,758 5,159 5,919 6,747 313 1,074 1,902 4 14,708 6,678 7,913 9,315 1,832 3,067 4,469 5 18,856 8,086 9,904 12,054 3,240 5,058 7,208 6 23,212 9,379 11,887 14,979 4,764 7,272 10,364 7 27,785 10,543 13,845 18,089 6,390 9,691 13,936 8 32,586 11,562 15,757 21,386 8,101 12,295 17,924 9 37,628 12,424 17,607 24,872 9,886 15,068 22,334 10 42,922 13,109 19,369 28,545 11,725 17,984 27,160 11 48,481 13,675 21,130 32,570 13,675 21,130 32,570 12 54,317 14,034 22,770 36,819 14,034 22,770 36,819 13 60,446 14,175 24,271 41,302 14,175 24,271 41,302 14 66,880 14,084 25,606 46,027 14,084 25,606 46,027 15 73,637 13,735 26,737 50,988 13,735 26,737 50,988 20 112,838 13,204 33,870 85,112 13,204 33,870 85,112 25 162,869 18,073 50,260 151,785 18,073 50,260 151,785 30 226,723 - 19,022 203,599 - 19,022 203,599 (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 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 the 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 of 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 VUL INCOME PLANNED PREMIUM $3,250 MALE AGE 45 PREFERRED NON-SMOKER Initial Face Amount $250,000 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) (-.92% Net) (5.08% Net) (11.08% Net) -------------- ----------------- --------------- --------------- ---------------- 1 3,413 253,250 253,250 253,250 2 6,996 256,500 256,500 256,500 3 10,758 259,750 259,750 259,750 4 14,708 263,000 263,000 263,000 5 18,856 266,250 266,250 266,250 6 23,212 269,500 269,500 269,500 7 27,785 272,750 272,750 272,750 8 32,586 276,000 276,000 276,000 9 37,628 279,250 279,250 279,250 10 42,922 282,500 282,500 282,500 11 48,481 285,750 285,750 285,750 12 54,317 289,000 289,000 289,000 13 60,446 292,250 292,250 292,250 14 66,880 295,500 295,500 295,500 15 73,637 298,750 298,750 298,750 20 112,838 315,000 315,000 315,000 25 162,869 331,250 331,250 331,250 30 226,723 347,500 347,500 473,517
Illustration 5 PRINCIPAL LIFE INSURANCE COMPANY VUL INCOME PLANNED PREMIUM $3,250 MALE AGE 45 PREFERRED NON-SMOKER Initial Face Amount $250,000 ASSUMING CURRENT CHARGES Death Benefit Option 3 (All States) ------------------------------------------------------------------------------------------------------------------------------------ Policy Value (2) Surrender Value (2) Assuming Hypothetical Gross Assuming Hypothetical Gross Annual Investment Return of Annual Investment Return of ---------------------------------------------------- ---------------------------------------------- End of Accumulated 0% 6% 12% 0% 6% 12% Year Premiums (1) (-.92% Net) (5.08% Net) (11.08% Net) (-.92% Net) (5.08% Net) (11.08% Net) --------- ----------------- -------------- -------------- ----------------- -------------- -------------- --------------- 1 3,413 1,878 2,024 2,170 - - - 2 6,996 3,833 4,247 4,679 - - - 3 10,758 5,680 6,488 7,368 834 1,642 2,522 4 14,708 7,412 8,743 10,249 2,566 3,897 5,403 5 18,856 9,022 11,000 13,332 4,176 6,154 8,486 6 23,212 10,503 13,254 16,635 5,888 8,638 12,020 7 27,785 11,857 15,504 20,180 7,704 11,350 16,027 8 32,586 13,101 17,767 24,014 9,640 14,306 20,552 9 37,628 14,238 20,047 28,170 11,700 17,509 25,632 10 42,922 15,268 22,343 32,685 13,883 20,959 31,300 11 48,481 16,306 24,832 37,864 16,306 24,832 37,864 12 54,317 17,243 27,364 43,557 17,243 27,364 43,557 13 60,446 18,076 29,943 49,825 18,076 29,943 49,825 14 66,880 18,801 32,564 56,733 18,801 32,564 56,733 15 73,637 19,419 35,236 64,365 19,419 35,236 64,365 20 112,838 27,665 55,942 122,864 27,665 55,942 122,864 25 162,869 56,115 107,156 251,711 56,115 107,156 251,711 30 226,723 49,850 138,681 442,539 49,850 138,681 442,539 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 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 the 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 of 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 VUL INCOME PLANNED PREMIUM $3,250 MALE AGE 45 PREFERRED NON-SMOKER Initial Face Amount $250,000 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) (-.92% Net) (5.08% Net) (11.08% Net) -------------- ----------------- --------------- --------------- ---------------- 1 3,413 253,250 253,250 253,250 2 6,996 256,500 256,500 256,500 3 10,758 259,750 259,750 259,750 4 14,708 263,000 263,000 263,000 5 18,856 266,250 266,250 266,250 6 23,212 269,500 269,500 269,500 7 27,785 272,750 272,750 272,750 8 32,586 276,000 276,000 276,000 9 37,628 279,250 279,250 279,250 10 42,922 282,500 282,500 282,500 11 48,481 285,750 285,750 285,750 12 54,317 289,000 289,000 289,000 13 60,446 292,250 292,250 292,250 14 66,880 295,500 295,500 295,500 15 73,637 298,750 298,750 298,750 20 112,838 315,000 315,000 315,000 25 162,869 331,250 331,250 331,250 30 226,723 - - 347,500
Illustration 6 PRINCIPAL LIFE INSURANCE COMPANY VUL INCOME PLANNED PREMIUM $3,250 MALE AGE 45 PREFERRED NON-SMOKER Initial Face Amount $250,000 ASSUMING GUARANTEED CHARGES Death Benefit Option 3 (All States) ------------------------------------------------------------------------------------------------------------------------------------ Policy Value (2) Surrender Value (2) Assuming Hypothetical Gross Assuming Hypothetical Gross Annual Investment Return of Annual Investment Return of ------------------------------------------- ---------------------------------------------- End of Accumulated 0% 6% 12% 0% 6% 12% Year Premiums (1) (-.92% Net) (5.08% Net) (11.08% Net) (-.92% Net) (5.08% Net) (11.08% Net) -------------- ----------------- ---------------------------- -------------- ------------- -------------- ----------------- 1 3,413 1,814 1,956 2,098 - - - 2 6,996 3,527 3,923 4,337 - - - 3 10,758 5,134 5,896 6,726 288 1,050 1,881 4 14,708 6,630 7,869 9,276 1,784 3,023 4,430 5 18,856 8,005 9,831 11,992 3,160 4,985 7,146 6 23,212 9,255 11,775 14,887 4,640 7,160 10,271 7 27,785 10,361 13,681 17,960 6,208 9,528 13,807 8 32,586 11,304 15,527 21,213 7,843 12,066 17,752 9 37,628 12,068 17,293 24,649 9,530 14,755 22,111 10 42,922 12,629 18,948 28,264 11,244 17,564 26,880 11 48,481 13,034 20,574 32,225 13,034 20,574 32,225 12 54,317 13,192 22,045 36,407 13,192 22,045 36,407 13 60,446 13,085 23,335 40,823 13,085 23,335 40,823 14 66,880 12,686 24,411 45,486 12,686 24,411 45,486 15 73,637 11,956 25,222 50,395 11,956 25,222 50,395 20 112,838 8,266 29,408 84,510 8,266 29,408 84,510 25 162,869 7,508 40,425 156,597 7,508 40,425 56,597 30 226,723 - - 240,761 - - 40,761 (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 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 the 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 of 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 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 0-40 250.00 53 164.00 66 119.00 41 243.00 54 157.00 67 118.00 42 236.00 55 150.00 68 117.00 43 229.00 56 146.00 69 116.00 44 222.00 57 142.00 70 115.00 45 215.00 58 138.00 71 113.00 46 209.00 59 134.00 72 111.00 47 203.00 60 130.00 73 109.00 48 197.00 61 128.00 74 107.00 49 191.00 62 126.00 75 -90 105.00 50 185.00 63 124.00 91 104.00 51 178.00 64 122.00 92 103.00 52 171.00 65 120.00 93 102.00 94+ 101.00
CASH VALUE ACCUMULATION TEST (PERCENTAGE OF POLICY VALUE) - MALE PREFERRED OR CLASS: STANDARD A B C D E F G H AGE: 100% 150% 175% 200% 250% 300% 350% 400% 500% 0 1149.84% 925.16% 850.84% 790.94% 699.51% 632.30% 580.34% 538.72% 475.69% 1 1155.45% 937.32% 864.92% 806.45% 716.98% 650.98% 599.80% 558.69% 496.21% 2 1123.44% 913.30% 843.49% 787.10% 700.74% 636.98% 587.51% 547.74% 487.26% 3 1091.06% 888.69% 821.42% 767.05% 683.75% 622.21% 574.43% 535.99% 477.49% 4 1059.18% 864.32% 799.51% 747.12% 666.79% 607.41% 561.28% 524.16% 467.61% 5 1027.61% 840.04% 777.62% 727.14% 649.71% 592.44% 547.93% 512.08% 457.45% 6 996.23% 815.71% 755.61% 706.99% 632.38% 577.17% 534.24% 499.65% 446.90% 7 965.20% 791.49% 733.64% 686.82% 614.95% 561.75% 520.35% 486.99% 436.08% 8 934.41% 767.29% 711.60% 666.53% 597.32% 546.06% 506.17% 474.00% 424.90% 9 904.09% 743.31% 689.72% 646.34% 579.71% 530.34% 491.90% 460.90% 413.55% 10 874.41% 719.75% 668.19% 626.43% 562.29% 514.75% 477.72% 447.85% 402.21% 11 845.46% 696.70% 647.08% 606.91% 545.17% 499.39% 463.73% 434.95% 390.96% 12 817.53% 674.45% 626.72% 588.05% 528.63% 484.56% 450.21% 422.48% 380.08% 13 790.81% 653.19% 607.27% 570.06% 512.87% 470.43% 437.35% 410.63% 369.77% 14 765.52% 633.16% 588.97% 553.18% 498.12% 457.26% 425.39% 399.65% 360.25% 15 741.63% 614.33% 571.83% 537.38% 484.39% 445.04% 414.34% 389.53% 351.55% 16 719.11% 596.70% 555.81% 522.66% 471.66% 433.77% 404.19% 380.29% 343.66% 17 697.84% 580.14% 540.81% 508.92% 459.84% 423.35% 394.87% 371.83% 336.51% 18 677.63% 564.47% 526.65% 495.98% 448.75% 413.64% 386.20% 364.00% 329.95% 19 658.19% 549.43% 513.07% 483.58% 438.15% 404.36% 377.95% 356.57% 323.76% 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 PREFERRED OR CLASS: STANDARD A B C D E F G H AGE: 100% 150% 175% 200% 250% 300% 350% 400% 500% 0 1395.60% 1124.36% 1033.71% 960.39% 848.10% 765.33% 701.27% 649.92% 572.16% 1 1393.15% 1130.47% 1042.37% 970.97% 861.35% 780.29% 717.38% 666.83% 590.05% 2 1354.50% 1101.50% 1016.57% 947.70% 841.88% 763.57% 702.74% 653.83% 579.47% 3 1315.50% 1071.92% 990.08% 923.68% 821.60% 745.99% 687.23% 639.94% 568.00% 4 1276.92% 1042.45% 963.62% 899.63% 801.19% 728.23% 671.48% 625.80% 556.23% 5 1238.81% 1013.17% 937.24% 875.59% 780.70% 710.32% 655.55% 611.43% 544.21% 6 1201.35% 984.24% 911.13% 851.75% 760.31% 692.44% 639.59% 597.01% 532.08% 7 1164.31% 955.44% 885.07% 827.89% 739.79% 674.38% 623.41% 582.33% 519.64% 8 1128.00% 927.08% 859.36% 804.31% 719.46% 656.42% 607.28% 567.65% 507.16% 9 1092.31% 899.07% 833.90% 780.91% 699.21% 638.47% 591.12% 552.91% 494.56% 10 1057.39% 871.55% 808.85% 757.85% 679.19% 620.69% 575.06% 538.23% 481.96% 11 1023.24% 844.54% 784.21% 735.14% 659.42% 603.09% 559.13% 523.64% 469.39% 12 990.07% 818.23% 760.20% 712.98% 640.11% 585.87% 543.52% 509.33% 457.04% 13 958.00% 792.78% 736.96% 691.54% 621.40% 569.18% 528.40% 495.45% 445.06% 14 926.99% 768.15% 714.46% 670.77% 603.27% 553.00% 513.73% 482.00% 433.43% 15 897.15% 744.45% 692.82% 650.78% 585.84% 537.45% 499.64% 469.07% 422.27% 16 868.40% 721.62% 671.97% 631.54% 569.06% 522.48% 486.08% 456.64% 411.55% 17 840.70% 699.61% 651.87% 612.99% 552.88% 508.06% 473.01% 444.66% 401.23% 18 813.97% 678.38% 632.48% 595.09% 537.27% 494.14% 460.41% 433.11% 391.27% 19 788.06% 657.76% 613.64% 577.69% 522.08% 480.59% 448.12% 421.84% 381.55% 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 CLASS: STANDARD A B C D E F G H AGE: 100% 150% 175% 200% 250% 300% 350% 400% 500% 0 1191.15% 957.67% 880.43% 818.20% 723.24% 653.47% 599.55% 556.37% 491.01% 1 1195.60% 968.93% 893.69% 832.96% 740.05% 671.55% 618.47% 575.85% 511.10% 2 1162.59% 944.21% 871.66% 813.07% 723.38% 657.21% 605.89% 564.66% 501.97% 3 1129.04% 918.72% 848.80% 792.32% 705.80% 641.92% 592.36% 552.50% 491.87% 4 1096.00% 893.49% 826.13% 771.68% 688.25% 626.62% 578.76% 540.26% 481.65% 5 1063.29% 868.33% 803.45% 750.99% 670.57% 611.12% 564.94% 527.77% 471.14% 6 1030.86% 843.22% 780.74% 730.21% 652.72% 595.40% 550.85% 514.98% 460.30% 7 998.77% 818.20% 758.05% 709.39% 634.74% 579.50% 536.54% 501.95% 449.18% 8 967.08% 793.34% 735.45% 688.60% 616.70% 563.48% 522.08% 488.72% 437.81% 9 935.84% 768.70% 712.98% 667.89% 598.66% 547.39% 507.50% 475.34% 426.26% 10 905.25% 744.47% 690.85% 647.45% 580.81% 531.43% 493.00% 462.02% 414.70% 11 875.40% 720.75% 669.16% 627.39% 563.24% 515.70% 478.68% 448.82% 403.21% 12 846.55% 697.79% 648.16% 607.97% 546.21% 500.44% 464.79% 436.02% 392.06% 13 818.96% 675.88% 628.12% 589.45% 530.01% 485.93% 451.59% 423.88% 381.51% 14 792.71% 655.09% 609.14% 571.92% 514.71% 472.27% 439.19% 412.49% 371.65% 15 767.84% 635.49% 591.28% 555.47% 500.40% 459.53% 427.67% 401.93% 362.56% 16 744.34% 617.06% 574.54% 540.08% 487.07% 447.72% 417.02% 392.23% 354.26% 17 722.05% 599.66% 558.75% 525.60% 474.59% 436.70% 407.13% 383.24% 346.64% 18 700.81% 583.14% 543.80% 511.91% 462.83% 426.36% 397.89% 374.87% 339.59% 19 680.33% 567.23% 529.41% 498.74% 451.52% 416.43% 389.02% 366.85% 332.86% 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%
ADDITIONAL INFORMATION Additional information about the Policy is available in the Statement of Additional Information dated April 29, 2005 and which is part of this prospectus. Your questions and/or requests for a free copy of the Statement of Additional Information or a free personalized illustration should be directed to: Principal Variable Universal Life Income, Principal Financial Group, P.O. Box 9296, Des Moines, Iowa 50306-9296, 1-800-247-9988. You may also contact us through our internet site: www.principal.com Information about the Policy (including the Statement of Additional Information) can be reviewed and copied at the Securities and Exchange Commission's Public Reference Room in Washington, D.C. Information on the operation of the public reference room may be obtained by calling the Commission at 202-942-8090. Reports and other information about the Policy are available on the Commission's internet site at http://www.sec.gov. Copies of this information may be obtained, upon payment of a duplicating fee, by writing the Public Reference Section of the Commission, 450 Fifth Street NW, Washington, D.C. 20549-0102. Principal Variable Universal Life Income Investment Company Act File No. 333-115269 PART B STATEMENT OF ADDITIONAL INFORMATION PRINCIPAL VARIABLE UNIVERSAL LIFE INCOME/SM/ DATED APRIL 29, 2005 The Statement of Additional Information provides information about the Principal Variable Universal Life Income Insurance Policy sponsored by Principal Life Insurance Company through its Principal Life Insurance Company Variable Life Separate Account. This Statement of Additional Information is not a prospectus but does provide information that supplements the Policy's Prospectus dated April 30, 2005. It should be read with that Prospectus which is available without charge. To request a copy of the Prospectus, please contact us at: Principal Variable Universal Life Income Principal Financial Group P.O. Box 9296 Des Moines, Iowa 50306-9296 Telephone:1-800-247-9988 TABLE OF CONTENTS Page GENERAL INFORMATION AND HISTORY .........................................3 THE COMPANY ............................................................ 3 PRINCIPAL LIFE INSURANCE COMPANY VARIABLE LIFE SEPARATE ACCOUNT ........ 3 INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ...........................3 UNDERWRITERS ............................................................3 ADDITIONAL INFORMATION ABOUT CHARGES ....................................4 SPECIAL PURCHASE PLANS ................................................. 4 UNDERWRITING PROCEDURES ................................................ 4 PERFORMANCE DATA ........................................................4 FINANCIAL STATEMENTS ....................................................6 GENERAL INFORMATION AND HISTORY THE COMPANY Principal Life Insurance Company (the "Company") is the issuer of the Principal Variable Universal Life Income Insurance Policy (the "Policy"). The Company is a stock life insurance company with its home office at: Principal Financial Group, Des Moines, Iowa 50392. It is authorized to transact life and annuity business in all states of the United States and the District of Columbia. The Company is a wholly owned indirect subsidiary of Principal Financial Group, Inc., a publicly-traded company. In 1879, the Company was incorporated under Iowa law as a mutual assessment life insurance company named Bankers Life Association. It became a legal reserve life insurance company and 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 insurance holding company structure took place in 1998, when the Company became a stock life insurance company. In 2001, the mutual insurance holding company converted to a stock company through a process called demutualization, resulting in the current organizational structure. 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. All of the units of the Separate Account are owned by the Company. Policy owners may purchase units of the divisions of the Separate Account. INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Ernst & Young LLP, 801 Grand, Des Moines, Iowa, serves as the independent registered public accounting firm for Principal Life Insurance Company Variable Life Separate Account and the Company. UNDERWRITERS The principal underwriter of the Policy is Princor Financial Services Corporation ("Princor") which is a wholly-owned subsidiary of Principal Financial Services, Inc. and an affiliate of the Company. The address of Princor is The Principal Financial Group, 680 8th Street, Des Moines, IA 50392-0200. Princor was incorporated in Iowa in 1968, and is 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. The Policy's offering to the public is continuous. As the principal underwriter, Princor is paid for the distribution of the Policy. For the period from September 1, 2004 through December 31, 2004, Princor received $318,384 and retained $0. COMMISSIONS PAID TO DEALERS 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 surrender target premium. In addition, a commission of up to 2.5% of premium above the surrender target premium received in the first policy year (or first year following an adjustment) may be paid. In the second through fifth years following the policy date (or adjustment date), commissions are 2.5% of premiums received. A service fee of 0.25% of net policy value is paid in the sixth through tenth policy years and of 0.15% of net policy value in years eleven and beyond. Expense allowances may be paid to agents and brokers based on premiums received. ADDITIONAL INFORMATION ABOUT CHARGES SPECIAL PURCHASE PLANS Where permitted by state law, Policies may be purchased under group or sponsored arrangements as well as on an individual basis. A group arrangement is a program under which a trustee, employer or similar entity purchases Policies covering a group of individuals on a group basis. A sponsored arrangement is a program under which an employer permits group solicitation of its employees or an association permits group solicitation of its members for the purchase of Policies on an individual basis. Charges and deductions may be reduced for Policies purchased under a group or sponsored arrangement including waiver of premium sales load and waiver of surrender charge. Reductions may be available to: . employees, officers, directors, agents and immediate family members of the group or sponsored arrangement; and . employees of agents of the Company and its subsidiaries. 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 group or sponsored arrangement). Generally, the sales contacts and effort, administrative costs and mortality cost per Policy vary based on the size of the arrangement, the purpose for which the Policies are purchased and certain characteristics of the members. The amount of the reduction and the criteria for reducing the charges and deductions reflect: a) our reduced sales effort and administrative costs; and b) the different mortality experience expected from sales to arrangements. 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. UNDERWRITING PROCEDURES Guaranteed maximum cost of insurance rates are based on 1980 CSO Mortality Table (the prevailing mortality table approved by the National Association of Insurance Commissioners), age nearest birthday, with distinction for the insured's gender and smoking status. The rates will reflect the insured's risk class(es). PERFORMANCE DATA The Separate Account may publish advertisements containing information (including graphs, charts, tables and examples) about the performance of one or more of its divisions. The Policy was not offered prior to August 17, 2004. The Separate Account may publish advertisements containing information about the hypothetical performance of one or more of its divisions for this Policy as if the Policy had been issued on or after the date the underlying mutual fund in which such division invests was first offered. The hypothetical performance from the date of the inception of the underlying mutual fund is derived by reducing the actual performance of the underlying mutual fund by the fees and charges of the Policy as if it had been in existence. The yield and total return figures described below vary depending upon market conditions, the composition of the underlying mutual fund's portfolios and operating expenses. These factors and possible differences in the methods used in calculating yield and total return should be considered when comparing the Separate Account performance figures to performance figures published for other products. The Separate Account may also quote rankings, yields or returns published by independent statistical services or publishers and information regarding performance of certain market indices. Any performance data quoted for the Separate Account represents historical performance and is not intended to indicate future performance. From time to time the Principal Variable Contracts Fund, Inc. advertises its Money Market division's "yield" and "effective yield". Both yield figures are based on historical earnings and are not intended to indicate future performance. The "yield" of the division refers to the income generated in the division over a seven day period (the period will be stated in the advertisement). This income is then "annualized." That is, the amount of income generated during that week is assumed to be generated each week over a 52-week period and is shown as a percentage. The "effective yield" is calculated similarly but, when annualized, the income earned in the division is assumed to be reinvested. The "effective yield" is slightly higher than the "yield" because of the compounding effect of this assumed reinvestment. Neither yield quotation reflects a sales load deducted from purchase payments which, if included, would reduce the "yield" and "effective yield." For the period ended December 31, 2004, the 7-day annualized and effective yields were 1.77% and 1.75%, respectively. In addition, the Separate Account advertises the "yield" for certain other divisions. The "yield" of a division is determined by annualizing the net investment income per unit for a specific, historical 30-day period and dividing the result by the ending maximum offering price of the unit for the same period. This yield quotation does not reflect a contingent deferred sales charge which, if included, would reduce the "yield." No contingent deferred sales charge is assessed on investments in the Separate Account divisions of the Policy, however, Policies which are fully surrendered within the first ten policy years (or within ten years of a policy face amount increase) are subject to a surrender charge. Performance history of the underlying mutual funds is measured by comparing the value of the underlying mutual fund at the beginning of the period to the value of the underlying mutual fund at the end of the period. The Separate Account also advertises the average annual total return of its various divisions. The average annual total return for any of the divisions is computed by calculating the average annual compounded rate of return over the stated period that would equate an initial premium of $1,000 to the ending redeemable policy value. The performance information does not include any charges or fees that are deducted from your Policy. These are charges and fees such as the sales charge, charge for taxes, surrender charges, transfer fees (if any), cost of insurance charge, asset based charge, administrative charge, policy loan interest charge (if any), and charges for optional insurance benefits. Some of these charges vary depending on your age, gender, face amount, underwriting class, premiums, policy duration, and account value. All of these policy charges will have a significant impact on your Policy's value and overall performance. If these charges and fees were reflected in the performance data, performance would be lower. To see the impact of these charges and fees on your Policy's performance, you should obtain a personalized illustration based on historical underlying mutual fund performance from your financial adviser. Following are the hypothetical average annual total returns for the periods ended December 31, 2004 assuming the Policy had been offered as of the effective dates of the underlying mutual funds in which the divisions invest:
EFFECTIVE SINCE DIVISION DATE ONE YEAR FIVE YEARS TEN YEARS INCEPTION -------- --------- -------- ---------- --------- --------- AIM V.I. Core Equity May 2, 1994 8.67 -5.62 9.99 9.33 AIM V.I. Growth May 5, 1993 8.00 -12.55 6.48 6.23 AIM V.I. Health Sciences (effective July 1, 2005 the AIM V.I. Global Health Care) May 22, 1997 7.57 3.45 9.24 AIM V.I. Premier Equity May 5, 1993 5.49 -7.33 8.58 8.97 American Century VP Income & Growth October 31, 1997 12.57 -0.84 6.28 American Century VP Ultra May 1, 2001 10.59 0.39 American Century VP Value May 1, 1996 14.17 11.31 11.22 Dreyfus IP Developing Leaders Portfolio August 31, 1990 11.05 4.52 10.08 21.71 Fidelity VIP II Contrafund January 3, 1995 15.16 1.71 13.96 Fidelity VIP Equity-Income November 3, 1986 11.23 4.34 11.23 10.94 Fidelity VIP Growth October 31, 1986 3.12 -7.02 9.81 11.08 Fidelity VIP High Income October 1, 1985 9.38 -0.55 4.99 4.35 Fidelity VIP MidCap December 28, 1998 24.66 14.81 20.48 MFS VIT New Discovery May 1, 1998 6.21 -2.16 7.19 Principal VCF Asset Allocation June 1, 1994 8.49 2.32 8.95 8.49 Principal VCF Balanced December 18, 1987 10.05 1.13 7.25 8.53 Principal VCF Bond December 18, 1987 4.98 7.01 7.37 8.00 Principal VCF Capital Value May 13, 1970 12.36 2.72 10.04 12.07 Principal VCF Diversified International May 2, 1994 21.03 -1.38 7.55 6.72 Principal VCF Equity Growth June 1, 1994 9.33 -5.64 11.61 11.21 Principal VCF Equity Income May 1, 1998 17.60 0.16 2.64 Principal VCF Government Securities April 9, 1987 3.56 6.59 7.27 7.61 Principal VCF Growth May 2, 1994 9.38 -8.07 5.23 5.42 Principal VCF International Emerging Markets October 24, 2000 24.89 12.38 Principal VCF International SmallCap May 1, 1998 30.20 3.07 11.13 Principal VCF LargeCap Blend May 1, 2002 10.36 5.53 Principal VCF LargeCap Growth Equity October 24, 2000 3.16 -16.88 Principal VCF LargeCap Stock Index May 3, 1999 10.39 -2.69 -0.90 Principal VCF LargeCap Value May 1, 2002 13.09 8.46 Principal VCF Principal LifeTime 2010 August 30, 2004 9.31 Principal VCF Principal LifeTime 2020 August 30, 2004 10.62 Principal VCF Principal LifeTime 2030 August 30, 2004 10.60 Principal VCF Principal LifeTime 2040 August 30, 2004 11.78 Principal VCF Principal LifeTime 2050 August 30, 2004 11.74 Principal VCF Principal LifeTime Strategic Income August 30, 2004 7.66 Principal VCF Limited Term Bond May 1, 2003 1.30 2.09 Principal VCF MidCap December 18, 1987 17.76 9.51 13.47 14.40 Principal VCF MidCap Growth May 1, 1998 11.82 0.81 1.62 Principal VCF MidCap Value May 3, 1999 22.67 13.99 14.20 Principal VCF Money Market March 18, 1983 0.92 2.58 3.88 5.34 Principal VCF Real Estate Securities May 1, 1998 34.53 23.45 15.13 Principal VCF SmallCap May 1, 1998 19.82 1.52 3.16 Principal VCF SmallCap Growth May 1, 1998 11.24 -12.48 0.51 Principal VCF SmallCap Value May 1, 1998 23.08 17.33 13.26 Wells Fargo Advantage VT Asset Allocation April 15, 1994 9.34 1.81 10.03 9.45 Wells Fargo Advantage VT Equity Income May 6, 1996 11.08 1.84 8.04 Wells Fargo Advantage VT Large Company Growth September 20, 1999 3.26 -5.89 -2.22
FINANCIAL STATEMENTS Report of Independent Registered Public Accounting Firm 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. Aggressive Growth Series I, AIM V.I. Core Equity Series I, AIM V.I. Core Equity Series II, AIM V.I. Core Stock Series I, AIM V.I. Dynamics Series I (formerly INVESCO VIF-Dynamics), AIM V.I. Growth Series I, AIM V.I. Growth Series II, AIM V.I. Health Sciences Series I (formerly INVESCO VIF-Health Sciences), AIM V.I. International Growth Series I, AIM V.I. Premier Equity Series I, AIM V.I. Premier Equity Series II, AIM V.I. Small Company Growth Series I (formerly INVESCO VIF-Small Company Growth), AIM V.I. Technology Series I (formerly INVESCO VIF-Technology), American Century VP Income & Growth, American Century VP Ultra, American Century VP II Income & Growth, American Century VP II International, American Century VP II Ultra, American Century VP II Value, Asset Allocation, Balanced, Bond, Capital Value, Dreyfus IP Core Value Service Shares, Dreyfus IP Founders Discovery Initial Shares, Dreyfus IP Founders Growth Initial Shares, Dreyfus Socially Responsible Growth Service Shares, Dreyfus VIF Appreciation Service Shares, Dreyfus VIF Developing Leaders Service Shares, Dreyfus VIF Quality Bond Service Shares, Equity Growth, Equity Income (formerly Utilities), Fidelity VIP Equity-Income Initial Class, Fidelity VIP Equity-Income Service Class 2, Fidelity VIP Growth Service Class 2, Fidelity VIP High Income Initial Class, Fidelity VIP High Income Service Class 2, Fidelity VIP II Asset Manager Service Class 2, Fidelity VIP II Contrafund Initial Class, Fidelity VIP II Contrafund Service Class 2, Fidelity VIP III Mid Cap Service Class 2, Franklin Income Securities Class 2, Franklin Mutual Discovery Securities Class 2, Franklin Mutual Shares Securities Class 2, Franklin Rising Dividends Securities Class 2, Franklin Small Cap Value Securities Class 2, Government Securities, Growth, International, International Emerging Markets, International SmallCap, Janus Aspen Balanced Service Shares, Janus Aspen Core Equity Service Shares, Janus Aspen Flexible Income Service Shares, Janus Aspen Mid Cap Growth Service Shares, Janus Aspen Worldwide Growth Service Shares, JP Morgan Bond Series Trust II, JP Morgan Small Company Series Trust II, LargeCap Blend, LargeCap Growth Equity, LargeCap Stock Index, LargeCap Value, Limited Term Bond, MFS VIT Emerging Growth Service Class, MFS VIT MidCap Growth Service Class, MFS VIT New Discovery Service Class, MFS VIT Value Service Class, MidCap, MidCap Growth, MidCap Value, Money Market, Neuberger Berman AMT Guardian I Class, Principal LifeTime 2020, Principal LifeTime 2030, Principal LifeTime 2040, Principal LifeTime 2050, Putnam VT Growth & Income Class IB, Putnam VT International Equity Class IB, Putnam VT Voyager Class IB, Real Estate Securities (formerly Real Estate), SmallCap, SmallCap Growth, SmallCap Value, Vanguard VIF Balanced, Vanguard VIF Equity Index, Vanguard VIF Mid-Cap Index, Wells Fargo VT Asset Allocation, Wells Fargo VT Equity Income, and Wells Fargo VT Large Company Growth Divisions] as of December 31, 2004, and the related statements of operations and changes in net assets for the periods 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 the standards of the Public Company Accounting Oversight Board (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. We were not engaged to perform an audit of the Separate Account's internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Separate Account's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of December 31, 2004 by correspondence with the transfer agents. 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, 2004, and the results of their operations and the changes in their net assets for the periods described above, in conformity with U.S. generally accepted accounting principles. Des Moines, Iowa March 11, 2005 Principal Life Insurance Company Variable Life Separate Account Statements of Assets and Liabilities December 31, 2004
AIM V.I. Aggressive Growth AIM V.I. Series I Core Equity Division Series I Division ------------------------------------ ------------------------------------ Assets Investments in shares of mutual funds, at market $473,413 $1,322,088 Liabilities - - ------------------------------------ ------------------------------------ Net assets $473,413 $1,322,088 ==================================== ==================================== Net assets Accumulation units: Benefit Variable Universal Life $229,675 $ - Executive Variable Universal Life 243,738 - Flex Variable Life - 14,728 PrinFlex Life - 850,002 Survivorship Variable Universal Life - 40,603 Variable Universal Life Accumulator - 416,755 Variable Universal Life Accumulator II - - Variable Universal Life Income - - ------------------------------------ Total net assets $473,413 $1,322,088 ==================================== ==================================== Investments in shares of mutual funds, at cost $419,555 $1,123,369 Shares of mutual fund owned 39,984 58,499 Accumulation units outstanding: Benefit Variable Universal Life 21,028 - Executive Variable Universal Life 22,315 - Flex Variable Life - 1,577 PrinFlex Life - 88,560 Survivorship Variable Universal Life - 4,230 Variable Universal Life Accumulator - 43,425 Variable Universal Life Accumulator II - - Variable Universal Life Income - - Accumulation unit value: Benefit Variable Universal Life 10.92 - Executive Variable Universal Life 10.92 - Flex Variable Life - 9.34 PrinFlex Life - 9.60 Survivorship Variable Universal Life - 9.60 Variable Universal Life Accumulator - 9.60 Variable Universal Life Accumulator II - - Variable Universal Life Income - - See accompanying notes.
AIM V.I. AIM V.I. AIM V.I. AIM V.I. Dynamics AIM V.I. Growth AIM V.I. Health Core Equity Core Stock Series I Series I Growth Sciences Series II Division Series I Division Division Series II Division Series I Division Division ----------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------- $107,086 $56,133 $561,209 $1,770,928 $112,696 $4,028,286 - - - - - - ----------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------- $107,086 $56,133 $561,209 $1,770,928 $112,696 $4,028,286 =========================================================================================================== =========================================================================================================== $ - $ - $ 16,591 $ - $ - $ 139,781 - 56,133 53,208 - - 171,976 - - 344 1,607 - 12,361 - - 405,980 1,400,044 - 2,508,047 - - 22,416 112,041 - 187,960 - - 62,670 257,236 - 705,664 106,628 - - - 112,105 301,178 458 - - - 591 1,319 ----------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------- $107,086 $56,133 $561,209 $1,770,928 $112,696 $4,028,286 =========================================================================================================== =========================================================================================================== $ 98,505 $54,027 $458,626 $1,491,603 $104,205 $3,538,770 4,764 3,033 42,070 110,338 7,074 213,137 - - 1,938 - - 13,509 - 5,398 6,214 - - 16,624 - - 41 197 - 1,228 - - 47,415 166,812 - 242,432 - - 2,618 13,349 - 18,169 - - 7,340 30,649 - 68,219 7,572 - - - 7,833 29,112 32 - - - 41 128 - - 8.56 - - 10.35 - 10.40 8.56 - - 10.35 - - 8.39 8.16 - 10.07 - - 8.56 8.39 - 10.35 - - 8.56 8.39 - 10.35 - - 8.54 8.39 - 10.34 14.08 - - - 14.31 10.35 14.31 - - - 14.41 10.30
Principal Life Insurance Company Variable Life Separate Account Statements of Assets and Liabilities (continued) December 31, 2004 AIM V.I. AIM V.I. International Premier Growth Equity Series I Series I Division Division ------------------------------------ ------------------------------------ Assets Investments in shares of mutual funds, at market $642,119 $3,592,997 Liabilities - - ------------------------------------ ------------------------------------ Net assets $642,119 $3,592,997 ==================================== ==================================== Net assets Accumulation units: Benefit Variable Universal Life $ 32,287 $ - Executive Variable Universal Life 609,832 - Flex Variable Life - 26,590 PrinFlex Life - 2,683,616 Survivorship Variable Universal Life - 176,252 Variable Universal Life Accumulator - 706,539 Variable Universal Life Accumulator II - - Variable Universal Life Income - - ------------------------------------ ------------------------------------ Total net assets $642,119 $3,592,997 ==================================== ==================================== Investments in shares of mutual funds, at cost $578,969 $3,247,131 Shares of mutual fund owned 32,479 168,685 Accumulation units outstanding: Benefit Variable Universal Life 2,484 - Executive Variable Universal Life 46,914 - Flex Variable Life - 3,343 PrinFlex Life - 328,375 Survivorship Variable Universal Life - 21,567 Variable Universal Life Accumulator - 86,465 Variable Universal Life Accumulator II - - Variable Universal Life Income - - Accumulation unit value: Benefit Variable Universal Life 13.00 - Executive Variable Universal Life 13.00 - Flex Variable Life - 7.95 PrinFlex Life - 8.17 Survivorship Variable Universal Life - 8.17 Variable Universal Life Accumulator - 8.17 Variable Universal Life Accumulator II - - Variable Universal Life Income - - See accompanying notes.
AIM V.I. AIM V.I. Small American Century American Premier Company AIM V.I. VP American Century VP II Equity Growth Technology Income & Century VP Income & Growth Series II Series I Series I Growth Ultra Division Division Division Division Division Division ----------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------- $679,420 $1,982,103 $2,233,025 $3,041,773 $2,245,534 $521,054 - - - - - - ----------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------- $679,420 $1,982,103 $2,233,025 $3,041,773 $2,245,534 $521,054 =========================================================================================================== =========================================================================================================== $ - $ 204,499 $ 34,466 $ - $ - $ 41,069 - 381,143 151,830 - - 265,506 - 3,888 47,329 7,581 10,199 - - 1,155,822 1,693,469 2,130,401 1,293,910 - - 36,944 44,664 124,936 378,918 - - 199,807 261,267 778,855 562,507 - 666,384 - - - - 213,734 13,036 - - - - 745 ----------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------- $679,420 $1,982,103 $2,233,025 $3,041,773 $2,245,534 $521,054 =========================================================================================================== =========================================================================================================== $632,604 $1,637,026 $1,970,580 $2,488,872 $1,979,484 $482,849 32,078 128,624 179,793 415,543 221,017 71,377 - 22,958 5,985 - - 3,465 - 42,789 26,369 - - 22,404 - 449 8,447 732 1,067 - - 129,758 294,108 200,086 131,780 - - 4,148 7,757 11,734 38,591 - - 22,454 45,408 73,156 57,289 - 49,164 - - - - 18,035 962 - - - - 63 - 8.91 5.76 - - 11.85 - 8.91 5.76 - - 11.85 - 8.66 5.60 10.36 9.56 - - 8.91 5.76 10.65 9.82 - - 8.91 5.76 10.65 9.82 - - 8.90 5.75 10.65 9.82 - 13.55 - - - - 11.85 13.55 - - - - 11.83
Principal Life Insurance Company Variable Life Separate Account Statements of Assets and Liabilities (continued) December 31, 2004
American American Century VP II Century VP II International Ultra Division Division ------------------------------------ ------------------------------------ Assets Investments in shares of mutual funds, at market $404,874 $755,896 Liabilities - - ------------------------------------ ------------------------------------ Net assets $404,874 $755,896 ==================================== ==================================== Net assets Accumulation units: Benefit Variable Universal Life $ 30,256 $ 71,899 Executive Variable Universal Life 374,618 393,798 Flex Variable Life - - PrinFlex Life - - Survivorship Variable Universal Life - - Variable Universal Life Accumulator - - Variable Universal Life Accumulator II - 288,050 Variable Universal Life Income - 2,149 ------------------------------------ ------------------------------------ Total net assets $404,874 $755,896 ==================================== ==================================== Investments in shares of mutual funds, at cost $354,927 $685,188 Shares of mutual fund owned 55,160 74,620 Accumulation units outstanding: Benefit Variable Universal Life 2,666 6,574 Executive Variable Universal Life 33,008 36,006 Flex Variable Life - - PrinFlex Life - - Survivorship Variable Universal Life - - Variable Universal Life Accumulator - - Variable Universal Life Accumulator II - 26,337 Variable Universal Life Income - 196 Accumulation unit value: Benefit Variable Universal Life 11.35 10.94 Executive Variable Universal Life 11.35 10.94 Flex Variable Life - - PrinFlex Life - - Survivorship Variable Universal Life - - Variable Universal Life Accumulator - - Variable Universal Life Accumulator II - 10.94 Variable Universal Life Income - 10.96 See accompanying notes.
American Century VP II Value Asset Capital Division Allocation Balanced Bond Value Division Division Division Division ----------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------- $3,239,661 $15,588,785 $17,088,028 $34,207,643 $50,378,442 - - - - - ----------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------- $3,239,661 $15,588,785 $17,088,028 $34,207,643 $50,378,442 =========================================================================================================== =========================================================================================================== $ 305,601 $ - $ - $ 691,131 $ 3,476 270,946 - - 2,020,675 39,887 8,727 90,990 2,941,527 2,760,886 6,625,887 1,580,776 12,879,402 12,656,916 23,484,824 30,441,548 226,293 1,091,363 666,946 1,328,764 1,014,757 460,315 1,270,012 621,243 2,269,669 11,654,955 382,409 255,422 196,664 1,631,848 593,627 4,594 1,596 4,732 19,846 4,305 ----------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------- $3,239,661 $15,588,785 $17,088,028 $34,207,643 $50,378,442 =========================================================================================================== =========================================================================================================== $2,784,201 $14,382,438 $16,652,445 $32,932,641 $46,388,854 370,671 1,269,445 1,191,634 2,778,850 1,555,370 24,501 - - 42,796 223 21,740 - - 125,123 2,563 714 8,449 95,810 88,388 166,992 126,837 764,962 903,771 1,454,211 1,955,850 18,157 87,637 63,420 94,491 96,563 36,934 75,437 44,360 140,542 748,823 30,684 15,170 14,043 101,046 38,140 369 95 338 1,229 277 12.47 - - 16.15 15.59 12.46 - - 16.15 15.56 12.22 10.77 30.70 31.24 39.68 12.46 16.84 14.00 16.15 15.56 12.46 12.45 10.52 14.06 10.51 12.46 16.84 14.00 16.15 15.56 12.46 16.84 14.00 16.15 15.56 12.45 16.80 14.00 16.15 15.54
Principal Life Insurance Company Variable Life Separate Account Statements of Assets and Liabilities (continued) December 31, 2004
Dreyfus IP Dreyfus IP Founders Core Value Discovery Service Shares Initial Shares Division Division ------------------------------------ ------------------------------------ Assets Investments in shares of mutual funds, at market $1,012,429 $983,456 Liabilities - - ------------------------------------ ------------------------------------ Net assets $1,012,429 $983,456 ==================================== ==================================== Net assets Accumulation units: Benefit Variable Universal Life $ 25,998 $ 1,521 Executive Variable Universal Life 986,431 179,129 Flex Variable Life - 9,771 PrinFlex Life - 568,145 Survivorship Variable Universal Life - 16,366 Variable Universal Life Accumulator - 208,524 Variable Universal Life Accumulator II - - Variable Universal Life Income - - ------------------------------------ ------------------------------------ Total net assets $1,012,429 $983,456 ==================================== ==================================== Investments in shares of mutual funds, at cost $ 889,155 $858,260 Shares of mutual fund owned 65,150 100,353 Accumulation units outstanding: Benefit Variable Universal Life 2,316 171 Executive Variable Universal Life 87,867 20,161 Flex Variable Life - 1,130 PrinFlex Life - 63,945 Survivorship Variable Universal Life - 1,842 Variable Universal Life Accumulator - 23,470 Variable Universal Life Accumulator II - - Variable Universal Life Income - - Accumulation unit value: Benefit Variable Universal Life 11.23 8.89 Executive Variable Universal Life 11.23 8.88 Flex Variable Life - 8.65 PrinFlex Life - 8.88 Survivorship Variable Universal Life - 8.88 Variable Universal Life Accumulator - 8.88 Variable Universal Life Accumulator II - - Variable Universal Life Income - - See accompanying notes.
Dreyfus Dreyfus IP Socially Dreyfus VIF Founders Responsible Dreyfus VIF Developing Dreyfus VIF Growth Growth Appreciation Leaders Quality Bond Equity Initial Shares Service Shares Service Shares Service Shares Service Shares Growth Division Division Division Division Division Division ----------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------- $35,617 $32,356 $371,323 $2,026,924 $588,947 $73,341,632 - - - - - - ----------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------- $35,617 $32,356 $371,323 $2,026,924 $588,947 $73,341,632 =========================================================================================================== =========================================================================================================== $ - $25,996 $120,263 $ 168,962 $266,009 $ 114,758 35,617 6,360 251,060 1,308,376 322,938 235,092 - - - - - 53,820 - - - - - 66,874,135 - - - - - 3,387,306 - - - - - 1,626,521 - - - 542,003 - 1,028,676 - - - 7,583 - 21,324 ----------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------- $35,617 $32,356 $371,323 $2,026,924 $588,947 $73,341,632 =========================================================================================================== =========================================================================================================== $34,667 $28,760 $361,659 $1,763,920 $588,241 $78,976,052 3,008 1,291 10,472 49,173 51,753 4,578,129 - 2,622 11,514 15,229 23,210 7,457 3,365 642 24,036 117,916 28,178 15,276 - - - - - 6,163 - - - - - 4,345,713 - - - - - 366,043 - - - - - 105,700 - - - 48,849 - 66,843 - - - 683 - 1,386 - 9.91 10.44 11.09 11.46 15.39 10.58 9.91 10.45 11.10 11.46 15.39 - - - - - 8.73 - - - - - 15.39 - - - - - 9.25 - - - - - 15.39 - - - 11.10 - 15.39 - - - 11.10 - 15.39
Principal Life Insurance Company Variable Life Separate Account Statements of Assets and Liabilities (continued) December 31, 2004
Fidelity VIP Equity Equity-Income Income Initial Class Division Division ------------------------------------ ------------------------------------ Assets Investments in shares of mutual funds, at market $4,140,755 $34,571,336 Liabilities - - ------------------------------------ ------------------------------------ Net assets $4,140,755 $34,571,336 ==================================== ==================================== Net assets Accumulation units: Benefit Variable Universal Life $ - $ - Executive Variable Universal Life - - Flex Variable Life 4,632 101,646 PrinFlex Life 3,265,866 30,162,409 Survivorship Variable Universal Life 428,421 2,445,893 Variable Universal Life Accumulator 266,683 1,861,388 Variable Universal Life Accumulator II 170,182 - Variable Universal Life Income 4,971 - ------------------------------------ ------------------------------------ Total net assets $4,140,755 $34,571,336 ==================================== ==================================== Investments in shares of mutual funds, at cost $4,053,832 $30,263,899 Shares of mutual fund owned 459,573 1,362,686 Accumulation units outstanding: Benefit Variable Universal Life - - Executive Variable Universal Life - - Flex Variable Life 559 9,435 PrinFlex Life 273,996 1,665,851 Survivorship Variable Universal Life 43,263 202,196 Variable Universal Life Accumulator 22,374 102,803 Variable Universal Life Accumulator II 14,278 - Variable Universal Life Income 417 - Accumulation unit value: Benefit Variable Universal Life - - Executive Variable Universal Life - - Flex Variable Life 8.29 10.77 PrinFlex Life 11.92 18.11 Survivorship Variable Universal Life 9.90 12.10 Variable Universal Life Accumulator 11.92 18.11 Variable Universal Life Accumulator II 11.92 - Variable Universal Life Income 11.92 - See accompanying notes.
Fidelity VIP Fidelity VIP Fidelity VIP Fidelity VIP II Equity-Income Growth Fidelity VIP High Income Asset Manager Fidelity VIP II Service Service High Income Service Service Contrafund Class 2 Class 2 Initial Class Class 2 Class 2 Initial Class Division Division Division Division Division Division ----------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------- $4,957,713 $4,633,663 $6,247,741 $1,289,702 $843,384 $68,672,764 - - - - - - ----------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------- $4,957,713 $4,633,663 $6,247,741 $1,289,702 $843,384 $68,672,764 =========================================================================================================== =========================================================================================================== $ 899,980 $ 440,549 $ - $ 335,644 $150,598 $ - 2,739,093 1,525,004 - 709,385 692,786 - - 8,194 7,192 - - 130,415 - 1,419,513 5,834,037 - - 62,724,741 - 292,397 222,495 - - 3,155,251 - 476,611 184,017 - - 2,662,357 1,305,800 465,227 - 244,656 - - 12,840 6,168 - 17 - - ----------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------- $4,957,713 $4,633,663 $6,247,741 $1,289,702 $843,384 $68,672,764 =========================================================================================================== =========================================================================================================== $4,412,135 $4,350,040 $6,117,096 $1,213,459 $816,795 $57,616,896 197,597 146,449 892,534 186,643 57,608 2,579,743 77,089 43,439 - 23,507 13,079 - 234,596 150,365 - 49,683 60,160 - - 824 569 - - 10,634 - 139,969 495,801 - - 2,909,373 - 28,831 22,396 - - 252,149 - 46,995 15,639 - - 123,488 111,851 45,873 - 17,135 - - 1,100 608 - 1 - - 11.67 10.14 - 14.28 11.51 - 11.68 10.14 - 14.28 11.52 - - 9.94 12.64 - - 12.26 - 10.14 11.77 - - 21.56 - 10.14 9.93 - - 12.51 - 10.14 11.77 - - 21.56 11.67 10.14 - 14.28 - - 11.67 10.14 - 17.00 - -
Principal Life Insurance Company Variable Life Separate Account Statements of Assets and Liabilities (continued) December 31, 2004
Fidelity VIP II Fidelity VIP III Contrafund Mid Cap Service Service Class 2 Class 2 Division Division ------------------------------------ ------------------------------------ Assets Investments in shares of mutual funds, at market $4,493,056 $4,631,657 Liabilities - - ------------------------------------ ------------------------------------ Net assets $4,493,056 $4,631,657 ==================================== ==================================== Net assets Accumulation units: Benefit Variable Universal Life $ 451,994 $ 829,923 Executive Variable Universal Life 2,739,254 3,333,332 Flex Variable Life - - PrinFlex Life - - Survivorship Variable Universal Life - - Variable Universal Life Accumulator - - Variable Universal Life Accumulator II 1,295,108 462,689 Variable Universal Life Income 6,700 5,713 ------------------------------------ ------------------------------------ Total net assets $4,493,056 $4,631,657 ==================================== ==================================== Investments in shares of mutual funds, at cost $3,976,924 $3,799,318 Shares of mutual fund owned 170,514 155,009 Accumulation units outstanding: Benefit Variable Universal Life 35,489 56,375 Executive Variable Universal Life 215,110 226,448 Flex Variable Life - - PrinFlex Life - - Survivorship Variable Universal Life - - Variable Universal Life Accumulator - - Variable Universal Life Accumulator II 101,705 31,434 Variable Universal Life Income 526 388 Accumulation unit value: Benefit Variable Universal Life 12.74 14.72 Executive Variable Universal Life 12.73 14.72 Flex Variable Life - - PrinFlex Life - - Survivorship Variable Universal Life - - Variable Universal Life Accumulator - - Variable Universal Life Accumulator II 12.73 14.72 Variable Universal Life Income 12.74 14.72 See accompanying notes.
Franklin Franklin Franklin Franklin Income Mutual Discovery Mutual Shares Rising Dividends Securities Securities Securities Securities Class 2 Class 2 Class 2 Class 2 Division Division Division Division -------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------- $1,230,745 $883,756 $1,334,110 $2,163,287 - - - - -------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------- $1,230,745 $883,756 $1,334,110 $2,163,287 ================================================================================================== ================================================================================================== $ 170,499 $170,019 $ 515,480 $ 591,713 1,060,246 713,737 818,630 1,571,574 - - - - - - - - - - - - - - - - - - - - - - - - -------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------- $1,230,745 $883,756 $1,334,110 $2,163,287 ================================================================================================== ================================================================================================== $1,127,823 $777,980 $1,188,836 $1,972,074 78,542 54,385 80,175 123,546 11,998 13,254 43,153 49,857 74,611 55,641 68,531 132,437 - - - - - - - - - - - - - - - - - - - - - - - - 14.21 12.83 11.95 11.87 14.21 12.83 11.95 11.87 - - - - - - - - - - - - - - - - - - - - - - - -
Principal Life Insurance Company Variable Life Separate Account Statements of Assets and Liabilities (continued) December 31, 2004
Franklin Small Cap Value Securities Government Class 2 Securities Division Division ------------------------------------ ------------------------------------ Assets Investments in shares of mutual funds, at market $1,582,039 $27,666,134 Liabilities - - ------------------------------------ ------------------------------------ Net assets $1,582,039 $27,666,134 ==================================== ==================================== Net assets Accumulation units: Benefit Variable Universal Life $ 312,805 $ 579,726 Executive Variable Universal Life 1,269,234 986,754 Flex Variable Life - 209,935 PrinFlex Life - 17,054,493 Survivorship Variable Universal Life - 4,312,207 Variable Universal Life Accumulator - 3,569,784 Variable Universal Life Accumulator II - 946,711 Variable Universal Life Income - 6,524 ------------------------------------ ------------------------------------ Total net assets $1,582,039 $27,666,134 ==================================== ==================================== Investments in shares of mutual funds, at cost $1,334,631 $27,386,418 Shares of mutual fund owned 101,089 2,376,816 Accumulation units outstanding: Benefit Variable Universal Life 23,855 35,727 Executive Variable Universal Life 96,790 60,810 Flex Variable Life - 17,924 PrinFlex Life - 1,051,009 Survivorship Variable Universal Life - 308,730 Variable Universal Life Accumulator - 219,994 Variable Universal Life Accumulator II - 58,342 Variable Universal Life Income - 402 Accumulation unit value: Benefit Variable Universal Life 13.11 16.23 Executive Variable Universal Life 13.11 16.23 Flex Variable Life - 11.71 PrinFlex Life - 16.23 Survivorship Variable Universal Life - 13.97 Variable Universal Life Accumulator - 16.23 Variable Universal Life Accumulator II - 16.23 Variable Universal Life Income - 16.23 See accompanying notes.
Janus International Aspen Emerging International Balanced Growth International Markets SmallCap Service Shares Division Division Division Division Division ----------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------- $19,950,384 $42,718,468 $3,101,078 $25,361,061 $47,350 - - - - - ----------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------- $19,950,384 $42,718,468 $3,101,078 $25,361,061 $47,350 =========================================================================================================== =========================================================================================================== $ - $ 64,371 $ - $ 494,842 $ 3,088 39,527 895,650 - 1,075,704 44,262 6,759 56,527 56,516 86,538 - 18,170,031 29,981,746 1,742,734 18,871,514 - 1,352,313 1,782,809 77,475 2,315,367 - 279,139 8,173,641 550,936 1,606,571 - 101,874 1,727,975 660,454 893,936 - 741 35,749 12,963 16,589 - ----------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------- $19,950,384 $42,718,468 $3,101,078 $25,361,061 $47,350 =========================================================================================================== =========================================================================================================== $24,798,177 $34,553,945 $2,646,200 $16,574,974 $43,124 1,670,886 3,106,798 209,816 1,431,211 1,876 - 4,545 - 24,242 271 3,511 63,240 - 52,698 3,879 830 5,069 3,666 6,224 - 1,613,836 2,116,937 110,841 924,545 - 188,602 165,190 4,928 133,390 - 24,796 577,120 35,041 78,708 - 9,048 122,008 42,006 43,795 - 66 2,524 824 813 - - 14.16 - 20.41 11.39 11.26 14.16 - 20.41 11.41 8.14 11.15 15.42 13.90 - 11.26 14.16 15.72 20.41 - 7.17 10.79 15.72 17.36 - 11.26 14.16 15.72 20.41 - 11.26 14.16 15.72 20.41 - 11.23 14.16 15.73 20.40 -
Principal Life Insurance Company Variable Life Separate Account Statements of Assets and Liabilities (continued) December 31, 2004
Janus Janus Aspen Aspen Core Equity Flexible Income Service Shares Service Shares Division Division ------------------------------------ ------------------------------------ Assets Investments in shares of mutual funds, at market $378,721 $2,429,332 Liabilities - - ------------------------------------ ------------------------------------ Net assets $378,721 $2,429,332 ==================================== ==================================== Net assets Accumulation units: Benefit Variable Universal Life $ 79,852 $ 339,118 Executive Variable Universal Life 298,869 2,090,214 Flex Variable Life - - PrinFlex Life - - Survivorship Variable Universal Life - - Variable Universal Life Accumulator - - Variable Universal Life Accumulator II - - Variable Universal Life Income - - ------------------------------------ ------------------------------------ Total net assets $378,721 $2,429,332 ==================================== ==================================== Investments in shares of mutual funds, at cost $332,182 $2,495,934 Shares of mutual fund owned 20,372 191,136 Accumulation units outstanding: Benefit Variable Universal Life 7,068 28,201 Executive Variable Universal Life 26,454 173,838 Flex Variable Life - - PrinFlex Life - - Survivorship Variable Universal Life - - Variable Universal Life Accumulator - - Variable Universal Life Accumulator II - - Variable Universal Life Income - - Accumulation unit value: Benefit Variable Universal Life 11.30 12.03 Executive Variable Universal Life 11.30 12.02 Flex Variable Life - - PrinFlex Life - - Survivorship Variable Universal Life - - Variable Universal Life Accumulator - - Variable Universal Life Accumulator II - - Variable Universal Life Income - - See accompanying notes.
Janus Janus JP Morgan Aspen Aspen JP Morgan Small Mid Cap Worldwide Bond Company Growth Growth Series Series LargeCap Service Shares Service Shares Trust II Trust II Blend Division Division Division Division Division ----------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------- $2,857,327 $406,334 $305,985 $872,148 $4,411,096 - - - - - ----------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------- $2,857,327 $406,334 $305,985 $872,148 $4,411,096 =========================================================================================================== =========================================================================================================== $ - $106,938 $ 74,038 $171,340 $ 7,619 - 299,396 231,947 700,808 117,218 7,777 - - - 22,450 2,221,086 - - - 2,048,670 108,532 - - - 156,096 519,932 - - - 788,745 - - - - 1,248,665 - - - - 21,633 ----------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------- $2,857,327 $406,334 $305,985 $872,148 $4,411,096 =========================================================================================================== =========================================================================================================== $2,204,484 $392,290 $301,994 $716,510 $4,020,982 112,671 15,264 25,143 48,778 411,099 - 10,616 6,392 12,870 671 - 29,722 20,024 52,645 10,316 905 - - - 2,015 251,536 - - - 180,296 12,291 - - - 13,737 58,904 - - - 69,415 - - - - 109,891 - - - - 1,904 - 10.07 11.58 13.31 11.35 - 10.07 11.58 13.31 11.36 8.59 - - - 11.14 8.83 - - - 11.36 8.83 - - - 11.36 8.83 - - - 11.36 - - - - 11.36 - - - - 11.36
Principal Life Insurance Company Variable Life Separate Account Statements of Assets and Liabilities (continued) December 31, 2004
LargeCap LargeCap Growth Stock Equity Index Division Division ------------------------------------ ------------------------------------ Assets Investments in shares of mutual funds, at market $10,534,568 $30,994,449 Liabilities - - ------------------------------------ ------------------------------------ Net assets $10,534,568 $30,994,449 ==================================== ==================================== Net assets Accumulation units: Benefit Variable Universal Life $ 83,877 $ - Executive Variable Universal Life - - Flex Variable Life 27,049 156,135 PrinFlex Life 931,090 25,599,549 Survivorship Variable Universal Life 17,271 2,569,913 Variable Universal Life Accumulator 9,309,227 1,498,065 Variable Universal Life Accumulator II 162,779 1,130,481 Variable Universal Life Income 3,275 40,306 ------------------------------------ ------------------------------------ Total net assets $10,534,568 $30,994,449 ==================================== ==================================== Investments in shares of mutual funds, at cost $9,990,313 $29,162,829 Shares of mutual fund owned 2,290,123 3,534,145 Accumulation units outstanding: Benefit Variable Universal Life 6,421 - Executive Variable Universal Life - - Flex Variable Life 2,096 16,316 PrinFlex Life 71,275 2,656,021 Survivorship Variable Universal Life 1,322 265,549 Variable Universal Life Accumulator 712,627 155,435 Variable Universal Life Accumulator II 12,461 117,290 Variable Universal Life Income 251 4,182 Accumulation unit value: Benefit Variable Universal Life 13.06 - Executive Variable Universal Life - - Flex Variable Life 12.91 9.57 PrinFlex Life 13.06 9.64 Survivorship Variable Universal Life 13.06 9.68 Variable Universal Life Accumulator 13.06 9.64 Variable Universal Life Accumulator II 13.06 9.64 Variable Universal Life Income 13.05 9.64 See accompanying notes.
MFS VIT MFS VIT Emerging MidCap MFS VIT LargeCap Limited Growth Growth New Discovery Value Term Bond Service Class Service Class Service Class Division Division Division Division Division ----------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------- $5,836,293 $1,735,143 $157,101 $425,804 $867,855 - - - - - ----------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------- $5,836,293 $1,735,143 $157,101 $425,804 $867,855 ========================================================================================= ========================================================================================= $ 65,240 $ 37,138 $ 44,763 $ 77,436 $ 82,267 187,423 218,679 112,338 348,368 550,169 67,084 345 - - - 2,882,770 856,664 - - - 401,539 115,268 - - - 962,582 255,828 - - - 1,248,715 251,221 - - 234,332 20,940 - - - 1,087 ----------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------- $5,836,293 $1,735,143 $157,101 $425,804 $867,855 ========================================================================================= ========================================================================================= $5,036,240 $1,728,539 $139,693 $390,043 $810,434 491,271 171,457 9,044 60,829 58,998 5,369 3,652 4,072 6,936 7,650 15,424 21,505 10,218 31,204 51,165 5,630 34 - - - 237,231 84,246 - - - 33,044 11,336 - - - 79,213 25,159 - - - 102,760 24,706 - - 21,792 1,723 - - - 101 12.15 10.17 10.99 11.16 10.75 12.15 10.17 10.99 11.16 10.75 11.92 10.15 - - - 12.15 10.17 - - - 12.15 10.17 - - - 12.15 10.17 - - - 12.15 10.17 - - 10.75 12.15 - - - 10.76
Principal Life Insurance Company Variable Life Separate Account Statements of Assets and Liabilities (continued) December 31, 2004
MFS VIT Value Service Class MidCap Division Division ------------------------------------ ------------------------------------ Assets Investments in shares of mutual funds, at market $362,147 $72,634,574 Liabilities - - ------------------------------------ ------------------------------------ Net assets $362,147 $72,634,574 ==================================== ==================================== Net assets Accumulation units: Benefit Variable Universal Life $ 91,763 $ 252,636 Executive Variable Universal Life 270,384 1,110,898 Flex Variable Life - 15,446,664 PrinFlex Life - 49,341,818 Survivorship Variable Universal Life - 1,695,089 Variable Universal Life Accumulator - 3,412,974 Variable Universal Life Accumulator II - 1,355,837 Variable Universal Life Income - 18,658 ------------------------------------ ------------------------------------ Total net assets $362,147 $72,634,574 ==================================== ==================================== Investments in shares of mutual funds, at cost $327,340 $62,036,489 Shares of mutual fund owned 30,004 1,832,818 Accumulation units outstanding: Benefit Variable Universal Life 7,739 11,381 Executive Variable Universal Life 22,804 50,049 Flex Variable Life - 221,140 PrinFlex Life - 2,222,992 Survivorship Variable Universal Life - 96,447 Variable Universal Life Accumulator - 153,769 Variable Universal Life Accumulator II - 61,085 Variable Universal Life Income - 841 Accumulation unit value: Benefit Variable Universal Life 11.86 22.20 Executive Variable Universal Life 11.86 22.20 Flex Variable Life - 69.85 PrinFlex Life - 22.20 Survivorship Variable Universal Life - 17.58 Variable Universal Life Accumulator - 22.20 Variable Universal Life Accumulator II - 22.20 Variable Universal Life Income - 22.19 See accompanying notes.
Neuberger Berman AMT MidCap MidCap Money Guardian Growth Value Market I Class Division Division Division Division -------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------- $11,018,928 $11,579,997 $50,588,200 $7,529 - - - - -------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------- $11,018,928 $11,579,997 $50,588,200 $7,529 ================================================================================================== ================================================================================================== $ 109,010 $ 635,807 $ 3,608,808 $7,529 177,093 676,193 9,411,521 - 26,988 81,281 350,128 - 8,047,785 6,960,573 26,752,741 - 744,608 470,576 3,126,670 - 1,107,481 1,472,313 2,176,508 - 795,377 1,268,524 3,848,056 - 10,586 14,730 1,313,768 - -------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------- $11,018,928 $11,579,997 $50,588,200 $7,529 ================================================================================================== ================================================================================================== $ 9,545,695 $10,193,888 $50,588,200 $6,872 1,119,810 752,926 50,588,201 466 9,746 43,697 275,163 663 15,834 46,480 717,694 - 2,692 5,741 18,763 - 719,551 478,482 2,040,011 - 65,838 32,348 269,652 - 99,020 101,221 165,969 - 71,115 87,201 293,425 - 947 1,013 100,142 - 11.19 14.55 13.12 11.36 11.18 14.55 13.11 - 10.03 14.16 18.66 - 11.18 14.55 13.11 - 11.31 14.55 11.60 - 11.18 14.55 13.11 - 11.18 14.55 13.11 - 11.18 14.54 13.12 -
Principal Life Insurance Company Variable Life Separate Account Statements of Assets and Liabilities (continued) December 31, 2004
Principal Principal LifeTime LifeTime 2020 2030 Division Division ------------------------------------ ------------------------------------ Assets Investments in shares of mutual funds, at market $4,165 $140,375 Liabilities - - ------------------------------------ ------------------------------------ Net assets $4,165 $140,375 ==================================== ==================================== Net assets Accumulation units: Benefit Variable Universal Life $ - $ - Executive Variable Universal Life - - Flex Variable Life - - PrinFlex Life - - Survivorship Variable Universal Life - - Variable Universal Life Accumulator - - Variable Universal Life Accumulator II 3,268 34,005 Variable Universal Life Income 897 106,370 ------------------------------------ ------------------------------------ Total net assets $4,165 $140,375 ==================================== ==================================== Investments in shares of mutual funds, at cost $3,981 $137,764 Shares of mutual fund owned 380 12,796 Accumulation units outstanding: Benefit Variable Universal Life - - Executive Variable Universal Life - - Flex Variable Life - - PrinFlex Life - - Survivorship Variable Universal Life - - Variable Universal Life Accumulator - - Variable Universal Life Accumulator II 295 3,075 Variable Universal Life Income 81 9,618 Accumulation unit value: Benefit Variable Universal Life - - Executive Variable Universal Life - - Flex Variable Life - - PrinFlex Life - - Survivorship Variable Universal Life - - Variable Universal Life Accumulator - - Variable Universal Life Accumulator II 11.08 11.06 Variable Universal Life Income 11.07 11.06 See accompanying notes.
Putnam VT Putnam VT Principal Principal Growth & International Putnam VT LifeTime LifeTime Income Equity Voyager Real Estate 2040 2050 Class IB Class IB Class IB Securities Division Division Division Division Division Division -------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------- $135,735 $77,128 $157,557 $1,488,252 $28,827,540 $30,220,884 - - - - - - -------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------- $135,735 $77,128 $157,557 $1,488,252 $28,827,540 $30,220,884 ======================================================================================================== ======================================================================================================== $ - $ - $ 80,347 $ 544,404 $ 110,026 $ 1,120,585 - - 77,210 943,848 552,333 3,602,683 - - - - 33,715 126,351 - - - - 25,048,658 17,865,907 - - - - 1,901,237 3,567,828 - - - - 1,181,571 2,432,613 134,102 70,445 - - - 1,500,285 1,633 6,683 - - - 4,632 -------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------- $135,735 $77,128 $157,557 $1,488,252 $28,827,540 $30,220,884 ======================================================================================================== ======================================================================================================== $126,686 $70,954 $140,599 $1,233,281 $37,352,105 $23,736,247 12,239 6,955 6,193 101,173 1,059,836 1,690,206 - - 7,023 45,549 10,288 43,747 - - 6,749 78,969 51,647 140,645 - - - - 4,239 5,862 - - - - 2,342,232 697,415 - - - - 213,822 129,399 - - - - 110,485 94,959 11,997 6,304 - - - 58,569 146 598 - - - 181 - - 11.44 11.95 10.69 25.62 - - 11.44 11.95 10.69 25.62 - - - - 7.95 21.55 - - - - 10.69 25.62 - - - - 8.89 27.57 - - - - 10.69 25.62 11.18 11.17 - - - 25.62 11.18 11.18 - - - 25.59
Principal Life Insurance Company Variable Life Separate Account Statements of Assets and Liabilities (continued) December 31, 2004
SmallCap SmallCap Growth Division Division --------------------------------- --------------------------------- Assets Investments in shares of mutual funds, at market $18,289,154 $16,914,181 Liabilities - - --------------------------------- --------------------------------- Net assets $18,289,154 $16,914,181 ================================= ================================= Net assets Accumulation units: Benefit Variable Universal Life $ 130,961 $ 41,085 Executive Variable Universal Life 724,773 68,159 Flex Variable Life 94,042 13,959 PrinFlex Life 9,299,348 14,575,307 Survivorship Variable Universal Life 545,073 885,220 Variable Universal Life Accumulator 7,042,643 825,691 Variable Universal Life Accumulator II 449,861 502,145 Variable Universal Life Income 2,453 2,615 --------------------------------- --------------------------------- Total net assets $18,289,154 $16,914,181 ================================= ================================= Investments in shares of mutual funds, at cost $14,410,807 $19,145,099 Shares of mutual fund owned 1,915,095 1,818,729 Accumulation units outstanding: Benefit Variable Universal Life 10,576 3,985 Executive Variable Universal Life 58,537 6,608 Flex Variable Life 8,525 2,139 PrinFlex Life 751,077 1,413,051 Survivorship Variable Universal Life 42,315 108,409 Variable Universal Life Accumulator 568,814 80,079 Variable Universal Life Accumulator II 36,334 48,682 Variable Universal Life Income 198 254 Accumulation unit value: Benefit Variable Universal Life 12.38 10.31 Executive Variable Universal Life 12.38 10.31 Flex Variable Life 11.03 6.53 PrinFlex Life 12.38 10.31 Survivorship Variable Universal Life 12.88 8.17 Variable Universal Life Accumulator 12.38 10.31 Variable Universal Life Accumulator II 12.38 10.31 Variable Universal Life Income 12.39 10.30 See accompanying notes.
Wells Vanguard Wells Wells Fargo VT Vanguard Vanguard VIF Fargo VT Fargo VT Large SmallCap VIF VIF Equity Mid-Cap Asset Equity Company Value Balanced Index Index Allocation Income Growth Division Division Division Division Division Division Division ----------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------- $28,903,720 $3,122,214 $6,656,728 $1,946,480 $724,876 $179,058 $280,191 - - - - - - - ----------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------- $28,903,720 $3,122,214 $6,656,728 $1,946,480 $724,876 $179,058 $280,191 =========================================================================================================== =========================================================================================================== $ 785,733 $1,004,794 $1,117,415 $ 582,606 $ 3,061 $ - $ 4,523 3,168,055 2,117,420 5,539,313 1,363,874 12,324 20,174 150,803 155,852 - - - - - - 20,464,719 - - - 460,451 49,017 66,656 1,215,532 - - - 49,955 49,998 9,687 2,019,741 - - - 102,768 30,656 17,396 1,088,941 - - - 95,987 27,733 30,899 5,147 - - - 330 1,480 227 ----------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------- $28,903,720 $3,122,214 $6,656,728 $1,946,480 $724,876 $179,058 $280,191 =========================================================================================================== =========================================================================================================== $23,234,093 $2,890,948 $6,002,111 $1,673,523 $652,011 $157,546 $265,140 1,717,393 167,681 235,303 119,636 55,889 10,965 31,553 34,188 82,293 97,615 45,595 257 - 448 137,843 173,401 483,906 106,735 1,034 1,817 14,944 9,611 - - - - - - 890,450 - - - 38,647 4,413 6,606 49,345 - - - 4,193 4,502 960 87,891 - - - 8,626 2,760 1,724 47,381 - - - 8,056 2,497 3,062 224 - - - 28 133 22 22.98 12.21 11.45 12.78 11.91 - 10.10 22.98 12.21 11.45 12.78 11.92 11.10 10.09 16.22 - - - - - - 22.98 - - - 11.91 11.11 10.09 24.63 - - - 11.91 11.11 10.09 22.98 - - - 11.91 11.11 10.09 22.98 - - - 11.91 11.11 10.09 22.98 - - - 11.79 11.13 10.32
Principal Life Insurance Company Variable Life Separate Account Statements of Operations For The Year Ended December 31, 2004, Except as Noted
AIM V.I. Aggressive Growth AIM V.I. Series I Core Equity Division Series I Division ------------------------------------ Investment income (loss) Income: Dividends $ - $12,460 Expenses: Mortality and expense risks 532 10,870 ------------------------------------ Net investment income (loss) (532) 1,590 Realized gains (losses) on investments Realized gains (losses) on sale of fund shares 18,826 48,775 Capital gains distributions - - ------------------------------------ ------------------------------------ Total realized gains (losses) on investments 18,826 48,775 Change in net unrealized appreciation or depreciation of investments 24,078 45,984 ------------------ ------------------- Net increase (decrease) in net assets resulting from operations $42,372 $96,349 ==================================== (1) Commenced operations March 18, 2004. (2) Represented the operations of INVESCO VIF - Dynamics Division until October 15, 2004 name change. (3) Represented the operations of INVESCO VIF - Health Sciences Division until October 15, 2004 name change. See accompanying notes.
AIM V.I. AIM V.I. AIM V.I. AIM V.I. AIM V.I. AIM V.I. Health Core Equity Core Stock Dynamics Growth Growth Sciences Series II Series I Series I Series I Series II Series I Division Division (1) Division (2) Division Division Division (3) ----------------------------------------------------------------------------------------------------------- $ 775 $ 478 $ - $ - $ - $ - 358 108 4,145 15,452 315 29,597 ----------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------- 417 370 (4,145) (15,452) (315) (29,597) 598 (273) 42,251 32,557 167 71,188 - - - - - - ----------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------- 598 (273) 42,251 32,557 167 71,188 5,246 2,106 30,014 96,347 7,088 193,429 ----------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------- $6,261 $2,203 $68,120 $113,452 $6,940 $235,020 ===========================================================================================================
Principal Life Insurance Company Variable Life Separate Account Statements of Operations (continued) For The Year Ended December 31, 2004, Except as Noted
AIM V.I. AIM V.I. International Premier Growth Equity Series I Series I Division Division ------------------------------------ Investment income (loss) Income: Dividends $ 2,828 $ 16,111 Expenses: Mortality and expense risks 489 28,654 ------------------------------------ ------------------------------------ Net investment income (loss) 2,339 (12,543) Realized gains (losses) on investments Realized gains (losses) on sale of fund shares 1,253 64,049 Capital gains distributions - - ------------------------------------ ------------------------------------ Total realized gains (losses) on investments 1,253 64,049 Change in net unrealized appreciation or depreciation of investments 59,757 131,678 ------------------------------------ ------------------------------------ Net increase (decrease) in net assets resulting from operations $63,349 $183,184 ==================================== (1) Represented operations of INVESCO VIF - Small Company Growth Division until October 15, 2004 name change. (2) Represented operations of INVESCO VIF - Technology Division until October 15, 2004 name change. See accompanying notes.
AIM V.I. AIM V.I. Small American American Premier Company AIM V.I. Century VP American Century VP II Equity Growth Technology Income & Century VP Income & Series II Series I Series I Growth Ultra Growth Division Division (1) Division (2) Division Division Division ----------------------------------------------------------------------------------------------------------- $ 1,976 $ - $ - $ 35,205 $ - $ 1,025 2,484 11,371 17,358 21,831 14,272 871 ----------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------- (508) (11,371) (17,358) 13,374 (14,272) 154 139 46,462 39,720 55,329 31,467 1,341 - - - - - - ----------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------- 139 46,462 39,720 55,329 31,467 1,341 35,541 181,406 44,207 247,961 143,868 29,148 ----------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------- $35,172 $216,497 $66,569 $316,664 $161,063 $30,643 ===========================================================================================================
Principal Life Insurance Company Variable Life Separate Account Statements of Operations (continued) For The Year Ended December 31, 2004, Except as Noted
American American Century VP II Century VP II International Ultra Division Division ------------------------------------ Investment income (loss) Income: Dividends $ 496 $ - Expenses: Mortality and expense risks 731 2,124 ------------------------------------ ------------------------------------ Net investment income (loss) (235) (2,124) Realized gains (losses) on investments Realized gains (losses) on sale of fund shares 7,085 24,549 Capital gains distributions - - ------------------------------------ ------------------------------------ Total realized gains (losses) on investments 7,085 24,549 Change in net unrealized appreciation or depreciation of investments 35,248 37,509 ------------------------------------ ------------------------------------ Net increase (decrease) in net assets resulting from operations $42,098 $59,934 ==================================== See accompanying notes.
American Century VP II Asset Capital Value Allocation Balanced Bond Value Division Division Division Division Division ----------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------- $ 14,628 $ 462,591 $ 327,069 $1,380,213 $ 687,910 16,780 121,330 138,328 258,638 371,175 ----------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------- (2,152) 341,261 188,741 1,121,575 316,735 57,206 39,529 (95,233) 80,564 (37,575) 13,427 - - - - ----------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------- 70,633 39,529 (95,233) 80,564 (37,575) 237,710 710,445 1,320,852 46,844 4,776,814 ----------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------- $306,191 $1,091,235 $1,414,360 $1,248,983 $5,055,974 =========================================================================================
Principal Life Insurance Company Variable Life Separate Account Statements of Operations (continued) For The Years Ended December 31, 2004, Except as Noted
Dreyfus IP Dreyfus IP Founders Core Value Discovery Service Shares Initial Shares Division Division ------------------------------------ Investment income (loss) Income: Dividends $ 7,783 $ - Expenses: Mortality and expense risks 2,112 5,498 ------------------------------------ ------------------------------------ Net investment income (loss) 5,671 (5,498) Realized gains (losses) on investments Realized gains (losses) on sale of fund shares 12,770 7,098 Capital gains distributions - - ------------------------------------ ------------------------------------ Total realized gains (losses) on investments 12,770 7,098 Change in net unrealized appreciation or depreciation of investments 63,894 63,963 ------------------------------------ ------------------------------------ Net increase (decrease) in net assets resulting from operations $82,335 $65,563 ==================================== (1) Commenced operations November 23, 2004. See accompanying notes.
Dreyfus Dreyfus IP Socially Dreyfus VIF Founders Responsible Dreyfus VIF Developing Dreyfus VIF Growth Growth Appreciation Leaders Quality Bond Equity Initial Shares Service Shares Service Shares Service Shares Service Shares Growth Division (1) Division Division Division Division Division ----------------------------------------------------------------------------------------------------------- $ 142 $ 48 $ 5,024 $ - $21,072 $ 377,891 1 92 553 5,052 1,117 614,285 ----------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------- 141 (44) 4,471 (5,052) 19,955 (236,394) - 67 1,494 79,257 (12,161) (438,762) - - - - - - ----------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------- - 67 1,494 79,257 (12,161) (438,762) 950 1,393 6,589 98,066 2,543 6,308,719 ----------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------- $1,091 $1,416 $12,554 $172,271 $10,337 $5,633,563 ===========================================================================================================
Principal Life Insurance Company Variable Life Separate Account Statements of Operations (continued) For The Year Ended December 31, 2004, Except as Noted
Fidelity VIP Equity Equity-Income Income Initial Class Division (1) Division ------------------------------------ Investment income (loss) Income: Dividends $138,072 $ 437,688 Expenses: Mortality and expense risks 30,642 254,509 ------------------------------------ Net investment income (loss) 107,430 183,179 Realized gains (losses) on investments Realized gains (losses) on sale of fund shares (49,420) 111,582 Capital gains distributions - 104,559 ------------------------------------ ------------------------------------ Total realized gains (losses) on investments (49,420) 216,141 Change in net unrealized appreciation or depreciation of investments 502,715 2,814,094 ------------------------------------ Net increase (decrease) in net assets resulting from operations $560,725 $3,213,414 ==================================== (1) Represented the operations of Utilities Division until March 1, 2004 name change. See accompanying notes.
Fidelity VIP Fidelity VIP Fidelity VIP Fidelity VIP II Equity-Income Growth Fidelity VIP High Income Asset Manager Fidelity VIP II Service Service High Income Service Service Contrafund Class 2 Class 2 Initial Class Class 2 Class 2 Initial Class Division Division Division Division Division Division ----------------------------------------------------------------------------------------------------------- $ 24,594 $ 3,154 $467,326 $31,262 $12,418 $ 196,638 10,435 22,233 51,448 2,045 1,832 494,299 ----------------------------------------------------------------------------------------------------------- 14,159 (19,079) 415,878 29,217 10,586 (297,661) 78,360 26,731 (58,985) 9,611 1,847 284,796 6,409 - - - - - ----------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------- 84,769 26,731 (58,985) 9,611 1,847 284,796 293,679 115,670 133,701 41,318 20,533 8,603,464 ----------------------------------------------------------------------------------------------------------- $392,607 $123,322 $490,594 $80,146 $32,966 $8,590,599 ===========================================================================================================
Principal Life Insurance Company Variable Life Separate Account Statements of Operations (continued) For The Year Ended December 31, 2004, Except as Noted
Fidelity VIP II Fidelity VIP III Contrafund Mid Cap Service Service Class 2 Class 2 Division Division ------------------------------------ Investment income (loss) Income: Dividends $ 1,964 $ - Expenses: Mortality and expense risks 8,475 8,447 ------------------------------------ ------------------------------------ Net investment income (loss) (6,511) (8,447) Realized gains (losses) on investments Realized gains (losses) on sale of fund shares 30,151 152,748 Capital gains distributions - - ------------------------------------ ------------------------------------ Total realized gains (losses) on investments 30,151 152,748 Change in net unrealized appreciation or depreciation of investments 401,817 623,059 ------------------------------------ ------------------------------------ Net increase (decrease) in net assets resulting from operations $425,457 $767,360 ==================================== See accompanying notes.
Franklin Franklin Franklin Franklin Income Mutual Discovery Mutual Shares Rising Dividends Securities Securities Securities Securities Class 2 Class 2 Class 2 Class 2 Division Division Division Division -------------------------------------------------------------------------------------- $ 21,061 $ 4,114 $ 7,531 $ 11,270 2,593 1,463 2,200 4,723 -------------------------------------------------------------------------------------- 18,468 2,651 5,331 6,547 59,432 38,016 24,480 83,314 - - - 22,190 -------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------- 59,432 38,016 24,480 105,504 83,492 72,759 83,457 82,397 ------------------------------------------------------------------------------------- $161,392 $113,426 $113,268 $194,448 ======================================================================================
Principal Life Insurance Company Variable Life Separate Account Statements of Operations (continued) For The Year Ended December 31, 2004, Except as Noted
Franklin Small Cap Value Securities Class 2 Government Division Securities Division ------------------------------------ Investment income (loss) Income: Dividends $ 1,744 $1,183,595 Expenses: Mortality and expense risks 2,961 231,456 ------------------------------------ ------------------------------------ Net investment income (loss) (1,217) 952,139 Realized gains (losses) on investments Realized gains(losses) on sale of fund shares 118,342 (35,923) Capital gains distributions - - ------------------------------------ ------------------------------------ Total realized gains (losses) on investments 118,342 (35,923) Change in net unrealized appreciation or depreciation of investments 133,492 (214,105) ------------------------------------ ------------------------------------ Net increase (decrease) in net assets resulting from operations $250,617 $ 702,111 ==================================== See accompanying notes.
Janus International Aspen Emerging International Balanced Growth International Markets SmallCap Service Shares Division Division Division Division Division ----------------------------------------------------------------------------------------------------------- $ 56,370 $ 329,191 $ 17,864 $ 137,218 $ 1,049 180,924 285,860 15,248 143,317 355 ----------------------------------------------------------------------------------------------------------- (124,554) 43,331 2,616 (6,099) 694 (438,106) 176,049 41,226 308,376 16,356 - - 213,581 - - ----------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------- (438,106) 176,049 254,807 308,376 16,356 2,066,600 6,732,525 230,070 4,990,709 (10,882) ----------------------------------------------------------------------------------------------------------- $1,503,940 $6,951,905 $487,493 $5,292,986 $ 6,168 ===========================================================================================================
Principal Life Insurance Company Variable Life Separate Account Statements of Operations (continued) For The Year Ended December 31, 2004, Except as Noted
Janus Janus Aspen Aspen Core Equity Flexible Income Service Shares Service Shares Division Division ------------------------------------ Investment income (loss) Income: Dividends $ - $134,758 Expenses: Mortality and expense risks 910 6,051 ------------------------------------ ------------------------------------ Net investment income (loss) (910) 128,707 Realized gains (losses) on investments Realized gains (losses) on sale of fund shares 25,060 8,541 Capital gains distributions - 15,167 ------------------------------------ ------------------------------------ Total realized gains (losses) on investments 25,060 23,708 Change in net unrealized appreciation or depreciation of investments 12,073 (78,419) ------------------------------------ ------------------------------------ Net increase (decrease) in net assets resulting from operations $36,223 $ 73,996 ==================================== See accompanying notes.
Janus Janus JP Morgan Aspen Aspen JP Morgan Small Mid Cap Worldwide Bond Company Growth Growth Series Series LargeCap Service Shares Service Shares Trust II Trust II Blend Division Division Division Division Division ------------------------------------------------------------------------------------------- $ - $ 2,959 $3,092 $ - $ 41,060 20,209 638 379 1,552 25,265 ------------------------------------------------------------------------------------------- (20,209) 2,321 2,713 (1,552) 15,795 105,713 5,548 635 53,678 49,576 - - 1,640 - 195,525 ------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------- 105,713 5,548 2,275 53,678 245,101 380,195 3,113 3,604 104,520 86,791 ------------------------------------------------------------------------------------------- $465,699 $10,982 $8,592 $156,646 $347,687 ===========================================================================================
Principal Life Insurance Company Variable Life Separate Account Statements of Operations (continued) For The Year Ended December 31, 2004, Except as Noted
LargeCap LargeCap Growth Stock Equity Index Division Division ------------------------------------ Investment income (loss) Income: Dividends $ 25,510 $ 422,601 Expenses: Mortality and expense risks 65,804 227,780 ------------------------------------ ------------------------------------ Net investment income (loss) (40,294) 194,821 Realized gains (losses) on investments Realized gains (losses) on sale of fund shares 5,991 56,602 Capital gains distributions - - ------------------------------------ ------------------------------------ Total realized gains (losses) on investments 5,991 56,602 Change in net unrealized appreciation or depreciation of investments 310,297 2,318,389 ------------------------------------ ------------------------------------ Net increase (decrease) in net assets resulting from operations $275,994 $2,569,812 ==================================== See accompanying notes.
MFS VIT MFS VIT Emerging MidCap MFS VIT LargeCap Limited Growth Growth New Discovery Value Term Bond Service Class Service Class Service Class Division Division Division Division Division ----------------------------------------------------------------------------------------------------------- $ 72,972 $ - $ - $ - $ - 33,602 5,179 324 982 1,486 ----------------------------------------------------------------------------------------------------------- 39,370 (5,179) (324) (982) (1,486) 37,015 (3,190) 5,650 (3,787) (666) 81,520 - - - - ----------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------- 118,535 (3,190) 5,650 (3,787) (666) 389,830 6,775 11,421 31,682 52,997 ----------------------------------------------------------------------------------------------------------- $547,735 $(1,594) $16,747 $26,913 $50,845 ===========================================================================================================
Principal Life Insurance Company Variable Life Separate Account Statements of Operations (continued) For The Year Ended December 31, 2004, Except as Noted
MFS VIT Value Service Class MidCap Division Division ------------------------------- Investment income (loss) Income: Dividends $ 1,051 $ 660,645 Expenses: Mortality and expense risks 831 474,438 ------------------------------- ------------------------------- Net investment income (loss) 220 186,207 Realized gains (losses) on investments Realized gains (losses) on sale of fund shares 15,438 630,735 Capital gains distributions 3,822 6,542,383 ------------------------------- ------------------------------- Total realized gains (losses) on investments 19,260 7,173,118 Change in net unrealized appreciation or depreciation of investments 21,404 2,783,619 ------------------------------- ------------------------------- Net increase (decrease) in net assets resulting from operations $40,884 $10,142,944 =============================== (1) Commenced operations March 25, 2004. (2) Commenced operations August 21, 2004. See accompanying notes.
Neuberger Berman AMT Principal MidCap MidCap Money Guardian LifeTime Growth Value Market I Class 2020 Division Division Division Division (1) Division (2) -------------------------------------------------------------------------------------------------- $ - $ 8,024 $430,780 $ 7 $ 27 77,585 60,067 439,010 12 2 -------------------------------------------------------------------------------------------------- (77,585) (52,043) (8,230) (5) 25 67,046 256,631 - (651) - - 1,204,718 - - - -------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------- 67,046 1,461,349 - (651) - 1,068,040 376,619 610 657 184 -------------------------------------------------------------------------------------------------- $1,057,501 $1,785,925 $ (7,620) $ 1 $209 ==================================================================================================
Principal Life Insurance Company Variable Life Separate Account Statements of Operations (continued) For The Year Ended December 31, 2004, Except as Noted
Principal Principal LifeTime LifeTime 2030 2040 Division (1) Division (1) ------------------------------------ Investment income (loss) Income: Dividends $1,115 $ 1,041 Expenses: Mortality and expense risks 77 94 ------------------------------------ ------------------------------------ Net investment income (loss) 1,038 947 Realized gains (losses) on investments Realized gains (losses) on sale of fund shares 24 104 Capital gains distributions 3 - ------------------------------------ ------------------------------------ Total realized gains (losses) on investments 27 104 Change in net unrealized appreciation or depreciation of investments 2,611 9,049 ==================================== ------------------------------------ Net increase (decrease) in net assets resulting from operations $3,676 $10,100 ==================================== (1) Commenced operations August 21, 2004. (2) Represented the operations of Real Estate Division until March 1, 2004 name change. See accompanying notes.
Putnam VT Principal Growth & International Putnam VT Putnum VT LifeTime Income Equity Voyager Real Estate 2050 Class IB Class IB Class IB Securities Division (1) Division Division Division Division (2) --------------------------------------------------------------------------------------------- $ 560 $ 1,248 $ 10,882 $ 67,230 $ 532,814 176 320 3,143 260,186 162,177 --------------------------------------------------------------------------------------------- 384 928 7,739 (192,956) 370,637 107 2,000 69,403 (1,104,571) 604,457 12 - - - 2,512,880 --------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------- 119 2,000 69,403 (1,104,571) 3,117,337 6,174 10,561 121,677 2,460,999 3,353,099 --------------------------------------------------------------------------------------------- $6,677 $13,489 $198,819 $1,163,472 $6,841,073 =============================================================================================
Principal Life Insurance Company Variable Life Separate Account Statements of Operations (continued) For The Year Ended December 31, 2004, Except as Noted
SmallCap SmallCap Growth Division Division ------------------------------------ Investment income (loss) Income: Dividends $ - $ - Expenses: Mortality and expense risks 113,321 143,990 ------------------------------------ ------------------------------------ Net investment income (loss) (113,321) (143,990) Realized gains (losses) on investments Realized gains (losses) on sale of fund shares 152,532 (500,647) Capital gains distributions - - ------------------------------------ ------------------------------------ Total realized gains (losses) on investments 152,532 (500,647) Change in net unrealized appreciation or depreciation of investments 2,801,261 2,194,304 ==================================== ------------------------------------ Net increase (decrease) in net assets resulting from operations $2,840,472 $1,549,667 ==================================== See accompanying notes.
Vanguard Vanguard VIF Vanguard Wells Wells Wells Fargo VT VIF Fargo VT Fargo VT Large SmallCap VIF Equity Mid-Cap Asset Equity Company Value Balanced Index Index Allocation Income Growth Division Division Division Division Division Division Division ----------------------------------------------------------------------------------------------------------- $ 39,322 $ 36,741 $ 46,593 $ 6,254 $12,280 $ 2,211 $ - 167,323 5,307 12,974 3,315 4,776 1,113 740 ----------------------------------------------------------------------------------------------------------- (128,001) 31,434 33,619 2,939 7,504 1,098 (740) 763,960 55,340 109,646 34,922 5,491 4,820 3,959 2,401,722 - 91,855 - 18,725 - - ----------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------- 3,165,682 55,340 201,501 34,922 24,216 4,820 3,959 1,864,153 148,981 357,931 217,883 19,729 8,621 11,428 ----------------------------------------------------------------------------------------------------------- $4,901,834 $235,755 $593,051 $255,744 $51,449 $14,539 $14,647 ===========================================================================================================
Principal Life Insurance Company Variable Life Separate Account Statements of Changes in Net Assets For The Years Ended December 31, 2004 and 2003, Except as Noted
AIM V.I. Aggressive Growth Series 1 Division ----------------------------------- ----------------------------------- 2004 2003 ----------------------------------- ----------------------------------- Increase (decrease) in net assets Operations: Net investment income (loss) $ (532) $ (127) Total realized gains (losses) on investments 18,826 1,608 Change in net unrealized appreciation or depreciation of investments 24,078 29,859 ----------------------------------- ----------------------------------- Net increase (decrease) in net assets resulting from operations 42,372 31,340 Policy related transactions: Net premium payments, less sales charges and applicable premium taxes 413,971 233,310 Contract terminations and surrenders (3,717) (2,433) Death benefit payments - - Policy loan transfers - - Transfers to other contracts (151,047) (86,887) Cost of insurance and administration charges (5,969) (1,467) Surrender charges - 67 ----------------------------------- ----------------------------------- Increase (decrease) in net assets from policy related transactions 253,238 142,590 ----------------------------------- ----------------------------------- Total increase (decrease) 295,610 173,930 Net assets at beginning of period 177,803 3,873 ----------------------------------- ----------------------------------- Net assets at end of period $473,413 $177,803 =================================== (1) Commenced operations March 18, 2004. (2) Represented the operations of INVESCO VIF - Dynamics Division until October 15, 2004 name change. See accompanying notes.
AIM V.I. AIM V.I. AIM V.I. AIM V.I. Core Equity Core Equity Core Stock Dynamics Series I Series II Series I Series I Division Division Division (1) Division (2) ----------------------------- ------------------------------- ------------------ ----------------------------- ----------------------------- ------------------------------- ------------------ ----------------------------- 2004 2003 2004 2003 2004 2004 2003 ----------------------------- ------------------------------- ------------------ ----------------------------- ----------------------------- ------------------------------- ------------------ ----------------------------- $ 1,590 $ 3,769 $ 417 $ 247 $ 370 $ (4,145) $ (2,300) 48,775 (8,328) 598 169 (273) 42,251 (3,473) 45,984 218,923 5,246 3,335 2,106 30,014 100,668 ----------------------------- ------------------------------- ------------------------------------------------ ----------------------------- ------------------------------- ------------------------------------------------ 96,349 214,364 6,261 3,751 2,203 68,120 94,895 1,910,786 2,032,237 81,404 42,121 72,142 805,116 766,175 (27,826) (26,980) (65) - - (8,295) (14,349) - - - - - (28) - (221,856) (12,659) - - - (39,837) (4,253) (1,531,352) (1,521,430) (11,384) (1,981) (17,614) (785,587) (432,552) (105,276) (97,418) (10,514) (2,401) (598) (29,894) (25,181) (16,957) (10,799) (106) - - (2,917) (4,509) ----------------------------- ------------------------------- ------------------------------------------------ ----------------------------- ------------------------------- ------------------------------------------------ 7,519 362,951 59,335 37,739 53,930 (61,442) 285,331 ----------------------------- ------------------------------- ------------------------------------------------ ----------------------------- ------------------------------- ------------------------------------------------ 103,868 577,315 65,596 41,490 56,133 6,678 380,226 1,218,220 640,905 41,490 - - 554,531 174,305 ----------------------------- ------------------------------- ------------------ ----------------------------- ----------------------------- ------------------------------- ------------------ ----------------------------- $1,322,088 $1,218,220 $107,086 $41,490 $56,133 $561,209 $554,531 ============================= =============================== ================== =============================
Principal Life Insurance Company Variable Life Separate Account Statements of Changes in Net Assets (continued) For The Years Ended December 31, 2004 and 2003, Except as Noted
AIM V.I. Growth Series I Division --------------------------------- --------------------------------- 2004 2003 --------------------------------- --------------------------------- Increase (decrease) in net assets Operations: Net investment income (loss) $ (15,452) $ (9,132) Total realized gains (losses) on investments 32,557 (7,963) Change in net unrealized appreciation or depreciation of investments 96,347 288,378 --------------------------------- --------------------------------- Net increase (decrease) in net assets resulting from operations 113,452 271,283 Policy related transactions: Net premium payments, less sales charges and applicable premium taxes 1,352,866 1,193,595 Contract terminations and surrenders (63,415) (10,698) Death benefit payments - - Policy loan transfers (14,675) (16,228) Transfers to other contracts (952,915) (503,726) Cost of insurance and administration charges (122,469) (109,576) Surrender charges (22,604) (4,015) --------------------------------- --------------------------------- Increase (decrease) in net assets from policy related transactions 176,788 549,352 --------------------------------- --------------------------------- Total increase (decrease) 290,240 820,635 Net assets at beginning of period 1,480,688 660,053 --------------------------------- --------------------------------- Net assets at end of period $1,770,928 $1,480,688 ================================= (1) Represented operations of INVESCO VIF - Health Sciences Division until October 15, 2004 name change. See accompanying notes
AIM V.I. AIM V.I. AIM V.I. Health International Growth Sciences Growth Series II Series I Series I Division Division (1) Division ---------------------------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------------------------- 2004 2003 2004 2003 2004 2003 ---------------------------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------------------------- $ (315) $ (28) $ (29,597) $ (15,232) $ 2,339 $ 76 167 11 71,188 (13,912) 1,253 8 7,088 1,403 193,429 485,929 59,757 3,393 ---------------------------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------------------------- 6,940 1,386 235,020 456,785 63,349 3,477 104,468 23,728 4,484,064 3,168,818 583,406 22,007 (216) - (54,450) (67,832) - - - - - (1,037) - - (1,860) - (40,416) (7,136) - - (645) (165) (3,195,655) (1,496,490) (18,950) (9,576) (17,475) (3,116) (288,858) (225,762) (1,594) - (349) - (24,010) (22,374) - - ---------------------------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------------------------- 83,923 20,447 880,675 1,348,187 562,862 12,431 ---------------------------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------------------------- 90,863 21,833 1,115,695 1,804,972 626,211 15,908 21,833 - 2,912,591 1,107,619 15,908 - ---------------------------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------------------------- $112,696 $21,833 $4,028,286 $2,912,591 $642,119 $15,908 ==========================================================================================================
Principal Life Insurance Company Variable Life Separate Account Statements of Changes in Net Assets (continued) For The Years Ended December 31, 2004 and 2003, Except as Noted AIM V.I. Premier Equity Series I Division --------------------------------------- --------------------------------------- 2004 2003 --------------------------------------- --------------------------------------- Increase (decrease) in net assets Operations: Net investment income (loss) $ (12,543) $ (11,394) Total realized gains (losses) on investments 64,049 (76,087) Change in net unrealized appreciation or depreciation of investments 131,678 611,993 --------------------------------------- --------------------------------------- Net increase (decrease) in net assets resulting from operations 183,184 524,512 Policy related transactions: Net premium payments, less sales charges and applicable premium taxes 3,949,539 5,622,981 Contract terminations and surrenders (58,267) (76,522) Death benefit payments (2,302) - Policy loan transfers (212,400) (2,304) Transfers to other contracts (3,234,785) (4,215,113) Cost of insurance and administration charges (232,948) (229,000) Surrender charges (22,702) (27,950) --------------------------------------- --------------------------------------- Increase (decrease) in net assets from policy related transactions 186,135 1,072,092 --------------------------------------- --------------------------------------- Total increase (decrease) 369,319 1,596,604 Net assets at beginning of period 3,223,678 1,627,074 --------------------------------------- --------------------------------------- Net assets at end of period $3,592,997 $3,223,678 ======================================= (1) Represented the operations of INVESCO VIF - Small Company Division until October 15, 2004 name change. (2) Represented the operations of INVESCO VIF - Technology Division until October 15, 2004 name change. See accompanying notes.
AIM V.I. AIM V.I. Small Premier Company AIM V.I. Equity Growth Technology Series II Series I Series I Division Division (1) Division (2) --------------------------------------- --------------------------------------- --------------------------------------- --------------------------------------- --------------------------------------- --------------------------------------- 2004 2003 2004 2003 2004 2003 --------------------------------------- --------------------------------------- --------------------------------------- --------------------------------------- --------------------------------------- --------------------------------------- $ (508) $ 65 $ (11,371) $ (5,613) $ (17,358) $ (8,224) 139 133 46,462 4,793 39,720 (9,564) 35,541 11,275 181,406 235,015 44,207 390,163 --------------------------------------- --------------------------------------- --------------------------------------- --------------------------------------- --------------------------------------- --------------------------------------- 35,172 11,473 216,497 234,195 66,569 372,375 609,596 157,572 2,311,151 1,812,498 2,721,477 2,090,364 (2,798) - (47,428) (13,547) (54,931) (67,577) (1,861) - (2,249) - (28) - (20) - 1,584 (3,563) (38,026) (8,040) (25,430) (1,102) (1,557,253) (1,206,804) (1,950,446) (1,052,303) (83,197) (15,223) (92,934) (75,548) (143,652) (95,708) (4,536) (226) (17,255) (4,164) (18,487) (21,510) --------------------------------------- --------------------------------------- --------------------------------------- --------------------------------------- --------------------------------------- --------------------------------------- 491,754 141,021 595,616 508,872 515,907 845,226 --------------------------------------- --------------------------------------- --------------------------------------- --------------------------------------- --------------------------------------- --------------------------------------- 526,926 152,494 812,113 743,067 582,476 1,217,601 152,494 - 1,169,990 426,923 1,650,549 432,948 --------------------------------------- --------------------------------------- --------------------------------------- --------------------------------------- --------------------------------------- --------------------------------------- $679,420 $152,494 $1,982,103 $1,169,990 $2,233,025 $1,650,549 ======================================= ======================================= =======================================
Principal Life Insurance Company Variable Life Separate Account Statements of Changes in Net Assets (continued) For The Years Ended December 31, 2004 and 2003, Except as Noted
American Century VP Income & Growth Division --------------------------------------- --------------------------------------- 2004 2003 --------------------------------------- --------------------------------------- Increase (decrease) in net assets Operations: Net investment income (loss) $ 13,374 $ 5,672 Total realized gains (losses) on investments 55,329 (17,121) Change in net unrealized appreciation or depreciation of investments 247,961 465,768 --------------------------------------- --------------------------------------- Net increase (decrease) in net assets resulting from operations 316,664 454,319 Policy related transactions: Net premium payments, less sales charges and applicable premium taxes 2,583,964 2,092,394 Contract terminations and surrenders (111,697) (44,147) Death benefit payments (258) - Policy loan transfers 176 (43,499) Transfers to other contracts (1,839,003) (1,082,054) Cost of insurance and administration charges (200,079) (186,327) Surrender charges (56,167) (16,862) --------------------------------------- --------------------------------------- Increase (decrease) in net assets from policy related transactions 376,936 719,505 --------------------------------------- --------------------------------------- Total increase (decrease) 693,600 1,173,824 Net assets at beginning of period 2,348,173 1,174,349 --------------------------------------- --------------------------------------- Net assets at end of period $3,041,773 $2,348,173 ======================================= See accompanying notes.
American American Century VP II American Century VP Income & Century VP II Ultra Growth International Division Division Division --------------------------------------- --------------------------------------- --------------------------------------- --------------------------------------- --------------------------------------- --------------------------------------- 2004 2003 2004 2003 2004 2003 --------------------------------------- --------------------------------------- --------------------------------------- --------------------------------------- --------------------------------------- --------------------------------------- $ (14,272) $ (6,735) $ 154 $ 45 $ (235) $ (111) 31,467 (7,629) 1,341 354 7,085 133 143,868 206,600 29,148 9,057 35,248 14,699 --------------------------------------- --------------------------------------- --------------------------------------- --------------------------------------- --------------------------------------- --------------------------------------- 161,063 192,236 30,643 9,456 42,098 14,721 2,474,753 1,311,421 477,418 82,773 539,113 101,870 (45,352) (10,502) (238) - - - - - - - - - (186,665) (3,606) (3,529) - - - (1,232,108) (665,286) (31,161) (14,465) (286,061) (4,506) (132,342) (111,062) (24,886) (4,535) (2,237) (124) (29,241) (5,394) (386) (36) - - --------------------------------------- --------------------------------------- --------------------------------------- --------------------------------------- --------------------------------------- --------------------------------------- 849,045 515,571 417,218 63,737 250,815 97,240 --------------------------------------- --------------------------------------- --------------------------------------- --------------------------------------- --------------------------------------- --------------------------------------- 1,010,108 707,807 447,861 73,193 292,913 111,961 1,235,426 527,619 73,193 - 111,961 - --------------------------------------- --------------------------------------- --------------------------------------- --------------------------------------- --------------------------------------- --------------------------------------- $2,245,534 $1,235,426 $521,054 $73,193 $404,874 $111,961 ======================================= ======================================= =======================================
Principal Life Insurance Company Variable Life Separate Account Statements of Changes in Net Assets (continued) For The Years Ended December 31, 2004 and 2003, Except as Noted
American Century VP II Ultra Division --------------------------------------- --------------------------------------- 2004 2003 --------------------------------------- --------------------------------------- Increase (decrease) in net assets Operations: Net investment income (loss) $ (2,124) $ (449) Total realized gains (losses) on investments 24,549 782 Change in net unrealized appreciation or depreciation of investments 37,509 37,741 --------------------------------------- --------------------------------------- Net increase (decrease) in net assets resulting from operations 59,934 38,074 Policy related transactions: Net premium payments, less sales charges and applicable premium taxes 699,036 234,677 Contract terminations and surrenders (134,447) - Death benefit payments - - Policy loan transfers (5,377) - Transfers to other contracts (122,012) (37,038) Cost of insurance and administration charges (43,682) (8,913) Surrender charges 40 - --------------------------------------- --------------------------------------- Increase (decrease) in net assets from policy related transactions 393,558 188,726 --------------------------------------- --------------------------------------- Total increase (decrease) 453,492 226,800 Net assets at beginning of period 302,404 75,604 --------------------------------------- --------------------------------------- Net assets at end of period $755,896 $302,404 ======================================= See accompanying notes.
American Century VP II Asset Value Allocation Balanced Division Division Division ----------------------------------------- ---------------------------------------- ----------------------------------------- ----------------------------------------- ---------------------------------------- ----------------------------------------- 2004 2003 2004 2003 2004 2003 ----------------------------------------- ---------------------------------------- ----------------------------------------- ----------------------------------------- ---------------------------------------- ----------------------------------------- $ (2,152) $ (915) $ 341,261 $ 85,244 $ 188,741 $ 250,614 70,633 6,259 39,529 (108,633) (95,233) (237,964) 237,710 221,787 710,445 1,968,282 1,320,852 2,252,053 ----------------------------------------- ---------------------------------------- ----------------------------------------- ----------------------------------------- ---------------------------------------- ----------------------------------------- 306,191 227,131 1,091,235 1,944,893 1,414,360 2,264,703 3,249,846 1,673,100 9,385,552 9,523,873 6,812,365 5,756,048 (111,359) (16,571) (520,727) (311,474) (812,777) (795,895) - - (16,048) (9,350) (244,170) (95,075) (7,291) (679) (201,026) (33,934) (169,723) (84,095) (1,457,125) (741,100) (6,660,739) (4,455,983) (3,604,548) (2,653,659) (146,438) (71,314) (1,010,537) (788,796) (1,179,372) (1,120,949) (4,560) (5,421) (174,119) (145,709) (181,561) (191,063) ----------------------------------------- ---------------------------------------- ----------------------------------------- ----------------------------------------- ---------------------------------------- ----------------------------------------- 1,523,073 838,015 802,356 3,778,627 620,214 815,312 ----------------------------------------- ---------------------------------------- ----------------------------------------- ----------------------------------------- ---------------------------------------- ----------------------------------------- 1,829,264 1,065,146 1,893,591 5,723,520 2,034,574 3,080,015 1,410,397 345,251 13,695,194 7,971,674 15,053,454 11,973,439 ----------------------------------------- ---------------------------------------- ----------------------------------------- ----------------------------------------- ---------------------------------------- ----------------------------------------- $3,239,661 $1,410,397 $15,588,785 $13,695,194 $17,088,028 $15,053,454 ========================================= ======================================== =========================================
Principal Life Insurance Company Variable Life Separate Account Statements of Changes in Net Assets (continued) For The Years Ended December 31, 2004 and 2003, Except as Noted
Bond Division ----------------------------------- ----------------------------------- 2004 2003 ----------------------------------- ----------------------------------- Increase (decrease) in net assets Operations: Net investment income (loss) $ 1,121,575 $ 802,071 Total realized gains (losses) on investments 80,564 146,476 Change in net unrealized appreciation or depreciation of investments 46,844 (7,836) ----------------------------------- ----------------------------------- Net increase (decrease) in net assets resulting from operations 1,248,983 940,711 Policy related transactions: Net premium payments, less sales charges and applicable premium taxes 24,334,527 34,251,076 Contract terminations and surrenders (1,037,622) (1,858,355) Death benefit payments (140,581) (42,948) Policy loan transfers (260,332) 64,745 Transfers to other contracts (16,857,231) (23,206,889) Cost of insurance and administration charges (2,213,850) (2,328,983) Surrender charges (282,723) (463,299) ----------------------------------- ----------------------------------- Increase (decrease) in net assets from policy related transactions 3,542,188 6,415,347 ----------------------------------- ----------------------------------- Total increase (decrease) 4,791,171 7,356,058 Net assets at beginning of period 29,416,472 22,060,414 ----------------------------------- ----------------------------------- Net assets at end of period $34,207,643 $29,416,472 =================================== See accompanying notes.
Dreyfus IP Dreyfus IP Founders Capital Core Value Discovery Value Service Shares Initial Shares Division Division Division ----------------------------------- ---------------------------------- ---------------------------------- ----------------------------------- ---------------------------------- ---------------------------------- 2004 2003 2004 2003 2004 2003 ----------------------------------- ---------------------------------- ---------------------------------- ----------------------------------- ---------------------------------- ---------------------------------- $ 316,735 $ 242,853 $ 5,671 $ 853 $ (5,498) $ (2,657) (37,575) (553,033) 12,770 3,126 7,098 (1,317) 4,776,814 8,334,911 63,894 60,633 63,963 114,524 ----------------------------------- ---------------------------------- ---------------------------------- ----------------------------------- ---------------------------------- ---------------------------------- 5,055,974 8,024,731 82,335 64,612 65,563 110,550 12,354,391 12,548,925 770,987 517,425 852,349 516,531 (2,174,191) (1,526,074) - - (32,014) (4,490) (188,917) (49,650) - - - - (534,691) (206,894) (47,949) (145,748) (5,799) (150) (2,931,089) (3,450,732) (238,996) (30) (374,771) (221,471) (2,823,156) (2,882,754) (10,996) (1,146) (45,077) (33,947) (504,344) (423,737) - - (9,684) (1,578) ----------------------------------- ---------------------------------- ---------------------------------- ----------------------------------- ---------------------------------- ---------------------------------- 3,198,003 4,009,084 473,046 370,501 385,004 254,895 ----------------------------------- ---------------------------------- ---------------------------------- ----------------------------------- ---------------------------------- ---------------------------------- 8,253,977 12,033,815 555,381 435,113 450,567 365,445 42,124,465 30,090,650 457,048 21,935 532,889 167,444 ----------------------------------- ---------------------------------- ---------------------------------- ----------------------------------- ---------------------------------- ---------------------------------- $50,378,442 $42,124,465 $1,012,429 $457,048 $983,456 $532,889 =================================== ================================== ==================================
Principal Life Insurance Company Variable Life Separate Account Statements of Changes in Net Assets (continued) For The Years Ended December 31, 2004 and 2003, Except as Noted
Dreyfus IP Founders Growth Initial Shares Division (1) ------------------ ------------------ 2004 ------------------ ------------------ Increase (decrease) in net assets Operations: Net investment income (loss) $ 141 Total realized gains (losses) on investments - Change in net unrealized appreciation or depreciation of investments 950 ------------------ ------------------ Net increase (decrease) in net assets resulting from operations 1,091 Policy related transactions: Net premium payments, less sales charges and applicable premium taxes 35,811 Contract terminations and surrenders - Death benefit payments - Policy loan transfers - Transfers to other contracts (1,277) Cost of insurance and administration charges (8) Surrender charges - ------------------ ------------------ Increase (decrease) in net assets from policy related transactions 34,526 ------------------ ------------------ Total increase (decrease) 35,617 Net assets at beginning of period - ------------------ ------------------ Net assets at end of period $35,617 ================== (1) Commenced operations November 23, 2004. See accompanying notes.
Dreyfus Dreyfus VIF Socially Appreciation Dreyfus VIF Responsible Service Shares Developing Growth Division Leaders Service Shares Service Shares Division Division -------------------------------------------------------------------------- ----------------------------------------- -------------------------------------------------------------------------- ----------------------------------------- 2004 2003 2004 2003 2004 2003 -------------------------------------------------------------------------- ----------------------------------------- -------------------------------------------------------------------------- ----------------------------------------- $ (44) $ (30) $ 4,471 $ 458 $ (5,052) $ (1,746) 67 21 1,494 167 79,257 25,258 1,393 2,203 6,589 3,075 98,066 165,353 -------------------------------------------------------------------------- ----------------------------------------- -------------------------------------------------------------------------- ----------------------------------------- 1,416 2,194 12,554 3,700 172,271 188,865 15,597 14,083 388,986 48,578 2,071,034 2,112,048 - - (2,501) (1,158) (42,078) - - - - - (965) - - - - - (15) - - - (69,149) (4,667) (1,088,503) (1,311,704) (632) (302) (4,672) (380) (74,085) (13,098) - - - 32 (1,985) (162) -------------------------------------------------------------------------- ----------------------------------------- -------------------------------------------------------------------------- ----------------------------------------- 14,965 13,781 312,664 42,405 863,403 787,084 -------------------------------------------------------------------------- ----------------------------------------- -------------------------------------------------------------------------- ----------------------------------------- 16,381 15,975 325,218 46,105 1,035,674 975,949 15,975 - 46,105 - 991,250 15,301 -------------------------------------------------------------------------- ----------------------------------------- -------------------------------------------------------------------------- ----------------------------------------- $32,356 $15,975 $371,323 $46,105 $2,026,924 $ 991,250 ========================================================================== =========================================
Principal Life Insurance Company Variable Life Separate Account Statements of Changes in Net Assets (continued) For The Years Ended December 31, 2004 and 2003, Except as Noted
Dreyfus VIF Quality Bond Service Shares Division ----------------------------------- ----------------------------------- 2004 2003 ----------------------------------- ----------------------------------- Increase (decrease) in net assets Operations: Net investment income (loss) $ 19,955 $ 1,215 Total realized gains (losses) on investments (12,161) 1,643 Change in net unrealized appreciation or depreciation of investments 2,543 (1,837) ----------------------------------- ----------------------------------- Net increase (decrease) in net assets resulting from operations 10,337 1,021 Policy related transactions: Net premium payments, less sales charges and applicable premium taxes 1,208,825 197,821 Contract terminations and surrenders - - Death benefit payments - - Policy loan transfers (60,405) - Transfers to other contracts (656,242) (105,285) Cost of insurance and administration charges (6,188) (937) Surrender charges - - ----------------------------------- ----------------------------------- Increase (decrease) in net assets from policy related transactions 485,990 91,599 ----------------------------------- ----------------------------------- Total increase (decrease) 496,327 92,620 Net assets at beginning of period 92,620 - ----------------------------------- ----------------------------------- Net assets at end of period $ 588,947 $ 92,620 =================================== (1) Represented the operations of Utilities Division until March 1, 2004 name change. See accompanying notes.
Fidelity VIP Equity Equity Equity-Income Growth Income Initial Class Division Division (1) Division ------------------------------------------------------------------------------------------------------------------------- 2004 2003 2004 2003 2004 2003 ------------------------------------------------------------------------------------------------------------------------- $ (236,394) $ (202,117) $ 107,430 $ 97,682 $ 183,179 $ 172,214 (438,762) (676,350) (49,420) (56,194) 216,141 (226,061) 6,308,719 11,958,474 502,715 282,333 2,814,094 6,059,773 ------------------------------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------------------------------------- 5,633,563 11,080,007 560,725 323,821 3,213,414 6,005,926 22,521,598 29,238,581 1,848,572 1,620,756 23,253,313 19,047,744 (2,323,955) (1,913,311) (170,584) (114,424) (1,331,078) (843,548) (151,672) (41,550) - (928) (14,874) (41,879) (717,422) (390,107) (43,112) (8,810) (530,564) (210,760) (10,044,006) (9,190,836) (764,019) (606,511) (15,495,853) (12,246,407) (5,072,461) (4,471,320) (281,991) (263,692) (1,792,584) (1,667,301) (712,679) (653,548) (49,963) (36,278) (426,743) (275,855) ------------------------------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------------------------------------- 3,499,403 12,577,909 538,903 590,113 3,661,617 3,761,994 ------------------------------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------------------------------------- 9,132,966 23,657,916 1,099,628 913,934 6,875,031 9,767,920 64,208,666 40,550,750 3,041,127 2,127,193 27,696,305 17,928,385 ------------------------------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------------------------------------- $73,341,632 $64,208,666 $4,140,755 $3,041,127 $34,571,336 $27,696,305 =========================================================================================================================
Principal Life Insurance Company Variable Life Separate Account Statements of Changes in Net Assets (continued) For The Years Ended December 31, 2004 and 2003, Except as Noted
Fidelity VIP Equity-Income Service Class 2 Division ----------------------------------- ----------------------------------- 2004 2003 ----------------------------------- ----------------------------------- Increase (decrease) in net assets Operations: Net investment income (loss) $ 14,159 $ 13,571 Total realized gains (losses) on investments 84,769 30,190 Change in net unrealized appreciation or depreciation of investments 293,679 254,290 ----------------------------------- ----------------------------------- Net increase (decrease) in net assets resulting from operations 392,607 298,051 Policy related transactions: Net premium payments, less sales charges and applicable premium taxes 4,290,116 3,163,026 Contract terminations and surrenders (104,164) (21,974) Death benefit payments (1,851) - Policy loan transfers (3,066) - Transfers to other contracts (1,011,052) (1,909,574) Cost of insurance and administration charges (172,602) (28,035) Surrender charges (4,804) 506 ----------------------------------- ----------------------------------- Increase (decrease) in net assets from policy related transactions 2,992,577 1,203,949 ----------------------------------- ----------------------------------- Total increase (decrease) 3,385,184 1,502,000 Net assets at beginning of period 1,572,529 70,529 ----------------------------------- ----------------------------------- Net assets at end of period $4,957,713 $1,572,529 =================================== See accompanying notes
Fidelity VIP Fidelity VIP Growth Fidelity VIP High Income Service High Income Service Class 2 Initial Class Class 2 Division Division Division -------------------------------- --------------------------------- --------------------------------- -------------------------------- --------------------------------- --------------------------------- 2004 2003 2004 2003 2004 2003 -------------------------------- --------------------------------- --------------------------------- -------------------------------- --------------------------------- --------------------------------- $ (19,079) $ (4,928) $ 415,878 $ 228,537 $ 29,217 $ 11,577 26,731 24,632 (58,985) (78,423) 9,611 2,526 115,670 169,666 133,701 830,642 41,318 34,925 -------------------------------- --------------------------------- --------------------------------- -------------------------------- --------------------------------- --------------------------------- 123,322 189,370 490,594 980,756 80,146 49,028 5,268,732 2,452,577 4,354,215 4,488,140 1,255,741 610,212 (15,607) (24,646) (292,958) (307,251) (4,367) (5,435) (649) - (19,855) (2,814) - - (110,027) (10,327) (39,248) (52,120) (46,203) - (2,315,412) (771,503) (3,310,978) (2,454,407) (320,692) (305,139) (217,946) (75,207) (353,541) (319,902) (19,645) (3,159) (7,942) (4,321) (88,085) (115,714) (935) 150 -------------------------------- --------------------------------- --------------------------------- -------------------------------- --------------------------------- --------------------------------- 2,601,149 1,566,573 249,550 1,235,932 863,899 296,629 -------------------------------- --------------------------------- --------------------------------- -------------------------------- --------------------------------- --------------------------------- 2,724,471 1,755,943 740,144 2,216,688 944,045 345,657 1,909,192 153,249 5,507,597 3,290,909 345,657 - -------------------------------- --------------------------------- --------------------------------- -------------------------------- --------------------------------- --------------------------------- $4,633,663 $1,909,192 $6,247,741 $5,507,597 $1,289,702 $345,657 ================================ ================================= =================================
Principal Life Insurance Company Variable Life Separate Account Statements of Changes in Net Assets (continued) For The Years Ended December 31, 2004 and 2003, Except as Noted
Fidelity VIP II Asset Manager Service Class 2 Division ------------------------------------ ------------------------------------ 2004 2003 ------------------------------------ ------------------------------------ Increase (decrease) in net assets Operations: Net investment income (loss) $ 10,586 $ 132 Total realized gains (losses) on investments 1,847 1,465 Change in net unrealized appreciation or depreciation of investments 20,533 6,056 ------------------------------------ ------------------------------------ Net increase (decrease) in net assets resulting from operations 32,966 7,653 Policy related transactions: Net premium payments, less sales charges and applicable premium taxes 808,045 851,157 Contract terminations and surrenders - (4,609) Death benefit payments - - Policy loan transfers - - Transfers to other contracts (529,251) (315,220) Cost of insurance and administration charges (6,651) (833) Surrender charges - 127 ------------------------------------ ------------------------------------ Increase (decrease) in net assets from policy related transactions 272,143 530,622 ------------------------------------ ------------------------------------ Total increase (decrease) 305,109 538,275 Net assets at beginning of period 538,275 - ------------------------------------ ------------------------------------ Net assets at end of period $843,384 $538,275 ==================================== See accompanying notes.
Fidelity VIP II Fidelity VIP III Fidelity VIP II Contrafund Mid Cap Contrafund Service Service Initial Class Class 2 Class 2 Division Division Division -------------------------------------------------------------------- ------------------------------------------ 2004 2003 2004 2003 2004 2003 -------------------------------------------------------------------- ------------------------------------------ -------------------------------------------------------------------- ------------------------------------------ $ (297,661) $ (176,191) $ (6,511) $ (775) $ (8,447) $ (214) 284,796 (284,799) 30,151 1,692 152,748 1,745 8,603,464 12,324,817 401,817 114,558 623,059 208,991 -------------------------------------------------------------------- ------------------------------------------ -------------------------------------------------------------------- ------------------------------------------ 8,590,599 11,863,827 425,457 115,475 767,360 210,522 27,753,576 23,595,001 4,115,211 867,317 4,273,460 2,137,444 (2,455,487) (1,883,897) (116,136) (5,229) (209,495) (4,029) (123,646) (105,511) - - - - (456,715) (427,949) (2,790) (765) (176,061) - (16,558,799) (12,405,412) (552,174) (199,399) (991,850) (1,318,153) (3,760,609) (3,673,034) (155,884) (24,929) (78,588) (8,889) (759,554) (641,550) (5,308) 47 1,474 111 -------------------------------------------------------------------- ------------------------------------------ -------------------------------------------------------------------- ------------------------------------------ 3,638,766 4,457,648 3,282,919 637,042 2,818,940 806,484 -------------------------------------------------------------------- ------------------------------------------ -------------------------------------------------------------------- ------------------------------------------ 12,229,365 16,321,475 3,708,376 752,517 3,586,300 1,017,006 56,443,399 40,121,924 784,680 32,163 1,045,357 28,351 -------------------------------------------------------------------- ------------------------------------------ -------------------------------------------------------------------- ------------------------------------------ $68,672,764 $56,443,399 $4,493,056 $ 784,680 $4,631,657 $1,045,357 ==================================================================== ==========================================
Principal Life Insurance Company Variable Life Separate Account Statements of Changes in Net Assets (continued) For The Years Ended December 31, 2004 and 2003, Except as Noted
Franklin Income Securities Class 2 Division ----------------------------------- ----------------------------------- 2004 2003 ----------------------------------- ----------------------------------- Increase (decrease) in net assets Operations: Net investment income (loss) $ 18,468 $ 1,297 Total realized gains (losses) on investments 59,432 6,958 Change in net unrealized appreciation or depreciation of investments 83,492 19,268 ----------------------------------- ----------------------------------- Net increase (decrease) in net assets resulting from operations 161,392 27,523 Policy related transactions: Net premium payments, less sales charges and applicable premium taxes 2,182,883 317,168 Contract terminations and surrenders (53,618) - Death benefit payments - - Policy loan transfers (498,813) - Transfers to other contracts (782,723) (120,869) Cost of insurance and administration charges (9,256) (532) Surrender charges 476 - ----------------------------------- ----------------------------------- Increase (decrease) in net assets from policy related transactions 838,949 195,767 ----------------------------------- ----------------------------------- Total increase (decrease) 1,000,341 223,290 Net assets at beginning of period 230,404 7,114 ----------------------------------- ----------------------------------- Net assets at end of period $1,230,745 $230,404 =================================== See accompanying notes.
Franklin Franklin Mutual Discovery Mutual Shares Securities Securities Class 2 Class 2 Division Division --------------------------------- -------------------------------- --------------------------------- -------------------------------- 2004 2003 2004 2003 --------------------------------- -------------------------------- --------------------------------- -------------------------------- $ 2,651 $ 1,983 $ 5,331 $ 2,407 38,016 1,989 24,480 1,495 72,759 33,102 83,457 61,822 --------------------------------- -------------------------------- --------------------------------- -------------------------------- 113,426 37,074 113,268 65,724 1,050,598 327,837 1,206,574 691,148 (35,401) (1,060) (3,035) - - - - - (157,390) - - - (275,287) (182,622) (505,607) (220,480) (7,608) (696) (13,504) (2,382) 314 29 - - --------------------------------- -------------------------------- --------------------------------- -------------------------------- 575,226 143,488 684,428 468,286 --------------------------------- -------------------------------- --------------------------------- -------------------------------- 688,652 180,562 797,696 534,010 195,104 14,542 536,414 2,404 --------------------------------- -------------------------------- --------------------------------- -------------------------------- $883,756 $195,104 $1,334,110 $536,414 ================================= ================================
Principal Life Insurance Company Variable Life Separate Account Statements of Changes in Net Assets (continued) For The Years Ended December 31, 2004 and 2003, Except as Noted
Franklin Rising Dividends Securities Class 2 Division ----------------------------------- ----------------------------------- 2004 2003 ----------------------------------- ----------------------------------- Increase (decrease) in net assets Operations: Net investment income (loss) $ 6,547 $ 3,246 Total realized gains (losses) on investments 105,504 16,630 Change in net unrealized appreciation or depreciation of investments 82,397 109,960 ----------------------------------- ----------------------------------- Net increase (decrease) in net assets resulting from operations 194,448 129,836 Policy related transactions: Net premium payments, less sales charges and applicable premium taxes 2,627,249 648,798 Contract terminations and surrenders (322,463) (3,212) Death benefit payments - - Policy loan transfers (150,360) - Transfers to other contracts (962,507) (127,777) Cost of insurance and administration charges (22,406) (5,887) Surrender charges 2,852 89 ----------------------------------- ----------------------------------- Increase (decrease) in net assets from policy related transactions 1,172,365 512,011 ----------------------------------- ----------------------------------- Total increase (decrease) 1,366,813 641,847 Net assets at beginning of period 796,474 154,627 ----------------------------------- ----------------------------------- Net assets at end of period $2,163,287 $796,474 =================================== See accompanying notes.
Franklin Small Cap Value Securities Government Growth Class 2 Securities Division Division Division ----------------------------------- ----------------------------------- ----------------------------------- ----------------------------------- ----------------------------------- ----------------------------------- 2004 2003 2004 2003 2004 2003 ----------------------------------- ----------------------------------- ----------------------------------- ----------------------------------- ----------------------------------- ----------------------------------- $ (1,217) $ 282 $ 952,139 $ 668,238 $ (124,554) $ (115,622) 118,342 31,753 (35,923) 97,465 (438,106) (485,103) 133,492 113,498 (214,105) (536,579) 2,066,600 3,994,502 ----------------------------------- ----------------------------------- ----------------------------------- ----------------------------------- ----------------------------------- ----------------------------------- 250,617 145,533 702,111 229,124 1,503,940 3,393,777 1,559,686 737,518 24,434,100 32,099,764 5,573,851 6,419,812 (220,217) (18,822) (967,111) (850,418) (959,566) (538,599) - - (42,194) (20,620) (39,244) (12,426) - - (161,521) (557,190) (221,922) (133,323) (559,456) (382,911) (20,651,112) (25,249,472) (1,804,110) (2,196,925) (12,407) (1,977) (2,084,105) (2,306,328) (1,548,105) (1,535,013) 1,949 520 (302,504) (278,280) (269,878) (173,799) ----------------------------------- ----------------------------------- ----------------------------------- ----------------------------------- ----------------------------------- ----------------------------------- 769,555 334,328 225,553 2,837,456 731,026 1,829,727 ----------------------------------- ----------------------------------- ----------------------------------- ----------------------------------- ----------------------------------- ----------------------------------- 1,020,172 479,861 927,664 3,066,580 2,234,966 5,223,504 561,867 82,006 26,738,470 23,671,890 17,715,418 12,491,914 ----------------------------------- ----------------------------------- ----------------------------------- ----------------------------------- ----------------------------------- ----------------------------------- $1,582,039 $561,867 $27,666,134 $26,738,470 $19,950,384 $17,715,418 =================================== =================================== ===================================
Principal Life Insurance Company Variable Life Separate Account Statements of Changes in Net Assets (continued) For The Years Ended December 31, 2004 and 2003, Except as Noted
International Division ----------------------------------- ----------------------------------- 2004 2003 ----------------------------------- ----------------------------------- Increase (decrease) in net assets Operations: Net investment income (loss) $ 43,331 $ 22,693 Total realized gains (losses) on investments 176,049 (1,470,099) Change in net unrealized appreciation or depreciation of investments 6,732,525 8,518,069 ----------------------------------- ----------------------------------- Net increase (decrease) in net assets resulting from operations 6,951,905 7,070,663 Policy related transactions: Net premium payments, less sales charges and applicable premium taxes 15,678,570 15,972,108 Contract terminations and surrenders (1,253,985) (851,734) Death benefit payments (92,979) (61,225) Policy loan transfers (667,347) (109,471) Transfers to other contracts (6,083,679) (8,327,729) Cost of insurance and administration charges (2,143,339) (1,912,326) Surrender charges (347,740) (311,753) ----------------------------------- ----------------------------------- Increase (decrease) in net assets from policy related transactions 5,089,501 4,397,870 ----------------------------------- ----------------------------------- Total increase (decrease) 12,041,406 11,468,533 Net assets at beginning of period 30,677,062 19,208,529 ----------------------------------- ----------------------------------- Net assets at end of period $42,718,468 $30,677,062 =================================== See accompanying notes.
Janus International Aspen Emerging International Balanced Markets SmallCap Service Shares Division Division Division ---------------------------------- ---------------------------------------------------------------------- ---------------------------------- ----------------------------------- ------------------ 2004 2003 2004 2003 2004 2003 ---------------------------------- ---------------------------------------------------------------------- ---------------------------------- ----------------------------------------------------- $ 2,616 $ 3,531 $ (6,099) $ 46,259 $ 694 $ 3,366 254,807 18,519 308,376 (309,907) 16,356 9,717 230,070 226,105 4,990,709 5,128,080 (10,882) 15,108 ---------------------------------- ---------------------------------------------------------------------- ---------------------------------- ---------------------------------------------------------------------- 487,493 248,155 5,292,986 4,864,432 6,168 28,191 3,644,201 1,193,388 13,702,809 8,904,678 435,374 470,587 (91,249) (1,765) (590,015) (361,874) - - (633) - (16,210) (9,359) - - (29,712) (939) (221,270) (60,116) - - (1,747,567) (488,922) (6,179,789) (5,597,546) (591,659) (299,541) (177,661) (65,008) (1,157,611) (928,294) (945) (825) (19,694) (924) (175,269) (129,560) - - ---------------------------------- ---------------------------------------------------------------------- ---------------------------------- ---------------------------------------------------------------------- 1,577,685 635,830 5,362,645 1,817,929 (157,230) 170,221 ---------------------------------- ---------------------------------------------------------------------- ---------------------------------- ---------------------------------------------------------------------- 2,065,178 883,985 10,655,631 6,682,361 (151,062) 198,412 1,035,900 151,915 14,705,430 8,023,069 198,412 - ---------------------------------- ---------------------------------------------------------------------- ---------------------------------- ---------------------------------------------------------------------- $3,101,078 $1,035,900 $25,361,061 $14,705,430 $ 47,350 $198,412 ================================== ======================================================================
Principal Life Insurance Company Variable Life Separate Account Statements of Changes in Net Assets (continued) For The Years Ended December 31, 2004 and 2003, Except as Noted
Janus Aspen Core Equity Service Shares Division ----------------------------------- ----------------------------------- 2004 2003 ----------------------------------- ----------------------------------- Increase (decrease) in net assets Operations: Net investment income (loss) $ (910) $ 4 Total realized gains (losses) on investments 25,060 733 Change in net unrealized appreciation or depreciation of investments 12,073 34,858 ----------------------------------- ----------------------------------- Net increase (decrease) in net assets resulting from operations 36,223 35,595 Policy related transactions: Net premium payments, less sales charges and applicable premium taxes 584,616 298,706 Contract terminations and surrenders (6,198) (1,149) Death benefit payments - - Policy loan transfers - - Transfers to other contracts (519,075) (52,376) Cost of insurance and administration charges (5,224) (1,650) Surrender charges - 32 ----------------------------------- ----------------------------------- Increase (decrease) in net assets from policy related transactions 54,119 243,563 ----------------------------------- ----------------------------------- Total increase (decrease) 90,342 279,158 Net assets at beginning of period 288,379 9,221 ----------------------------------- ----------------------------------- Net assets at end of period $378,721 $288,379 =================================== See accompanying notes.
Janus Janus Aspen Aspen Mid Cap Flexible Income Growth Service Shares Service Shares Division Division ----------------------------------- ----------------------------------- ----------------------------------- ----------------------------------- 2004 2003 2004 2003 ----------------------------------- ----------------------------------- ----------------------------------- ----------------------------------- $ 128,707 $ 58,121 $ (20,209) $ (11,544) 23,708 1,934 105,713 (16,439) (78,419) 11,666 380,195 463,910 ----------------------------------- ----------------------------------- ----------------------------------- ----------------------------------- 73,996 71,721 465,699 435,927 1,444,254 5,720,113 2,885,918 1,800,356 (35,957) (2,506) (207,420) (51,654) - - - (1,066) - - (12,398) 3,737 (1,062,745) (3,751,167) (2,128,801) (841,751) (43,718) (8,929) (197,861) (172,855) 293 69 (26,426) (19,512) ----------------------------------- ----------------------------------- ----------------------------------- ----------------------------------- 302,127 1,957,580 313,012 717,255 ----------------------------------- ----------------------------------- ----------------------------------- ----------------------------------- 376,123 2,029,301 778,711 1,153,182 2,053,209 23,908 2,078,616 925,434 ----------------------------------- ----------------------------------- ----------------------------------- ----------------------------------- $2,429,332 $2,053,209 $2,857,327 $2,078,616 =================================== ===================================
Principal Life Insurance Company Variable Life Separate Account Statements of Changes in Net Assets (continued) For The Years Ended December 31, 2004 and 2003, Except as Noted
Janus Aspen Worldwide Growth Service Shares Division ----------------------------------- ----------------------------------- 2004 2003 ----------------------------------- ----------------------------------- Increase (decrease) in net assets Operations: Net investment income (loss) $ 2,321 $ 361 Total realized gains (losses) on investments 5,548 1,473 Change in net unrealized appreciation or depreciation of investments 3,113 11,091 ----------------------------------- ----------------------------------- Net increase (decrease) in net assets resulting from operations 10,982 12,925 Policy related transactions: Net premium payments, less sales charges and applicable premium taxes 395,292 101,452 Contract terminations and surrenders (1,185) (3,007) Death benefit payments - - Policy loan transfers - - Transfers to other contracts (82,152) (28,078) Cost of insurance and administration charges (4,132) (633) Surrender charges - 83 ----------------------------------- ----------------------------------- Increase (decrease) in net assets from policy related transactions 307,823 69,817 ----------------------------------- ----------------------------------- Total increase (decrease) 318,805 82,742 Net assets at beginning of period 87,529 4,787 ----------------------------------- ----------------------------------- Net assets at end of period $406,334 $ 87,529 =================================== See accompanying notes.
JP Morgan JP Morgan Small Bond Company Series Series LargeCap Trust II Trust II Blend Division Division Division ------------------------------------- ------------------------------------ ---------------------------------- 2004 2003 2004 2003 2004 2003 ------------------------------------- ------------------------------------ ---------------------------------- $ 2,713 $ 569 $ (1,552) $ (397) $ 15,795 $ 3,366 2,275 248 53,678 1,559 245,101 8,399 3,604 387 104,520 51,987 86,791 324,041 ------------------------------------- ------------------------------------ ---------------------------------- ------------------------------------- ------------------------------------ ---------------------------------- 8,592 1,204 156,646 53,149 347,687 335,806 359,719 84,630 895,676 215,983 2,812,994 2,412,727 - - (52,975) - (127,485) (30,949) - - - - (2,626) - - - - - (22,022) (4,642) (116,854) (29,617) (383,999) (41,733) (599,240) (758,256) (1,524) (165) (5,604) (1,011) (340,304) (174,560) - - 470 - (16,197) (11,364) ------------------------------------- ------------------------------------ ---------------------------------- ------------------------------------- ------------------------------------ ---------------------------------- 241,341 54,848 453,568 173,239 1,705,120 1,432,956 ------------------------------------- ------------------------------------ ---------------------------------- ------------------------------------- ------------------------------------ ---------------------------------- 249,933 56,052 610,214 226,388 2,052,807 1,768,762 56,052 - 261,934 35,546 2,358,289 589,527 ------------------------------------- ------------------------------------ ---------------------------------- ------------------------------------- ------------------------------------ ---------------------------------- $305,985 $56,052 $872,148 $261,934 $4,411,096 $2,358,289 ===================================== ==================================== ==================================
Principal Life Insurance Company Variable Life Separate Account Statements of Changes in Net Assets (continued) For The Years Ended December 31, 2004 and 2003, Except as Noted
LargeCap Growth Equity Division -------------------------------------- -------------------------------------- 2004 2003 -------------------------------------- -------------------------------------- Increase (decrease) in net assets Operations: Net investment income (loss) $ (40,294) $ (513) Total realized gains (losses) on investments 5,991 740 Change in net unrealized appreciation or depreciation of investments 310,297 233,958 -------------------------------------- -------------------------------------- Net increase (decrease) in net assets resulting from operations 275,994 234,185 Policy related transactions: Net premium payments, less sales charges and applicable premium taxes 4,903,498 6,809,293 Contract terminations and surrenders (44,754) (8,833) Death benefit payments (69,242) - Policy loan transfers (9,843) (18,102) Transfers to other contracts (1,222,646) (20,823) Cost of insurance and administration charges (255,755) (12,031) Surrender charges (23,611) (2,762) -------------------------------------- -------------------------------------- Increase (decrease) in net assets from policy related transactions 3,277,647 6,746,742 -------------------------------------- -------------------------------------- Total increase (decrease) 3,553,641 6,980,927 Net assets at beginning of period 6,980,927 - -------------------------------------- -------------------------------------- Net assets at end of period $10,534,568 $6,980,927 ====================================== See accompanying notes.
LargeCap Stock LargeCap Limited Index Value Term Bond Division Division Division -------------------------------- ------------------------------- -------------------------------- -------------------------------- ------------------------------- ----------------- 2004 2003 2004 2003 2004 2003 -------------------------------- ------------------------------- -------------------------------- -------------------------------- ---------------------------------------------------------------- $ 194,821 $ 81,972 $ 39,370 $ 16,363 $ (5,179) $ 666 56,602 (1,183,205) 118,535 14,812 (3,190) (2) 2,318,389 5,986,813 389,830 411,955 6,775 (171) -------------------------------- ------------------------------- -------------------------------- -------------------------------- ------------------------------- -------------------------------- 2,569,812 4,885,580 547,735 443,130 (1,594) 493 16,356,572 23,731,535 4,007,821 3,019,547 2,090,508 115,679 (774,142) (688,218) (114,372) (11,392) (1,281) - (31,658) (1,473) (6,812) - (4,701) - (279,430) (2,828) (15,352) (11,754) (10,886) - (9,649,560) (19,428,103) (1,068,685) (856,429) (398,388) (2,746) (1,582,930) (1,407,707) (391,951) (181,934) (45,524) (6,061) (327,579) (258,759) (30,877) (5,689) (356) - -------------------------------- ------------------------------- -------------------------------- -------------------------------- ------------------------------- -------------------------------- 3,711,273 1,944,447 2,379,772 1,952,349 1,629,372 106,872 -------------------------------- ------------------------------- -------------------------------- -------------------------------- ------------------------------- -------------------------------- 6,281,085 6,830,027 2,927,507 2,395,479 1,627,778 107,365 24,713,364 17,883,337 2,908,786 513,307 107,365 - -------------------------------- ------------------------------- -------------------------------- -------------------------------- ------------------------------- -------------------------------- $30,994,449 $24,713,364 $5,836,293 $2,908,786 $1,735,143 $107,365 ================================ =============================== ================================
Principal Life Insurance Company Variable Life Separate Account Statements of Changes in Net Assets (continued) For The Year Ended December 31, 2004
MFS VIT Emerging Growth Service Class Division ----------------------------------- ----------------------------------- 2004 2003 ----------------------------------- ----------------------------------- Increase (decrease) in net assets Operations: Net investment income (loss) $ (324) $ (84) Total realized gains (losses) on investments 5,650 1,557 Change in net unrealized appreciation or depreciation of investments 11,421 7,071 ----------------------------------- ----------------------------------- Net increase (decrease) in net assets resulting from operations 16,747 8,544 Policy related transactions: Net premium payments, less sales charges and applicable premium taxes 168,179 38,966 Contract terminations and surrenders (37,240) - Death benefit payments - - Policy loan transfers - - Transfers to other contracts (38,386) (15,352) Cost of insurance and administration charges (1,669) (310) Surrender charges 331 - ----------------------------------- ----------------------------------- Increase (decrease) in net assets from policy related transactions 91,215 23,304 ----------------------------------- ----------------------------------- Total increase (decrease) 107,962 31,848 Net assets at beginning of period 49,139 17,291 ----------------------------------- ----------------------------------- Net assets at end of period $157,101 $49,139 =================================== See accompanying notes.
MFS VIT MidCap MFS VIT MFS VIT Growth New Discovery Value Service Class Service Class Service Class Division Division Division ----------------------------------- ----------------------------------- ----------------------------------- ----------------------------------- ----------------------------------- 2004 2003 2004 2003 2004 2003 ----------------------------------- ----------------------------------- ----------------------------------- ----------------------------------- ----------------------------------- $ (982) $ (35) $ (1,486) $ (77) $ 220 $ (79) (3,787) (705) (666) 831 19,260 1,379 31,682 4,094 52,997 4,436 21,404 13,453 ----------------------------------- ----------------------------------- ----------------------------------- ----------------------------------- ----------------------------------- ----------------------------------- 26,913 3,354 50,845 5,190 40,884 14,753 554,658 150,646 1,127,123 82,098 452,975 600,761 - - (2,466) - (4,280) - - - - - - - - - (2,358) - - - (247,516) (57,685) (364,678) (9,165) (529,950) (210,028) (4,556) (372) (16,162) (2,976) (4,925) (725) - - (99) - - - ----------------------------------- ----------------------------------- ----------------------------------- ----------------------------------- ----------------------------------- ----------------------------------- 302,586 92,589 741,360 69,957 (86,180) 390,008 ----------------------------------- ----------------------------------- ----------------------------------- ----------------------------------- ----------------------------------- ----------------------------------- 329,499 95,943 792,205 75,147 (45,296) 404,761 96,305 362 75,650 503 407,443 2,682 ----------------------------------- ----------------------------------- ----------------------------------- ----------------------------------- ----------------------------------- ----------------------------------- $425,804 $ 96,305 $ 867,855 $75,650 $362,147 $407,443 =================================== =================================== ===================================
Principal Life Insurance Company Variable Life Separate Account Statements of Changes in Net Assets (continued) For The Year Ended December 31, 2004
MidCap Division ----------------------------------- ----------------------------------- 2004 2003 ----------------------------------- ----------------------------------- Increase (decrease) in net assets Operations: Net investment income (loss) $ 186,207 $ 161,905 Total realized gains (losses) on investments 7,173,118 8,414 Change in net unrealized appreciation or depreciation of investments 2,783,619 13,069,056 ----------------------------------- ----------------------------------- Net increase (decrease) in net assets resulting from operations 10,142,944 13,239,375 Policy related transactions: Net premium payments, less sales charges and applicable premium taxes 31,085,310 23,288,062 Contract terminations and surrenders (2,775,947) (2,325,035) Death benefit payments (96,643) (70,833) Policy loan transfers (783,105) 55,090 Transfers to other contracts (17,570,336) (12,701,971) Cost of insurance and administration charges (3,711,218) (3,303,347) Surrender charges (575,653) (379,531) ----------------------------------- ----------------------------------- Increase (decrease) in net assets from policy related transactions 5,572,408 4,562,435 ----------------------------------- ----------------------------------- Total increase (decrease) 15,715,352 17,801,810 Net assets at beginning of period 56,919,222 39,117,412 ----------------------------------- ----------------------------------- Net assets at end of period $72,634,574 $56,919,222 =================================== See accompanying notes.
MidCap MidCap Money Growth Value Market Division Division Division ----------------------------------- ----------------------------------- ----------------------------------- ----------------------------------- ----------------------------------- 2004 2003 2004 2003 2004 2003 ----------------------------------- ----------------------------------- ----------------------------------- ----------------------------------- ----------------------------------- $ (77,585) $ (40,988) $ (52,043) $ (25,774) $ $ (97,055) (8,230) 67,046 (2,422) 1,461,349 86,036 - - 1,068,040 1,778,102 376,619 1,194,153 610 (524) ----------------------------------- ----------------------------------- ----------------------------------- ----------------------------------- ----------------------------------- ----------------------------------- 1,057,501 1,734,692 1,785,925 1,254,415 (7,620) (97,579) 8,715,274 6,541,162 11,241,349 7,512,936 100,659,534 109,059,108 (301,793) (288,158) (211,421) (124,107) (1,942,790) (2,224,872) (5,163) (5,137) (2,560) - (1,773) (53,267) (36,156) (58,733) (631,404) (4,262) (3,754,772) (466,826) (5,562,633) (2,887,270) (5,933,626) (4,543,723) (83,208,901) (99,760,629) (687,806) (450,963) (550,236) (347,425) (4,694,580) (5,407,423) (105,229) (99,618) (51,605) (43,911) (624,397) (717,260) ----------------------------------- ----------------------------------- ----------------------------------- ----------------------------------- ----------------------------------- ----------------------------------- 2,016,494 2,751,283 3,860,497 2,449,508 6,432,321 428,831 ----------------------------------- ----------------------------------- ----------------------------------- ----------------------------------- ----------------------------------- ----------------------------------- 3,073,995 4,485,975 5,646,422 3,703,923 6,424,701 331,252 7,944,933 3,458,958 5,933,575 2,229,652 44,163,499 43,832,247 ----------------------------------- ----------------------------------- ----------------------------------- ----------------------------------- ----------------------------------- ----------------------------------- $11,018,928 $7,944,933 $11,579,997 $5,933,575 $ 50,588,200 $ 44,163,499 =================================== =================================== ===================================
Principal Life Insurance Company Variable Life Separate Account Statements of Changes in Net Assets (continued) For The Years Ended December 31, 2004 and 2003, Except as Noted
Neuberger Berman AMT Guardian I Class Division (1) ---------------- ---------------- 2004 ---------------- ---------------- Increase (decrease) in net assets Operations: Net investment income (loss) $ (5) Total realized gains (losses) on investments (651) Change in net unrealized appreciation or depreciation of investments 657 ---------------- ---------------- Net increase (decrease) in net assets resulting from operations 1 Policy related transactions: Net premium payments, less sales charges and applicable premium taxes 74,008 Contract terminations and surrenders - Death benefit payments - Policy loan transfers - Transfers to other contracts (66,409) Cost of insurance and administration charges (71) Surrender charges - ---------------- ---------------- Increase (decrease) in net assets from policy related transactions 7,528 ---------------- ---------------- Total increase (decrease) 7,529 Net assets at beginning of period - ---------------- ---------------- Net assets at end of period $7,529 ================ (1) Commenced operations March 25, 2004. (2) Commenced operations August 21, 2004. See accompanying notes.
Principal Principal Putnam VT Principal Principal Growth & LifeTime LifeTime LifeTime LifeTime Income 2020 2030 2040 2050 Class 1B Division (2) Division (2) Division (2) Division (2) Division ------------------ ------------------ ----------------- ------------------ ----------------------------------- ----------------- ------------------ ----------------------------------- 2004 2004 2004 2004 2004 2003 ------------------ ------------------ ----------------- ------------------ ----------------------------------- ----------------- ------------------ ----------------------------------- $ 25 $ 1,038 $ 947 $ 384 $ 928 $ 3,541 - 27 104 119 2,000 (5,195) 184 2,611 9,049 6,174 10,561 6,696 ------------------ ------------------ ----------------- ------------------ ----------------------------------- ------------------ ------------------ ----------------- ------------------ ----------------------------------- 209 3,676 10,100 6,677 13,489 5,042 4,032 138,076 127,614 73,327 133,606 837,772 - - - - - - - - - - - - - - - - - - - (4) 1 - (38,481) (800,992) (76) (1,373) (1,980) (2,876) (2,201) (285) - - - - - - ------------------ ------------------ ----------------- ------------------ ----------------------------------- ------------------ ------------------ ----------------- ------------------ ----------------------------------- 3,956 136,699 125,635 70,451 92,924 36,495 ------------------ ------------------ ----------------- ------------------ ----------------------------------- ------------------ ------------------ ----------------- ------------------ ----------------------------------- 4,165 140,375 135,735 77,128 106,413 41,537 - - - - 51,144 9,607 ------------------ ------------------ ------------------------------------ ----------------------------------- ------------------ ------------------ ------------------------------------ ----------------------------------- $4,165 $140,375 $135,735 $77,128 $157,557 $ 51,144 ================== ================== ==================================== ===================================
Principal Life Insurance Company Variable Life Separate Account Statements of Changes in Net Assets (continued) For The Years Ended December 31, 2004 and 2003, Except as Noted
Putnam VT International Equity Class 1B Division ----------------------------------- ----------------------------------- 2004 2003 ----------------------------------- ----------------------------------- Increase (decrease) in net assets Operations: Net investment income (loss) $ 7,739 $ 3,682 Total realized gains (losses) on investments 69,403 11,649 Change in net unrealized appreciation or depreciation of investments 121,677 133,433 ----------------------------------- ----------------------------------- Net increase (decrease) in net assets resulting from operations 198,819 148,764 Policy related transactions: Net premium payments, less sales charges and applicable premium taxes 1,382,507 2,358,042 Contract terminations and surrenders (2,291) - Death benefit payments - - Policy loan transfers - - Transfers to other contracts (793,077) (1,789,587) Cost of insurance and administration charges (20,202) (2,875) Surrender charges - - ----------------------------------- ----------------------------------- Increase (decrease) in net assets from policy related transactions 566,937 565,580 ----------------------------------- ----------------------------------- Total increase (decrease) 765,756 714,344 Net assets at beginning of period 722,496 8,152 ----------------------------------- ----------------------------------- Net assets at end of period $1,488,252 $ 722,496 =================================== (1) Represented the operations of Real Estate Division until March 1, 2004 name change. See accompanying notes.
Putnam VT Voyager Real Estate Class 1B Securities SmallCap Division Division (1) Division ----------------------------------- ----------------------------------- ----------------------------------- ----------------------------------- ----------------------------------- 2004 2003 2004 2003 2004 2003 ----------------------------------- ----------------------------------- ----------------------------------- ----------------------------------- ----------------------------------- $ (192,956) $ (141,020) $ 370,637 $ 347,689 $ (113,321) $ (49,805) (1,104,571) (920,204) 3,117,337 488,242 152,532 (87,195) 2,460,999 6,330,325 3,353,099 3,032,736 2,801,261 2,608,246 ----------------------------------- ----------------------------------- ----------------------------------- ----------------------------------- ----------------------------------- ----------------------------------- 1,163,472 5,269,101 6,841,073 3,868,667 2,840,472 2,471,246 10,422,513 16,980,240 25,832,567 18,298,438 8,660,712 9,237,015 (1,090,576) (986,939) (871,888) (370,472) (386,590) (196,411) (116,077) (42,997) (11,398) (328) (60,337) (2,791) (368,234) (119,501) (202,515) (199,046) (380,131) (25,240) (6,748,958) (10,501,886) (16,396,312) (11,061,562) (4,560,157) (2,734,234) (2,204,621) (2,348,847) (1,331,815) (1,041,657) (747,052) (527,073) (337,505) (370,690) (202,671) (109,029) (122,006) (77,056) ----------------------------------- ----------------------------------- ----------------------------------- ----------------------------------- ----------------------------------- ----------------------------------- (443,458) 2,609,380 6,815,968 5,516,344 2,404,439 5,674,210 ----------------------------------- ----------------------------------- ----------------------------------- ----------------------------------- ----------------------------------- ----------------------------------- 720,014 7,878,481 13,657,041 9,385,011 5,244,911 8,145,456 28,107,526 20,229,045 16,563,843 7,178,832 13,044,243 4,898,787 ----------------------------------- ----------------------------------- ----------------------------------- ----------------------------------- ----------------------------------- ----------------------------------- $28,827,540 $28,107,526 $30,220,884 $16,563,843 $18,289,154 $13,044,243 =================================== =================================== ===================================
Principal Life Insurance Company Variable Life Separate Account Statements of Changes in Net Assets (continued) For The Years Ended December 31, 2004 and 2003, Except as Noted
SmallCap Growth Division ----------------------------------- ----------------------------------- 2004 2003 ----------------------------------- ----------------------------------- Increase (decrease) in net assets Operations: Net investment income (loss) $ (143,990) $ (108,309) Total realized gains (losses) on investments (500,647) (468,870) Change in net unrealized appreciation or depreciation of investments 2,194,304 4,515,584 ----------------------------------- ----------------------------------- Net increase (decrease) in net assets resulting from operations 1,549,667 3,938,405 Policy related transactions: Net premium payments, less sales charges and applicable premium taxes 8,394,987 7,358,333 Contract terminations and surrenders (508,131) (315,398) Death benefit payments (11,856) (12,303) Policy loan transfers (193,801) (58,974) Transfers to other contracts (5,060,531) (3,250,078) Cost of insurance and administration charges (1,158,053) (1,077,422) Surrender charges (158,548) (117,905) ----------------------------------- ----------------------------------- Increase (decrease) in net assets from policy related transactions 1,304,067 2,526,253 ----------------------------------- ----------------------------------- Total increase (decrease) 2,853,734 6,464,658 Net assets at beginning of period 14,060,447 7,595,789 ----------------------------------- ----------------------------------- Net assets at end of period $16,914,181 $14,060,447 =================================== See accompanying notes.
Vanguard Vanguard VIF Balanced SmallCap Division VIF Equity Value Index Division Division ----------------------------------- ----------------------------------- ---------------------------------- ----------------------------------- ----------------------------------- ---------------------------------- 2004 2003 2004 2003 2004 2003 ----------------------------------- ----------------------------------- ---------------------------------- ----------------------------------- ----------------------------------- ---------------------------------- $ (128,001) $ (38,751) $ 31,434 $ 8,847 $ 33,619 $ 6,861 3,165,682 550,538 55,340 6,928 201,501 77,025 1,864,153 4,672,123 148,981 83,345 357,931 315,685 ----------------------------------- ----------------------------------- ---------------------------------- ----------------------------------- ----------------------------------- ---------------------------------- 4,901,834 5,183,910 235,755 99,120 593,051 399,571 28,968,737 19,148,967 3,241,756 1,100,899 5,655,899 5,772,428 (828,357) (387,510) (265,451) (6,913) (520,396) (14,388) (31,464) (11,017) - - - - (907,483) (72,427) - - - - (19,813,253) (13,010,651) (918,576) (460,122) (1,886,582) (3,667,213) (1,170,951) (920,310) (32,668) (4,277) (51,126) (7,313) (269,823) (123,465) 2,358 191 4,622 398 ----------------------------------- ----------------------------------- ---------------------------------- ----------------------------------- ----------------------------------- ---------------------------------- 5,947,406 4,623,587 2,027,419 629,778 3,202,417 2,083,912 ----------------------------------- ----------------------------------- ---------------------------------- ----------------------------------- ----------------------------------- ---------------------------------- 10,849,240 9,807,497 2,263,174 728,898 3,795,468 2,483,483 18,054,480 8,246,983 859,040 130,142 2,861,260 377,777 =================================== =================================== ================================== ----------------------------------- ----------------------------------- ---------------------------------- $28,903,720 $18,054,480 $3,122,214 $ 859,040 $6,656,728 $2,861,260 =================================== =================================== ==================================
Principal Life Insurance Company Variable Life Separate Account Statements of Changes in Net Assets (continued) For The Years Ended December 31, 2003 and 2002, Except as Noted
Vanguard VIF Mid-Cap Index Division ----------------------------------- ----------------------------------- 2004 2003 ----------------------------------- ----------------------------------- Increase (decrease) in net assets Operations: Net investment income (loss) $ 2,939 $ 723 Total realized gains (losses) on investments 34,922 7,371 Change in net unrealized appreciation or depreciation of investments 217,883 56,300 ----------------------------------- ----------------------------------- Net increase (decrease) in net assets resulting from operations 255,744 64,394 Policy related transactions: Net premium payments, less sales charges and applicable premium taxes 2,006,209 298,533 Contract terminations and surrenders (112,114) (2,807) Death benefit payments - - Policy loan transfers (20,859) - Transfers to other contracts (483,134) (90,980) Cost of insurance and administration charges (17,571) (1,313) Surrender charges 959 78 ----------------------------------- ----------------------------------- Increase (decrease) in net assets from policy related transactions 1,373,490 203,511 ----------------------------------- ----------------------------------- Total increase (decrease) 1,629,234 267,905 Net assets at beginning of period 317,246 49,341 ----------------------------------- ----------------------------------- Net assets at end of period $1,946,480 $317,246 =================================== See accompanying notes.
Wells Wells Fargo VT Wells Equity Fargo VT Fargo VT Income Large Asset Division Company Allocation Growth Division Division ----------------------------------- ----------------------------------- ----------------------------------- ----------------------------------- ------------------ 2004 2003 2004 2003 2004 2003 ----------------------------------- ----------------------------------- ----------------------------------- ----------------------------------- ------------------ $ 7,504 $ 1,539 $ 1,098 $ 519 $ (740) $ (132) 24,216 1,358 4,820 1,508 3,959 586 19,729 48,646 8,621 12,891 11,428 3,811 ----------------------------------- ----------------------------------- ----------------------------------- ----------------------------------- ----------------------------------- ----------------------------------- 51,449 51,543 14,539 14,918 14,647 4,265 422,703 261,013 103,898 98,382 356,057 50,851 (8,275) (478) (12,273) (146) (7,156) (681) - - - - - - (526) (1,469) (497) - (69,261) - (114,384) (21,591) (13,415) (6,565) (53,135) (2,827) (36,564) (26,910) (14,922) (11,921) (11,499) (4,085) (6,450) (180) (9,266) (64) (2,366) (362) ----------------------------------- ----------------------------------- ----------------------------------- ----------------------------------- ----------------------------------- ----------------------------------- 256,504 210,385 53,525 79,686 212,640 42,896 ----------------------------------- ----------------------------------- ----------------------------------- ----------------------------------- ----------------------------------- ----------------------------------- 307,953 261,928 68,064 94,604 227,287 47,161 416,923 154,995 110,994 16,390 52,904 5,743 ----------------------------------- ----------------------------------- ----------------------------------- ----------------------------------- ----------------------------------- ----------------------------------- $724,876 $416,923 $179,058 $110,994 $280,191 $52,904 =================================== =================================== ===================================
Principal Life Insurance Company Variable Life Separate Account Notes to Financial Statements December 31, 2004 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 contract holders, each division of the Separate Account invests exclusively in shares representing interests in a corresponding investment option. As of December 31, 2004, contractholder investment options include the following diversified open-end management investment companies: Division Investment by Fund American Century VP Income & Growth Division Principal Variable Contracts Fund, Inc. (7): American Century VP Ultra Division Asset Allocation Division American Century VP II Income & Growth Division (1) Balanced Division American Century VP II International Division (1) Bond Division American Century VP II Ultra Division Capital Value Division American Century VP II Value Division Equity Growth Division Dreyfus IP Core Value Service Shares Division Equity Income Division, formerly Utilities Dreyfus IP Founders Discovery Initial Shares Division Division until March 1, 2004 name change Dreyfus IP Founders Growth Initial Shares Division (6) Government Securities Division Dreyfus Socially Responsible Growth Service Shares Growth Division Division (1) International Division Dreyfus VIF Appreciation Service Shares Division (1) International Emerging Markets Division Dreyfus VIF Developing Leaders Service Shares International SmallCap Division Division LargeCap Blend Division Dreyfus VIF Quality Bond Service Shares Division (1) LargeCap Growth Equity Division (1) Fidelity VIP Equity-Income Initial Class Division LargeCap Stock Index Division Fidelity VIP Equity-Income Service Class 2 Division LargeCap Value Division Fidelity VIP Growth Service Class 2 Division Limited Term Bond Division (2) Fidelity VIP High Income Initial Class Division MidCap Division Fidelity VIP High Income Service Class 2 Division (1) MidCap Growth Division Fidelity VIP II Asset Manager Service Class 2 MidCap Value Division Division (1) Money Market Division Fidelity VIP II Contrafund Initial Class Division Principal LifeTime 2020 Division (5) Fidelity VIP II Contrafund Service Class 2 Division Principal LifeTime 2030 Division (5) Fidelity VIP III Mid Cap Service Class 2 Division Principal LifeTime 2040 Division (5) Franklin Income Securities Class 2 Division Principal LifeTime 2050 Division (5) Franklin Mutual Discovery Securities Class 2 Division Real Estate Securities Division, formerly Real Estate Division until March 1, 2004 name change SmallCap Division SmallCap Growth Division SmallCap Value Division AIM V.I. Aggressive Growth Series I Division Franklin Mutual Shares Securities Class 2 Division AIM V.I. Core Equity Series I Division Franklin Rising Dividends Securities Class 2 Division AIM V.I. Core Equity Series II Division (1) Franklin Small Cap Value Securities Class 2 Division AIM V.I. Core Stock Series I Division (3) Janus Aspen Balanced Service Shares Division (1) AIM V.I. Dynamics Series I Division , formerly Janus Aspen Core Equity Service Shares Division INVESCO VIF - Dynamics Division until Janus Aspen Flexible Income Service Shares Division October 15, 2004 name change Janus Aspen Mid Cap Growth Service Shares Division AIM V.I. Growth Series I Division Janus Aspen Worldwide Growth Service Shares AIM V.I. Growth Series II Division (1) Division AIM V.I. Health Sciences Series I Division, JP Morgan Bond Series Trust II Division (1) formerly INVESCO VIF - Health Sciences JP Morgan Small Company Series Trust II Division Division until October 15, 2004 name change MFS VIT Emerging Growth Service Class Division AIM V.I. International Growth Series I Division (1) MFS VIT MidCap Growth Service Class Division AIM V.I. Premier Equity Series I Division MFS VIT New Discovery Service Class Division AIM V.I. Premier Equity Series II Division (1) MFS VIT Value Service Class Division AIM V.I. Small Company Growth Series I Neuberger Berman AMT Guardian I Class Division (4) Division, formerly INVESCO VIF - Small Putnam VT Growth & Income Class IB Division Company Growth Division until October 15, Putnam VT International Equity Class IB Division 2004 name change Putnam VT Voyager Class IB Division AIM V.I. Technology Series I Division, Vanguard VIF Balanced Division formerly INVESCO VIF - Technology Vanguard VIF Equity Index Division Division until October 15, 2004 name change Vanguard VIF Mid-Cap Index Division Wells Fargo VT Asset Allocation Division Wells Fargo VT Equity Income Division Wells Fargo VT Large Company Growth Division (1) Commenced operations February 22, 2003. (2) Commenced operations May 17, 2003. (3) Commenced operations March 18, 2004. (4) Commenced operations March 25, 2004. (5) Commenced operations August 21, 2004. (6) Commenced operations November 23, 2004. (7) Organized by Principal Life Insurance Company.
Investments are stated at the closing net asset values per share on December 31, 2004. 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: Benefit Variable Universal Life Contracts, Executive Variable Universal Life Contracts, Flex Variable Life Contracts, PrinFlex Life Contracts, Survivorship Variable Universal Life Contracts, Variable Universal Life Accumulator Contracts, Variable Universal Life Accumulator II Contracts, and Variable Universal Life Income 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. 2. Expenses and Related Party Transactions Principal Life is compensated for the following expenses and charges: Benefit Variable Universal Life Contracts - Principal Life assumes a risk that expenses incurred in issuing and administering a policy are greater than originally estimated. The expense risk is deducted at an annual rate of 0.40% of the net policy value to cover this risk. A cost of insurance charge, which is based on the Company's expected future mortality experience, is deducted as compensation for insurance charges. All charges are assessed through the redemption of units. In the first through fifth years, a sales charge of 6.50% 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. Executive Variable Universal Life Contracts - Principal Life assumes a risk that expenses incurred in issuing and administering a policy are greater than originally estimated. The expense risk is deducted at an annual rate of 0.30% of the net policy value to cover this risk. A cost of insurance charge, which is based on the Company's expected future mortality experience, is deducted as compensation for insurance charges. All charges are assessed through the redemption of units. In the first year, a sales charge of 4.50% of premiums paid is deducted from each payment on behalf of each participant. In years two through five, a sales charge of 7.0% 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. Flex Variable Life Contracts - Mortality and expense risks assumed by Principal Life are compensated for by a daily charge resulting in a monthly reduction of the unit value equivalent to an annual rate of 0.75% 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, are deducted on a monthly basis through the redemption of units as compensation for administrative and insurance expenses, respectively. A sales charge of 5.0% and a tax charge of 2.0% are 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 0.90% of the asset value of each policy. A monthly administration charge of $0.40 for each $1,000 of policy face amount will be deducted from policies in their first year. After the first policy year, the administration charge is $6 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. All charges are assessed through the redemption of units. A sales charge of 2.75% of premiums less than or equal to target premium and 0.75% 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 - Mortality and expense risks assumed by Principal Life are compensated for by a charge equivalent to an annual rate of 0.80% of the asset value of each policy. A monthly administration charge of $8 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 $0.07 per $1,000 of face amount. The charge of $0.07 is increased by $0.005 per $1,000 for each insured 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. All charges are assessed through the redemption of units. 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 2.2% 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. Variable Universal Life Accumulator Contracts - Mortality and expense risks assumed by Principal Life are compensated for by a charge equivalent to an annual rate of 0.70% of the asset value of each policy. The current administrative charge is $25 per month during the first policy year. After the first policy year, the administrative charge is $10 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. All charges are assessed through the redemption of units. A sales charge of 3.0% 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. Variable Universal Life Accumulator II Contracts - Mortality and expense risks assumed by Principal Life are compensated for by a charge equivalent to an annual rate of 0.70% of the asset value of each policy. A monthly administrative charge of $25 is deducted during the first policy year. After the first policy year, the administrative charge is $10 per month. A cost of insurance charged, which is based on the Company's expected future mortality experience, is also deducted as compensation for insurance charges. All charges are assessed through the redemption of units. A sales charge of 3.0% of premiums less than or equal to target premium and 1.25% of premiums in excess of target premium, is deducted from each payment on behalf of each participant. A tax charge of 2.0% 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. Variable Universal Life Income Contracts - Mortality and expense risks assumed by Principal Life are compensated for by a charge equivalent to an annual rate of 0.70% of the asset value of each policy. A monthly administrative charge of $25 is deducted during the first policy year. After the first policy year, the administrative charge is $10 per month. A cost of insurance charged, which is based on the Company's expected future mortality experience, is also deducted as compensation for insurance charges. All charges are assessed through the redemption of units. A sales charge of 3.0% of premiums is deducted from each payment on behalf of each participant. A tax charge of 2.0% 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, 2004, 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 0.35% of the average daily net assets of the Large Cap Stock Index Account, 1.00% of the average daily net assets of the LargeCap Growth Equity Account, and 0.1225% of the average daily net assets of the Principal LifeTime Accounts. 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 0.05% 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, Limited Term Bond 0.50% - 0.30% Balanced, Equity Income 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 Securities 0.90 - 0.70 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 0.05% 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% LargeCap Blend, LargeCap Value 0.75 - 0.55 International 0.85 - 0.65 MidCap Value 1.05 - 0.85 International Emerging Markets 1.25 - 1.05 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 period ended December 31, 2004:
Division Purchase Sales ---------------------------------------------------------------------------------------- AIM V.I. Aggressive Growth Series I Division: Benefit Variable Universal Life $ 196,689 $ 74,606 Executive Variable Universal Life 217,282 86,659 AIM V.I. Core Equity Series I Division: Flex Variable Life 733 11,962 PrinFlex Life 1,736,481 1,788,683 Survivorship Variable Universal Life 19,006 6,169 Variable Universal Life Accumulator 167,026 107,323 AIM V.I. Core Equity Series II Division: Variable Universal Life Accumulator II 81,721 22,419 Variable Universal Life Income 458 8 AIM V.I. Core Stock Series I Division: Executive Variable Universal Life 72,620 18,320 AIM V.I. Dynamics Series I Division: Benefit Variable Universal Life 38,405 40,025 Executive Variable Universal Life 32,917 4,255 Flex Variable Life 157 55 PrinFlex Life 704,899 812,020 Survivorship Variable Universal Life - 303 Variable Universal Life Accumulator 28,738 14,045
Division Purchase Sales ---------------------------------------------------------------------------------------- AIM V.I. Growth Series I Division: Flex Variable Life $ 291 $ 172 PrinFlex Life 1,206,978 1,122,378 Survivorship Variable Universal Life 51,576 2,316 Variable Universal Life Accumulator 94,021 66,664 AIM V.I. Growth Series II Division: Variable Universal Life Accumulator II 103,844 20,789 Variable Universal Life Income 624 71 AIM V.I. Health Sciences Series I Division: Benefit Variable Universal Life 187,341 119,631 Executive Variable Universal Life 152,893 111,148 Flex Variable Life 9,295 8,498 PrinFlex Life 3,541,256 3,174,410 Survivorship Variable Universal Life 49,865 14,212 Variable Universal Life Accumulator 296,118 142,524 Variable Universal Life Accumulator II 245,879 62,410 Variable Universal Life Income 1,417 153 AIM V.I. International Growth Series I Division: Benefit Variable Universal Life 30,319 648 Executive Variable Universal Life 555,915 20,385 AIM V.I. Premier Equity Series I Division: Flex Variable Life 16,382 4,892 PrinFlex Life 3,568,529 3,618,206 Survivorship Variable Universal Life 105,294 53,502 Variable Universal Life Accumulator 275,445 115,458 AIM V.I. Premier Equity Series II Division: Variable Universal Life Accumulator II 598,105 119,639 Variable Universal Life Income 13,467 687
Division Purchase Sales ---------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------- AIM V.I. Small Company Growth Series I Division: Benefit Variable Universal Life $ 160,457 $ 30,579 Executive Variable Universal Life 326,577 257,788 Flex Variable Life 2,554 939 PrinFlex Life 1,742,517 1,383,326 Survivorship Variable Universal Life 15,539 3,366 Variable Universal Life Accumulator 63,507 50,908 AIM V.I. Technology Series I Division: Benefit Variable Universal Life 62,209 45,088 Executive Variable Universal Life 150,149 105,263 Flex Variable Life 26,940 14,791 PrinFlex Life 2,345,949 1,977,136 Survivorship Variable Universal Life 10,928 3,099 Variable Universal Life Accumulator 125,302 77,551 American Century VP Income & Growth Division: Flex Variable Life 1,591 1,361 PrinFlex Life 2,268,155 2,038,578 Survivorship Variable Universal Life 69,056 1,998 Variable Universal Life Accumulator 280,367 186,922 American Century VP Ultra Division: Flex Variable Life 705 1,427 PrinFlex Life 1,878,359 1,491,037 Survivorship Variable Universal Life 330,380 5,829 Variable Universal Life Accumulator 265,309 141,687 American Century VP II Income & Growth Division: Benefit Variable Universal Life 47,601 16,636 Executive Variable Universal Life 254,212 11,157 Variable Universal Life Accumulator II 175,880 33,261 Variable Universal Life Income 750 17 American Century VP II International Division: Benefit Variable Universal Life 25,291 717 Executive Variable Universal Life 514,318 288,312
Division Purchase Sales ---------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------- American Century VP II Ultra Division: Benefit Variable Universal Life $ 45,041 $ 11,962 Executive Variable Universal Life 395,986 245,242 Variable Universal Life Accumulator II 255,851 50,316 Variable Universal Life Income 2,158 82 American Century VP II Value Division: Benefit Variable Universal Life 333,571 98,701 Executive Variable Universal Life 339,102 161,969 Flex Variable Life 2,366 448 PrinFlex Life 1,909,118 1,330,617 Survivorship Variable Universal Life 104,595 10,851 Variable Universal Life Accumulator 228,247 79,915 Variable Universal Life Accumulator II 356,335 60,953 Variable Universal Life Income 4,567 99 Asset Allocation Division: Flex Variable Life 48,502 19,160 PrinFlex Life 8,640,371 7,965,591 Survivorship Variable Universal Life 317,255 245,878 Variable Universal Life Accumulator 579,761 408,950 Variable Universal Life Accumulator II 260,564 64,811 Variable Universal Life Income 1,690 136 Balanced Division: Flex Variable Life 452,643 636,964 PrinFlex Life 6,016,823 5,258,071 Survivorship Variable Universal Life 138,789 155,118 Variable Universal Life Accumulator 258,475 147,899 Variable Universal Life Accumulator II 267,897 132,284 Variable Universal Life Income 4,807 143
Division Purchase Sales ---------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------- Bond Division: Benefit Variable Universal Life $ 643,912 $ 173,109 Executive Variable Universal Life 1,897,194 939,055 Flex Variable Life 418,270 429,735 PrinFlex Life 18,987,545 17,752,644 Survivorship Variable Universal Life 562,458 140,469 Variable Universal Life Accumulator 1,215,969 601,593 Variable Universal Life Accumulator II 1,968,616 1,013,361 Variable Universal Life Income 20,776 1,011 Capital Value Division: Benefit Variable Universal Life 3,484 - Executive Variable Universal Life 39,537 50,534 Flex Variable Life 752,571 1,208,187 PrinFlex Life 7,490,775 7,324,797 Survivorship Variable Universal Life 219,836 72,609 Variable Universal Life Accumulator 3,900,657 643,626 Variable Universal Life Accumulator II 528,237 122,813 Variable Universal Life Income 107,204 104,997 Dreyfus IP Core Value Service Shares Division: Benefit Variable Universal Life 19,870 500 Executive Variable Universal Life 758,900 299,553 Dreyfus IP Founders Discovery Initial Shares Division: Benefit Variable Universal Life 1,536 60 Executive Variable Universal Life 207,887 29,208 Flex Variable Life 5,637 1,114 PrinFlex Life 520,697 411,225 Survivorship Variable Universal Life 10,974 236 Variable Universal Life Accumulator 105,618 31,000 Dreyfus IP Founders Growth Initial Shares Division: Executive Variable Universal Life 35,953 1,286
Division Purchase Sales -------------------------------------------------------------------------------------------------------- Dreyfus Socially Responsible Growth Service Shares Division: Benefit Variable Universal Life $ 9,380 $ 684 Executive Variable Universal Life 6,265 40 Dreyfus VIF Appreciation Service Shares Division: Benefit Variable Universal Life 128,032 45,239 Executive Variable Universal Life 265,978 31,636 Dreyfus VIF Developing Leaders Service Shares Division: Benefit Variable Universal Life 172,229 54,926 Executive Variable Universal Life 1,428,327 1,077,678 Variable Universal Life Accumulator II 462,816 79,829 Variable Universal Life Income 7,662 250 Dreyfus VIF Quality Bond Service Shares Division: Benefit Variable Universal Life 223,889 37,473 Executive Variable Universal Life 1,006,008 686,479 Equity Growth Division: Benefit Variable Universal Life 96,217 16,072 Executive Variable Universal Life 251,988 109,561 Flex Variable Life 21,394 20,422 PrinFlex Life 20,172,196 18,278,117 Survivorship Variable Universal Life 717,475 617,212 Variable Universal Life Accumulator 759,822 416,267 Variable Universal Life Accumulator II 859,008 178,242 Variable Universal Life Income 21,389 587 Equity Income Division: Flex Variable Life 2,595 813 PrinFlex Life 1,592,997 1,245,080 Survivorship Variable Universal Life 81,802 26,116 Variable Universal Life Accumulator 152,317 44,231 Variable Universal Life Accumulator II 151,934 23,983 Variable Universal Life Income 4,999 88
Division Purchase Sales -------------------------------------------------------------------------------------------------------- Fidelity VIP Equity-Income Initial Class Division: Flex Variable Life $ 21,440 $ 6,609 PrinFlex Life 22,359,733 19,190,849 Survivorship Variable Universal Life 573,919 153,795 Variable Universal Life Accumulator 840,468 494,952 Fidelity VIP Equity-Income Service Class 2 Division: Benefit Variable Universal Life 812,514 208,946 Executive Variable Universal Life 2,360,271 900,240 Variable Universal Life Accumulator II 1,135,221 198,249 Variable Universal Life Income 13,113 539 Fidelity VIP Growth Service Class 2 Division: Benefit Variable Universal Life 461,248 106,577 Executive Variable Universal Life 2,425,426 1,467,484 Flex Variable Life 1,172 3,151 PrinFlex Life 1,519,458 926,419 Survivorship Variable Universal Life 87,685 15,832 Variable Universal Life Accumulator 321,347 82,323 Variable Universal Life Accumulator II 449,280 87,828 Variable Universal Life Income 6,270 202 Fidelity VIP High Income Initial Class Division: Flex Variable Life 3,242 692 PrinFlex Life 4,607,965 4,082,265 Survivorship Variable Universal Life 127,880 41,708 Variable Universal Life Accumulator 82,454 31,448 Fidelity VIP High Income Service Class 2 Division: Benefit Variable Universal Life 300,577 71,875 Executive Variable Universal Life 748,403 302,876 Variable Universal Life Accumulator II 237,996 19,126 Variable Universal Life Income 27 10 Fidelity VIP II Asset Manager Service Class 2 Division: Benefit Variable Universal Life 163,993 51,880 Executive Variable Universal Life 656,470 485,854
Division Purchase Sales -------------------------------------------------------------------------------------------------------- Fidelity VIP II Contrafund Initial Class Division: Flex Variable Life $ 17,013 $ 8,457 PrinFlex Life 26,088,488 23,466,522 Survivorship Variable Universal Life 832,382 509,069 Variable Universal Life Accumulator 1,012,331 625,061 Fidelity VIP II Contrafund Service Class 2 Division: Benefit Variable Universal Life 539,530 151,906 Executive Variable Universal Life 2,421,712 502,021 Variable Universal Life Accumulator II 1,149,099 186,496 Variable Universal Life Income 6,834 344 Fidelity VIP III Mid Cap Service Class 2 Division: Benefit Variable Universal Life 728,981 186,385 Executive Variable Universal Life 3,136,437 1,230,416 Variable Universal Life Accumulator II 402,302 45,931 Variable Universal Life Income 5,740 235 Franklin Income Securities Class 2 Division: Benefit Variable Universal Life 160,405 17,884 Executive Variable Universal Life 2,043,539 1,328,643 Franklin Mutual Discovery Securities Class 2 Division: Benefit Variable Universal Life 138,802 6,509 Executive Variable Universal Life 915,910 470,326 Franklin Mutual Shares Securities Class 2 Division: Benefit Variable Universal Life 390,058 44,311 Executive Variable Universal Life 824,047 480,035 Franklin Rising Dividends Securities Class 2 Division: Benefit Variable Universal Life 476,736 110,020 Executive Variable Universal Life 2,183,973 1,349,587 Franklin Small Cap Value Securities Class 2 Division: Benefit Variable Universal Life 259,385 83,731 Executive Variable Universal Life 1,302,045 709,361
Division Purchase Sales -------------------------------------------------------------------------------------------------------- Government Securities Division: Benefit Variable Universal Life $ 486,491 $ 150,513 Executive Variable Universal Life 1,373,285 1,466,125 Flex Variable Life 59,454 55,856 PrinFlex Life 17,575,109 17,538,553 Survivorship Variable Universal Life 3,441,670 3,463,228 Variable Universal Life Accumulator 1,814,295 1,514,192 Variable Universal Life Accumulator II 860,384 251,035 Variable Universal Life Income 7,007 501 Growth Division: Executive Variable Universal Life 38,991 16 Flex Variable Life 6,517 248 PrinFlex Life 5,096,433 4,762,077 Survivorship Variable Universal Life 272,309 159,508 Variable Universal Life Accumulator 126,469 74,321 Variable Universal Life Accumulator II 88,718 27,525 Variable Universal Life Income 784 54 International Division: Benefit Variable Universal Life 58,133 11,964 Executive Variable Universal Life 968,518 373,459 Flex Variable Life 39,723 8,010 PrinFlex Life 10,417,125 9,472,029 Survivorship Variable Universal Life 422,602 124,953 Variable Universal Life Accumulator 2,659,393 607,444 Variable Universal Life Accumulator II 1,406,704 275,764 Variable Universal Life Income 35,563 1,306 International Emerging Markets Division: Flex Variable Life 88,463 63,187 PrinFlex Life 2,734,332 1,749,100 Survivorship Variable Universal Life 64,275 10,772 Variable Universal Life Accumulator 353,356 146,691 Variable Universal Life Accumulator II 621,943 111,557 Variable Universal Life Income 13,277 457
Division Purchase Sales -------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------- International SmallCap Division: Benefit Variable Universal Life $ 489,378 $ 103,377 Executive Variable Universal Life 1,087,306 220,573 Flex Variable Life 32,092 4,082 PrinFlex Life 9,609,730 7,236,814 Survivorship Variable Universal Life 1,200,057 423,280 Variable Universal Life Accumulator 638,499 334,377 Variable Universal Life Accumulator II 766,646 160,469 Variable Universal Life Income 16,319 509 Janus Aspen Balanced Service Shares Division: Benefit Variable Universal Life 11,844 8,777 Executive Variable Universal Life 424,579 584,182 Janus Aspen Core Equity Service Shares Division: Benefit Variable Universal Life 68,420 61,194 Executive Variable Universal Life 516,196 470,213 Janus Aspen Flexible Income Service Shares Division: Benefit Variable Universal Life 304,332 130,281 Executive Variable Universal Life 1,289,847 1,017,897 Janus Aspen Mid Cap Growth Service Shares Division: Executive Variable Universal Life 48,242 240,004 Flex Variable Life 3,234 20,497 PrinFlex Life 2,592,033 2,224,032 Survivorship Variable Universal Life 40,049 3,436 Variable Universal Life Accumulator 202,360 105,146 Janus Aspen Worldwide Growth Service Shares Division: Benefit Variable Universal Life 107,446 45,511 Executive Variable Universal Life 290,805 42,596 JP Morgan Bond Series Trust II Division: Benefit Variable Universal Life 63,911 7,387 Executive Variable Universal Life 300,540 111,370
Division Purchase Sales -------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------- JP Morgan Small Company Series Trust II Division: Benefit Variable Universal Life $ 197,029 $ 79,608 Executive Variable Universal Life 698,647 364,052 LargeCap Blend Division: Benefit Variable Universal Life 13,426 5,970 Executive Variable Universal Life 93,104 183,117 Flex Variable Life 16,859 5,270 PrinFlex Life 1,246,749 562,623 Survivorship Variable Universal Life 103,552 17,007 Variable Universal Life Accumulator 409,626 149,474 Variable Universal Life Accumulator II 1,144,019 209,038 Variable Universal Life Income 22,244 640 LargeCap Growth Equity Division: Benefit Variable Universal Life 64,199 37,665 Flex Variable Life 12,213 2,673 PrinFlex Life 1,487,249 1,232,608 Survivorship Variable Universal Life 6,075 2,327 Variable Universal Life Accumulator 3,209,703 385,561 Variable Universal Life Accumulator II 146,254 30,726 Variable Universal Life Income 3,315 95 LargeCap Stock Index Division: Flex Variable Life 26,373 17,081 PrinFlex Life 14,639,816 11,820,373 Survivorship Variable Universal Life 405,978 344,752 Variable Universal Life Accumulator 613,753 510,333 Variable Universal Life Accumulator II 1,052,466 179,989 Variable Universal Life Income 40,787 551
Division Purchase Sales -------------------------------------------------------------------------------------------------------- LargeCap Value Division: Benefit Variable Universal Life $ 69,611 $ 7,020 Executive Variable Universal Life 205,830 93,974 Flex Variable Life 29,775 4,156 PrinFlex Life 1,875,533 1,161,487 Survivorship Variable Universal Life 355,757 11,339 Variable Universal Life Accumulator 501,554 178,595 Variable Universal Life Accumulator II 1,102,712 204,247 Variable Universal Life Income 21,541 833 Limited Term Bond Division: Benefit Variable Universal Life 41,734 4,616 Executive Variable Universal Life 220,657 2,781 Flex Variable Life 353 11 PrinFlex Life 1,135,706 342,206 Survivorship Variable Universal Life 106,438 3,561 Variable Universal Life Accumulator 335,726 97,789 Variable Universal Life Accumulator II 249,894 15,351 MFS VIT Emerging Growth Service Class Division: Benefit Variable Universal Life 42,418 20,360 Executive Variable Universal Life 125,761 56,928 MFS VIT MidCap Growth Service Class Division: Benefit Variable Universal Life 59,030 19,104 Executive Variable Universal Life 495,628 233,950 MFS VIT New Discovery Service Class Division: Benefit Variable Universal Life 86,696 38,597 Executive Variable Universal Life 837,024 331,615 Variable Universal Life Accumulator II 202,323 16,987 Variable Universal Life Income 1,080 50 MFS VIT Value Service Class Division: Benefit Variable Universal Life 92,427 59,838 Executive Variable Universal Life 365,421 480,148
Division Purchase Sales -------------------------------------------------------------------------------------------------------- MidCap Division: Benefit Variable Universal Life $ 210,271 $ 17,828 Executive Variable Universal Life 1,667,869 925,592 Flex Variable Life 3,191,351 2,395,682 PrinFlex Life 29,714,523 21,524,406 Survivorship Variable Universal Life 539,251 148,738 Variable Universal Life Accumulator 1,715,463 709,432 Variable Universal Life Accumulator II 1,230,296 265,177 Variable Universal Life Income 19,314 485 MidCap Growth Division: Benefit Variable Universal Life 74,996 34,898 Executive Variable Universal Life 143,898 72,409 Flex Variable Life 15,355 11,060 PrinFlex Life 7,032,557 6,208,073 Survivorship Variable Universal Life 170,921 42,178 Variable Universal Life Accumulator 520,056 244,691 Variable Universal Life Accumulator II 746,629 162,432 Variable Universal Life Income 10,862 624 MidCap Value Division: Benefit Variable Universal Life 757,772 383,175 Executive Variable Universal Life 742,170 152,763 Flex Variable Life 42,960 22,118 PrinFlex Life 8,757,896 6,389,131 Survivorship Variable Universal Life 207,171 18,795 Variable Universal Life Accumulator 745,247 276,593 Variable Universal Life Accumulator II 1,185,081 197,566 Variable Universal Life Income 15,794 778
Division Purchase Sales -------------------------------------------------------------------------------------------------------- Money Market Division: Benefit Variable Universal Life $ 7,574,145 $ 5,914,099 Executive Variable Universal Life 35,347,613 28,831,424 Flex Variable Life 166,863 349,051 PrinFlex Life 33,421,824 36,330,363 Survivorship Variable Universal Life 2,323,062 2,721,264 Variable Universal Life Accumulator 1,952,452 4,007,824 Variable Universal Life Accumulator II 18,485,269 16,006,880 Variable Universal Life Income 1,819,086 505,318 Neuberger Berman AMT Guardian I Class Division: Benefit Variable Universal Life 9,811 2,958 Executive Variable Universal Life 64,204 63,534 Principal Lifetime 2020 Division: Variable Universal Life Accumulator II 3,169 78 Variable Universal Life Income 890 - Principal Lifetime 2030 Division: Variable Universal Life Accumulator II 32,834 1,351 Variable Universal Life Income 106,360 103 Principal Lifetime 2040 Division: Variable Universal Life Accumulator II 127,048 2,073 Variable Universal Life Income 1,607 - Principal Lifetime 2050 Division: Variable Universal Life Accumulator II 67,059 2,781 Variable Universal Life Income 6,840 271 Putnam VT Growth & Income Class 1B Division: Benefit Variable Universal Life 90,626 36,379 Executive Variable Universal Life 44,228 4,623 Putnam VT International Equity Class IB Division: Benefit Variable Universal Life 368,032 129,968 Executive Variable Universal Life 1,025,357 688,745
Division Purchase Sales -------------------------------------------------------------------------------------------------------- Putnam VT Voyager Class IB Division: Benefit Variable Universal Life $ 114,921 $ 68,968 Executive Variable Universal Life 318,480 254,094 Flex Variable Life 2,237 1,780 PrinFlex Life 9,203,489 9,783,387 Survivorship Variable Universal Life 356,995 694,555 Variable Universal Life Accumulator 493,621 323,373 Real Estate Securities Division: Benefit Variable Universal Life 1,065,255 268,242 Executive Variable Universal Life 3,607,992 1,444,224 Flex Variable Life 67,164 29,707 PrinFlex Life 20,222,705 16,470,055 Survivorship Variable Universal Life 1,449,697 289,569 Variable Universal Life Accumulator 1,132,769 474,221 Variable Universal Life Accumulator II 1,327,569 202,387 Variable Universal Life Income 5,110 371 SmallCap Division: Benefit Variable Universal Life 124,094 29,319 Executive Variable Universal Life 583,986 40,258 Flex Variable Life 19,397 6,047 PrinFlex Life 5,418,352 5,482,630 Survivorship Variable Universal Life 86,028 472,785 Variable Universal Life Accumulator 2,054,337 295,264 Variable Universal Life Accumulator II 372,025 43,153 Variable Universal Life Income 2,493 138 SmallCap Growth Division: Benefit Variable Universal Life 50,142 25,293 Executive Variable Universal Life 49,134 1,555 Flex Variable Life 15,100 12,823 PrinFlex Life 7,282,501 6,610,275 Survivorship Variable Universal Life 201,333 211,710 Variable Universal Life Accumulator 326,294 229,712 Variable Universal Life Accumulator II 467,676 143,222 Variable Universal Life Income 2,807 320
Division Purchase Sales -------------------------------------------------------------------------------------------------------- SmallCap Value Division: Benefit Variable Universal Life $ 758,692 $ 318,280 Executive Variable Universal Life 3,538,891 1,367,527 Flex Variable Life 36,072 15,852 PrinFlex Life 24,697,312 20,697,060 Survivorship Variable Universal Life 426,881 67,713 Variable Universal Life Accumulator 871,934 501,058 Variable Universal Life Accumulator II 1,074,639 220,985 Variable Universal Life Income 5,360 179 Vanguard VIF Balanced Division: Benefit Variable Universal Life 1,036,841 330,728 Executive Variable Universal Life 2,241,656 888,916 Vanguard VIF Equity Index Division: Benefit Variable Universal Life 964,679 249,745 Executive Variable Universal Life 4,829,668 2,216,711 Vanguard VIF Mid-Cap Index Division: Benefit Variable Universal Life 512,737 125,888 Executive Variable Universal Life 1,499,726 510,146 Wells Fargo VT Asset Allocation Division: Benefit Variable Universal Life 8,214 5,268 Executive Variable Universal Life 14,188 15,268 PrinFlex Life 281,427 98,724 Survivorship Variable Universal Life 9,316 1,688 Variable Universal Life Accumulator 48,831 36,510 Variable Universal Life Accumulator II 91,402 13,499 Variable Universal Life Income 330 18
Division Purchase Sales -------------------------------------------------------------------------------------------------------- Wells Fargo VT Equity Income Division: Executive Variable Universal Life $ 20,518 $ 1,813 PrinFlex Life 36,397 18,658 Survivorship Variable Universal Life 7,623 1,638 Variable Universal Life Accumulator 11,010 25,421 Variable Universal Life Accumulator II 29,068 3,888 Variable Universal Life Income 1,493 68 Wells Fargo VT Large Company Growth Division: Benefit Variable Universal Life 6,222 1,838 Executive Variable Universal Life 234,505 93,436 PrinFlex Life 46,823 17,838 Survivorship Variable Universal Life 9,519 170 Variable Universal Life Accumulator 9,957 4,377 Variable Universal Life Accumulator II 48,685 26,369 Variable Universal Life Income 346 129
5. Changes in Units Outstanding Transactions in units were as follows for each of the periods ended December 31:
2004 2003 -------------------------------------------------------------- Division Purchased Redeemed Purchased Redeemed -------------------------------------------------------------------------------------------------------- AIM V.I. Aggressive Growth Series I Division: Benefit Variable Universal Life 19,740 7,471 12,984 4,225 Executive Variable Universal Life 21,405 8,531 15,626 6,687 AIM V.I. Core Equity Series I Division: Flex Variable Life 68 1,338 1,368 166 PrinFlex Life 191,778 198,675 234,113 206,297 Survivorship Variable Universal Life 2,066 690 1,684 663 Variable Universal Life Accumulator 18,163 11,943 29,690 11,826 AIM V.I. Core Equity Series II Division: Variable Universal Life Accumulator II 6,073 1,703 3,573 371 Variable Universal Life Income 33 1 - - AIM V.I. Core Stock Series I Division: Executive Variable Universal Life 7,274 1,876 - - AIM V.I. Dynamics Series I Division: Benefit Variable Universal Life 4,828 5,219 2,432 103 Executive Variable Universal Life 4,225 532 2,734 359 Flex Variable Life 21 7 53 26 PrinFlex Life 90,983 103,946 107,747 72,803 Survivorship Variable Universal Life - 39 - 37 Variable Universal Life Accumulator 3,696 1,848 5,232 3,266 AIM V.I. Growth Series I Division: Flex Variable Life 38 21 205 526 PrinFlex Life 153,146 142,677 147,695 85,569 Survivorship Variable Universal Life 6,400 294 3,568 215 Variable Universal Life Accumulator 12,027 8,550 23,114 9,018 AIM V.I. Growth Series II Division: Variable Universal Life Accumulator II 7,735 1,549 1,913 266 Variable Universal Life Income 46 5 - -
2004 2003 -------------------------------------------------------------- Division Purchased Redeemed Purchased Redeemed -------------------------------------------------------------------------------------------------------- AIM V.I. Health Sciences Series I Division: Benefit Variable Universal Life 19,013 12,338 7,599 765 Executive Variable Universal Life 15,597 11,108 19,281 8,164 Flex Variable Life 943 883 375 133 PrinFlex Life 359,701 322,706 278,910 187,333 Survivorship Variable Universal Life 5,081 1,460 14,962 6,846 Variable Universal Life Accumulator 30,343 14,581 40,559 13,028 Variable Universal Life Accumulator II 25,229 6,409 11,287 995 Variable Universal Life Income 144 16 - - AIM V.I. International Growth Series I Division: Benefit Variable Universal Life 2,540 56 2,633 1,115 Executive Variable Universal Life 47,184 1,788 - - AIM V.I. Premier Equity Series I Division: Flex Variable Life 2,213 647 730 544 PrinFlex Life 458,113 463,999 766,544 646,897 Survivorship Variable Universal Life 13,794 7,187 4,358 916 Variable Universal Life Accumulator 35,271 15,070 52,533 21,876 AIM V.I. Premier Equity Series II Division: Variable Universal Life Accumulator II 46,699 9,404 13,266 1,397 Variable Universal Life Income 1,014 52 - - AIM V.I. Small Company Growth Series I Division: Benefit Variable Universal Life 20,027 3,861 10,281 3,489 Executive Variable Universal Life 39,961 32,082 97,070 62,540 Flex Variable Life 323 119 204 130 PrinFlex Life 218,889 173,318 152,032 122,866 Survivorship Variable Universal Life 1,973 435 1,595 267 Variable Universal Life Accumulator 8,034 6,442 14,150 9,273
2004 2003 -------------------------------------------------------------- Division Purchased Redeemed Purchased Redeemed -------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------- AIM V.I. Technology Series I Division: Benefit Variable Universal Life 11,459 8,292 3,060 242 Executive Variable Universal Life 28,044 19,883 36,541 18,807 Flex Variable Life 4,995 2,845 1,638 789 PrinFlex Life 429,221 364,919 370,159 232,735 Survivorship Variable Universal Life 2,072 587 958 411 Variable Universal Life Accumulator 23,243 14,494 33,311 6,994 American Century VP Income & Growth Division: Flex Variable Life 157 140 307 112 PrinFlex Life 231,224 209,987 216,714 159,892 Survivorship Variable Universal Life 6,876 203 646 1,006 Variable Universal Life Accumulator 27,910 19,335 44,100 12,762 American Century VP Ultra Division: Flex Variable Life 77 151 151 73 PrinFlex Life 206,446 164,963 134,045 91,927 Survivorship Variable Universal Life 35,181 632 1,207 550 Variable Universal Life Accumulator 29,186 15,695 31,976 9,713 American Century VP II Income & Growth Division: Benefit Variable Universal Life 4,381 1,538 637 15 Executive Variable Universal Life 22,009 964 2,951 1,592 Variable Universal Life Accumulator II 16,094 3,030 5,451 480 Variable Universal Life Income 64 1 - - American Century VP II International Division: Benefit Variable Universal Life 2,376 70 360 - Executive Variable Universal Life 50,126 28,081 11,498 535 American Century VP II Ultra Division: Benefit Variable Universal Life 4,350 1,192 3,682 266 Executive Variable Universal Life 38,106 23,161 15,689 4,168 Variable Universal Life Accumulator II 25,190 4,954 7,004 903 Variable Universal Life Income 204 8 - -
2004 2003 -------------------------------------------------------------- Division Purchased Redeemed Purchased Redeemed -------------------------------------------------------------------------------------------------------- American Century VP II Value Division: Benefit Variable Universal Life 28,547 8,456 5,348 938 Executive Variable Universal Life 29,104 13,336 6,342 430 Flex Variable Life 197 35 565 13 PrinFlex Life 166,386 118,246 134,410 85,048 Survivorship Variable Universal Life 8,884 941 6,812 363 Variable Universal Life Accumulator 19,663 6,995 20,880 4,182 Variable Universal Life Accumulator II 30,952 5,370 5,715 613 Variable Universal Life Income 377 8 - - Asset Allocation Division: Flex Variable Life 4,507 1,834 4,668 167 PrinFlex Life 523,568 504,850 600,310 386,691 Survivorship Variable Universal Life 24,541 20,854 31,537 33,417 Variable Universal Life Accumulator 34,055 26,093 54,270 14,514 Variable Universal Life Accumulator II 16,358 4,126 4,314 1,376 Variable Universal Life Income 103 8 - - Balanced Division: Flex Variable Life 13,606 21,472 17,146 25,398 PrinFlex Life 444,638 404,785 428,877 368,450 Survivorship Variable Universal Life 12,807 15,518 9,274 8,657 Variable Universal Life Accumulator 19,073 11,343 29,197 8,796 Variable Universal Life Accumulator II 20,460 10,129 4,479 767 Variable Universal Life Income 348 10 - - Bond Division: Benefit Variable Universal Life 40,287 11,073 18,811 5,229 Executive Variable Universal Life 118,047 60,342 100,324 43,000 Flex Variable Life 9,377 13,415 48,925 29,251 PrinFlex Life 1,146,054 1,135,714 1,868,260 1,661,716 Survivorship Variable Universal Life 38,079 10,322 26,821 24,115 Variable Universal Life Accumulator 72,269 38,455 121,649 68,736 Variable Universal Life Accumulator II 122,670 64,015 47,814 5,423 Variable Universal Life Income 1,292 63 - -
2004 2003 -------------------------------------------------------------- -------------------------------------------------------------- Division Purchased Redeemed Purchased Redeemed -------------------------------------------------------------------------------------------------------- Capital Value Division: Benefit Variable Universal Life 223 - 1,356 1,356 Executive Variable Universal Life 2,564 3,675 14,265 12,583 Flex Variable Life 18,195 31,904 23,927 32,589 PrinFlex Life 496,395 516,012 627,258 590,581 Survivorship Variable Universal Life 21,388 7,548 27,897 12,935 Variable Universal Life Accumulator 262,496 45,238 323,238 41,241 Variable Universal Life Accumulator II 36,295 8,607 11,985 1,533 Variable Universal Life Income 7,070 6,793 - - Dreyfus IP Core Value Service Shares Division: Benefit Variable Universal Life 1,937 48 430 3 Executive Variable Universal Life 71,433 28,509 58,543 16,390 Dreyfus IP Founders Discovery Initial Shares Division: Benefit Variable Universal Life 178 7 - - Executive Variable Universal Life 23,609 3,448 10 203 Flex Variable Life 754 132 536 28 PrinFlex Life 62,709 49,361 59,833 34,467 Survivorship Variable Universal Life 1,381 30 491 - Variable Universal Life Accumulator 12,946 3,784 15,047 3,484 Dreyfus IP Founders Growth Initial Shares Division: Executive Variable Universal Life 3,491 126 - - Dreyfus Socially Responsible Growth Service Shares Division: Benefit Variable Universal Life 988 73 1,745 38 Executive Variable Universal Life 646 4 4 - - Dreyfus VIF Appreciation Service Shares Division: Benefit Variable Universal Life 12,578 4,484 3,966 546 Executive Variable Universal Life 25,970 3,140 1,333 127 Dreyfus VIF Developing Leaders Service Shares Division: Benefit Variable Universal Life 16,830 5,465 4,734 870 Executive Variable Universal Life 137,051 102,803 246,068 164,411 Variable Universal Life Accumulator II 44,905 7,729 12,737 1,064 Variable Universal Life Income 706 23 - - Dreyfus VIF Quality Bond Service Shares Division: Benefit Variable Universal Life 19,398 3,350 7,632 470 Executive Variable Universal Life 89,020 62,020 10,261 9,083 Equity Growth Division: Benefit Variable Universal Life 6,758 1,145 2,075 231 Executive Variable Universal Life 17,321 7,853 8,061 2,520 Flex Variable Life 2,656 2,446 3,412 435 PrinFlex Life 1,401,006 1,290,465 2,125,875 1,316,002 Survivorship Variable Universal Life 81,940 72,289 162,771 68,164 Variable Universal Life Accumulator 53,125 29,424 60,676 22,348 Variable Universal Life Accumulator II 60,266 12,623 21,062 1,862 Variable Universal Life Income 1,425 39 - - Equity Income Division: Flex Variable Life 338 107 203 94 PrinFlex Life 141,286 119,349 149,552 105,196 Survivorship Variable Universal Life 7,732 2,986 12,076 5,227 Variable Universal Life Accumulator 13,783 4,215 11,405 3,325 Variable Universal Life Accumulator II 13,619 2,293 3,645 693 Variable Universal Life Income 425 8 - - Fidelity VIP Equity-Income Initial Class Division: Flex Variable Life 2,017 602 1,537 679 PrinFlex Life 1,316,714 1,156,306 1,304,723 1,104,113 Survivorship Variable Universal Life 48,177 13,669 53,899 27,187 Variable Universal Life Accumulator 49,002 29,927 64,410 16,616 Fidelity VIP Equity-Income Service Class 2 Division: Benefit Variable Universal Life 74,116 19,363 30,681 8,345 Executive Variable Universal Life 214,871 82,303 314,082 220,792 Variable Universal Life Accumulator II 104,756 18,369 29,245 3,781 Variable Universal Life Income 1,147 47 - - Fidelity VIP Growth Service Class 2 Division: Benefit Variable Universal Life 48,115 11,073 7,870 1,473 Executive Variable Universal Life 248,693 150,973 75,633 23,095 Flex Variable Life 119 321 791 34 PrinFlex Life 153,207 94,185 113,891 48,017 Survivorship Variable Universal Life 8,802 1,627 21,068 542 Variable Universal Life Accumulator 32,674 8,434 43,596 24,906 Variable Universal Life Accumulator II 46,164 9,007 10,339 1,623 Variable Universal Life Income 628 20 - - Fidelity VIP High Income Initial Class Division: Flex Variable Life 239 55 399 271 PrinFlex Life 378,978 371,215 443,664 326,895 Survivorship Variable Universal Life 12,177 4,441 4,193 8,413 Variable Universal Life Accumulator 6,365 2,853 13,575 4,033 Fidelity VIP High Income Service Class 2 Division: Benefit Variable Universal Life 21,531 5,400 10,076 2,700 Executive Variable Universal Life 54,280 22,624 41,690 23,663 Variable Universal Life Accumulator II 17,471 1,413 1,502 425 Variable Universal Life Income 2 1 - - Fidelity VIP II Asset Manager Service Class 2 Division: Benefit Variable Universal Life 14,694 4,645 3,909 879 Executive Variable Universal Life 58,121 44,094 74,784 28,651 Fidelity VIP II Contrafund Initial Class Division: Flex Variable Life 1,532 688 1,700 388 PrinFlex Life 1,330,347 1,204,753 1,369,783 1,172,400 Survivorship Variable Universal Life 73,057 45,182 72,245 50,782 Variable Universal Life Accumulator 52,174 32,336 76,477 24,431 Fidelity VIP II Contrafund Service Class 2 Division: Benefit Variable Universal Life 46,675 13,193 3,669 1,662 Executive Variable Universal Life 207,066 41,889 65,936 19,732 Variable Universal Life Accumulator II 98,788 16,105 21,507 2,485 Variable Universal Life Income 554 28 - - Fidelity VIP III MidCap Service Class 2 Division: Benefit Variable Universal Life 57,946 14,681 20,926 7,816 Executive Variable Universal Life 245,171 90,312 214,060 145,790 Variable Universal Life Accumulator II 31,199 3,593 4,195 367 Variable Universal Life Income 404 16 - - Franklin Income Securities Class 2 Division: Benefit Variable Universal Life 12,304 1,351 1,063 18 Executive Variable Universal Life 156,245 99,050 27,724 11,059 Franklin Mutual Discovery Securities Class 2 Division: Benefit Variable Universal Life 11,782 535 4,108 2,101 Executive Variable Universal Life 77,914 38,243 32,866 18,624 Franklin Mutual Shares Securities Class 2 Division: Benefit Variable Universal Life 34,668 4,017 20,367 7,865 Executive Variable Universal Life 74,248 43,792 53,246 15,455 Franklin Rising Dividends Securities Class 2 Division: Benefit Variable Universal Life 42,274 9,861 23,766 6,322 Executive Variable Universal Life 194,409 119,029 47,483 8,446 Franklin Small Cap Value Securities Class 2 Division: Benefit Variable Universal Life 22,596 7,270 10,276 1,747 Executive Variable Universal Life 112,563 60,266 77,201 42,933 Government Securities Division: Benefit Variable Universal Life 29,748 9,465 34,092 18,648 Executive Variable Universal Life 83,591 92,600 125,058 65,821 Flex Variable Life 4,379 4,722 7,778 9,263 PrinFlex Life 1,060,240 1,105,168 1,614,018 1,674,181 Survivorship Variable Universal Life 237,180 253,588 58,803 30,297 Variable Universal Life Accumulator 104,374 95,326 210,818 101,910 Variable Universal Life Accumulator II 52,979 15,794 26,421 5,264 Variable Universal Life Income 433 31 - - Growth Division: Executive Variable Universal Life 3,512 1 23,749 23,749 Flex Variable Life 848 30 27 15 PrinFlex Life 482,394 457,181 638,203 482,511 Survivorship Variable Universal Life 40,482 23,659 53,791 32,106 Variable Universal Life Accumulator 12,035 7,109 18,125 4,447 Variable Universal Life Accumulator II 8,541 2,653 3,886 726 Variable Universal Life Income 71 5 - - International Division: Benefit Variable Universal Life 4,770 988 766 3 Executive Variable Universal Life 77,733 27,995 11,081 15,330 Flex Variable Life 4,062 800 1,519 82 PrinFlex Life 833,260 774,880 1,364,596 1,191,426 Survivorship Variable Universal Life 42,962 13,330 40,798 24,496 Variable Universal Life Accumulator 213,449 49,958 272,170 36,406 Variable Universal Life Accumulator II 114,086 22,529 33,734 3,283 Variable Universal Life Income 2,620 96 - - International Emerging Markets Division: Flex Variable Life 6,363 5,413 2,459 39 PrinFlex Life 197,386 135,034 90,519 52,879 Survivorship Variable Universal Life 4,484 845 1,342 62 Variable Universal Life Accumulator 23,568 11,445 20,996 5,893 Variable Universal Life Accumulator II 43,829 8,726 7,613 710 Variable Universal Life Income 855 31 - - International SmallCap Division: Benefit Variable Universal Life 28,667 5,949 1,652 128 Executive Variable Universal Life 61,922 11,508 11,995 10,205 Flex Variable Life 2,591 306 1,713 171 PrinFlex Life 552,576 420,913 711,953 611,514 Survivorship Variable Universal Life 83,893 29,766 18,834 12,859 Variable Universal Life Accumulator 36,053 19,514 49,381 19,138 Variable Universal Life Accumulator II 43,999 9,249 10,167 1,122 Variable Universal Life Income 839 26 - - Janus Aspen Balanced Service Shares Division: Benefit Variable Universal Life 1,100 829 - - Executive Variable Universal Life 39,505 54,457 48,894 30,063 Janus Aspen Core Equity Service Shares Division: Benefit Variable Universal Life 6,736 6,008 8,191 1,851 Executive Variable Universal Life 49,915 46,021 25,807 4,403 Janus Aspen Flexible Income Service Shares Division: Benefit Variable Universal Life 24,272 11,076 19,249 4,244 Executive Variable Universal Life 98,322 86,559 491,530 331,645 Janus Aspen Mid Cap Growth Service Shares Division: Benefit Variable Universal Life - - 2,922 2,922 Executive Variable Universal Life 5,325 29,329 15,751 4,415 Flex Variable Life 419 2,716 1,927 524 PrinFlex Life 340,644 291,336 227,867 150,803 Survivorship Variable Universal Life 4,838 443 3,004 927 Variable Universal Life Accumulator 26,062 13,491 37,577 15,938 Janus Aspen Worldwide Growth Service Shares Division: Benefit Variable Universal Life 11,116 4,751 4,766 515 Executive Variable Universal Life 29,213 4,322 7,509 3,292 JP Morgan Bond Series Trust II Division: Benefit Variable Universal Life 5,458 650 1,599 15 Executive Variable Universal Life 26,539 9,977 6,133 2,671 JP Morgan Small Company Series Trust II Division: Benefit Variable Universal Life 16,607 6,739 3,252 250 Executive Variable Universal Life 61,795 31,167 22,288 4,888 LargeCap Blend Division: Benefit Variable Universal Life 1,251 580 - - Executive Variable Universal Life 7,543 16,792 21,595 13,755 Flex Variable Life 1,525 504 556 55 PrinFlex Life 107,369 53,680 159,688 81,432 Survivorship Variable Universal Life 9,005 1,618 6,811 522 Variable Universal Life Accumulator 34,804 14,253 48,684 10,052 Variable Universal Life Accumulator II 103,159 19,946 30,015 3,337 Variable Universal Life Income 1,962 58 - - LargeCap Growth Equity Division: Benefit Variable Universal Life 5,162 3,070 4,346 17 Flex Variable Life 1,000 202 1,322 24 PrinFlex Life 116,789 97,076 54,506 2,944 Survivorship Variable Universal Life 486 192 1,032 4 Variable Universal Life Accumulator 253,657 30,769 491,420 1,681 Variable Universal Life Accumulator II 11,575 2,454 3,760 420 Variable Universal Life Income 258 7 - - LargeCap Stock Index Division: Flex Variable Life 2,731 1,798 6,220 1,475 PrinFlex Life 1,601,274 1,327,893 3,020,116 2,960,912 Survivorship Variable Universal Life 41,166 38,397 90,416 55,413 Variable Universal Life Accumulator 66,340 57,537 112,560 31,328 Variable Universal Life Accumulator II 115,373 20,097 24,957 2,943 Variable Universal Life Income 4,240 58 - - LargeCap Value Division: Benefit Variable Universal Life 5,996 627 - - Executive Variable Universal Life 17,738 7,935 11,822 8,377 Flex Variable Life 2,564 348 3,445 281 PrinFlex Life 161,557 104,201 225,215 91,456 Survivorship Variable Universal Life 29,625 1,006 3,887 183 Variable Universal Life Accumulator 42,917 16,101 50,942 10,453 Variable Universal Life Accumulator II 96,140 18,383 27,758 2,755 Variable Universal Life Income 1,793 70 - - Limited Term Bond Division: Benefit Variable Universal Life 4,108 456 - - Executive Variable Universal Life 21,778 273 - - Flex Variable Life 35 1 - - PrinFlex Life 111,962 33,980 6,825 561 Survivorship Variable Universal Life 10,549 354 1,181 40 Variable Universal Life Accumulator 33,119 9,733 1,941 168 Variable Universal Life Accumulator II 24,706 1,518 1,659 141 MFS VIT Emerging Growth Service Class Division: Benefit Variable Universal Life 4,292 2,049 2,074 245 Executive Variable Universal Life 12,339 5,330 2,447 1,542 MFS VIT MidCap Growth Service Class Division: Benefit Variable Universal Life 5,678 1,891 3,383 234 Executive Variable Universal Life 47,307 22,820 13,939 7,273 MFS VIT New Discovery Service Class Division: Benefit Variable Universal Life 8,852 3,935 3,431 698 Executive Variable Universal Life 81,250 32,096 2,259 314 Variable Universal Life Accumulator II 20,768 1,705 3,062 333 Variable Universal Life Income 106 5 - - MFS VIT Value Service Class Division: Benefit Variable Universal Life 8,474 5,612 7,890 3,013 Executive Variable Universal Life 33,518 45,294 52,464 18,208 MidCap Division: Benefit Variable Universal Life 9,568 882 2,830 135 Executive Variable Universal Life 78,500 46,226 40,943 24,425 Flex Variable Life 25,560 36,481 35,568 48,890 PrinFlex Life 1,253,288 1,090,752 1,168,018 978,531 Survivorship Variable Universal Life 23,514 9,523 45,811 25,772 Variable Universal Life Accumulator 70,208 35,777 94,516 25,805 Variable Universal Life Accumulator II 55,930 13,260 21,765 3,350 Variable Universal Life Income 863 22 - - MidCap Growth Division: Benefit Variable Universal Life 7,486 3,476 5,765 29 Executive Variable Universal Life 13,899 6,809 8,875 131 Flex Variable Life 1,696 1,216 1,944 41 PrinFlex Life 690,859 609,026 583,589 378,585 Survivorship Variable Universal Life 16,569 4,191 25,753 2,989 Variable Universal Life Accumulator 51,031 23,941 111,837 61,974 Variable Universal Life Accumulator II 73,009 16,013 15,835 1,716 Variable Universal Life Income 1,005 58 - - MidCap Value Division: Benefit Variable Universal Life 53,234 28,192 23,784 5,129 Executive Variable Universal Life 52,538 11,065 85,648 82,066 Flex Variable Life 2,701 1,825 967 171 PrinFlex Life 628,958 504,952 558,392 415,419 Survivorship Variable Universal Life 12,124 1,474 14,798 1,815 Variable Universal Life Accumulator 46,434 22,068 63,586 17,674 Variable Universal Life Accumulator II 83,885 15,569 20,869 1,984 Variable Universal Life Income 1,068 55 - - Money Market Division: Benefit Variable Universal Life 578,475 453,222 424,590 290,328 Executive Variable Universal Life 2,702,633 2,207,661 1,969,395 2,165,956 Flex Variable Life 8,786 18,585 16,017 19,021 PrinFlex Life 2,543,438 2,785,114 4,584,706 4,607,741 Survivorship Variable Universal Life 198,682 235,696 158,710 120,123 Variable Universal Life Accumulator 147,806 307,402 768,567 817,201 Variable Universal Life Accumulator II 1,414,740 1,226,669 507,826 402,472 Variable Universal Life Income 138,693 38,551 - - Neuberger Berman AMT Guardian I Class Division: Benefit Variable Universal Life 957 294 - - Executive Variable Universal Life 6,214 6,214 - - Principal LifeTime 2020 Division: Variable Universal Life Accumulator II 302 7 - - Variable Universal Life Income 81 - - - Principal LifeTime 2030 Division: Variable Universal Life Accumulator II 3,203 128 - - Variable Universal Life Income 9,627 9 - - Principal LifeTime 2040 Division: Variable Universal Life Accumulator II 12,189 192 - - Variable Universal Life Income 146 - - - Principal LifeTime 2050 Division: Variable Universal Life Accumulator II 6,568 264 - - Variable Universal Life Income 623 25 - - Putnam VT Growth & Income Class 1B Division: Benefit Variable Universal Life 8,595 3,463 11,075 9,184 Executive Variable Universal Life 4,102 429 89,953 88,066 Putnam VT International Equity Class 1B Division: Benefit Variable Universal Life 34,123 12,293 33,821 10,102 Executive Variable Universal Life 96,925 64,476 258,650 213,149 Putnam VT Voyager Class 1B Division: Benefit Variable Universal Life 11,228 6,876 12,554 6,618 Executive Variable Universal Life 30,990 24,780 418,592 373,354 Flex Variable Life 285 203 345 213 PrinFlex Life 898,752 958,669 1,385,013 1,179,008 Survivorship Variable Universal Life 41,858 80,855 52,118 72,464 Variable Universal Life Accumulator 48,394 31,608 71,413 32,786 Real Estate Securities Division: Benefit Variable Universal Life 45,462 13,624 20,088 8,179 Executive Variable Universal Life 155,681 67,861 57,007 12,371 Flex Variable Life 3,253 1,631 2,726 1,647 PrinFlex Life 892,318 808,256 968,575 752,211 Survivorship Variable Universal Life 49,262 12,882 28,660 11,863 Variable Universal Life Accumulator 42,662 23,157 59,885 18,183 Variable Universal Life Accumulator II 55,607 9,606 14,021 1,453 Variable Universal Life Income 196 15 - - SmallCap Division: Benefit Variable Universal Life 11,508 2,690 1,800 42 Executive Variable Universal Life 54,153 3,685 11,526 3,503 Flex Variable Life 1,998 566 4,345 199 PrinFlex Life 502,402 508,034 706,697 387,260 Survivorship Variable Universal Life 7,953 42,314 51,533 7,554 Variable Universal Life Accumulator 192,322 28,751 255,942 25,333 Variable Universal Life Accumulator II 35,829 3,973 5,019 541 Variable Universal Life Income 210 12 - - SmallCap Growth Division: Benefit Variable Universal Life 5,428 2,815 3,942 2,570 Executive Variable Universal Life 5,423 159 51,527 50,183 Flex Variable Life 2,513 2,383 525 214 PrinFlex Life 795,984 725,024 831,978 563,817 Survivorship Variable Universal Life 27,205 28,508 27,027 28,748 Variable Universal Life Accumulator 35,182 24,821 58,775 18,914 Variable Universal Life Accumulator II 50,564 15,630 15,144 1,396 Variable Universal Life Income 286 32 - - SmallCap Value Division: Benefit Variable Universal Life 35,156 15,905 22,042 7,105 Executive Variable Universal Life 161,808 65,138 66,021 25,971 Flex Variable Life 1,580 1,106 990 553 PrinFlex Life 1,156,139 1,043,629 1,133,822 936,239 Survivorship Variable Universal Life 15,051 3,191 14,448 12,175 Variable Universal Life Accumulator 35,555 25,385 55,057 17,066 Variable Universal Life Accumulator II 49,955 11,056 9,590 1,108 Variable Universal Life Income 232 8 - - Vanguard VIF Balanced Division: Benefit Variable Universal Life 90,069 28,879 28,442 7,339 Executive Variable Universal Life 192,781 76,574 82,580 39,673 Vanguard VIF Equity Index Division: Benefit Variable Universal Life 88,985 23,383 36,717 4,704 Executive Variable Universal Life 444,682 205,726 583,470 385,498 Vanguard VIF Mid-Cap Index Division: Benefit Variable Universal Life 45,264 11,189 12,757 1,237 Executive Variable Universal Life 132,259 43,875 21,523 9,400 Wells Fargo VT Asset Allocation Division: Benefit Variable Universal Life 742 485 - - Executive Variable Universal Life 1,157 1,285 1,330 168 PrinFlex Life 23,491 8,877 11,831 2,944 Survivorship Variable Universal Life 638 151 3,732 26 Variable Universal Life Accumulator 3,973 3,304 7,942 2,118 Variable Universal Life Accumulator II 7,851 1,201 1,591 185 Variable Universal Life Income 30 2 - - Wells Fargo VT Equity Income Division: Executive Variable Universal Life 1,985 168 - - PrinFlex Life 3,461 1,808 3,152 818 Survivorship Variable Universal Life 666 158 4,021 27 Variable Universal Life Accumulator 1,039 2,496 3,893 1,319 Variable Universal Life Accumulator II 2,742 375 169 39 Variable Universal Life Income 139 6 - - Wells Fargo VT Large Company Growth Division: Benefit Variable Universal Life 637 189 - - Executive Variable Universal Life 24,419 9,475 - - Flex Variable Life - - - 257 PrinFlex Life 4,889 1,853 3,375 242 Survivorship Variable Universal Life 978 18 - - Variable Universal Life Accumulator 1,048 454 1,396 316 Variable Universal Life Accumulator II 5,014 2,665 804 91 Variable Universal Life Income 35 13 - -
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 the 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 issued 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 For the Year Ended December 31, Except as Noted ---------------------------------------------------------------------------------------------- Units Unit Fair Value Net Investment Expense Total Corresponding to Ratio (2) Return (3) Lowest to Highest Assets Income Lowest to Highest Lowest to Division (000's) Expense Ratio (000's) Ratio (1) Highest ------------------------------------------------------------------------------------------------------------------ AIM V.I. Aggressive Growth Series I Division: 2004 43 $10.92 $ 473 -% 0.00% 11.77% 2003 18 9.77 178 - 0.00 26.72 2002 (5) 1 7.71 4 - 0.00 (21.88) AIM V.I. Core Equity Series I Division: 2004 138 9.60 to 9.34 1,322 0.95 0.00 to 0.75 8.97 to 8.10 2003 138 8.81 to 8.64 1,218 1.20 0.00 to 0.75 24.44 to 23.61 2002 90 7.08 to 6.99 641 0.52 0.00 to 0.75 (15.61) to (16.29) 2001 (4) 13 8.39 to 8.35 107 0.17 0.00 to 0.75 (18.39) to (18.77) AIM V.I. Core Equity Series II Division: 2004 8 14.08 to 14.31 107 1.24 0.00 8.64 to 10.84 2003 (6) 3 12.96 41 1.92 0.00 31.84 AIM V. I. Core Stock Series I Division: 2004 (8) 5 10.40 56 1.28 0.00 4.24 AIM V.I. Dynamics Series I Division: 2004 66 $8.54 to $8.39 $ 561 -% 0.00% to 0.75% 13.38% to 11.57% 2003 73 7.55 to 7.52 555 - 0.00 to 0.75 37.77 to 39.00 2002 32 5.48 174 - 0.00 (31.93) to (24.73) 2001 (4) 7 8.05 53 - 0.00 (22.97) AIM V.I. Growth Series I Division: 2004 211 8.39 to 8.16 1,771 - 0.00 to 0.75 8.26 to 7.51 2003 191 7.75 to 7.59 1,481 - 0.00 to 0.75 30.91 to 29.97 2002 112 5.92 to 5.84 660 - 0.00 to 0.75 (30.84) to (31.46) 2001 (4) 20 8.56 175 0.80 0.00 (15.67) to 1.18 AIM V.I. Growth Series II Division: 2004 8 14.31 to 14.41 113 - 0.00 7.92 to 14.00 2003(6) 2 13.26 22 - 0.00 35.44 AIM V.I. Health Sciences Series I Division: 2004 389 10.30 to 10.07 4,028 - 0.00 to 0.75 10.04 to 6.79 2003 303 9.62 to 9.43 2,913 - 0.00 to 0.75 33.43 to 26.75 2002 147 7.53 to 7.44 1,108 0.15 0.00 to 0.75 (15.49) to (24.70) 2001 (4) 37 9.93 369 - 0.00 (2.74) to (1.97) AIM V.I. International Growth Series I Division: 2004 49 13.00 642 1.31 0.00 24.05 2003 (6) 2 10.48 16 0.69 0.00 29.06 AIM V.I. Premier Equity Series I Division: 2004 440 8.17 to 7.95 3,593 0.50 0.00 to 0.75 5.69 to 4.88 2003 417 7.73 to 7.58 3,224 0.37 0.00 to 0.75 25.08 to 24.26 2002 263 6.19 to 6.10 1,627 0.52 0.00 to 0.75 (30.14) to (30.84) 2001 (4) 48 8.86 to 8.82 426 0.37 0.00 to 0.75 0.11 to (13.27) AIM V.I. Premier Equity Series II Division: 2004 50 $13.55 $ 679 0.51% 0.00% 5.45% to 10.70% 2003 (6) 12 12.85 152 0.59 0.00 30.72 AIM V.I. Small Company Growth Series I Division: 2004 223 8.90 to 8.66 1,982 - 0.00 to 0.75 13.94 to 13.05 2003 150 7.82 to 7.66 1,170 - 0.00 to 0.75 33.45 to 32.07 2002 73 5.86 to 5.80 427 - 0.00 to 0.75 (23.30) to (31.52) 2001 (4) 7 8.51 to 8.47 63 - 0.00 to 0.75 (17.46) to (17.85) AIM V.I. Technology Series I Division: 2004 388 5.75 to 5.60 2,233 - 0.00 to 0.75 4.73 to 3.70 2003 300 5.50 to 5.40 1,651 - 0.00 to 0.75 45.12 to 44.39 2002 114 3.79 to 3.74 433 - 0.00 to 0.75 (35.98) to (47.25) 2001 (4) 19 7.13 to 7.09 138 - 0.00 to 0.75 (1.52) to (33.68) American Century VP Income & Growth Division: 2004 286 10.65 to 10.36 3,042 1.34 0.00 to 0.75 13.06 to 12.12 2003 249 9.42 to 9.24 2,348 1.14 0.00 to 0.75 29.40 to 28.51 2002 161 7.28 to 7.19 1,174 0.66 0.00 to 0.75 (19.38) to (20.02) 2001 (4) 36 9.03 to 8.99 323 - 0.00 to 0.75 1.01 to (11.34) American Century VP Ultra Division: 2004 229 9.82 to 9.56 2,246 - 0.00 to 0.75 10.71 to 9.89 2003 139 8.87 to 8.70 1,235 - 0.00 to 0.75 24.75 to 23.76 2002 74 7.11 to 7.03 528 0.27 0.00 to 0.75 (22.63) to (23.17) 2001 (4) 21 9.19 to 9.15 193 - 0.00 to 0.75 1.55 to (9.94) American Century VP II Income and Growth Division: 2004 44 11.83 to 11.85 521 0.48 0.00 11.00 to 12.54 2003 (6) 7 10.53 73 0.32 0.00 29.20 to 36.58 American Century VP II International Division: 2004 36 $11.35 $ 405 0.19% 0.00% 14.76% 2003 (6) 11 9.89 112 - 0.00 24.40 American Century VP II Ultra Division: 2004 69 10.94 to 10.96 756 - 0.00 10.62 to 13.22 2003 31 9.89 302 - 0.00 24.87 to 31.69 2002 (5) 10 7.92 76 0.14 0.00 (19.92) American Century VP II Value Division: 2004 260 12.45 to 12.22 3,240 0.64 0.00 to 0.75 10.77 to 13.36 2003 129 10.91 to 10.78 1,410 0.65 0.00 to 0.75 38.28 to 27.88 2002 (5) 41 8.47 345 - 0.00 (14.36) Asset Allocation Division: 2004 952 16.80 to $10.77 15,589 3.16 0.00 to 0.75 9.02 to 7.70 2003 906 15.52 to 10.00 13,695 1.67 0.00 to 0.75 25.77 to 20.63 2002 647 9.44 to 8.29 7,972 - 0.00 to 0.75 (12.92) to (13.56) 2001 675 14.66 to 9.59 9,650 2.57 0.00 to 0.75 (0.34) to (4.86) Balanced Division: 2004 1,122 10.52 to 30.70 17,088 2.02 0.00 to 0.75 10.04 to 9.21 2003 1,074 12.73 to 28.11 15,053 2.71 0.00 to 0.75 22.05 to 17.96 2002 997 8.04 to 23.83 11,973 3.09 0.00 to 0.75 (13.17) to (13.85) 2001 927 12.34 to 27.66 13,101 3.00 0.00 to 0.75 (0.64) to (7.65) Bond Division: 2004 2,048 16.15 to 31.24 34,208 4.43 0.00 to 0.75 2.34 to 4.20 2003 1,833 13.40 to 29.98 29,416 3.72 0.00 to 0.75 4.61 to 3.81 2002 1,438 12.81 to 28.88 22,060 3.99 0.00 to 0.75 9.30 to 8.45 2001 1,036 11.72 to 26.63 14,909 5.74 0.00 to 0.75 8.12 to 7.29 Capital Value Division: 2004 3,009 $15.54 to $39.68 $50,378 1.51% 0.00% to 0.75% 13.18% to 11.52% 2003 2,785 13.85 to 35.58 42,124 1.53 0.00 to 0.75 31.65 to 24.58 2002 2,447 11.04 to 28.56 30,091 1.60 0.00 (13.62) to (14.31) 2001 2,002 12.78 to 33.33 29,595 1.25 0.00 2.16 to (8.76) Dreyfus IP Core Value Service Shares Division: 2004 90 11.23 1,012 1.06 0.00 11.52 2003 45 10.07 457 0.65 0.00 28.12 2002 (5) 3 7.86 22 0.48 0.00 (20.61) Dreyfus IP Founders Discovery Initial Shares Division: 2004 111 8.88 to 8.65 983 - 0.00 to 0.75 9.90 to 8.94 2003 66 8.09 to 7.94 533 - 0.00 to 0.75 36.20 to 35.26 2002 28 5.94 to 5.95 167 - 0.00 (33.18) to (27.88) 2001 (4) 17 8.89 155 - 0.00 (13.18) to 7.11 Dreyfus IP Founders Growth Initial Shares Division: 2004 (11) 3 10.58 36 2.57 0.00 7.85 Dreyfus Socially Responsible Growth Service Shares Division: 2004 3 9.91 32 0.19 0.00 5.88 2003 (6) 2 9.36 16 - 0.00 25.81 Dreyfus VIF Appreciation Service Shares Division: 2004 36 10.44 to 10.45 371 2.50 0.00 4.71 to 4.92 2003 (6) 5 9.96 to 9.97 46 4.05 0.00 20.73 to 20.83 Dreyfus VIF Developing Leaders Service Shares Division: 2004 183 $11.09 to $11.10 $ 2,027 -% 0.00% 11.01% to 14.79% 2003 99 9.99 991 - 0.00 31.27 to 38.37 2002 (5) 2 7.61 15 - 0.00 (22.90) Dreyfus VIF Quality Bond Service Shares Division: 2004 51 11.46 589 3.93 0.00 3.06 to 3.24 2003 (6) 8 11.10 to 11.12 93 3.48 0.00 4.62 to 4.81 Equity Growth Division: 2004 4,915 15.39 to 8.73 73,342 0.57 0.00 to 0.75 15.11 to 8.45 2003 4,706 14.08 to 8.05 64,209 0.49 0.00 to 0.75 31.84 to 25.00 2002 3,734 11.17 to 6.44 40,551 0.29 0.00 to 0.75 (21.34) to (28.21) 2001 3,349 15.46 to 8.97 50,584 0.09 0.00 to 0.75 (14.87) to (12.23) Equity Income Division 2004 355 11.92 to 8.29 4,141 4.01 0.00 to 0.75 14.84 to 16.76 2003 307 10.14 to 7.10 3,041 4.68 0.00 to 0.75 18.74 to 12.88 2002 244 7.40 to 6.29 2,127 5.11 0.00 to 0.75 (12.53) to (13.24) 2001 207 10.19 to 7.25 2,061 2.95 0.00 to 0.75 (27.68) to (28.00) Fidelity VIP Equity-Income Initial Class Division: 2004 1,980 18.11 to 10.77 34,571 1.41 0.00 to 0.75 11.58 to 10.69 2003 1,765 10.85 to 9.73 27,696 1.60 0.00 to 0.75 30.41 to 29.39 2002 1,489 12.46 to 7.52 17,928 1.58 0.00 to 0.75 (16.93) to (17.63) 2001 1,247 15.00 to 9.13 18,130 1.48 0.00 to 0.75 1.56 to (9.24) Fidelity VIP Equity- Income Service Class 2 Division: 2004 425 11.67 to 11.68 4,958 0.73 0.00 10.93 to 11.24 2003 150 10.50 1,573 1.49 0.00 30.11 to 39.07 2002 (5) 9 8.07 71 - 0.00 (18.57) idelity VIP Growth Service Class 2 Division: 2004 457 $10.14 to $9.94 $ 4,634 0.09% 0.00% to 0.75% 10.58% to 2.26% 2003 194 9.83 to 9.72 1,909 0.03 0.00 to 0.75 39.24 to 31.71 2002 (5) 21 7.44 to 7.38 153 - 0.00 to 0.75 (24.62) to (25.23) Fidelity VIP High Income Initial Class Division: 2004 534 9.93 to 12.64 6,248 7.98 0.00 to 0.75 9.60 to 8.78 2003 515 9.06 to 11.62 5,508 5.93 0.00 to 0.75 27.25 to 26.44 2002 393 8.44 to 9.19 3,291 9.99 0.00 to 0.75 3.43 to 2.57 2001 348 6.89 to 8.96 2,818 9.20 0.00 to 0.75 (11.67) to (10.40) Fidelity VIP High Income Service Class 2 Division: 2004 90 14.28 to 17.00 1,290 4.29 0.00 9.43 to 27.15 2003 (6) 26 13.05 346 4.90 0.00 23.11 to 26.70 Fidelity VIP II Asse Manager Service Class 2 Division:t 2004 73 11.51 to 11.52 843 1.89 0.00 5.11 to 5.21 2003 (6) 49 10.95 538 0.40 0.00 17.62 Fidelity VIP II Contrafund Initial Class Division: 2004 3,296 21.56 to 12.26 68,673 0.32 0.00 to 0.75 15.48 to 14.58 2003 3,121 18.67 to 10.70 56,443 0.43 0.00 to 0.75 28.49 to 27.53 2002 2,849 8.44 to 8.39 40,122 0.80 0.00 to 0.75 (9.34) to (10.08) 2001 2,638 16.03 to 9.33 41,155 0.71 0.00 to 0.75 2.69 to (7.35) Fidelity VIP II Contrafund Servic Class 2 Division:e 2004 353 12.74 to 12.73 4,493 0.08 0.00 14.67 to 15.19 2003 71 11.06 785 0.07 0.00 28.16 to 34.55 2002 (5) 4 8.63 32 - 0.00 (13.00) Fidelity VIP III Mid Cap Service Class 2 Division: 2004 315 $14.72 $ 4,632 -% 0.00% 22.16% to 24.64% 2003 89 11.81 1,045 0.23 0.00 38.29 to 43.50 2002 (5) 3 8.54 28 - 0.00 (14.60) Franklin Income Securities Class 2 Division: 2004 87 14.21 1,231 2.27 0.00 13.86 2003 18 12.48 230 1.67 0.00 31.78 2002 (5) 1 9.47 7 - 0.00 (5.68) Franklin Mutual Discovery Securities Class 2 Division: 2004 69 12.83 884 0.79 0.00 18.25 2003 18 10.85 195 1.83 0.00 29.01 2002 (5) 2 8.41 15 - 0.00 (15.65) Franklin Mutual Shares Securities Class 2 Division: 2004 112 11.95 1,334 0.82 0.00 12.63 2003 51 10.61 536 1.11 0.00 25.27 2002 (5) (12) - 8.47 2 - 0.00 (14.96) Franklin Rising Dividends Securities Class 2 Division: 2004 182 11.87 2,163 0.67 0.00 11.04 2003 75 10.69 796 0.91 0.00 24.59 2002 (5) 18 8.58 155 - 0.00 (13.25) Franklin Small Cap Value Securities Class 2 Division: 2004 121 13.11 1,582 0.17 0.00 23.68 2003 53 10.60 562 0.23 0.00 32.17 2002 (5) 10 8.02 82 - 0.00 (19.56) Government Securities Division: 2004 1,753 $16.23 to $11.71 $27,666 4.45% 0.00% to 0.75% 1.50% to 2.72% 2003 1,757 13.24 to 11.40 26,738 3.24 0.00 to 0.75 1.89 to 1.15 2002 1,585 15.39 to 11.27 23,672 2.91 0.00 to 0.75 8.84 to 7.95 2001 777 14.14 to 10.44 10,466 3.22 0.00 to 0.75 7.61 to 4.30 Growth Division: 2004 1,841 11.23 to 8.14 19,950 0.31 0.00 to 0.75 12.08 to 3.96 2003 1,783 10.29 to 7.83 17,715 0.20 0.00 to 0.75 30.25 to (3.81) 2002 1,589 8.14 to 5.18 12,492 0.02 0.00 (29.09) to (29.14) 2001 1,370 7.31 to 11.48 15,259 - 0.00 (25.48) to (1.29) International Division: 2004 3,057 14.16 to 11.15 42,718 0.93 0.00 to 0.75 21.03 to 20.15 2003 2,654 11.70 to 9.28 30,677 0.96 0.00 to 0.75 39.45 to 31.44 2002 2,201 6.74 to 7.06 19,209 0.43 0.00 to 0.75 (16.06) to (16.75) 2001 1,707 8.03 to 8.48 17,773 0.14 0.00 to 0.75 (24.25) to (15.62) International Emerging Markets Division: 2004 197 15.73 to 15.42 3,101 0.86 0.00 to 0.75 29.15 to 23.95 2003 82 12.59 to 12.44 1,036 1.41 0.00 to 0.75 57.97 to 56.09 2002 (5) 19 8.01 to 7.97 152 0.35 0.00 to 0.75 (19.17) to (19.58) International SmallCap Division: 2004 1,264 20.40 to 13.90 25,361 0.69 0.00 to 0.75 21.65 to 29.18 2003 951 15.68 to 10.76 14,705 1.26 0.00 to 0.75 60.49 to 53.06 2002 801 8.65 to 7.03 8,023 0.24 0.00 to 0.75 (16.18) to (16.90) 2001 635 10.32 to 12.14 7,598 - 0.00 (22.88) to 3.41 Janus Aspen Balanced Service Shares Division: 2004 4 11.39 to 11.41 47 1.49 0.00 8.06 to 8.25 2003 (6) 19 10.54 198 2.00 0.00 13.70 Janus Aspen Core Equity Service Shares Division: 2004 34 $11.30 $ 379 -% 0.00% 13.23% 2003 29 9.98 288 0.28 0.00 25.06 2002 (5) 1 7.98 9 0.14 0.00 (19.39) Janus Aspen Flexible Income Service Shares Division: 2004 202 12.02 to 12.03 2,429 6.44 0.00 3.71 to 3.80 2003 177 11.59 2,053 4.91 0.00 6.14 2002 (5) 2 10.92 24 2.96 0.00 8.98 Janus Aspen Mid Cap Growth Service Shares Division: 2004 324 8.83 to 8.59 2,857 - 0.00 to 0.75 20.46 to 19.47 2003 284 7.33 to 7.19 2,079 - 0.00 to 0.75 34.74 to 33.89 2002 170 5.44 to 5.37 925 - 0.00 to 0.75 (18.93) to (28.69) 2001 (4) 53 7.57 to 7.53 403 - 0.00 to 0.75 1.61 to (27.60) Janus Aspen Worldwide Growth Service Shares Division: 2004 40 10.07 406 1.40 0.00 4.46 2003 9 9.64 88 0.95 0.00 23.75 2002 (5) 1 7.79 5 0.68 0.00 (21.55) JP Morgan Bond Series Trust II Division: 2004 26 11.58 306 1.85 0.00 4.23 2003 (6) 5 11.11 56 1.62 0.00 3.73 JP Morgan Small Company Series Trust II Division: 2004 66 13.31 872 - 0.00 27.13 2003 25 10.47 262 - 0.00 35.97 2002 (5) 5 7.70 36 - 0.00 (21.99) LargeCap Blend Division: 2004 388 $11.36 to $11.14 $ 4,411 1.24% 0.00% to 0.75% 11.15% to 9.54% 2003 229 10.30 to 10.17 2,358 0.95 0.00 to 0.75 30.71 to 22.97 2002 (5) 71 8.34 to 8.27 590 0.85 0.00 to 0.75 (15.59) to (16.30) LargeCap Growth Equity Division: 2004 806 13.05 to 12.91 10,535 0.29 0.00 to 0.75 8.84 to 2.40 2003 (6) 551 12.66 to 12.60 6,981 - 0.00 to 0.75 18.21 to 17.65 LargeCap Stock Index Division: 2004 3,215 9.64 to 9.57 30,994 1.58 0.00 to 0.75 11.19 to 9.62 2003 2,829 8.73 24,713 1.27 0.00 to 0.75 35.14 to 27.26 2002 2,627 6.80 to 6.86 17,883 1.20 0.00 to 0.75 (22.46) to (23.01) 2001 1,969 8.77 to 8.91 17,278 1.07 0.00 to 0.75 (0.23) to (12.30) LargeCap Value Division: 2004 480 12.15 to 11.92 5,836 1.71 0.00 to 0.75 11.47 to 10.88 2003 271 10.75 to 10.62 2,909 1.81 0.00 to 0.75 35.73 to 27.34 2002 (5) 61 8.39 to 8.34 513 2.13 0.00 to 0.75 (15.34) to (15.84) Limited Term Bond Division: 2004 171 10.17 to 10.15 1,735 - 0.00 to 0.75 1.29 to 1.60 2003 (7) 11 10.04 107 2.61 0.00 0.26 MFS VIT Emerging Growth Service Class Division: 2004 14 10.99 157 - 0.00 12.60 to 12.72 2003 5 9.76 49 - 0.00 29.83 to 29.96 2002 (5) 2 7.51 17 - 0.00 (23.83) MFS VIT MidCap Growth Service Class Division: 2004 38 11.16 426 - 0.00 14.34 2003 10 9.76 96 - 0.00 36.50 2002 (5) (12) - 7.15 - - 0.00 (27.34) MFS VIT New Discovery Service Class Division: 2004 81 $10.75 to $10.76 $ 868 -% 0.00% 6.23% to 21.86% 2003 7 10.12 76 - 0.00 33.33 to 40.75 2002 (5) (12) - 7.59 1 - 0.00 (23.02) MFS VIT Value Service Class Division: 2004 31 11.86 362 0.36 0.00 14.81 2003 39 10.33 407 0.06 0.00 24.76 2002 (5) (12) - 8.28 3 - 0.00 (16.45) MidCap Division: 2004 2,818 22.19 to 69.85 72,635 1.04 0.00 to 0.75 15.09 to 16.86 2003 2,533 18.85 to 59.77 56,919 1.09 0.00 to 0.75 39.22 to 31.83 2002 2,231 14.19 to 45.34 39,117 1.03 0.00 to 0.75 (8.75) to (9.43) 2001 1,973 15.55 to 50.06 39,444 0.78 0.00 to 0.75 3.67 to (4.43) MidCap Growth Division: 2004 985 11.18 to 10.03 11,019 - 0.00 to 0.75 17.93 to 11.07 2003 794 10.00 to 9.03 7,945 - 0.00 to 0.75 44.93 to 39.57 2002 486 7.12 to 6.47 3,459 - 0.00 to 0.75 (26.22) to (28.74) 2001 355 9.65 3,432 - 0.00 (16.95) to 5.12 MidCap Value Division: 2004 796 14.54 to 14.16 11,580 0.10 0.00 to 0.75 18.89 to 21.75 2003 500 11.86 to 11.63 5,934 0.08 0.00 to 0.75 41.70 to 35.55 2002 257 8.69 to 8.58 2,230 - 0.00 to 0.75 (9.95) to (10.63) 2001 (4) 35 9.65 to 9.60 335 0.30 0.00 to 0.75 5.35 to (5.33) Money Market Division: 2004 3,881 11.60 to 18.66 50,588 0.88 0.00 to 0.75 1.05 to 1 2003 3,420 13.00 to 18.64 44,163 0.74 0.00 to 0.75 0.70 to 0.00 2002 3,413 11.41 to 18.64 43,832 1.34 0.00 to 0.75 1.42 to 0.65 2001 2,360 11.25 to 18.52 29,911 3.69 0.00 to 0.75 4.07 to 3.29 Neuberger Berman AMT Guardian I Class Division: 2004 (9) 1 $11.36 $ 8 0.16% 0.00% 15.80% Principal LifeTime 2020 Division: 2004 (10) (12) - 11.07 to 11.08 4 3.95 0.00 10.26 to 10.36 Principal LifeTime 2030 Division: 2004 (10) 13 11.06 140 7.05 0.00 10.16 Principal LifeTime 2040 Division: 2004 (10) 12 11.18 136 3.65 0.00 11.35 Principal LifeTime 2050 Division: 2004 (10) 7 11.17 to 11.18 77 2.53 0.00 11.25 to 11.35 Putnam VT Growth & Income Class IB Division: 2004 14 11.44 158 1.19 0.00 11.07 2003 5 10.30 51 5.15 0.00 27.48 2002 (5) 1 8.08 10 - 0.00 (18.47) Putnam VT International Equity Class IB Division: 2004 125 11.95 1,488 0.98 0.00 16.13 2003 70 10.29 722 0.75 0.00 28.63 2002 (5) 1 8.00 8 - 0.00 (19.92) Putnam VT Voyager Class IB Division: 2004 2,733 10.69 to 7.95 28,828 0.24 0.00 to 0.75 5.01 to 4.19 2003 2,804 8.47 to 7.63 28,108 0.36 0.00 to 0.75 24.93 to 24.07 2002 2,529 8.16 to 6.15 20,229 0.60 0.00 to 0.75 (21.61) to (27.13) 2001 2,059 9.22 to 8.44 22,401 - 0.00 to 0.75 (22.46) to (17.50) Real Estate Securities Division: 2004 1,171 $25.59 to $21.55 $30,221 2.42% 0.00% to 0.75% 20.65% to 33.44% 2003 863 19.04 to 16.15 16,564 3.75 0.00 to 0.75 39.39 to 37.92 2002 518 13.71 to 11.71 7,179 3.96 0.00 to 0.75 7.70 to 6.94 2001 256 12.73 to 10.95 3,295 5.02 0.00 to 0.75 8.80 to 8.96 SmallCap Division: 2004 1,476 12.39 to 11.03 18,289 - 0.00 to 0.75 22.67 to 18.99 2003 1,260 10.33 to 9.27 13,044 0.11 0.00 to 0.75 49.49 to 35.72 2002 648 7.55 to 6.83 4,899 0.11 0.00 to 0.75 (25.98) to (27.88) 2001 353 10.39 to 9.47 3,682 - 0.00 to 0.75 7.45 to (7.61) SmallCap Growth Division: 2004 1,663 10.30 to 6.53 16,914 - 0.00 to 0.75 19.63 to 10.49 2003 1,540 9.27 to 5.91 14,060 - 0.00 to 0.75 54.50 to 44.50 2002 1,217 6.37 to 4.09 7,596 - 0.00 to 0.75 (45.83) to (46.25) 2001 875 9.31 to 7.61 10,098 - 0.00 to 0.75 (31.99) to (26.54) SmallCap Value Division: 2004 1,257 22.98 to 16.22 28,904 0.17 0.00 to 0.75 19.63 to 22.23 2003 967 18.67 to 13.27 18,054 0.47 0.00 to 0.75 60.95 to 49.44 2002 665 12.40 to 8.88 8,247 0.63 0.00 to 0.75 (8.82) to (9.57) 2001 406 13.60 to 9.82 5,542 1.05 0.00 to 0.75 6.67 to (2.68) Vanguard VIF Balanced Division: 2004 256 12.21 3,122 1.87 0.00 11.30 2003 78 10.97 859 2.18 0.00 20.42 2002 (5) 14 9.11 130 - 0.00 (8.53) Vanguard VIF Equity Index Division: 2004 582 11.45 6,657 0.96 0.00 10.84 2003 277 10.33 2,861 0.68 0.00 28.48 2002 (5) 47 8.04 378 - 0.00 (18.54) Vanguard VIF Mid-Cap Index Division: 2004 152 $12.78 $ 1,946 0.53% 0.00% 20.34% 2003 30 10.62 317 0.53 0.00 34.09 2002 (5) 6 7.92 49 - 0.00 (19.84) Wells Fargo VT Asset Allocation Division: 2004 61 11.79 to 11.92 725 2.14 0.00 8.76 to 9.46 2003 38 10.90 417 1.67 0.00 21.52 to 27.49 2002 (5) 17 8.97 155 1.81 0.00 (9.85) Wells Fargo VT Equity Income Division: 2004 16 11.11 to 11.13 179 1.68 0.00 10.64 to 11.43 2003 11 9.97 to 10.00 111 1.73 0.00 25.88 to 26.26 2002 (5) 2 7.92 16 1.73 0.00 (20.00) Wells Fargo VT Large Company Growth Division: 2004 28 10.09 to 10.32 280 - 0.00 3.17 to 13.78 2003 5 9.77 to 9.78 53 - 0.00 26.36 to 26.55 2002 (5) 1 7.73 to 7.69 6 - 0.00 to 0.75 (21.12) to (21.53) (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 has been annualized for the period ended December 31, 2001. (5) Commencement of operations, May 18, 2002. Investment income ratio has been annualized for the period ended December 31, 2002. (6) Commencement of operations, February 22, 2003. Investment income ratio has been annualized for the period ended December 31, 2003. (7) Commencement of operations, May 17, 2003. Investment income ratio has been annualized for the period ended December 31, 2003. (8) Commencement of operations, March 18, 2004. Investment income ratio has been annualized for the period ended December 31, 2004. (9) Commencement of operations, March 25, 2004. Investment income ratio has been annualized for the period ended December 31, 2004. (10) Commencement of operations, August 21, 2004. Investment income ratio has been annualized for the period ended December 31, 2004. (11) Commencement of operations, November 23, 2004. Investment income ratio has been annualized for the period ended December 31, 2004. (12) Accumulation units outstanding and/or net assets less than 500 units or $500.
There are divisions that have total return outside of the ranges indicated above. The following is a list of the divisions and corresponding lowest total return and highest total return. 2004 Total Division Return Range ------------------------------------------------------------------------- ------------------------------------------------------------------------- American Century VP II Value Division 10.35% to 14.17% Bond Division 2.33 to 4.98 Equity Growth Division 8.51 to 15.12 Equity Income Division 14.85 to 17.60 Government Securities Division 1.50 to 3.64 International SmallCap Division 21.65 to 30.23 LargeCap Value Division 11.53 to 13.09 MidCap Division 15.09 to 17.96 MidCap Value Division 18.89 to 22.66 Real Estate Securities Division 20.65 to 34.55 SmallCap Value Division 19.64 to 23.11 2003 Total Division Return Range --------------------------------------------------------------------------- Capital Value Division 25.45% to 31.65% Government Securities Division 1.03 to 1.89 2002 Total Division Return Range --------------------------------------------------------------------------- Bond Division 7.45% to 9.30% Capital Value Division (15.47) to (13.62) International Division (18.00) to (16.06) International SmallCap Division (22.47) to (16.18) MidCap Division (12.30) to (8.75) MidCap Value Division (14.89) to (9.95) Money Market Division 0.47 to 1.42 Real Estate Securities Division (1.22) to 7.70 SmallCap Value Division (18.90) to (8.82) 2001 Total Division Return Range ----------------------------------------------------------------------------- Bond Division (0.74)% to 8.12% Equity Growth Division (14.87) to (0.90) Fidelity VIP II Contrafund Initial Class Division (12.26) to 2.69 Government Securities Division (0.28) to 7.61 International Division (24.25) to (1.25) Money Market Division 0.24 to 4.07 Putnam VT Voyager Class IB Division (22.46) to (0.27) SmallCap Growth Division (31.99) to 4.63 Report of Independent Registered Public Accounting Firm 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") as of December 31, 2004 and 2003, 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, 2004. 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 the standards of the Public Company Accounting Oversight Board (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 consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and 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, 2004 and 2003, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2004, in conformity with U.S. generally accepted accounting principles. As discussed in Note 1 to the consolidated financial statements, in response to new accounting standards, the Company changed its methods of accounting for discontinued operations, goodwill and other intangible assets effective January 1, 2002, variable interest entities effective July 1, 2003, and certain fixed and variable contract features effective January 1, 2004. /s/ Ernest & Young Des Moines, Iowa February 16, 2005, except for the second paragraph of Note 16, as to which the date is March 3, 2005
Principal Life Insurance Company Consolidated Statements of Financial Position December 31, -------------------------------------- 2004 2003 -------------------------------------- (in millions) Assets Fixed maturities, available-for-sale....................................... $ 39,111.1 $ 35,964.0 Fixed maturities, trading.................................................. 93.0 102.9 Equity securities, available-for-sale...................................... 723.8 655.9 Mortgage loans............................................................. 11,328.7 10,918.6 Real estate................................................................ 1,021.2 1,186.4 Policy loans............................................................... 814.5 804.1 Other investments.......................................................... 1,292.2 1,192.1 -------------------------------------- Total investments....................................................... 54,384.5 50,824.0 Cash and cash equivalents.................................................. 385.3 901.0 Accrued investment income.................................................. 670.5 643.3 Premiums due and other receivables......................................... 605.1 526.4 Deferred policy acquisition costs.......................................... 1,770.9 1,519.6 Property and equipment..................................................... 418.4 433.4 Goodwill................................................................... 161.3 122.9 Other intangibles.......................................................... 80.4 19.3 Separate account assets.................................................... 50,722.4 42,775.5 Assets of discontinued operations.......................................... - 5,382.9 Other assets............................................................... 680.4 604.4 -------------------------------------- -------------------------------------- Total assets............................................................ $ 109,879.2 $ 103,752.7 ====================================== ====================================== Liabilities Contractholder funds....................................................... $ 32,174.8 $ 28,890.6 Future policy benefits and claims.......................................... 14,284.8 14,025.4 Other policyholder funds................................................... 731.1 706.2 Short-term debt............................................................ 697.6 477.1 Long-term debt............................................................. 347.8 581.5 Income taxes currently payable............................................. 285.7 100.3 Deferred income taxes...................................................... 1,040.8 1,094.6 Separate account liabilities............................................... 50,722.4 42,775.5 Liabilities of discontinued operations..................................... - 4,828.0 Other liabilities.......................................................... 2,937.9 3,407.5 -------------------------------------- -------------------------------------- Total liabilities....................................................... 103,222.9 96,886.7 Stockholder's equity Common stock, par value $1 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................................................. 5,112.7 5,052.1 Retained earnings.......................................................... 238.3 594.6 Accumulated other comprehensive income..................................... 1,302.8 1,216.8 -------------------------------------- Total stockholder's equity.............................................. 6,656.3 6,866.0 -------------------------------------- -------------------------------------- Total liabilities and stockholder's equity.............................. $ 109,879.2 $ 103,752.7 ====================================== See accompanying notes.
Principal Life Insurance Company Consolidated Statements of Operations For the year ended December 31, -------------------------------------------------------- -------------------------------------------------------- 2004 2003 2002 ------------------ ------------------ ------------------ (in millions) Revenues Premiums and other considerations............... $ 3,468.9 $ 3,439.0 $ 3,720.0 Fees and other revenues......................... 1,260.0 1,031.9 835.1 Net investment income........................... 3,030.0 3,071.2 3,018.7 Net realized/unrealized capital losses.......... (109.7) (90.4) (395.2) ------------------ ------------------ ------------------ ------------------ ------------------ ------------------ Total revenues................................ 7,649.2 7,451.7 7,178.6 Expenses Benefits, claims, and settlement expenses....... 4,602.2 4,592.2 4,958.9 Dividends to policyholders...................... 296.7 307.9 316.6 Operating expenses.............................. 1,856.8 1,730.5 1,535.8 ------------------ ------------------ ------------------ ------------------ ------------------ ------------------ Total expenses................................ 6,755.7 6,630.6 6,811.3 ------------------ ------------------ ------------------ ------------------ ------------------ ------------------ Income from continuing operations before income taxes........................................ 893.5 821.1 367.3 Income taxes (benefits)......................... 226.3 181.9 (69.3) ------------------ ------------------ ------------------ ------------------ ------------------ ------------------ Income from continuing operations, net of 667.2 639.2 436.6 related income taxes (benefits).............. Income from discontinued operations, net of related income taxes......................... 103.0 23.5 120.1 ------------------ ------------------ ------------------ Income before cumulative effect of accounting changes...................................... 770.2 662.7 556.7 Cumulative effect of accounting changes, net of related income taxes...................... (2.4) (3.4) (4.6) ------------------ ------------------ ------------------ ------------------ ------------------ ------------------ Net income...................................... $ 767.8 $ 659.3 $ 552.1 ================== ================== ================== 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 stock equity ----------------------------------------------------------------------------- (in millions) Balances at January 1, 2002... $2.5 $5,004.6 $ (26.6) $ 368.4 $ (6.7) $5,342.2 Principal Financial Group, Inc. shares sold by rabbi trusts.................... - 1.3 - - 6.7 8.0 Stock-based compensation.... - 9.1 - - - 9.1 Dividends to parent........... - - (590.2) - - (590.2) Comprehensive income: Net income................ - - 552.1 - - 552.1 Net unrealized gains...... - - - 640.8 - 640.8 Provision for deferred income taxes............ - - - (226.1) - (226.1) Foreign currency translation adjustment.. - - - 2.0 - 2.0 -------------- Comprehensive income.......... 968.8 ----------------------------------------------------------------------------- Balances at December 31, 2002. 2.5 5,015.0 (64.7) 785.1 - 5,737.9 Capital contribution.......... - 15.0 - - - 15.0 Stock-based compensation...... - 22.1 - - - 22.1 Comprehensive income: Net income................ - - 659.3 - - 659.3 Net unrealized gains...... - - - 646.6 - 646.6 Provision for deferred income taxes............... - - - (221.4) - (221.4) Foreign currency translation adjustment.. - - - (0.1) - (0.1) Minimum pension liability, net of related income taxes.................... - - - (2.5) - (2.5) Cumulative effect of accounting change, net of related income taxes.. - - - 9.1 - 9.1 -------------- Comprehensive income.......... 1,091.0 ----------------------------------------------------------------------------- Balances at December 31, 2003. 2.5 5,052.1 594.6 1,216.8 - 6,866.0 Capital transactions of equity method investee, net of related income taxes - 20.4 - - - 20.4 Stock-based compensation, and additional related tax benefits................... - 40.8 - - - 40.8 Dividends to parent........... - (0.6) (1,124.1) - - (1,124.7) Comprehensive income: Net income................ - - 767.8 - - 767.8 Net unrealized gains...... - - - 137.2 - 137.2 Provision for deferred income taxes............... - - - (47.8) - (47.8) Foreign currency translation adjustment.. - - - (0.6) - (0.6) Minimum pension liability, net of related income taxes.... - - - (2.8) - (2.8) -------------- Comprehensive income.......... 853.8 ----------------------------------------------------------------------------- Balances at December 31, 2004. $2.5 $5,112.7 $ 238.3 $1,302.8 $ - $6,656.3 ============================================================================= See accompanying notes.
Principal Life Insurance Company Consolidated Statements of Cash Flows For the year ended December 31, ---------------------------------------------------- ---------------------------------------------------- 2004 2003 2002 ----------------- ---------------- ----------------- (in millions) Operating activities Net income............................................ $ 767.8 $ 659.3 $ 552.1 Adjustments to reconcile net income to net cash provided by operating activities: Loss (income) from discontinued operations, net of related income taxes........................ (103.0) (23.5) (120.1) Cumulative effect of accounting changes, net of related income taxes.................... 2.4 3.4 4.6 Amortization of deferred policy acquisition costs 207.7 144.0 141.1 Additions to deferred policy acquisition costs... (457.8) (337.4) (314.8) Accrued investment income........................ (27.3) (1.5) (42.9) Premiums due and other receivables............... (21.4) (39.4) 31.8 Contractholder and policyholder liabilities and dividends.................................. 1,645.3 1,569.1 1,979.9 Current and deferred income taxes................ 33.8 68.3 283.8 Net realized/unrealized capital losses........... 109.7 90.4 395.2 Depreciation and amortization expense............ 98.4 91.3 90.6 Mortgage loans held for sale, acquired or originated..................................... (1,045.7) (876.9) (953.0) Mortgage loans held for sale, sold or repaid, net of gain.................................... 845.1 1,022.5 1,019.7 Real estate acquired through operating activities (45.8) (32.5) (25.5) Real estate sold through operating activities.... 84.7 46.0 48.2 Stock-based compensation......................... 39.4 20.3 9.1 Other............................................ (524.3) 72.1 49.2 ----------------- ---------------- ----------------- ----------------- ---------------- ----------------- Net adjustments....................................... 841.2 1,816.2 2,596.9 ----------------- ---------------- ----------------- ----------------- ---------------- ----------------- Net cash provided by operating activities............. 1,609.0 2,475.5 3,149.0 Investing activities Available-for-sale securities: Purchases......................................... (9,126.9) (10,338.7) (15,001.2) Sales............................................. 1,759.8 2,732.4 8,113.0 Maturities........................................ 4,082.0 4,634.7 3,629.2 Net cash flows from trading securities................ 6.3 - (82.4) Mortgage loans acquired or originated................. (2,052.3) (1,965.2) (1,279.3) Mortgage loans sold or repaid......................... 1,820.7 1,286.4 1,320.7 Real estate acquired.................................. (327.9) (232.3) (239.9) Real estate sold...................................... 345.4 60.8 181.8 Net purchases of property and equipment............... (42.3) (24.2) (56.1) Net proceeds from sales of subsidiaries............... 674.6 29.4 1.4 Purchases of interest in subsidiaries, net of cash acquired........................ (87.2) (55.8) (6.5) Net change in other investments....................... 154.6 263.5 493.7 ----------------- ---------------- ----------------- ----------------- ---------------- ----------------- Net cash used in investing activities................. $ (2,793.2) $ (3,609.0) $ (2,925.6)
Principal Life Insurance Company Consolidated Statements of Cash Flows (continued) For the year ended December 31, ---------------------------------------------------- ---------------------------------------------------- 2004 2003 2002 ----------------- ---------------- ----------------- (in millions) Financing activities Issuance of common stock............................. $ - $ (0.1) $ - Sales of treasury stock.............................. - - 8.0 Proceeds from financing element derivatives.......... 110.6 118.0 - Payments for financing element derivatives........... (84.6) (107.3) - Dividends to parent.................................. (1,124.7) - (590.2) Issuance of long-term debt........................... 12.1 6.1 64.1 Principal repayments of long-term debt............... (246.6) (85.5) (103.0) Net proceeds (repayments) of short-term borrowings........................................ 220.5 (192.1) 111.2 Investment contract deposits......................... 6,995.8 9,722.0 7,117.0 Investment contract withdrawals...................... (5,209.6) (8,666.2) (7,225.7) Net increase (decrease) in banking operation deposits (5.0) 372.7 184.4 ----------------- ---------------- ----------------- ----------------- ---------------- ----------------- Net cash provided by (used in) financing activities.. 668.5 1,167.6 (434.2) ----------------- ---------------- ----------------- Net increase (decrease) in cash and cash equivalents....................................... (515.7) 34.1 (210.8) Cash and cash equivalents at beginning of year....... 901.0 866.9 1,077.7 ----------------- ---------------- ----------------- ----------------- ---------------- ----------------- Cash and cash equivalents at end of year............. $ 385.3 $ 901.0 $ 866.9 ================= ================ ================= ================= ================ ================= See accompanying notes.
Principal Life Insurance Company Notes to Financial Statements December 31, 2004 1. Nature of Operations and Significant Accounting Policies Description of Business Principal Life Insurance Company along with its consolidated subsidiaries is a diversified financial services organization engaged in promoting retirement savings and investment and insurance products and services in the U.S. We are a direct wholly owned subsidiary of Principal Financial Services, Inc., which in turn is a direct wholly owned subsidiary of Principal Financial Group, Inc. Basis of Presentation The accompanying consolidated financial statements, which include our majority-owned subsidiaries and, subsequent to June 30, 2003, consolidated variable interest entities ("VIEs"), have been prepared in conformity with accounting principles generally accepted in the United States ("U.S. GAAP"). Less than majority-owned entities in which we had at least a 20% interest and LLCs, partnerships and real estate joint ventures in which we had at least a 5% interest, are reported on the equity basis in the consolidated statements of financial position as other investments. Investments in LLCs, partnerships and real estate joint ventures in which we have an ownership percentage of 3% to 5% will be based on the facts and circumstances to determine if equity or cost method will be applied. All significant intercompany accounts and transactions have been eliminated. Closed Block We operate a closed block ("Closed Block") for the benefit of individual participating dividend-paying policies in force at the time of a corporate restructuring in 1998. See Note 10 for further details regarding the Closed Block. Use of Estimates in the Preparation of Financial Statements The preparation of our 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. Recent Accounting Pronouncements On December 16, 2004, the Financial Accounting Standards Board (the "FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 123 (revised 2004), Share-Based Payment ("SFAS 123R"). SFAS 123R requires all share-based payments to employees to be recognized at fair value in the financial statements. SFAS 123R replaces SFAS No. 123, Accounting for Stock-Based Compensation ("SFAS 123"), supersedes Accounting Principles Board ("APB") Opinion No. 25, Accounting for Stock Issued to Employees ("APB 25"), and SFAS No. 148, Accounting for Stock-Based Compensation-Transition and Disclosure-an Amendment of FASB Statement No. 123 and amends FASB Statement No. 95, Statement of Cash Flows. SFAS 123R is effective for public companies at the beginning of the first interim or annual period beginning after June 15, 2005. Accordingly, we will be adopting SFAS 123R effective July 1, 2005. This Statement will not have a material impact on our consolidated financial statements as we began expensing all stock options using a fair-value based method effective for the year beginning January 1, 2002. We applied the prospective method of transition as prescribed by SFAS 123. SFAS No. 153, Exchange of Nonmonetary Assets, an amendment of APB Opinion No. 29 ("SFAS 153"), was issued in December 2004. APB Opinion No. 29, Accounting for Nonmonetary Transactions ("APB 29"), provides the basic principle that exchanges of nonmonetary assets should be measured based on the fair value of the assets exchanged. However, APB 29 includes certain exceptions to that principle. SFAS 153 amends APB 29 to eliminate the exception for nonmonetary exchanges of similar productive assets and replaces it with a general exception for exchanges of nonmonetary assets that do not have commercial substance. SFAS 153 is effective for nonmonetary exchanges occurring on or after July 1, 2005. We plan to adopt SFAS 153 on July 1, 2005, and will subsequently recognize gains, resulting from real estate exchanges that meet the commercial substance criteria, as they occur. On March 9, 2004, the U.S. Securities and Exchange Commission ("SEC") Staff issued Staff Accounting Bulletin ("SAB") 105, Application of Accounting Principles to Loan Commitments ("SAB 105"), in which the SEC Staff expressed their view that the fair value of recorded loan commitments, including interest rate lock commitments ("IRLCs"), that are required to follow derivative accounting under SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities ("SFAS 133"), should not consider the expected future cash flows related to the associated servicing of the loan. We record IRLCs at zero value at date of issuance with subsequent gains or losses measured by changes in market interest rates. Therefore, this SAB did not have a material impact on our consolidated financial statements. In March 2004, the Emerging Issues Task Force ("EITF") reached a final consensus on Issue 03-1, The Meaning of Other-Than-Temporary Impairment and its Application to Certain Investments ("EITF 03-1"). EITF 03-1 provides accounting guidance regarding the determination of when an impairment of debt and marketable equity securities and investments accounted for under the cost method should be considered other-than-temporary and recognized in income. This EITF was originally effective for the period beginning July 1, 2004. However, on September 30, 2004, the FASB issued a Staff Position delaying the accounting and measurement provisions of EITF 03-1 until additional clarifying guidance can be issued. Due to the uncertainties that still exist with this guidance, we are unable to estimate the impact EITF 03-1 will have to our consolidated financial statements. On July 7, 2003, the American Institute of Certified Public Accountants issued Statement of Position ("SOP") 03-1, Accounting and Reporting by Insurance Enterprises for Certain Nontraditional Long-Duration Contracts and for Separate Accounts ("SOP 03-1"). This SOP addresses an insurance enterprise's accounting for certain fixed and variable contract features not covered by other authoritative accounting guidance. We adopted SOP 03-1 effective January 1, 2004, and recorded a cumulative effect of accounting change of $(2.4) million, which is net of income tax benefits of $1.3 million. The accounting change impacted our Life and Health Insurance and U.S. Asset Management and Accumulation segments. SOP 03-1 addresses the classification of contracts and calculation of an additional liability for contracts that contain significant insurance features. The adoption of the guidance required the recognition of an additional liability in cases where the insurance benefit feature resulted in gains in early years followed by losses in later years. The accrual and release of the additional liability also impacted the amortization of deferred policy acquisition costs ("DPAC"). As of January 1, 2004, we increased future policyholder benefits due to our no lapse guarantee feature of our universal life and variable universal life products within our Life and Health Insurance segment and for variable annuities with guaranteed minimum death benefits in our U.S. Asset Management and Accumulation segment. This resulted in an after-tax cumulative effect of $(0.9) million in the Life and Health Insurance segment and $(1.5) million in the U.S. Asset Management and Accumulation segment. In addition, the guidance clarifies the accounting and classification for sales inducements. Although the valuation impacts were immaterial, we reclassified $30.3 million of sales inducements from DPAC to other assets. The FASB issued Interpretation No. 46, Consolidation of Variable Interest Entities ("FIN 46"), in January 2003. FIN 46 applies to certain entities in which equity investors do not have the characteristics of a controlling financial interest, or do not have sufficient equity at risk for the entities to finance their activities without additional subordinated financial support from other parties. FIN 46 requires the consolidation of VIEs in which an enterprise, known as the primary beneficiary, absorbs a majority of the entity's expected losses, receives a majority of the entity's expected residual returns, or both, as a result of ownership, contractual or other financial interests in the entity. The guidance was effective immediately for all VIEs created after January 31, 2003, and effective July 1, 2003, for all VIEs created before February 1, 2003. We invested in one VIE in April, 2003, and effective July 1, 2003, consolidated VIEs created or acquired prior to February 1, 2003, for which we are the primary beneficiary. At July 1, 2003, our consolidated financial statements were adjusted to record a cumulative effect of adopting FIN 46, as follows: Accumulated other comprehensive Net loss income -------------- ---------------- (in millions) Adjustment for intercompany gains and carrying value of assets consolidated.............. $(6.1) $14.1 Income tax impact............................. 2.7 (5.0) -------------- ---------------- -------------- ---------------- Total......................................... $(3.4) $ 9.1 ============== ================ See Note 6 for the disclosures relating to VIEs. 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 ("APB 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 APB 30). We adopted SFAS 144 on January 1, 2002, which did not have a significant impact on our consolidated financial statements as of the adoption date. See Note 4 for transactions reported as discontinued operations. In June 2001, the FASB issued SFAS No. 142, Goodwill and Other Intangible Assets ("SFAS 142"). 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 we do in the fourth quarter each year. Our initial adoption of SFAS 142 on January 1, 2002, required us 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. Additionally, we were required to perform an impairment test on our indefinite-lived intangible assets, which consisted of a comparison of the fair value of an intangible asset with its carrying amount. Our 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, we recorded an after-tax goodwill impairment of $4.6 million, net of income taxes, related to our Life and Health Insurance operations. This impairment was recognized on January 1, 2002, as a cumulative effect of a change in accounting principle. 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 We classify our investments into one of three categories: held-to-maturity, available-for-sale or trading. We determine the appropriate classification of fixed maturity securities at the time of purchase. Fixed maturity securities include bonds, mortgage-backed securities and redeemable preferred stock. We classify fixed maturity securities as either available-for-sale or trading and, accordingly, carry them at fair value. (See Note 18 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 DPAC, sales inducements, unearned revenue reserves, policyholder dividend obligation ("PDO"), and applicable income taxes. Unrealized gains and losses related to trading securities are reflected in net income as net realized/ unrealized capital gains (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 in net income as a component of net realized/unrealized capital gains (losses). For loan-backed andstructured securities, we recognize income using a constant effective yield based on currently anticipated prepayments using a tool which models the prepayment behavior of the underlying collateral based on the current interest rate environment. Equity securities include mutual funds, common stock and nonredeemable 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 in net income as a component of net realized/unrealized capital gains (losses). Equity securities are classified as available-for-sale and, accordingly, are carried at fair value. (See Note 18 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 DPAC, sales inducements, unearned revenue reserves, PDO and applicable income taxes. Real estate investments are reported at cost less accumulated depreciation. The initial cost bases of properties acquired through loan foreclosures are the lower of the 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. We recognize impairment losses for 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 in net income. Commercial and residential mortgage loans are generally reported at cost adjusted for amortization premiums and accrual of discounts, computed using the interest method, net of valuation allowances, and direct write-downs for impairment. Any changes in the valuation allowances are reported in net income as net realized/unrealized capital gains (losses). We measure 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. We have commercial mortgage loans held-for-sale in the amount of $478.6 million and $278.1 million at December 31, 2004 and 2003, 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, certain seed investments, fair value hedge ineffectiveness, derivatives not designated as hedges and changes in the mortgage loan allowance are reported in net income as net realized/unrealized capital gains (losses). Investment gains and losses on sales of certain real estate held-for-sale, which do not meet the criteria for classification as a discontinued operation, are reported as net investment income and are excluded from net realized/unrealized capital gains (losses). Policy loans and other investments, excluding investments in unconsolidated entities, are primarily reported at cost. Securitizations We, along with other contributors, sell commercial mortgage loans to trusts, which are unconsolidated qualified special purpose entities, which then issue commercial mortgage-backed securities. We retain primary servicing responsibilities and may retain other immaterial interests in the trusts by purchasing portions of the securities from the issuance. Gain or loss on the sales of the loans is reported as fees and other revenues. The retained interests are thereafter carried at fair value with other fixed maturity investments and classified as available-for-sale. Derivatives Derivatives are recognized as either assets or liabilities in the consolidated statements 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; (c) a hedge of the foreign currency exposure of an unrecognized firm commitment, an available-for-sale security or a foreign-currency-denominated forecasted transaction. Our 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 or at the time of redesignation under SFAS 133. Hedge accounting is used for derivatives that are specifically designated in advance as hedges and that reduce our 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 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 each variable cash flow 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 that are terminated prior to maturity, any accumulated gain or loss is recognized in earnings immediately if the hedged item is also terminated. If the hedged item is not terminated, then the accumulated gain or loss is amortized into earnings over the remaining life of the hedged item. For derivatives hedging the exposure to changes in fair value of 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 exposure to variable cash flows of the foreign currency exposure of a foreign-currency-denominated unrecognized firm commitment or 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. Regression analysis is used for both retrospective and prospective hedge effectiveness testing for the fair value portfolio hedging strategy engaged in by our general account and our commercial mortgage banking operation. Prior to October 1, 2004, minimum variance and dollar offset techniques were used in the effectiveness testing for our general account portfolio hedges. For derivatives not designated as a hedging instrument, the change in fair value is recognized in net income in the period of change. 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, traditional and group life insurance, accident and health insurance and disability income policies, as well as a provision for dividends on participating policies. Investment contracts are contractholders' funds on deposit with us and generally include reserves for pension and annuity contracts. Reserves on investment contracts are equal to the cumulative deposits less any applicable charges plus credited interest. Reserves for universal life insurance contracts are equal to cumulative premiums less charges plus credited interest, which represents the account balances that accrue to the benefit of the policyholders. For our universal life and annuity products we hold additional reserves pursuant to SOP 03-1. SOP 03-1 requires that reserves be held on certain long duration contracts where benefit features result in gains in early years followed by losses in later years, universal life/variable universal life contracts that contain no lapse guarantee features, or annuities with guaranteed minimum death benefits. Reserves for nonparticipating term life insurance and disability income 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 our experience. Mortality, morbidity and withdrawal rate assumptions are based on our experience 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 rates and mortality rates guaranteed in calculating the cash surrender values described in the contract. Participating business represented approximately 28%, 33% and 34% of our life insurance in force and 67%, 70% and 72% of the number of life insurance policies in force at December 31, 2004, 2003 and 2002, respectively. Participating business represented approximately 77%, 80% and 80% of life insurance premiums for the years ended December 31, 2004, 2003 and 2002, respectively. The amount of dividends to policyholders is approved annually by our 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 us. At the end of the reporting period, we established 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 our 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, we believe 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 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. Related policy benefits and expenses for individual life and annuity products are associated with earned premiums and result in the recognition of profits over the expected term of the policies and contracts. 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. Under the guidance for limited payment contracts under SFAS No. 97, Accounting and Reporting by Insurance Enterprises for Certain Long-Duration Contracts and for Realized Gains and Losses from the Sale of Investments, which refers back to SFAS No. 60, Accounting and Reporting by Insurance Enterprises ("SFAS 60"), annuity considerations from these products are recognized as revenue. However, the collection of these annuity considerations does not represent the completion of the earnings process, as we establish annuity reserves, using estimates for mortality and investment assumptions, which include provision for adverse deviation as defined in SFAS 60. We anticipate profits to emerge over the life of the annuity products as we earn investment income, pay benefits and release reserves. Group life and health insurance premiums are generally recorded as premium revenue over the term of the coverage. Certain group contracts contain experience premium refund provisions based on a pre-defined formula that reflects their claim experience. Experience premium refunds are recognized over the term of the coverage and adjusted to reflect current experience. 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 group life and health insurance products are associated with earned premiums and result in the recognition of profits over the term 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 us 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 or earned. Deferred Policy Acquisition Costs Commissions and other costs (underwriting, issuance and agency expenses) that vary with and are primarily related to the acquisition of new and renewal insurance policies and investment contract business are capitalized to the extent recoverable. Maintenance costs and acquisition costs that are not deferrable are charged to operations as incurred. DPAC 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. We utilize a mean reversion method (reversion to the mean assumption), a common industry practice, to determine the future market growth assumption used for the amortization of DPAC on investment contracts pertaining to individual and group annuities which have separate account investment options. This amortization is adjusted in the current period when estimates of estimated gross profit are revised. The DPAC of nonparticipating 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. DPAC are subject to recoverability testing at the time of policy issue and loss recognition testing at the end of each accounting period. DPAC 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 We enter into reinsurance agreements with other companies in the normal course of business. We 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, except for the medical reinsurance agreement, which is accounted for using the deposit method of accounting. Our medical reinsurance agreement is no longer in effect after December 31, 2004, as we did not renew. We are 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, 2004, 2003 and 2002, respectively, we had reinsured $20.1 billion, $19.4 billion and $17.8 billion of life insurance in force, representing 15%, 15% and 14% of total net life insurance in force through a single third-party reinsurer. To minimize the possibility of losses, we evaluate the financial condition of our reinsurers and monitor concentrations of credit risk. The effects of reinsurance on premiums and other considerations and policy and contract benefits were as follows: For the year ended December 31, ----------------------------------- ----------------------------------- 2004 2003 2002 ----------------------------------- (in millions) Premiums and other considerations: Direct....................................$3,693.1 $3,609.1 $3,916.3 Assumed................................... 67.0 118.8 130.6 Ceded..................................... (291.2) (288.9) (326.9) ----------------------------------- ----------------------------------- Net premiums and other considerations........$3,468.9 $3,439.0 $3,720.0 =================================== Benefits, claims and settlement expenses: Direct....................................$4,740.9 $4,697.8 $5,074.7 Assumed................................... 83.2 129.3 135.5 Ceded..................................... (221.9) (234.9) (251.3) ----------------------------------- Net benefits, claims and settlement expenses.$4,602.2 $4,592.2 $4,958.9 =================================== 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 us for contracts with equity, real estate and fixed-income investments. Generally, the separate account contract owner, rather than us, 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 ours. We receive 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, 2004 and 2003, the separate accounts include a separate account valued at $782.8 million and $833.9 million, respectively, which primarily includes shares of Principal Financial Group, Inc. stock that were allocated and issued to eligible participants of qualified employee benefit plans administered by us as part of the policy credits issued under the Principal Mutual Holding Company's 2001 demutualization. These shares are included in both Principal Financial Group, Inc.'s 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 statements of financial position. Changes in fair value of the separate account shares are reflected in both the separate account assets and separate account liabilities and does not impact our results of operations. Income Taxes Our ultimate parent, Principal Financial Group, Inc. files a U.S. consolidated income tax return that includes us and all of our qualifying subsidiaries. Principal Financial Group, Inc. allocates income tax expenses and benefits to companies in the group generally based upon pro rata contribution of taxable income or operating losses. We are 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. Goodwill and Other Intangibles Goodwill and other intangibles include the cost of acquired subsidiaries in excess of the fair value of the net tangible assets recorded in connection with acquisitions. Due to the adoption of SFAS 142, goodwill and indefinite-lived intangible assets are no longer amortized. Goodwill and indefinite-lived intangible assets not subject to amortization are tested for impairment on an annual basis during the fourth quarter each year, or more frequently if events or changes in circumstances indicate that the asset might be impaired. Goodwill impairment testing involves a two-step process described further in the Recent Accounting Pronouncements section within Note 1. Impairment testing for indefinite-lived intangible assets consists of a comparison of the fair value of the intangible asset with its carrying value. Intangible assets with a finite useful life continue to be amortized on a straight-line basis generally over a period of 5 to 30 years and are reviewed periodically for indicators of impairment in value. If facts and circumstances suggest possible impairment, the sum of the estimated undiscounted future cash flows expected to result from the use of the asset is compared to the current carrying value of the asset. 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. Stock-Based Compensation Our ultimate parent, Principal Financial Group, Inc., accounts for their stock-based compensation plans (described more fully in Note 21) using the fair value method for all stock-based awards granted subsequent to January 1, 2002. For stock-based awards granted prior to this date, Principal Financial Group, Inc. used the intrinsic value method. We are allocated our pro rata share of the expenses for these plans. Awards under these plans vest over periods ranging from one year to three years. Therefore, the cost related to stock-based compensation included in the determination of net income for 2002 through 2004 is less than that which would have been recognized if the fair value based method had been applied to all awards since the inception of the stock-based compensation plans. Had compensation expense for the stock option awards and employees' purchase rights been determined based upon fair values at the grant dates for awards under the plans in accordance with SFAS 123, our net income would have been reduced to the pro forma amounts indicated below. For the purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the options' vesting period.
For the year ended December 31, -------------------------------------------- -------------------------------------------- 2004 2003 2002 ----------------------------- -------------- (in millions) Net income, as reported.................................... $767.8 $659.3 $ 552.1 Add: Stock-based compensation expense included in reported net income, net of related tax effects.................................................. 26.7 18.2 9.7 Deduct: Total stock-based compensation expense determined under fair value based method for all awards, net of related tax effects.............................. 29.3 21.0 12.5 -------------------------------------------- -------------------------------------------- Pro forma net income....................................... $765.2 $656.5 $ 549.3 ============================================
Reclassifications Reclassifications have been made to the 2003 and 2002 consolidated financial statements to conform to the 2004 presentation. 2. Related Party Transactions We have entered into various related party transactions with our ultimate parent and its other affiliates. During the years ended December 31, 2004, 2003 and 2002, we received $94.8 million, $94.0 million and $92.2 million, respectively, of expense reimbursements from affiliated entities. Our direct parent, Principal Financial Services, Inc., and us are parties to a cash advance agreement, which allows us, collectively, to pool our available cash in order to more efficiently and effectively invest our cash. The cash advance agreement allows (i) us to advance cash to Principal Financial Services, Inc. in aggregate principal amounts not to exceed $3.0 billion, with such advanced amounts earning interest at the daily 30-day LIBOR rate plus 20 basis points (the "Internal Crediting Rate"); and (ii) Principal Financial Services, Inc. to advance cash to us in aggregate principal amounts not to exceed $1.1 billion million, with such advance amounts paying interest at the Internal Crediting Rate plus 5 basis points to reimburse Principal Financial Services, Inc. for the costs incurred in maintaining short-term investing and borrowing programs. Under this cash advance agreement, we had a receivable from Principal Financial Services, Inc. of $67.4 million and $225.7 million at December 31, 2004 and 2003, respectively, and earned interest of $8.5 million, $7.7 million and $8.5 million during 2004, 2003 and 2002, respectively. Pursuant to certain regulatory requirements or otherwise in the ordinary course of business, we guarantee certain payments of our subsidiaries and have agreements with affiliates to provide and/or receive management, administrative and other services, all of which, individually and in the aggregate, are immaterial to our business, financial condition and net income. 3. Goodwill and Other Intangible Assets Amortized intangible assets were as follows:
December 31, 2004 December 31, 2003 ---------------------------------------------------------------------------------- ---------------------------------------------------------------------------------- Gross Accumulated Net Gross Accumulated Net carrying carrying carrying carrying amount amortization amount amount amortization amount ---------------------------------------------------------------------------------- (in millions) Intangibles with finite useful lives......... 87.8 7.4 80.4 22.8 3.5 19.3 ==================================================================================
The amortization expense for intangible assets with finite useful lives was $4.2 million, $1.1 million and $0.3 million for 2004, 2003 and 2002, respectively. At December 31, 2004, the estimated amortization expense for the next five years is as follows (in millions): Year ending December 31: 2005................................. $3.2 2006................................. 3.2 2007................................. 3.2 2008................................. 3.2 2009................................. 3.2 The changes in the carrying amount of goodwill reported in our operating segments for 2003 and 2004 were as follows: U.S. Asset Life and anagement and Health MAccumulation Insurance Consolidated ---------------- ------------ --------------- (in millions) Balances at January 1, 2003.... $23.2 $44.1 $ 67.3 Goodwill from acquisitions..... 30.5 25.1 55.6 ---------------- ------------ --------------- Balances at December 31, 2003.. 53.7 69.2 122.9 Goodwill from acquisitions..... 38.1 0.3 38.4 ---------------- ------------ --------------- Balances at December 31, 2004.. $91.8 $69.5 $ 161.3 ================ ============ =============== 4. Discontinued Operations Principal Residential Mortgage, Inc. On July 1, 2004, we closed the sale of Principal Residential Mortgage, Inc. to CitiMortgage, Inc. Our total after-tax proceeds from the sale were approximately U.S. $620.0 million. Principal Residential Mortgage, Inc. is accounted for as a discontinued operation, under SFAS 144 and therefore, the results of operations (excluding corporate overhead) have been removed from our results of continuing operations, cash flows and segment operating earnings for all periods presented. Corporate overhead allocated to Principal Residential Mortgage, Inc. does not qualify for discontinued operations treatment under SFAS 144 and is included in our results of continuing operations and segment operating earnings for all periods prior to July 1, 2004. Additionally, the information included in the notes to the financial statements excludes information applicable to Principal Residential Mortgage, Inc., unless otherwise noted. The decision to sell Principal Residential Mortgage, Inc. was made with a view toward intensifying our strategic focus on our core retirement and risk protection business as well as achieving our longer-term financial objectives. In addition, the sale was also viewed as a positive move for the stockholders of Principal Financial Group, Inc. as we go forward from an improved capital position, with better financial flexibility and greater stability of earnings. Selected financial information for the discontinued operations of Principal Residential Mortgage, Inc. is as follows: December 31, ------------------------------------- 2004 2003 ------------------ ------------------ (in millions) Assets Mortgage loans.................. $ - $ 2,256.5 Mortgage loan servicing rights.. - 1,951.9 Cash and cash equivalents....... - 674.6 All other assets................ - 675.8 ------------------ ------------------ ------------------ ------------------ Total assets................. $ - $ 5,558.8 ================== ================== Liabilities Short-term debt................. $ - $ 1,450.9 Long-term debt.................. - 1,393.0 All other liabilities........... - 2,242.8 ------------------ ------------------ ------------------ ------------------ Total liabilities............ $ - $ 5,086.7 ================== ==================
For the year ended December 31, -------------------------------------------------------- ----------------- -- ---------------- -- --------------- 2004 2003 2002 ----------------- ---------------- --------------- (in millions) Total revenues.................................... $446.9 $ 1,343.8 $ 1,073.9 ================= ================ =============== Loss from continuing operations, net of related income taxes (represents corporate overhead)..................................... $ (10.3) $ (18.1) $ (16.7) Income from discontinued operations: Income before income taxes.................... 22.4 19.6 192.7 Income taxes.................................. 8.7 7.3 82.8 ----------------- ---------------- --------------- ----------------- ---------------- --------------- Income from discontinued 13.7 12.3 109.9 operations (1)............................. Income on disposal of discontinued operations, net of related income taxes...... 92.8 - - Cumulative effect of accounting change, net of related income taxes........................... - (10.0) - ----------------- ---------------- --------------- ----------------- ---------------- --------------- Net income (loss)................................. $96.2 $ (15.8) $ 93.2 ================= ================ =============== (1) The 2004 summary results of operations information is for the six months ended prior to the July 1, 2004, sale of Principal Residential Mortgage, Inc. and, accordingly, there is no statement of operations data to present subsequent to the date of the sale.
Our U.S. Asset Management and Accumulation segment held $804.8 million of residential mortgage banking escrow deposits (reported as other liabilities) as of December 31, 2003. The purchaser (or acquirer) closed out the banking escrow deposit accounts as a result of the sale. U.S. Asset Management and Accumulation total revenues from this arrangement reclassified to discontinued operations for the years ended December 31, 2004, 2003 and 2002 were $(5.6) million, $28.6 million and $30.5 million, respectively. Income (loss) from discontinued operations net of related income taxes, for the years ended December 31, 2004, 2003 and 2002 were $(3.5) million, $11.2 million and $10.2 million, respectively. 5. Other Divestitures On February 1, 2002, we sold our remaining investment of 15.1 million shares in Coventry Health Care, Inc. common stock and a warrant, exercisable for 3.1 million shares of Coventry Health Care, Inc. common stock. Total proceeds from the completion of this transaction were $325.4 million, which resulted in a realized capital gain of $114.5 million, net of income tax. 6. Variable Interest Entities We have relationships with various types of special purpose entities and other entities where we have a variable interest. The following serves as a discussion of investments in entities that meet the definition of a VIE under FASB Interpretation No. 46 (Revised 2003), Consolidation of Variable Interest Entities ("FIN 46R"). Consolidated Variable Interest Entities Grantor Trusts. We contributed undated subordinated floating rate notes to three grantor trusts. The trusts separated the cash flows of the underlying notes by issuing an interest-only certificate and a residual certificate related to each note contributed. Each interest-only certificate entitles the holder to interest on the stated note for a specified term while the residual certificate entitles the holder to interest payments subsequent to the term of the interest-only certificate and to all principal payments. We retained the interest-only certificate and the residual certificates were subsequently sold to a third party. We have determined that these grantor trusts are VIEs as, in the event of a default or prepayment on the underlying notes, which is the main risk of loss, our interest-only certificates are exposed to the majority of the risk of loss. The restricted interest periods end between 2016 and 2020 and, at that time, the residual certificate holders' certificates are redeemed by the trust in return for the notes. We have determined that it will be necessary for us to consolidate these entities until the expiration of the interest-only period. As of December 31, 2004 and 2003, our consolidated statements of financial position include $369.8 million and $351.8 million, respectively, of undated subordinated floating rate notes of the grantor trusts, which are classified as available-for-sale fixed maturity securities. The obligation to deliver the underlying securities to the residual certificate holders of $138.1million and $103.9 million as of December 31, 2004 and 2003, respectively, is classified as another liability and contains an embedded derivative of the forecasted transaction to deliver the underlying securities. The creditors of the grantor trusts have no recourse to the assets of our company. Other. In addition to the entities above, we have a number of relationships with a disparate group of entities, which meet the FIN 46R criteria for VIEs. Due to the nature of our direct investment in the equity and/or debt of these VIEs, we are the primary beneficiary of such entities, which requires us to consolidate them. These entities include two financial services companies, a private investment trust and two real estate joint ventures. The consolidation of these VIEs did not have a material effect on either our consolidated statement of financial position or results of operations as of and for the years ended December 31, 2004 and 2003. For the majority of these entities, the creditors have no recourse to the assets of our company. The carrying amount and classification of consolidated assets that are collateral for the VIEs' obligations are as follows: December 31, ---------------------------------- ---------------------------------- 2004 2003 ------------------- -------------- (in millions) Fixed maturity securities, available-for-sale $ 56.9 $ 55.3 Equity securities, available-for-sale........ 16.9 15.5 Real estate.................................. 62.3 53.9 Cash and other assets........................ 55.2 0.3 ------------------- -------------- ------------------- -------------- Total assets pledged as collateral...... $ 191.3 $125.0 =================== ============== =================== ============== Long-term debt............................... $ 72.1 $ 65.0 =================== ============== As of December 31, 2004, $191.3 million of assets are pledged as collateral for the VIE entities' other obligations and long-term debt of $183.1 million, of which $111.0 million was issued by these VIE entities to affiliates and, therefore, eliminated upon consolidation. As of December 31, 2003, $125.0 million of assets are pledged as collateral for the VIE entities' long-term debt of $121.8 million, of which $56.8 million was issued by these VIE entities to affiliates and, therefore, eliminated upon consolidation. Significant Unconsolidated Variable Interest Entities We hold a significant variable interest in a number of VIEs where we are not the primary beneficiary. These entities include private investment trusts and custodial relationships that have issued trust certificates or custodial receipts that are recorded as available-for-sale fixed maturity securities in the consolidated financial statements. Between October 3, 1996 and September 21, 2001, we entered into seven separate but similar transactions where various third parties transferred funds to either a custodial account or a trust. The custodians or trusts purchased shares of specific money market funds and then separated the cash flows of the money market shares into share receipts and dividend receipts. The dividend receipts entitle the holder to dividends paid for a specified term while the share receipts, purchased at a discount, entitle the holder to dividend payments subsequent to the term of the dividend receipts and the rights to the underlying shares. We have purchased the share receipts. After the restricted dividend period ends between 2017 and 2021, we, as the share receipt holder, have the right to terminate the custodial account or trust agreement and will receive the underlying money market fund shares. Upon adoption of FIN 46R, we determined the primary beneficiary is the dividend receipt holder, which has the majority of the risk of loss. Our maximum exposure to loss as a result of our involvement with these entities is our recorded investment of $203.1 million and $180.8 million as of December 31, 2004 and 2003, respectively. On June 20, 1997, we entered into a transaction in which we purchased a residual trust certificate. The trust separated the cash flows of an underlying security into an interest-only certificate that entitles the third party certificate holder to the stated interest on the underlying security through May 15, 2017, and into a residual certificate entitling the holder to interest payments subsequent to the term of the interest-only certificates and any principal payments. Subsequent to the restricted interest period, we, as the residual certificate holder, have the right to terminate the trust agreement and will receive the underlying security. Upon adoption of FIN 46R, we determined the primary beneficiary is the interest-only certificate holder, which has the majority of the risk of loss. Our maximum exposure to loss as a result of our involvement with this entity is our recorded investment of $68.9 million and $56.2 million as of December 31, 2004 and 2003, respectively. 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, 2004 and 2003, are summarized as follows:
Cost Gross Gross Fair value unrealized unrealized gains losses ---------------- ---------------- ---------------- ---------------- (in millions) December 31, 2004 Fixed maturities, available-for-sale: U.S. government and agencies....... $ 260.3 $ 5.9 $ 0.6 $ 265.6 Non-U.S. governments............... 428.4 61.9 - 490.3 States and political subdivisions.. 894.2 53.5 0.7 947.0 Corporate - public................. 18,257.8 1,331.4 28.6 19,560.6 Corporate - private................ 9,934.7 649.4 35.2 10,548.9 Mortgage-backed and other asset-backed securities.......... 6,951.4 370.8 23.5 7,298.7 ---------------- ---------------- ---------------- ---------------- ---------------- ---------------- ---------------- ---------------- Total fixed maturities, $ 36,726.8 $ 2,472.9 $ 88.6 $ 39,111.1 available-for-sale................. ================ ================ ================ ================ ================ ================ ================ ================ Total equity securities, $ 710.5 $ 14.9 $ 1.6 $ 723.8 available-for-sale................. ================ ================ ================ ================ ================ ================ ================ ================ December 31, 2003 Fixed maturities, available-for-sale: U.S. government and agencies....... $ 589.7 $ 12.5 $ 0.9 $ 601.3 Non-U.S. governments............... 357.4 64.1 - 421.5 States and political subdivisions.. 497.7 40.4 2.2 535.9 Corporate - public................. 16,702.8 1,349.9 29.9 18,022.8 Corporate - private................ 9,143.9 607.8 96.4 9,655.3 Mortgage-backed and other asset-backed securities.......... 6,406.5 342.8 22.1 6,727.2 ---------------- ---------------- ---------------- ---------------- Total fixed maturities, available-for-sale................. $ 33,698.0 $ 2,417.5 $ 151.5 $ 35,964.0 ================ ================ ================ ================ Total equity securities, available-for-sale................. $ 640.1 $ 19.0 $ 3.2 $ 655.9 ================ ================ ================ ================
The cost and fair value of fixed maturities available-for-sale at December 31, 2004, by expected maturity, were as follows: Cost Fair value ----------------------------- (in millions) Due in one year or less........................... $ 2,209.8 $ 2,249.2 Due after one year through five years............. 8,252.6 8,589.0 Due after five years through ten years............ 9,626.5 10,367.8 Due after ten years............................... 9,686.5 10,606.4 ----------------------------- ----------------------------- 29,775.4 31,812.4 Mortgage-backed and other asset-backed securities. 6,951.4 7,298.7 ----------------------------- ----------------------------- Total............................................. $36,726.8 $39,111.1 ============================= The above summarized activity is based on expected maturities. Actual maturities may differ because borrowers may have the right to call or prepay obligations. Corporate private placement bonds represent a primary area of credit risk exposure. The corporate private placement bond portfolio is diversified by issuer and industry. We monitor 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:
For the year ended December 31, -------------------------------------------------------- -------------------------------------------------------- 2004 2003 2002 ------------------ ------------------ ------------------ (in millions) Fixed maturities, available-for-sale............ $2,183.6 $2,151.3 $2,108.9 Fixed maturities, trading....................... 9.4 10.1 5.2 Equity securities, available-for-sale........... 46.9 45.4 27.4 Mortgage loans.................................. 730.6 765.9 754.1 Real estate..................................... 69.2 80.9 78.6 Policy loans.................................... 51.1 54.5 57.6 Cash and cash equivalents....................... 20.6 14.7 20.8 Derivatives..................................... 16.9 12.7 (15.3) Other........................................... 25.3 44.2 73.6 ------------------ ------------------ ------------------ ------------------ ------------------ ------------------ Total........................................... 3,153.6 3,179.7 3,110.9 Less investment expenses........................ (123.6) (108.5) (92.2) ------------------ ------------------ ------------------ ------------------ ------------------ ------------------ Net investment income........................... $3,030.0 $3,071.2 $3,018.7 ================== ================== ==================
Net Realized/Unrealized Capital Gains and Losses The major components of net realized/unrealized capital losses on investments are summarized as follows:
For the year ended December 31, -------------------------------------------------------- -------------------------------------------------------- 2004 2003 2002 ------------------ ------------------ ------------------ (in millions) Fixed maturities, available-for-sale: Gross gains................................... $ 48.6 $ 69.8 $ 141.1 Gross losses.................................. (90.4) (289.2) (535.7) Fixed maturities, trading: Gross gains................................... 1.5 3.5 4.0 Gross losses.................................. (2.6) (0.3) (0.1) Equity securities, available-for-sale: Gross gains................................... 12.1 7.0 2.6 Gross losses.................................. (10.4) 5.2 (32.5) Mortgage loans.................................. (12.1) (2.1) (10.3) Derivatives..................................... (116.9) 110.3 (73.3) Other........................................... 60.5 5.4 109.0 ------------------ ------------------ ------------------ ------------------ ------------------ ------------------ Net realized/unrealized capital losses.......... $(109.7) $ (90.4) $ (395.2) ================== ================== ==================
Proceeds from sales of investments (excluding call and maturity proceeds) in fixed maturities were $1.7 billion, $2.6 billion and $7.9 billion in 2004, 2003 and 2002, respectively. The proceeds set forth above include amounts related to sales of mortgage-backed securities of $0.5 billion, $0.1 billion and $4.3 billion in 2004, 2003 and 2002, respectively. Gross gains of $0.1 million, $0.4 million and $88.2 million and gross losses of zero, $0.9 million and $11.6 million in 2004, 2003 and 2002, respectively, were realized on sales of mortgage-backed securities. We recognize 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 $52.9 million, $157.2 million and $357.0 million in 2004, 2003, and 2002, respectively. Gross Unrealized Losses for Fixed Maturities and Equity Securities For fixed maturities and equity securities available-for-sale with unrealized losses as of December 31, 2004 and 2003, the gross unrealized losses and fair value, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position are summarized as follows:
December 31, 2004 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- Less than Greater than or equal to twelve months twelve months Total -------------------------- ----------------------------------------------------- -------------------------- --------------------------- Carrying Gross Carrying Gross Gross unrealized unrealized Carrying unrealized value losses value losses value losses -------------------------- ------------ ------------------------- -------------- (in millions) Fixed maturities, available-for-sale: U.S. government and agencies............... $ 64.1 $ 0.6 $ - $ - $ 64.1 $ 0.6 States and political subdivisions........... 54.2 0.3 21.5 0.4 75.7 0.7 Corporate - public....... 1,898.5 19.5 181.8 9.1 2,080.3 28.6 Corporate - private...... 1,426.3 17.6 335.8 17.6 1,762.1 35.2 Mortgage-backed and other asset-backed securities............. 1,470.7 18.8 102.6 4.7 1,573.3 23.5 -------------------------- ------------ ------------------------- -------------- -------------------------- ------------ ------------------------- -------------- Total fixed maturities, $ 4,913.8 $ 56.8 $ 641.7 $ 88.6 available-for-sale....... $ 31.8 $ 5,555.5 ========================== ============ ========================= ============== ========================== ============ ========================= ============== Total equity securities, $ 62.0 $ 0.7 $ 249.7 $ 1.6 available-for-sale....... $ 0.9 $ 311.7 ========================== ============ ========================= ==============
As of December 31, 2004, we held $5,555.5 million in available-for-sale fixed maturity securities with unrealized losses of $88.6 million. Of these amounts, our General Account portfolio represented $5,555.5 million in available-for-sale fixed maturity securities with unrealized losses of $88.6 million. Our General Account portfolio consists of fixed maturity securities where 97% are investment grade (rated AAA through BBB-) with an average price of 98% (carrying value/amortized cost). For those securities that have been in a loss position for less than twelve months, our General Account portfolio holds 557 securities with a carrying value of $4,913.8 million and unrealized losses of $56.8 million reflecting an average price of 99. Of this portfolio, 98.5% was investment grade (rated AAA through BBB-) at December 31, 2004, with associated unrealized losses of $51.8 million. The losses on these securities can primarily be attributed to changes in market interest rates and changes in credit spreads since the securities were acquired. For those securities that have been in a continuous loss position greater than or equal to twelve months, our General Account holds 80 securities with a carrying value of $641.7 million and unrealized losses of $31.8 million. The average rating of this portfolio is BBB- with an average price of 95 at December 31, 2004. The Corporate-Public and Corporate-Private sectors account for $26.7 million of the $31.8 million in unrealized losses. The average price of the corporate sectors is 95 and the average credit rating is BBB+. Included in the mortgage-backed and other asset-backed securities sector is one previously impaired security with a carrying value of $2.0 million and a current unrealized loss of $0.9 million.
December 31, 2003 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- Less than Greater than or equal to twelve months twelve months Total -------------------------- ----------------------------------------------------- -------------------------- --------------------------- Carrying Gross Carrying Gross Gross unrealized unrealized Carrying unrealized value losses value losses value losses -------------------------- ------------ ------------------------- -------------- (in millions) Fixed maturities, available-for-sale: U.S. government and agencies............... $ 289.8 $ 0.9 $ - $ - $ 289.8 $ 0.9 States and political subdivisions........... 50.3 1.2 20.5 1.0 70.8 2.2 Corporate - public....... 866.3 20.7 77.7 9.2 944.0 29.9 Corporate - private...... 1,268.8 69.3 218.4 27.1 1,487.2 96.4 Mortgage-backed and other asset-backed securities............. 1,376.9 14.9 83.2 7.2 1,460.1 22.1 -------------------------- ------------ ------------------------- -------------- -------------------------- ------------ ------------------------- -------------- Total fixed maturities, $ 3,852.1 $ 107.0 $ 399.8 $ 151.5 available-for-sale....... $ 44.5 $ 4,251.9 ========================== ============ ========================= ============== ========================== ============ ========================= ============== Total equity securities, $ 77.7 $ 0.3 $ 241.7 $ 3.2 available-for-sale....... $ 2.9 $ 319.4 ========================== ============ ========================= ==============
As of December 31, 2003, we held $4,251.9 million in available-for-sale fixed maturity securities with unrealized losses of $151.5 million. Of these amounts, our General Account portfolio represented $3,786.2 million in available-for-sale fixed maturity securities with unrealized losses of $147.3 million. Our General Account portfolio consists of fixed maturity securities where 89% are investment grade (rated AAA through BBB-) with an average price of 95 (carrying value/amortized cost). Of the $151.5 million total gross unrealized losses, $24.8 million is related to fixed maturity securities that are part of a fair value hedging relationship that have been recognized in net income as of December 31, 2003. These securities are included in the less than twelve months Corporate-Private category. For those securities that have been in a loss position for less than twelve months, our General Account portfolio holds 349 securities with a carrying value of $3,386.4 million and unrealized losses of $102.8 million reflecting an average price of 97. Of this portfolio, 95.7% was investment grade (rated AAA through BBB-) at December 31, 2003, with associated unrealized losses of $67.5 million. The losses on these securities can primarily be attributed to changes in market interest rates and changes in credit spreads since the securities were acquired. For those securities that have been in a continuous loss position greater than or equal to twelve months, our General Account holds 60 securities with a carrying value of $399.8 million and unrealized losses of $44.5 million. The average rating of this portfolio is BBB- with an average price of 90 at December 31, 2003. The Corporate-Public and Corporate-Private sectors account for $36.3 million of the $44.5 million in unrealized losses. The average price of the corporate sectors is 89 and the average credit rating is BB/BB-. Included in the Corporate-Private sector and mortgage-backed and other asset-backed securities sector are three previously impaired securities with a carrying value of $9.0 million and $2.0 million, respectively, and a current unrealized loss of $1.0 million and $0.8 million, respectively. We closely monitor our below investment grade holdings and those investment grade names where we have concerns. While we are in an unrealized loss position on these securities, all securities except those identified as previously impaired continue to make payments. We consider relevant facts and circumstances in evaluating whether the impairment of a security is other than temporary. Relevant facts and circumstances considered include: (1) the length of time the fair value has been below cost; (2) the financial position and access to capital of the issuer, including the current and future impact of any specific events; and (3) our ability and intent to hold the security to maturity or until it recovers in value. To the extent we determine that a security is deemed to be other than temporarily impaired, the difference between amortized cost and fair value is charged to earnings. Net Unrealized Gains and Losses on Available-for-Sale Securities The net unrealized gains and losses on investments in fixed maturities and equity securities available-for-sale are reported as a separate component of stockholders' equity, reduced by adjustments to DPAC, sales inducements, unearned revenue reserves and PDO that would have been required as a charge or credit to operations had such amounts been realized, and a provision for deferred income taxes. The cumulative amount of net unrealized gains and losses on available-for-sale securities was as follows:
December 31, ---------------------------------- ---------------------------------- 2004 2003 ---------------- ----------------- (in millions) Net unrealized gains on fixed maturities, available-for-sale (1)...... $ 2,392.8 $2,325.3 Net unrealized gains on equity securities, available-for-sale......... 13.4 13.1 Adjustments for assumed changes in amortization patterns: Deferred policy acquisition costs................................... (242.9) (274.4) Sales inducements................................................... 0.5 - Unearned revenue reserves........................................... 11.5 15.3 Net unrealized losses on derivative instruments....................... (2.0) (90.9) Net unrealized losses on policyholder dividend obligation............. (118.5) (99.0) Net unrealized losses on equity method subsidiaries and minority interest adjustments.............................................. (36.6) (8.4) Provision for deferred income taxes................................... (702.3) (654.5) ---------------- ----------------- ---------------- ----------------- Net unrealized gains on available-for-sale securities................. $ 1,315.9 $1,226.5 ================ ================= (1) Excludes net unrealized gains (losses) on fixed maturities, available-for-sale included in fair value hedging relationships.
Commercial Mortgage Loans Commercial mortgage loans represent a primary area of credit risk exposure. At December 31, 2004 and 2003, the commercial mortgage portfolio is diversified by geographic region and specific collateral property type as follows:
December 31, -------------------------------------------------------------------- 2004 2003 -------------------------------------------------------------------- ---------------------------------- Carrying amount Percent Carrying amount Percent of total of total -------------------------------------------------------------------- (dollars in millions) Geographic distribution New England.......................... $ 426.8 4.2% $ 398.9 4.1% Middle Atlantic...................... 1,916.8 18.7 1,686.8 17.5 East North Central................... 913.0 8.9 945.7 9.8 West North Central................... 419.8 4.1 336.4 3.5 South Atlantic....................... 2,419.8 23.7 2,285.2 23.7 East South Central................... 341.3 3.3 312.1 3.2 West South Central................... 726.9 7.1 662.1 6.9 Mountain............................. 819.7 8.0 702.0 7.3 Pacific.............................. 2,283.0 22.4 2,350.8 24.5 Valuation allowance.................. (42.4) (0.4) (49.6) (0.5) -------------------------------------------------------------------- -------------------------------------------------------------------- Total................................ $10,224.7 100.0% $ 9,630.4 100.0% ==================================================================== -------------------------------------------------------------------- Property type distribution Office............................... $ 3,383.5 33.1% $ 3,545.2 36.8% Retail............................... 2,984.7 29.1 2,706.4 28.1 Industrial........................... 2,826.4 27.6 2,708.8 28.1 Apartments........................... 885.4 8.7 545.9 5.7 Hotel................................ 48.0 0.5 52.8 0.5 Mixed use/other...................... 139.1 1.4 120.9 1.3 Valuation allowance.................. (42.4) (0.4) (49.6) (0.5) -------------------------------------------------------------------- -------------------------------------------------------------------- Total................................ $10,224.7 100.0% $ 9,630.4 100.0% ====================================================================
Commercial Mortgage Loan Loss Allowance Mortgage loans on real estate are considered impaired when, based on current information and events, it is probable that we will be unable to collect all amounts due according to contractual terms of the loan agreement. When we determine that a loan is impaired, a provision for loss is established equal to 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 included in net realized/unrealized capital losses on our consolidated statements of operations. Mortgage loans deemed to be impaired are directly charged against the asset or 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 and assessment of the adequacy of the allowance for losses and the need for mortgage impairments is based on 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 of our loan specific reserve component is also subjective, as it requires estimating the amounts and timing of future cash flows expected to be received on impaired loans. Impaired mortgage loans along with the related allowance for losses were as follows: December 31, --------------------------------- --------------------------------- 2004 2003 ------------- ------------------ (in millions) Impaired loans.......... $105.4 $135.1 Allowance for losses.... (6.5) (12.5) ------------- ------------------ ------------- ------------------ Net impaired loans...... $ 98.9 $122.6 ============= ================== The average recorded investment in impaired mortgage loans and the interest income recognized on impaired mortgage loans were as follows:
For the year ended December 31, --------------------------------------------------- 2004 2003 2002 ------------- ------------------ ------------------ (in millions) Average recorded investment in impaired loans...................... $105.2 $81.6 $69.5 Interest income recognized on impaired loans. 7.0 12.0 7.1
All interest income on impaired commercial mortgage loans was recognized on the cash basis of income recognition. A summary of the changes in the commercial mortgage loan allowance for losses is as follows:
For the year ended December 31, -------------------------------------------------------- -------------------------------------------------------- 2004 2003 2002 ------------------ ------------------ ------------------ (in millions) Balance at beginning of year.................... $ 49.6 $83.6 $89.0 Provision for losses............................ 14.4 1.3 33.5 Releases due to write-downs, sales and foreclosures........................ (21.6) (35.3) (38.9) ------------------ ------------------ ------------------ ------------------ ------------------ ------------------ Balance at end of year.......................... $ 42.4 $49.6 $83.6 ================== ================== ==================
Real Estate Depreciation expense on invested real estate was $36.9 million, $28.6 million and $25.5 million in 2004, 2003 and 2002, respectively. Accumulated depreciation was $202.8 million and $199.6 million as of December 31, 2004 and 2003, respectively. Other Investments Other investments include minority interests in unconsolidated entities and properties owned jointly with venture partners and operated by the partners. Such investments are generally accounted for using the equity method. In applying the equity method, we record our share of income or loss reported by the equity investees. Changes in the value of our investment in equity investees attributable to capital transactions of the investee, such as an additional offering of stock, are recorded directly to stockholder's equity. Total assets of the unconsolidated entities amounted to $3,865.5 million and $3,192.9 million at December 31, 2004 and 2003, respectively. Total revenues of the unconsolidated entities were $700.4 million, $784.7 million and $601.9 million in 2004, 2003 and 2002, respectively. During 2004, 2003 and 2002, we included $30.5 million, $41.6 million and $36.1 million, respectively, in net investment income representing our share of current year net income of the unconsolidated entities. At December 31, 2004 and 2003, our net investment in unconsolidated entities was $95.2 million and $37.3 million, respectively, which primarily included our minority interests in domestic joint ventures and partnerships. In the ordinary course of our business and as part of our investment operations, we have also entered into long term contracts to make and purchase mortgage loans aggregating $1,268.9 million and $1,012.0 million at December 31, 2004 and 2003, respectively. Derivatives are reflected on our consolidated statements of financial position and reported as a component of other investments. Certain seed money investments are carried at fair value with changes in fair value included in net income as net realized/unrealized capital gains or losses. 8. Securitization Transactions Commercial Mortgage Loans We, along with other contributors, sell commercial mortgage loans in securitization transactions to trusts. As these trusts are classified as a qualifying special purpose entity pursuant to the guidance of SFAS No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities-A Replacement of FASB Statement 125, they are not required to be consolidated under the provisions of FIN 46R. We retain primary servicing responsibilities and may retain other immaterial interests. We receive annual servicing fees approximating 0.01%, which approximates cost. The investors and the securitization entities have no recourse to our other assets for failure of debtors to pay when due. The value of our retained interests is subject primarily to credit risk. In 2004, 2003, and 2002,we recognized gains of $14.4 million, $16.4 million and $17.2 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 foreclosure rate between 4% and 10% during 2004, 5% and 12% during 2003, and 6% and 11% during 2002. The assumed range of the loss severity, as a percentage of defaulted loans, was between 13% and 31% during 2004, 14% and 33% during 2003, and 12% and 32% during 2002. 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, 2004 and 2003, the fair values of retained interests related to the securitizations of commercial mortgage loans were $304.3 million and $255.4 million, respectively. 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, 2004 and 2003, as a result of these assumptions were not significant. Securitization Transactions Cash Flows The table below summarizes cash flows for securitization transactions:
For the year ended December 31, -------------------------------------------------------------------- -------------------------------------------------------------------- 2004 2003 2002 ---------------------- ---------------------- ---------------------- (in millions) Proceeds from new securitizations..... $871.1 $998.0 $1,067.6 Servicing fees received............... 1.1 0.9 0.7 Other cash flows received on retained interests................ 31.1 30.7 26.8
9. Derivative Financial Instruments Derivatives are generally used to hedge or reduce exposure to market risks (primarily 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. Derivatives are used to change the characteristics of our asset/liability mix consistent with our risk management activities. Additionally, derivatives are also used in asset replication strategies. We do not buy, sell or hold these investments for trading purposes. Our risk of loss is typically limited to the fair value of our 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. We are also exposed to credit losses in the event of nonperformance of the counterparties. Our current credit exposure is limited to the value of derivatives that have become favorable to us. This credit risk is minimized by purchasing such agreements from financial institutions with high credit ratings and by establishing and monitoring exposure limits. We also utilize various credit enhancements, including collateral and credit triggers to reduce the credit exposure to our derivative instruments. Our 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, we are permitted to set off our receivable from counterparty against our payables to the same counterparty arising out of all included transactions. Prior to the application of the aforementioned credit enhancements, the gross exposure to credit risk with respect to these derivative instruments was $943.8 million and $811.0 million at December 31, 2004 and 2003, respectively. Subsequent to the application of such credit enhancements, the net exposure to credit risk was $547.3 million and $476.5 million at December 31, 2004 and 2003, respectively. The notional amounts and credit exposure of our derivative financial instruments by type were as follows: December 31, ---------------------------- ---------------------------- 2004 2003 ------------- -------------- (in millions) Notional amounts of derivative instruments Interest rate swaps................................ $7,481.9 $5,024.9 Foreign currency swaps............................. 3,013.4 2,823.4 Credit default swaps............................... 988.3 863.3 Interest rate lock commitments..................... 634.3 - Mortgage-backed forwards and options............... 586.8 522.1 Bond forwards...................................... 508.0 467.2 Embedded derivative financial instruments.......... 499.1 455.9 Swaptions.......................................... 429.0 315.0 Currency forwards.................................. 356.4 135.8 Call options....................................... 73.0 30.0 Bond options....................................... 38.5 17.5 Futures............................................ - 27.8 ------------- ------------ Total notional amounts at end of year.............. 14,608.7 10,682.9 ============= ============ ============= ============ Net credit exposure of derivative instruments Foreign currency swaps............................. $803.4 $ 637.1 Bond forwards...................................... 66.8 52.2 Interest rate swaps................................ 41.5 68.9 Credit default swaps............................... 19.3 45.9 Call options....................................... 10.5 6.6 Currency forwards.................................. 1.6 0.3 Bond options....................................... 0.7 - ------------- ------------ ------------- ------------ Total credit exposure at end of year................ 943.8 811.0 ============= ============ The net interest effect of interest rate, currency swap and credit default swap transactions is recorded as an adjustment to net investment income or interest expense, as appropriate, over the periods covered by the agreements. The fair value of our derivative instruments related to investment hedges and classified as other invested assets at December 31, 2004 and 2003, was $864.2 million and $736.4 million, respectively. The fair value of derivative instruments classified as liabilities at December 31, 2004 and 2003, was $195.9 million and $124.5 million, respectively, and was reported with other liabilities on the consolidated statements of financial position. Fair Value Hedges We use 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. We also enter 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. We recognized a pre-tax net loss of $(28.7) million, $(9.5) million and $(20.4) million in 2004, 2003 and 2002, respectively, relating to the ineffective portion of our fair value investment hedges, which was reported with net realized/unrealized capital losses on our consolidated statements of operations. Cash Flow Hedges We also utilize floating-to-fixed rate interest rate swaps to match cash flows. We entered 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. At December 31, 2004, we had hedged the exposure to variable cash flows of $46.7 million of unrecognized firm commitments. These firm commitments are scheduled to fund in first quarter 2005. In 2004, 2003 and 2002, we recognized a $57.8 million, $49.6 million and $(74.5) million after-tax increase (decrease) in value, respectively, related to cash flow hedges in accumulated other comprehensive income. During this time period, none of our 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. We reclassified $5.2 million and $54.6 million net losses from accumulated comprehensive income into earnings during 2004 and 2003, respectively, and we expect to reclassify $21.3 million net losses in the next 12 months. 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, we have recognized an immaterial amount in net income due to cash flow hedge ineffectiveness. Derivatives Not Designated as Hedging Instruments We attempt to match the timing of when interest rates are committed on insurance products and other new investments. However, timing differences may occur and can expose us to fluctuating interest rates. To offset this risk, we use 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. Occasionally, we 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, we may sell an investment-type contract with attributes tied to market indices, in which case we write an equity call option to convert the overall contract into a fixed-rate liability, essentially eliminating the equity component altogether. We have also entered into credit default swaps to exchange the credit default swap risk of one bond for that of another. We have also entered into currency forward agreements and swaps to reduce the exposure to future currency volatility in certain short-term foreign cash equivalents and available-for-sale securities. We also have interest rate lock commitments that are done as part of our commercial mortgage loan securitization operation. Fair value is determined by discounting the expected total cash flows using market rates that are applicable to the yield, credit quality and maturity of each commitment. 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 2004, 2003 and 2002, gains (losses) of $(58.6) million, $68.5 million and $13.2 million, respectively, were recognized in income from market value changes of derivatives not receiving hedge accounting treatment. We may purchase or issue financial instruments or products that contain a derivative instrument that is embedded in the financial instrument or products. When it is determined that the embedded derivative possesses economic characteristics that are not clearly or closely related to the economic characteristics of the host contract and a separate instrument with the same terms would qualify as a derivative instrument, the embedded derivative is bifurcated from the host for measurement purposes. The embedded derivative, which is reported with the host instrument in the consolidated statements of financial position, is carried at fair value with changes in fair value reported in net income. In 2002, we entered into an interest rate swap as part of a structuring process of an investment grade collateralized debt obligation ("CDO") issuance. Due to market conditions, the CDO was never issued. The pre-tax loss realized on the termination of the interest rate swap was $17.3 million. 10. Closed Block In connection with the 1998 mutual insurance holding company ("MIHC") formation, we 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. 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. 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 other similar assets and liabilities. We 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, we will be required to make such payments from their 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 PDO is required to be established for earnings in the Closed Block that are not available to our stockholder. 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 PDO. This PDO 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, 2004 and 2003, cumulative actual earnings have been less than cumulative expected earnings. However, cumulative net unrealized gains were greater than expected resulting in the recognition of a PDO of $118.5 million and $99.0 million as of December 31, 2004 and 2003, respectively. Closed Block liabilities and assets designated to the Closed Block were as follows: December 31, ------------------------- ------------------------- 2004 2003 ------------------------- (in millions) Closed Block liabilities Future policy benefits and claims................... $5,409.0 $5,401.7 Other policyholder funds............................ 28.8 30.7 Policyholder dividends payable...................... 364.3 371.3 Policyholder dividend obligation.................... 118.5 99.0 Other liabilities................................... 42.6 42.9 ------------------------- ------------------------- Total Closed Block liabilities.................... 5,963.2 5,945.6 Assets designated to the Closed Block Fixed maturities, available-for-sale................. 3,057.5 2,864.1 Equity securities, available-for-sale................ 74.9 80.7 Mortgage loans....................................... 754.5 849.9 Real estate.......................................... 1.7 1.9 Policy loans......................................... 751.2 757.8 Other investments.................................... 19.9 26.8 ------------------------- ------------------------- Total investments................................. 4,659.7 4,581.2 Cash and cash equivalents (deficit)................. 0.4 (6.0 Accrued investment income........................... 72.9 74.1 Deferred income tax asset........................... 78.9 70.1 Premiums due and other receivables.................. 22.8 28.1 Other assets........................................ 18.8 22.3 ------------------------- ------------------------- Total assets designated to the Closed Block....... 4,853.5 4,769.8 ------------------------- ------------------------- Excess of Closed Block liabilities over assets designated to the Closed Block.................... 1,109.7 1,175.8 Amounts included in other comprehensive income...... 63.0 74.6 ------------------------- ------------------------- Maximum future earnings to be recognized from Closed Block assets and liabilities...................... $1,172.7 $1,250.4 ========================= Closed Block revenues and expenses were as follows:
For the year ended December 31, ------------------------------------------------------------- ------------------------------------------------------------- 2004 2003 2002 ------------------ ------------------- -------------------- (in millions) Revenues Premiums and other considerations......... $ 648.7 $ 684.3 $ 710.0 Net investment income..................... 301.6 306.6 309.9 Net realized/unrealized capital losses.... (4.1) (6.6) (40.8) ------------------ ------------------- -------------------- ------------------ ------------------- -------------------- Total revenues.......................... 946.2 984.3 979.1 Expenses Benefits, claims and settlement expenses................................ 515.1 557.4 583.3 Dividends to policyholders................ 289.1 298.6 305.2 Operating expenses........................ 11.6 8.3 12.3 ------------------ ------------------- -------------------- ------------------ ------------------- -------------------- Total expenses......................... 815.8 864.3 900.8 ------------------ ------------------- -------------------- ------------------ ------------------- -------------------- Closed Block revenue, net of Closed Block expenses, before income taxes........... 130.4 120.0 78.3 Income taxes.............................. 42.6 39.5 25.2 ------------------ ------------------- -------------------- ------------------ ------------------- -------------------- Closed Block revenue, net of Closed Block 87.8 80.5 53.1 expenses and income taxes............... Funding adjustment charges................ (10.1) (31.9) (3.5) ------------------ ------------------- -------------------- ------------------ ------------------- -------------------- Closed Block revenue, net of Closed Block $ 77.7 $ 48.6 $ 49.6 expenses, income tax and funding adjustment charges...................... ================== =================== ====================
The change in maximum future earnings of the Closed Block was as follows: For the year ended December 31, ------------------------------------------------------------- ------------------------------------------------------------- 2004 2003 2002 ------------------ ------------------- -------------------- (in millions) Beginning of year........................... $1,250.4 $1,299.0 $1,348.6 End of year................................. 1,172.7 1,250.4 1,299.0 ------------------ ------------------- -------------------- ------------------ ------------------- -------------------- Change in maximum future earnings........... $ (77.7) $(48.6) $ (49.6) ================== =================== ====================
We charge 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. 11. Deferred Policy Acquisition Costs Policy acquisition costs deferred and amortized in 2004, 2003 and 2002 were as follows:
For the year ended December 31, -------------------------------------------------------- -------------------------------------------------------- 2004 2003 2002 ------------------ ------------------ ------------------ (in millions) Balance at beginning of year..................... $1,519.6 $1,374.4 $1,322.3 Cost deferred during the year.................... 457.8 337.4 314.8 Amortized to expense during the year............. (207.7) (144.0) (141.1) Effect of unrealized gains....................... 31.5 (48.2) (121.6) Other (1)........................................ (30.3) - - ------------------ ------------------ ------------------ ------------------ ------------------ ------------------ Balance at end of year........................... $1,770.9 $1,519.6 $1,374.4 ================== ================== ================== (1) Due to the January 1, 2004 adoption of SOP 03-1, we reclassified $30.3 million of sales inducements from DPAC to other assets.
12. Insurance Liabilities Contractholder Funds Major components of contractholder funds in the consolidated statements of financial position are summarized as follows: December 31, ------------------------------ ------------------------------ 2004 2003 -------------- --------------- (in millions) Liabilities for investment-type contracts: GICs $12,803.3 $12,868.3 Funding agreements............................. 11,266.3 9,336.2 Other investment-type contracts................ 1,528.3 1,563.4 -------------- --------------- Total liabilities for investment-type contracts.. 25,597.9 23,767.9 Liabilities for individual annuities............. 4,547.2 3,486.2 Universal life and other reserves................ 2,029.7 1,636.5 -------------- --------------- Total contractholder funds....................... $32,174.8 $28,890.6 ============== =============== Our GICs and funding agreements contain provisions limiting early surrenders, which typically include penalties for early surrenders and minimum notice requirements. Funding agreements include those issued directly to nonqualified institutional investors, as well as to three separate programs where the funding agreements are issued directly or indirectly to unconsolidated special purpose entities. Claims for principal and interest under funding agreements are afforded equal priority to claims of life insurance and annuity policyholders under insolvency provisions of Iowa Insurance Laws. We are authorized to issue up to $4.0 billion of funding agreements under a program established in 1998 to support the prospective issuance of medium term notes by an unaffiliated entity in non-U.S. markets. As of December 31, 2004 and 2003, $3,867.0 million and $3,618.7 million, respectively, of liabilities are being held with respect to the issuance outstanding under this program. In addition, we are authorized to issue up to $7.0 billion of funding agreements under a program established in 2001 to support the prospective issuance of medium term notes by an unaffiliated entity in both domestic and international markets. The unaffiliated entity is an unconsolidated qualifying special purpose entity. As of December 31, 2004 and 2003, $5,462.3 million and $5,613.4 million, respectively, of liabilities are being held with respect to the issuance outstanding under this program. We do not anticipate any new issuance activity under this program, given the March 2004 establishment of the SEC-registered program described in the next paragraph. We are authorized to issue up to $4.0 billion of funding agreements under a program established in March, 2004 to support the prospective issuance of medium term notes by unaffiliated entities in both domestic and international markets. Under this program, both the notes and the supporting funding agreements are registered with the SEC. As of December 31, 2004, $1,831.5 million of liabilities are being held with respect to the issuance outstanding under this program. In contrast with direct funding agreements, GIC issuances and the other two funding agreement-backed medium term note programs described above, our payment obligations on each funding agreement issued under this SEC-registered program are guaranteed by Principal Financial Group, Inc. Future Policy Benefits and Claims Activity in the liability for unpaid accident and health claims, which is included with future policy benefits and claims in the consolidated statements of financial position, is summarized as follows: For the year ended December 31, ------------------------------------------------ ------------------------------------------------ 2004 2003 2002 ------------- ------------------ --------------- (in millions) Balance at beginning of year..$ 705.8 $ 699.3 $ 714.8 Incurred: Current year................ 1,634.2 1,572.3 1,588.3 Prior years................. 19.9 (24.7) 0.6 ------------- ------------------ --------------- ------------- ------------------ --------------- Total incurred................ 1,654.1 1,547.6 1,588.9 Payments: Current year................ 1,381.6 1,304.6 1,333.2 Prior years................. 247.6 236.5 271.2 ------------- ------------------ --------------- ------------- ------------------ --------------- Total payments................ 1,629.2 1,541.1 1,604.4 Balance at end of year: Current year................ 252.6 267.7 255.1 Prior years................. 478.1 438.1 444.2 ------------- ------------------ --------------- ------------- ------------------ --------------- Total balance at end of year..$ 730.7 $ 705.8 $ 699.3 ============= ================== =============== The activity summary in the liability for unpaid accident and health claims shows an increase (decrease) of $19.9 million, $(24.7) million and $0.6 million for the years ended December 31, 2004, 2003 and 2002, respectively, relating to prior years. Such liability adjustments, which affected current operations during 2004, 2003 and 2002, respectively, resulted in part from developed claims for prior years being different than were anticipated when the liabilities for unpaid accident and health claims were originally estimated. In addition, in 2003 we established a premium deficiency reserve on our medical conversion business that was included in our incurred but not reported claim reserve in prior years. These trends have been considered in establishing the current year liability for unpaid accident and health claims. We also had claim adjustment expenses of $28.3 million, $27.7 million and $23.0 million, and related reinsurance recoverables of $3.6 million, $2.5 million and $2.0 million in 2004, 2003 and 2002, respectively, which are not included in the rollforward above. 13. Debt Short-Term Debt The components of short-term debt as of December 31, 2004 and 2003, were as follows: December 31, ------------------------------------ ------------------------------------ 2004 2003 ----------------- ------------------ (in millions) Other recourse short-term debt........ $ 0.3 $ - Nonrecourse short-term debt........... 150.3 276.0 Revolving line of credit with parent.. 547.0 201.1 ----------------- ------------------ ----------------- ------------------ Total short-term debt................. $697.6 $477.1 ================= ================== As of December 31, 2004, we had credit facilities with various financial institutions in an aggregate amount of $1.0 billion. As of December 31, 2004 and 2003, we had $697.6 million and $477.1 million of outstanding borrowings related to our credit facilities, with $176.2 million and $316.1 million of assets pledged as support, respectively. Assets pledged consisted primarily of commercial mortgages and securities. Our short-term debt consists of a payable to Principal Financial Services, Inc. of $547.0 million and $201.1 million as of December 31, 2004 and 2003, respectively. Interest paid on intercompany debt was $6.2 million and $1.5 million during 2004 and 2003, respectively. The weighted-average interest rates on short-term borrowings as of December 31, 2004 and 2003, were 2.9% and 2.0%, respectively. Long-Term Debt The components of long-term debt as of December 31, 2004 and 2003, were as follows: December 31, ----------------------------------- 2004 2003 ---------------- ------------------ (in millions) 7.875% surplus notes payable, due 2024....$ - $ 199.0 8% surplus notes payable, due 2044........ 99.2 99.2 Nonrecourse mortgages and notes payable... 213.2 211.9 Other mortgages and notes payable......... 35.4 71.4 ---------------- ------------------ Total long-term debt...................... $ 347.8 $ 581.5 ================ ================== 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. On March 10, 1994, we 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. None of our affiliates 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 we have sufficient surplus earnings to make such payments. Interest of $10.6 million for the year ended December 31, 2004, and $23.8 million for each of the years ended December 31, 2003 and 2002, respectively, was approved by the Commissioner, and charged to expense. After receiving approval from the Commissioner, the surplus notes due March 1, 2024, were optionally redeemed by us on March 1, 2004, in whole at a redemption price of approximately 103.6% of par. Total cash paid for the surplus note redemption on March 1, 2004, was $207.2 million. Subject to Commissioner approval, the notes due March 1, 2044, may be redeemed at our 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. We, including certain subsidiaries, had $125.0 million in credit facilities with various financial institutions, in addition to obtaining loans with various lenders to finance these developments. Outstanding principal balances as of December 31, 2004, range from $0.4 million to $98.7 million per development with interest rates generally ranging from 6.0% to 8.6%. Outstanding principal balances as of December 31, 2003, range from $0.4 million to $99.9 million per development with interest rates generally ranging from 6.0% to 8.6%. Outstanding debt is secured by the underlying real estate properties, which were reported as real estate on our consolidated statements of financial position with a carrying value of $298.7 million and $322.1 million as of December 31, 2004 and 2003, respectively. At December 31, 2004, future annual maturities of the long-term debt were as follows (in millions): Year ending December 31: 2005 $ 36.5 2006 32.0 2007 98.1 2008 76.0 2009 0.4 Thereafter...................................... 104.8 ------------------- ------------------- Total future maturities of the long-term debt... $ 347.8 =================== Cash paid for interest for 2004, 2003 and 2002, was $37.4 million, $45.6 million and $43.8 million, respectively. These amounts include interest paid on taxes during these years. 14. Income Taxes Our income tax expense (benefit) from continuing operations was as follows:
For the year ended December 31, -------------------------------------------------------- --------------------------------------- 2004 2003 2002 ------------------ ------------------ ------------------ (in millions) Current income taxes (benefits): U.S. federal..................................... $ 289.6 $ 120.3 $ (85.6) State and foreign................................ 33.4 38.4 48.0 Net realized/unrealized capital gains (losses)... 3.5 (121.7) (78.2) ------------------ ------------------ ------------------ ------------------ ------------------ ------------------ Total current income taxes (benefits)............... 326.5 37.0 (115.8) Deferred income taxes (benefits).................... (100.2) 144.9 46.5 ------------------ ------------------ ------------------ ------------------ ------------------ ------------------ Total income taxes (benefits)....................... $ 226.3 $ 181.9 $ (69.3) ================== ================== ==================
Our 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 our 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 from continuing operations is as follows:
For the year ended December 31, -------------------------------------------------------- -------------------------------------------------------- 2004 2003 2002 ------------------ ------------------ ------------------ ------------------ ------------------ ------------------ Statutory corporate tax rate.................... 35% 35% 35% Dividends received deduction.................... (9) (7) (20) Interest exclusion from taxable income.......... (2) (1) (3) Federal tax settlement for prior years.......... - (3) (31) Section 29 fuel tax credits................... (2) - - Other........................................... 3 (2) - ------------------ ------------------ ------------------ Effective tax rate.............................. 25% 22% (19)% ================== ================== ==================
Significant components of our net deferred income taxes were as follows:
December 31, ----------------------------------- ----------------------------------- 2004 2003 ---------------- ------------------ (in millions) Deferred income tax assets (liabilities): Insurance liabilities................................. $ 390.9 $ 426.7 Other deferred tax assets............................. 88.9 86.0 ---------------- ------------------ ---------------- ------------------ Total deferred tax assets........................... 479.8 512.7 Deferred policy acquisition costs..................... (555.2) (494.4) Net unrealized gains on available-for-sale securities. (702.3) (654.5) Other deferred tax liabilities........................ (263.1) (458.4) ---------------- ------------------ ---------------- ------------------ Total deferred tax liabilities...................... (1,520.6) (1,607.3) ---------------- ------------------ ---------------- ------------------ Total net deferred income tax liabilities................ $(1,040.8) $(1,094.6) ================ ==================
The Internal Revenue Service (the "Service") has completed examinations of the U.S. consolidated federal income tax returns for 2000 and prior years. The Service continues to review our 2001 tax return and has also started to examine returns for 2002 and 2003. The Service's completion of the examination for 1999 - 2000 resulted in a notice of deficiency that was issued on December 29, 2004. We paid the deficiency (approximately $444.0 million, including interest) in January 2005 and plan to file claims for refund relating to the disputed adjustments. The majority of the deficiency is attributable to the disallowance of carrybacks of capital losses, net operating losses and foreign tax credits arising in years after 2001; we expect the Service to allow the carrybacks upon completion of the audit of the returns for the years in which the losses and credits arose. The remainder of the deficiency is attributable to both contested issues and adjustments that we have accepted. We believe that we have adequate defenses against, or sufficient provisions for, the contested issues. Consequently, we do not expect the ultimate resolution of issues in tax years 1999 - 2000 to have a material impact on our net income. Similarly, we believe that there are adequate defenses against, or sufficient provisions for, any challenges that might arise in tax years subsequent to 2000. Net cash paid for income taxes in 2004 and 2003 were $626.9 million, of which $444.3 million was attributable to Principal Residential Mortgage, Inc. and $129.7 million, respectively. Net cash received for income taxes 2002 was $306.8 million, primarily due to refunds for the 2001 capital losses and the favorable settlement of an Internal Revenue Service audit issue. 15. Employee and Agent Benefits We have defined benefit pension plans covering substantially all of our employees and certain agents, including employees of other companies affiliated with our ultimate parent, Principal Financial Group, Inc.("affiliated companies"). Actuarial information regarding the status of the pension plans is calculated for the total plan only. The affiliated company portion of the actuarial present value of the accumulated or projected benefit obligations, or net assets available for benefits, is not separately determined. However, we are reimbursed for employee benefits related to the affiliated companies. The reimbursement is not reflected in our employee and agent benefits disclosures. Some of the defined benefit pension 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 started 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. Our policy is to fund the cost of providing pension benefits in the years that the employees and agents are providing service to us. Our funding policy for the qualified defined benefit plan is to contribute an amount annually at least equal to the minimum annual contribution required under the Employee Retirement Income Security Act ("ERISA"), and, generally, not greater than the maximum amount that can be deducted for federal income tax purposes. Our funding policy for the non-qualified benefit plan is to fund the plan in the years that the employees are providing service to us using a methodology similar to the calculation of the net periodic benefit cost under U.S. GAAP, but using long-term assumptions. However, if the U.S. GAAP funded status is positive, no deposit is made. While we fund this plan, the assets are not included as part of the asset balances presented in this footnote as they do not qualify as assets under SFAS No. 87, Employers' Accounting for Pensions ("SFAS 87"), however, they are included in our consolidated statements of financial position. We also provide certain health care, life insurance and long-term care benefits for retired employees. Subsidized retiree health benefits are provided for employees hired prior to January 1, 2002. Employees hired after December 31, 2001, will have access to retiree health benefits but will need to pay for the full cost of the coverage. The health care plans are contributory with participants' contributions adjusted annually; the contributions are based on the number of years of service and age at retirement for those hired prior to January 1, 2002. As part of the substantive plan, the retiree health contributions are assumed to be adjusted in the future as claim levels change. The life insurance plans are contributory for a small group of previously grandfathered participants that have elected supplemental coverage and dependent coverage. Covered employees are first eligible for the medical and life postretirement benefits when they reach age 57 and have completed ten years of service with us. Retiree long-term care benefits are provided for employees whose retirement was effective prior to July 1, 2000. 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. Our policy is to fund the cost of providing retiree benefits in the years that the employees are providing service to us using a methodology similar to the calculation of the net periodic benefit cost under U.S. GAAP, but using long-term assumptions. However, if the U.S. GAAP funded status is positive, no deposit is made. We use a measurement date of October 1 for the pension and other postretirement benefit plans. Obligations and Funded Status The plans' combined funded status, reconciled to amounts recognized in the consolidated statements of financial position and consolidated statements of operations, was as follows:
Pension benefits Other postretirement benefits ------------------------------ ------------------------------ ------------------------------ ------------------------------ December 31, December 31, ------------------------------ ------------------------------ ------------------------------ ------------------------------ 2004 2003 2004 2003 ------------------------------ ------------------------------ (in millions) Change in benefit obligation Benefit obligation at beginning of year..... $(1,191.4) $(1,046.4) $ (253.3) $ (280.2) Service cost................................ (49.6) (49.0) (8.7) (12.3) Interest cost............................... (73.8) (66.9) (15.4) (17.9) Actuarial gain (loss)....................... (62.6) (65.5) (22.3) 55.0 Participant contributions................... - - (2.9) (2.5) Benefits paid............................... 42.2 38.1 10.9 9.7 Curtailment gain............................ 25.1 - 3.9 - Special termination benefits................ (1.8) - - - Other....................................... (0.2) (1.7) - (5.1) -------------- -------------- -------------- --------------- -------------- -------------- -------------- --------------- Benefit obligation at end of year........... $(1,312.1) $(1,191.4) $ (287.8) $ (253.3) ============== ============== ============== =============== Change in plan assets Fair value of plan assets at beginning of year.................................. $ 1,033.5 $ 893.3 $ 378.8 $ 354.0 Actual return on plan assets................ 124.8 140.5 36.3 31.5 Employer contribution....................... 40.3 37.8 1.4 0.5 Participant contributions................... - - 2.9 2.5 Benefits paid............................... (42.2) (38.1) (10.9) (9.7) -------------- -------------- -------------- --------------- -------------- -------------- -------------- --------------- Fair value of plan assets at end of year.... $ 1,156.4 $ 1,033.5 $ 408.5 $ 378.8 ============== ============== ============== =============== Funded (underfunded) status................. $ (155.7) $ (157.9) $ 120.7 $ 125.5 Unrecognized net actuarial loss............. 165.9 165.6 20.2 7.3 Unrecognized prior service cost (benefit)... 4.0 6.0 (19.9) (24.4) Unamortized transition asset................ - (0.1) - - -------------- -------------- -------------- --------------- -------------- -------------- -------------- --------------- Net prepaid benefit asset................... $ 14.2 $ 13.6 $ 121.0 $ 108.4 ============== ============== ============== =============== Amounts recognized in statement of financial position consist of Prepaid benefit cost........................ $ 185.7 $ 166.7 $ 121.3 $ 109.0 Accrued benefit liability including minimum liability........................ (179.6) (157.0) (0.3) (0.6) Accumulated other comprehensive income...... 8.1 3.9 - - -------------- -------------- -------------- --------------- Net amount recognized....................... $ 14.2 $ 13.6 $ 121.0 $ 108.4 ============== ============== ============== ===============
Employer contributions to the pension plans include contributions made directly to the qualified pension plan assets and contributions from corporate assets to pay nonqualified pension benefits. Nonqualified pension plan assets are not included as part of the asset balances presented in this footnote, as they do not qualify as assets under SFAS 87. Benefits paid from the pension plans include both qualified and nonqualified plan benefits. The Principal Residential Mortgage, Inc. divestiture resulted in a curtailment under SFAS No. 88, "Employers' Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and for Termination Benefits", for the plans that provided benefits to the Principal Residential Mortgage, Inc. participants. A mid-year remeasurement to reflect the curtailment occurred as of the date of sale, July 1, 2004. Curtailment gains of $25.1 million and $3.9 million occurred under the pension and other postretirement benefit plans, respectively. This did not affect the pension plans or other postretirement benefit plans covering agents and managers. In addition, this did not affect the long-term care plan because these plans consist of only retired participants. Due to the Principal Residential Mortgage, Inc. divestiture, we provided for contractual termination benefits in connection with termination of employment for a select group of Principal Residential Mortgage, Inc. management employees. The pension plan recognized $1.8 million in special termination benefits liability. The pension plans' gains and losses are amortized using a straight-line amortization method over the average remaining service period of employees. For the qualified pension plan, there is no corridor recognized in determining the amount to amortize; for the nonqualified pension plans, the corridor allowed under SFAS 87 is used. On December 8, 2003, the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (the "Medicare Modernization Act") was signed into law. The Medicare Modernization Act introduced a prescription drug benefit under Medicare ("Medicare Part D") as well as a federal subsidy to sponsors of retiree medical benefit plans. The prescription drug benefits offered by the sponsor must be at least actuarially equivalent to benefits offered under Medicare Part D to qualify for the subsidy. This subsidy is effective in 2006 and would only apply to benefits paid for qualifying retirees who have not enrolled in Medicare Part D. On July 26, 2004, the Centers of Medicare and Medicaid Services ("CMS") issued proposed regulations that provided guidance on the definition of actuarially equivalent retiree prescription drug coverage. These regulations aided in our third quarter, 2004, determination that the majority of our retiree prescription drug benefit coverage is actuarially equivalent to Medicare's Part D prescription drug plan and thus makes us eligible for the tax-free subsidy beginning in 2006. Accordingly, we conducted a mid-year remeasurement during third quarter 2004 of our retiree medical plans to reflect the recognition of the Medicare Modernization Act in accordance with FASB Staff Position FAS 106-2, "Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003". This caused an actuarial gain of approximately $22.5 million for the medical plans. In addition, it also caused the net periodic benefit cost for 2004 to change for the fourth quarter. The 2004 service cost decreased by approximately $0.2 million, interest cost decreased approximately $0.4 million and the actuarial loss amortization decreased by $0.1 million. Effective for 2004, we moved to a 100% self insured medical plan for both the active and retiree participants. A co-pay structure that varies by benefit type and a coinsurance provision were added to the plans. Due to the changes, the premium structures and associated participant contribution rates changed. These changes were reflected in 2003 and increased the accumulated postretirement benefit obligation by $5.1 million. Also effective January 1, 2004, a $1.0 million cap on active and retiree employer-provided life insurance was implemented. This cap only affected a small group of previously grandfathered employees. For those currently over the $1.0 million amount, their cap will be set equal to their coverage level as of January 1, 2004. This change was reflected in 2003 and resulted in a decrease in the accumulated postretirement benefit obligation by $0.1 million. There was an aggregate actuarial liability loss of $22.3 million during 2004 for the other postretirement benefit plans. Of this, $44.8 million was due to an actuarial liability loss experience primarily due to the 25 basis point drop in the discount rate and an increase in the health care cost trend rate. However, this loss was partially offset by the $22.5 million in actuarial liability gain due to the recognition of the Medicare Modernization Act. An actuarial liability gain of $55.0 million occurred during 2003 for the other postretirement benefit plans. This was due to the demographic experience of the active employees (higher turnover rates than expected), a change in demographic assumptions including an increase in the turnover rates, which more appropriately reflects past experience and our expectations for the future and only a slight increase in our claim cost per capita assumptions from the previous year. Claim costs are developed by looking at the plan's actual experience. Slightly offsetting these gains was a loss created by a lower discount rate assumption. The accumulated benefit obligation for all defined benefit pension plans was $1,098.6 million and $976.8 million at December 31, 2004, and 2003, respectively. Information for pension plans with an accumulated benefit obligation in excess of plan assets: The obligations below relate only to the nonqualified pension plan liabilities. The nonqualified plans have assets that are housed in trusts that fail to meet the requirements to be included in plan assets under SFAS 87, however, these assets are included in our consolidated statements of financial position. December 31, --------------------------------------------- ---------------- ------ --------------------- 2004 2003 ---------------- --------------------- (in millions) Projected benefit obligation...... $ 233.3 $ 224.0 Accumulated benefit obligation.... 179.6 157.0 Information for other postretirement benefit plans with an accumulated postretirement benefit obligation in excess of plan assets: December 31, ----------------------------------------- ---------------- ------ ----------------- 2004 2003 ---------------- ----------------- (in millions) Accumulated postretirement benefit obligation........................ $ 92.7 $ 88.3 Fair value of plan assets............ 90.3 84.6 Components of net periodic benefit cost (in millions):
Pension benefits Other postretirement benefits ------------------------------------------------------------------------------- ------------------------------------------------------------------------------- For the year ended December 31, For the year ended December 31, ------------------------------------------------------------------------------- 2004 2003 2002 2004 2003 2002 ----------------------------------------- ------------------------------------ Service cost............... $ 49.6 $ 49.0 $ 36.5 $ 8.7 $ 12.3 $ 9.4 Interest cost.............. 73.8 66.9 63.0 15.4 17.9 17.8 Expected return on plan assets................... (87.4) (74.8) (84.6) (27.6) (25.8) (32.8) Amortization of prior service cost (benefit)................ 1.8 1.7 1.7 (2.8) (3.2) (2.7) Amortization of transition asset.................... (0.1) (0.5) (2.2) - - - Recognized net actuarial (gain) loss.............. 14.1 17.9 (7.9) 0.5 2.7 0.2 Special termination and benefits..................... 1.8 - - - - - Curtailment gain............. (13.8) - - (5.4) - - ----------------------------------------- ------------------------------------ ----------------------------------------- ------------------------------------ Net periodic benefit cost $ 39.8 $ 60.2 $ 6.5 $(11.2) $ 3.9 $ (8.1) (income)................. ========================================= ====================================
Additional information:
Other postretirement Pension benefits benefits ------------------------- ---------------------------------- For the year ended December 31, --------------------------------------------------------------- ---------- ----------- -- --------------- --------------- 2004 2003 2004 2003 ---------- ----------- --------------- --------------- (in millions) Increase in minimum liability included in other comprehensive income........... $ 4.3 $ 3.9 N/A N/A
Assumptions: Weighted-average assumptions used to determine benefit obligations as disclosed under the Obligations and Funded Status section
Other postretirement Pension benefits benefits ------------------------- ------------------------ December 31, ----------------------------------------------------- ---------- -------------- -- ------------ ----------- 2004 2003 2004 2003 ---------- -------------- ------------ ----------- ---------- -------------- ------------ ----------- Discount rate................... 6.00% 6.25% 6.00% 6.25% Rate of compensation increase... 5.00% 5.00% 5.00% 5.00%
Weighted-average assumptions used to determine net periodic benefit cost
Pension benefits Other postretirement benefits ---------------------------------------- ------------------------------------------ For the year ended December 31, --------------------------------------------------------------------------------------- 2004 2003 2002 2004 2003 2002 ----------------- ----------- ---------- ----------------- ------------ ----------- ----------------- ----------- ---------- ----------------- ------------ ----------- Discount rate.......... 6.25%/6.50%* 6.50% 7.50% 6.25%/6.50%* 6.50% 7.50% Expected long-term return on plan assets.............. 8.50% 8.50% 9.00% 7.31% 7.36% 9.11% Rate of compensation increase............ 5.00% 5.00% 5.00% 5.00% 5.00% 5.00% * The first three quarters of 2004 expense for the home office pension and other postretirement benefit plans and retiree medical plans were based on a 6.25% discount rate. The last quarter of 2004 was based on a 6.50% discount rate due to the third quarter 2004 remeasurement for the Principal Residential Mortgage, Inc. divestiture and Medicare Modernization Act. A remeasurement did not occur on the agents and managers pension and other non-medical postretirement benefit plans. For other postretirement benefits, the 7.31% rate for 2004 is based on the weighted average expected long-term asset returns for the medical, life and long-term care plans. The expected long-term rates for the medical, life and long-term care plans are 7.25%, 7.75% and 7.75%, respectively. The expected return on plan assets is the long-term rate we expect to be earned based on the plans' investment strategy. Historical returns of multiple asset classes were analyzed to develop a risk free rate of return and risk premiums for each asset class. The overall rate for each asset class was developed by combining a long-term inflation component, the risk free real rate of return and the associated risk premium. A weighted average rate was developed based on those overall rates and the target asset allocation of the plans.
Assumed health care cost trend rates For the year ended December 31, ------------------------------------------- ------------------- --- ------------------- 2004 2003 ------------------- ------------------- ------------------- ------------------- Health care cost trend rate assumed for next year under age 65....................................... 14.45% 12.50% Health care cost trend rate assumed for next year age 65 and over........................................ 12.75% 12.50% Rate to which the cost trend rate is assumed to decline (the ultimate trend rate) ................. 5.0% 5.0% Year that the rate reaches the ultimate trend rate.... 2016 2010
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:
1-percentage-point 1-percentage-point increase decrease ------------------- ------------------- (in millions) Effect on total of service and interest cost components. $ 5.1 $ (3.2) Effect on accumulated postretirement benefit obligation. 45.9 (37.5)
Pension Plan Assets The pension plan's weighted-average asset allocations by asset category as of the two most recent measurement dates are as follows: October 1, --------------------------------------- --------------------------------------- 2004 2003 ------------------- ------------------- ------------------- Asset category Domestic equity securities........ 57% 58% International equity securities... 10 10 Domestic debt securities.......... 25 27 Real estate....................... 8 5 ------------------- ------------------- ------------------- ------------------- Total 100% 100% =================== =================== Our investment strategy is to achieve the following: o Obtain a reasonable long-term return consistent with the level of risk assumed and at a cost of operation within prudent levels. Performance benchmarks are monitored. o Ensure that sufficient cash is on hand to meet the emerging benefit liabilities for the plan. o Provide for diversification of assets in an effort to avoid the risk of large losses and maximize the investment return to the pension plan consistent with market and economic risk. In administering the qualified pension plan's asset allocation strategy, we consider the projected liability stream of benefit payments, the relationship between current and projected assets of the plan and the projected actuarial liabilities streams, the historical performance of capital markets adjusted for the perception of future short- and long-term capital market performance and the perception of future economic conditions. The overall target asset allocation for the qualified plan assets is: Asset category Target allocation -------------------------- -------------------------- Domestic equity securities............ 40-60% International equity securities....... 5-15% Domestic debt securities.............. 20-30% International debt securities......... 0-7% Real estate........................... 3-10% Other................................. 0-7% For 2004 and 2003, respectively, the plan assets include $26.6 million and $66.8 million in Principal Financial Group, Inc. stock held under a separate account under an annuity contract. These assets were received in the qualified defined benefit plan as a result of the demutualization. We have a plan in place to liquidate these holdings, which we are planning to complete in 2005. Other Postretirement Benefit Plans' Assets The other postretirement benefit plans' weighted-average asset allocations by asset category as of the two most recent measurement dates are as follows: October 1, --------------------------------------- --------------------------------------- 2004 2003 ------------------- ------------------- ------------------- Asset category Equity securities............ 50% 47% Debt securities.............. 50 53 ------------------- ------------------- Total..................... 100% 100% =================== =================== The weighted average target asset allocation for the other postretirement benefit plans is: Asset category Target allocation ------------------------- ------------------------- Equity securities.................. 50-70% Debt securities.................... 30-50% The investment strategies and policies for the other postretirement benefit plans are similar to those employed by the qualified pension plan. Contributions We expect to contribute roughly $1.5 million to our other postretirement benefit plans in 2005. Our funding policy for the qualified pension plan is to fund the plan annually in an amount at least equal to the minimum annual contribution required under ERISA and, generally, not greater than the maximum amount that can be deducted for federal income tax purposes. We don't anticipate that we will be required to fund a minimum annual contribution under ERISA for the qualified pension plan. At this time, it is too early to estimate the amount that may be contributed, but it is possible that we may fund the plans in 2005 in the range of $10-$50 million. This includes funding for both our qualified and nonqualified plans. Estimated Future Benefit Payments The following benefit payments, which reflect expected future service, expected to be paid and the amount of tax-free subsidy receipts expected to be received are:
Other postretirement benefits (gross benefit payments, Pension including Amount of Medicare Part D benefits prescription drug benefits) subsidy receipts ----------------------------------------------------------------------------- ----------------------------------------------------------------------------- (in millions) Year ending December 31: 2005 $40.7 $16.8 $ - 2006 42.8 18.5 0.9 2007 45.6 20.7 0.9 2008 49.5 23.0 1.0 2009 54.1 25.8 1.2 2010-2014................. 341.1 175.2 8.4
The above table reflects the total benefits to be paid from the plan, including both our share of the benefit cost and the participants' share of the cost, which is funded by their contributions to the plan. The assumptions used in calculating the estimated future benefit payments are the same as those used to measure the benefit obligation for the year ended December 31, 2004. The information that follows shows supplemental information for our defined benefit pension plans. Certain key summary data is shown separately for qualified and non-qualified plans.
For the year ended December 31, --------------------------------------------------------------------------------- --------------------------------------------------------------------------------- 2004 2003 --------------------------------------- ----------------------------------------- --------------------------------------- Qualified Nonqualified Total Qualified Nonqualified Total plan plans plan plans --------------------------------------- ----------------------------------------- (in millions) Benefit obligation, end of the year................. $(1,078.8) $ (233.3) $(1,312.1) $ (967.4) $ (224.0) $(1,191.4) Fair value of plan assets, end of the year.......... 1,156.4 - 1,156.4 1,033.5 - 1,033.5 --------------------------------------- ----------------------------------------- --------------------------------------- ----------------------------------------- Funded (underfunded) status.. 77.6 (233.3) (155.7) 66.1 (224.0) (157.9) Unrecognized net actuarial loss...................... 97.6 68.3 165.9 85.5 80.1 165.6 Unrecognized prior service cost (benefit) ........... 10.5 (6.5) 4.0 15.3 (9.3) 6.0 Unrecognized transition 0.1 (asset) liability......... - - - (0.2) (0.1) --------------------------------------- ----------------------------------------- --------------------------------------- ----------------------------------------- Net amount recognized........ $ 185.7 $ 14.2 $ 166.7 $ 13.6 $ (171.5) $ (153.1) ======================================= ========================================= ======================================= ========================================= Amounts recognized in statement of financial position Prepaid benefit cost......... $ 185.7 $ - $ 185.7 $ 166.7 $ - $ 166.7 Accrued benefit liability, including minimum liability................. - (179.6) (179.6) - (157.0) (157.0) Accumulated other comprehensive income...... - 8.1 8.1 - 3.9 3.9 --------------------------------------- ----------------------------------------- Net amount recognized........ $ 185.7 $ (171.5) $ 14.2 $ 166.7 $ (153.1) $ 13.6 ======================================= ========================================= ======================================= ========================================= Components of net periodic benefit cost Service cost................ $ 40.4 $ 9.2 $ 49.6 $ 41.5 $ 7.5 $ 49.0 Interest cost............... 59.9 13.9 73.8 55.4 11.5 66.9 Expected return on plan assets.................... (87.4) - (87.4) (74.8) - (74.8) Amortization of prior service cost (benefit) .. 3.7 (1.9) 1.8 3.7 (2.0) 1.7 Amortization of transition 1.1 (asset) obligation........ (0.2) 0.1 (0.1) (1.6) (0.5) Recognized net actuarial loss...................... 7.8 6.3 14.1 14.3 3.6 17.9 Special termination benefits................ - 1.8 1.8 - - - Curtailment gain.............. (13.2) (0.6) (13.8) - - - --------------------------------------- ----------------------------------------- --------------------------------------- ----------------------------------------- Net periodic benefit cost .. $ 11.0 $ 28.8 $ 39.8 $ 38.5 $ 21.7 $ 60.2 ======================================= =========================================
In addition, we have defined contribution plans that are generally available to all employees and agents who are 21 or older. Eligible participants could not contribute more than $13,000 of their compensation to the plans in 2004. We match the participant's contribution at a 50% contribution rate up to a maximum contribution of 3% of the participant's compensation. The defined contribution plans allow employees to choose among various investment options, including our common stock. Effective September 1, 2002, the employer stock fund was converted to an employee stock ownership plan. We contributed $18.6 million, $18.5 million and $20.2 million in 2004, 2003, and 2002 respectively, to our qualified defined contribution plans. We also have a nonqualified defined contribution plan available to select employees and agents who are age 21 and over which allows them to contribute amounts in excess of limits imposed by federal tax law. We match the participant's contribution at a 50% contribution rate up to a maximum contribution of 3% of the participant's compensation. We contributed $4.5 million, $3.7 million and $3.5 million in 2004, 2003, and 2002, respectively, to our nonqualified defined contribution plans. As a result of the demutualization, the defined contribution plans received $19.7 million in compensation, which was allocated to participant accounts. 16. Contingencies, Guarantees and Indemnifications Litigation We are regularly involved in litigation, both as a defendant and as a plaintiff but primarily as a defendant. Litigation naming us as a defendant ordinarily arises out of our business operations as a provider of asset management and accumulation products and services, life, health and disability insurance. Some of the lawsuits are class actions, or purport to be, and some include claims for punitive damages. In addition, regulatory bodies, such as state insurance departments, the SEC, the National Association of Securities Dealers, Inc., the Department of Labor and other regulatory bodies regularly make inquiries and conduct examinations or investigations concerning our compliance with, among other things, insurance laws, securities laws, ERISA and laws governing the activities of broker-dealers. Several lawsuits have been filed against other insurance companies and insurance brokers alleging improper conduct relating to the payment and non-disclosure of contingent compensation and bid-rigging activity. Several of these suits were filed as purported class actions. Several state attorneys general and insurance regulators have initiated industry-wide inquiries or other actions relating to compensation arrangements between insurance brokers and insurance companies. We received a subpoena on March 3, 2005 from the Office of the Attorney General of the State of New York seeking information on compensation agreements associated with the sale of retirement products. We will cooperate fully with the inquiry. We have and will continue to cooperate with regulators regarding any inquiries about our business practices. On December 23, 2004, a lawsuit was filed in Iowa state court against us, Principal Financial Group, Inc. and Principal Financial Services, Inc., on behalf of a proposed class comprised of the settlement class in the sales practices class action settlement, which was approved in April 2001 by the United States District Court for the Southern District of Iowa. This new lawsuit claims that the treatment of the settlement costs of that sales practices litigation in relation to the allocation of demutualization consideration to our policyholders was inappropriate. Demutualization allocation was done pursuant to the terms of a plan of demutualization approved by the policyholders in July 2001 and Insurance Commissioner of the State of Iowa in August 2001. The lawsuit further claims that such allocation was not accurately described to policyholders during the demutualization process and is a breach of the sales practices settlement. On January 27, 2005, we filed a notice to remove the action from the state court to the United States District Court for the Southern District of Iowa. We intend to vigorously defend this matter. 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 our business, financial position or net income. The outcome of litigation is always uncertain, and unforeseen results can occur. It is possible that such outcomes could materially affect net income in a particular quarter or annual period. Guarantees and Indemnifications In the normal course of business, we have provided guarantees to third parties primarily related to a former subsidiary, joint ventures and industrial revenue bonds. These agreements generally expire from 2004 through 2019. The maximum exposure under these agreements as of December 31, 2004, was approximately $160.0 million; however, we believe the likelihood is remote that material payments will be required and therefore have not accrued for a liability on our consolidated statements of financial position. Should we be required to perform under these guarantees, we generally could recover a portion of the loss from third parties through recourse provisions included in agreements with such parties, the sale of assets held as collateral that can be liquidated in the event that performance is required under the guarantees or other recourse generally available to us, minimizing the impact to net income. The fair value of such guarantees issued after January 1, 2003, was determined to be insignificant. We are also subject to various indemnification obligations issued in conjunction with certain transactions, primarily the sale of Principal Residential Mortgage, Inc., and other divestitures, acquisitions and financing transactions whose terms range in duration and often are not explicitly defined. Certain portions of these indemnifications may be capped, while other portions are not subject to such limitations; therefore, the overall maximum amount of the obligation under the indemnifications cannot be reasonably estimated. While we are unable to estimate with certainty the ultimate legal and financial liability with respect to these indemnifications, we believe the likelihood is remote that material payments would be required under such indemnifications and therefore such indemnifications would not result in a material adverse effect on our business, financial position or net income. The fair value of such indemnifications issued after January 1, 2003, was determined to be insignificant. Securities Posted as Collateral We posted $364.9 million in securities under collateral agreements at December 31, 2004, to satisfy collateral requirements primarily associated with our derivatives credit support agreements and a reinsurance arrangement with our U.S. Asset Management and Accumulation segment. 17. Stockholder's Equity Treasury Stock As a result of Principal Mutual Holding Company's demutualization, our ultimate parent, Principal Financial Group, Inc., issued 363.7 thousand shares of its common stock with a value of $6.7 million to rabbi trusts held by us for certain employee benefit plans. These shares were reported as treasury stock and additional paid-in capital in the consolidated statements of stockholder's equity at December 31, 2001. In February 2002, these shares were sold, which generated proceeds of $8.0 million, with a cost of $6.7 million. Other Comprehensive Income (Loss) 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 were as follows:
Net Net unrealized unrealized gains (losses) gains Foreign on available- (losses) on currency Minimum Accumulated other for-sale derivative translation pension comprehensive securities instruments adjustment liability income ------------------------------------------------------------------------------ (in millions) Balances at January 1, 2002... $435.7 $ (58.2) $(9.1) $ - $ 368.4 Net change in unrealized gains (losses) on fixed maturities, - available-for-sale......... 806.3 - - 806.3 Net change in unrealized gains (losses) on equity securities, available-for-sale......... 63.4 - - - 63.4 Net change in unrealized gains (losses) on equity method subsidiaries and minority interest - adjustments................ (2.5) - - (2.5) Adjustments for assumed changes in amortization pattern: Deferred policy acquisition costs..... (121.6) - - - (121.6) Unearned revenue reserves.. 6.4 - - - 6.4 Net change in unrealized gains (losses) on derivative instruments.. - (77.6) - - (77.6) Net change in unrealized gains(losses) on policyholder dividend obligation........ (33.6) - - - (33.6) Provision for deferred income tax benefit (expense)...... (253.3) 27.2 - - (226.1) Change in net foreign currency translation adjustment................. - - 2.0 - 2.0 ----------------------------------------------------------------------------- Balances at December 31, 2002. $900.8 $(108.6) $(7.1) $ - $ 785.1
Net Net unrealized unrealized gains (losses) gains Foreign on available- (losses) on currency Minimum Accumulated other for-sale derivative translation pension comprehensive securities instruments adjustment liability income ------------------------------------------------------------------------------ (in millions) Balances at January 1, 2003... $ 900.8 $ (108.6) $(7.1) $ - $ 785.1 Net change in unrealized gains (losses) on fixed maturities, - available-for-sale......... 677.7 - - 677.7 Net change in unrealized gains (losses) on equity securities, available-for-sale......... 12.9 - - - 12.9 Net change in unrealized gains (losses) on equity method subsidiaries and minority interest adjustments................ (8.4) - - - (8.4) Adjustments for assumed changes in amortization pattern: Deferred policy acquisition costs..... (48.2) - - - (48.2) Unearned revenue reserves.. 1.6 - - - 1.6 Net change in unrealized gains (losses) on derivative instruments.. - 76.3 - - 76.3 Net change in unrealized gains (losses) on policyholder dividend - obligation................. (65.3) - - (65.3) Provision for deferred income tax benefit (expense)...... (195.1) (26.3) - 1.4 (220.0) Change in net foreign currency translation adjustment................. - - (0.1) - (0.1) Change in minimum pension liability adjustment....... - - - (3.9) (3.9) Cumulative effect of accounting change, net of related income taxes....... 9.1 - - - 9.1 ------------------------------------------------------------------------------ ------------------------------------------------------------------------------ Balances at December 31, 2003. $1,285.1 $(7.2) $ 1,216.8 $ (58.6) $ (2.5)
Net Net unrealized unrealized gains (losses) gains Foreign on available- (losses) on currency Minimum Accumulated other for-sale derivative translation pension comprehensive securities instruments adjustment liability income ------------------------------------------------------------------------------ (in millions) Balances at January 1, 2004... $ 1,285.1 $ (58.6) $ (7.2) $ (2.5) $ 1,216.8 Net change in unrealized gains (losses) on fixed maturities, available-for-sale......... 67.6 - - - 67.6 Net change in unrealized gains (losses) on equity securities, available-for-sale......... 0.2 - - - 0.2 Net change in unrealized gains (losses) on equity method subsidiaries and minority interest - adjustments................ (28.2) - - (28.2) Adjustments for assumed changes in amortization pattern: Deferred policy acquisition costs..... 31.5 - - - 31.5 Sales inducements.......... 0.5 - - - 0.5 Unearned revenue reserves.. (3.8) - - - (3.8) Net change in unrealized gains (losses) on derivative instruments.. - 88.9 - - 88.9 Net change in unrealized gains (losses) on policyholder dividend - obligation................. (19.5) - - (19.5) Provision for deferred income tax benefit (expense)...... (16.7) (31.1) - 1.5 (46.3) Change in net foreign currency translation adjustment................. - - (0.6) - (0.6) Change in minimum pension liability.................. - - - (4.3) (4.3) ------------------------------------------------------------------------------ Balances at December 31, 2004. $ 1,316.7 $ (0.8) $ (7.8) $ (5.3) $ 1,302.8 ==============================================================================
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:
For the year ended December 31, ---------------------------------------------- ---------------------------------------------- 2004 2003 2002 --------------- -------------- --------------- (in millions) Unrealized gains on available-for-sale securities arising during the year.......................... $113.5 $560.6 $674.2 Adjustment for realized losses on available-for-sale securities included in net income.................. (24.1) (126.3) (259.5) --------------- -------------- --------------- --------------- -------------- --------------- Unrealized gains on available-for-sale securities, as $89.4 $434.3 adjusted............................................ $414.7 =============== ============== ===============
The above table is presented net of income tax, PDO and related changes in the amortization patterns of DPAC, sales inducements and unearned revenue reserves. Dividend Limitations Under Iowa law, we may pay stockholder dividends only from the earned surplus arising from our 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 our policyholder surplus as of the preceding year-end or the net gain from operations from the previous calendar year. Based on this limitation and 2004 statutory results, we could pay approximately $591.1 million in stockholder dividends in 2005 without exceeding the statutory limitation. 18. Fair Value of Financial Instruments The following discussion describes the methods and assumptions we utilize in estimating our 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 our 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 our financial instruments. We define 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 us 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. 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. The fair values of our reserves and liabilities for investment-type insurance contracts 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. Investment-type insurance contracts include 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. Insurance contracts include insurance, annuity and other policy contracts that do involve significant mortality or morbidity risk. The fair values for our insurance contracts, other than investment-type contracts, are not required to be disclosed. We do 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 our incremental borrowing rate for similar borrowing arrangements. The carrying amounts and estimated fair values of our financial instruments were as follows:
December 31, -------------------------------------------------------------------- -------------------------------------------------------------------- 2004 2003 ---------------------------------- --------------------------------- ---------------- ----------------- ---------------- ---------------- Carrying amount Fair value Carrying amount Fair value ---------------- ----------------- ---------------- ---------------- (in millions) Assets (liabilities) Fixed maturities, available-for- sale ............................. $39,111.1 $39,111.1 $35,964.0 $35,964.0 Fixed maturities, trading ........... 93.0 93.0 102.9 102.9 Equity securities, available-for- sale ............................. 723.8 723.8 655.9 655.9 Mortgage loans....................... 11,328.7 12,385.4 10,918.6 12,085.9 Policy loans......................... 814.5 814.5 804.1 804.1 Other investments.................... 1,259.1 1,259.1 1,164.1 1,164.1 Cash and cash equivalents............ 385.3 385.3 901.0 901.0 Investment-type insurance contracts......................... (30,145.1) (30,170.9) (27,254.1) (28,299.8) Short-term debt...................... (697.6) (697.6) (477.1) (477.1) Long-term debt....................... (347.8) (368.9) (581.5) (613.5)
19. Statutory Insurance Financial Information We prepare 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"). The State of Iowa recognizes only statutory accounting practices prescribed or permitted by the State of Iowa for determining and reporting the financial condition and results of operations of an insurance company to determine its solvency under the Iowa Insurance Law. The National Association of Insurance Commissioners' ("NAIC") Accounting Practices and Procedures Manual has been adopted as a component of prescribed or permitted practices by the State of Iowa. The Commissioner has the right to permit other specific practices that deviate from prescribed practices. In 2003 and 2002, we received written approval from the State of Iowa to recognize as admitted assets those assets pledged by us on behalf of a wholly owned subsidiary instead of nonadmitting such assets. At December 31, 2003, the statutory surplus was $707.0 million greater than it would have been if NAIC Statutory Accounting Principles had been followed for this transaction. This permitted practice has no effect on our net income for the years then ended. As of December 31, 2004, there were no pledged assets on behalf of a wholly owned subsidiary. 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, 2004, we meet the minimum RBC requirements. Statutory net income and statutory surplus were as follows: As of or for the year ended December 31, ---------------------------------------------------- ---------------------------------------------------- 2004 2003 2002 --------------- ----------------- ------------------ (in millions) Statutory net income... $ 512.7 $ 577.1 $ 402.1 Statutory surplus...... 3,044.3 3,859.4 3,336.7 20. Segment Information We provide financial products and services through the U.S. Asset Management and Accumulation and Life and Health Insurance segments. In addition, there is a Mortgage Banking (discontinued operations) and 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 our asset accumulation business, the life and health insurance operations, the Corporate and Other segment and third-party clients. The Life and Health insurance segment provides individual life insurance, group health insurance and specialty benefits, which consists of group dental and vision insurance, individual and group disability insurance and group life insurance, throughout the U.S. On July 1, 2004, we closed the sale of Principal Residential Mortgage, Inc. to CitiMortgage, Inc. The results of operations (excluding corporate overhead) for our Mortgage Banking segment, which includes Principal Residential Mortgage, Inc., are reported as other after-tax adjustments for all periods presented. See Note 4 for further explanation. 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 our financing activities (including interest expense), income on capital not allocated to other segments, intersegment eliminations, income tax risks and certain income, expenses and other after-tax adjustments not allocated to the segments based on the nature of such items. Management uses segment operating earnings for goal setting, determining employee compensation and evaluating performance on a basis comparable to that used by securities analysts. We determine segment operating earnings by adjusting U.S. GAAP net income for net realized/unrealized capital gains and losses, as adjusted, and other after-tax adjustments which management believes are not indicative of overall operating trends. Net realized/unrealized capital gains and losses, as adjusted, are net of income taxes, related changes in the amortization pattern of DPAC and sales inducements, recognition of front-end fee revenues for sales charges on pension products and services, net realized capital gains and losses distributed, minority interest capital gains and losses and certain market value adjustments to fee revenues. Segment operating revenues exclude net realized/unrealized capital gains and their impact on recognition of front-end fee revenues and certain market value adjustments to 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 our results of operations by highlighting earnings attributable to the normal, ongoing operations of the business. The accounting policies of the segments are consistent with the accounting policies for the consolidated financial statements, with the exception of capital allocation and income tax allocation. The Corporate and Other segment functions to absorb the risk inherent in interpreting and applying tax law. The segments are allocated tax adjustments consistent with the positions we took on tax returns. The Corporate and Other segment results reflect any differences between the tax returns and the estimated resolution of any disputes. The following tables summarize selected financial information on a continuing basis by segment and reconcile segment totals to those reported in the consolidated financial statements: December 31, ---------------------------------------- ------------------- - ------------------ 2004 2003 ------------------- ------------------ (in millions) Assets: U.S. Asset Management and Accumulation . $ 94,317.0 $ 83,832.2 Life and Health Insurance............... 13,141.3 12,158.4 Mortgage Banking........................ - 5,558.8 Corporate and Other .................... 2,420.9 2,203.3 ------------------- ------------------ ------------------- ------------------ Total consolidated assets............. $ 109,879.2 $ 103,752.7 =================== ==================
For the year ended December 31, -------------------------------------------------------------- ------------------- - ------------------- ------------------ 2004 2003 2002 ------------------- ------------------- ------------------ (in millions) Operating revenues by segment: U.S. Asset Management and Accumulation.... $ 3,620.0 $ 3,516.7 $ 3,659.7 Life and Health Insurance................. 4,153.2 4,014.3 3,946.8 Corporate and Other....................... (4.2) 24.2 13.1 ------------------- ------------------- ------------------ ------------------- ------------------- ------------------ Total segment operating revenues........ 7,769.0 7,555.2 7,619.6 Net realized/unrealized capital losses, including recognition of front-end fee revenues and certain market value adjustments to fee revenues............. (119.8) (103.5) (441.0) ------------------- ------------------- ------------------ ------------------- ------------------- ------------------ Total revenues per consolidated $ 7,649.2 $7,451.7 $ 7,178.6 statements of operations............. =================== =================== ==================
For the year ended December 31, -------------------------------------------------------------- ------------------- - ------------------- ------------------ 2004 2003 2002 ------------------- ------------------- ------------------ (in millions) Operating earnings (loss) by segment, net of related income taxes: U.S. Asset Management and Accumulation ... $ 498.5 $ 425.1 $ 358.3 Life and Health Insurance................. 257.7 241.2 233.1 Mortgage Banking.......................... (10.3) (18.1) (16.7) Corporate and Other ...................... (1.0) 21.3 10.2 ------------------- ------------------- ------------------ ------------------- ------------------- ------------------ Total segment operating earnings, net of 744.9 669.5 584.9 related income taxes................. Net realized/unrealized capital losses, as adjusted.......................... (77.7) (59.2) (262.7) Other after-tax adjustments (1)........... 100.6 49.0 229.9 ------------------- ------------------- ------------------ ------------------- ------------------- ------------------ Net income per consolidated statements $ 767.8 $ 659.3 $ 552.1 of operations........................ =================== =================== ================== (1) In 2004, other after-tax adjustments of $100.6 million included (1) the positive effect of the discontinued operations and estimated gain on disposal of Principal Residential Mortgage, Inc. ($103.0 million) and (2) the negative effect from a cumulative change in accounting principle related to the implementation of SOP 03-1 ($2.4 million). In 2003, other after-tax adjustments of $49.0 million included the positive effect of: (a) a decrease in income tax reserves established for contested IRS tax audit matters ($28.9 million); (b) income from discontinued operations related to Principal Residential Mortgage, Inc. ($13.5 million)and (c) a cumulative effect of accounting change related to the implementation of FIN 46 ($6.6 million). In 2002, other after-tax adjustments of ($229.9) million included (1) the positive effect of: (a) the settlement of an IRS audit issue ($138.0) million and (b) income from discontinued operations related to Principal Residential Mortgage, Inc. ($120.1 million) and (2) the negative effects of: (a) an increase to a loss contingency reserve established for sales practice litigation ($21.6 million); (b) a cumulative effect of accounting change related to the implementation of SFAS 142 ($4.6 million); (c) expenses related to the demutualization ($2.0 million)
The following is a summary of income tax expense (benefit) allocated to our segments for purposes of determining operating earnings. Segment income taxes are reconciled to income taxes reported on our consolidated statements of operations.
For the year ended December 31, -------------------------------------------------------------- ------------------- - ------------------- ------------------ 2004 2003 2002 ------------------- ------------------- ------------------ (in millions) Income tax expense (benefit) by segment: U.S. Asset Management and Accumulation.... $ 147.8 $ 131.5 $ 87.7 Life and Health Insurance................. 130.6 122.6 122.1 Mortgage Banking.......................... (6.4) (11.2) (10.3) Corporate and Other....................... (5.1) 2.5 (11.5) ------------------- ------------------- ------------------ ------------------- ------------------- ------------------ Total segment income taxes from 266.9 245.4 188.0 operating earnings................. Taxes related to net realized/unrealized capital losses, as adjusted.......................... (40.6) (37.4) (141.3) Taxes related to other after-tax adjustments.......................... - (26.1) (116.0) ------------------- ------------------- ------------------ ------------------- ------------------- ------------------ Total income tax expense (benefit) $ 226.3 $ 181.9 $ (69.3) per consolidated statements of operations......................... =================== =================== ==================
The following table summarizes operating revenues for our products and services:
For the year ended December 31, ------------------------------------------------------------- 2004 2003 2002 -------------------- ------------------- ------------------- (in millions) =========================================== U.S. Asset Management and Accumulation: ------------------------------------------- Full-service accumulation.............. $ 1,168.7 $1,099.5 $1,076.5 ------------------------------------------- Full-service payout.................... 811.8 862.5 1,191.8 ------------------------------------------- Investment only........................ 931.6 905.9 886.4 ------------------------------------------- -------------------- ------------------- ------------------- -------------------- ------------------- ------------------- Total pension........................ 2,912.1 2,867.9 3,154.7 ------------------------------------------- ------------------------------------------- Individual annuities..................... 393.8 354.9 303.8 ------------------------------------------- Principal Bank........................... 20.6 24.3 19.2 -------------------- ------------------- ------------------- -------------------- ------------------- ------------------- Total U.S. Asset Accumulation.......... 3,326.5 3,247.1 3,477.7 ------------------------------------------- ------------------------------------------- Principal Global Investors............... 338.5 304.0 215.4 Eliminations............................. (45.0) (34.4) (33.4) ------------------------------------------- -------------------- ------------------- ------------------- -------------------- ------------------- ------------------- Total U.S. Asset Management and 3,620.0 3,516.7 3,659.7 Accumulation......................... ------------------------------------------- ------------------------------------------- Life and Health Insurance: ------------------------------------------- Individual life insurance.............. 1,370.4 1,360.1 1,381.3 ------------------------------------------- Health insurance....................... 1,778.8 1,746.7 1,708.3 Specialty benefits insurance........... 1,004.0 907.5 857.2 ------------------------------------------- -------------------- ------------------- ------------------- -------------------- ------------------- ------------------- Total Life and Health Insurance...... 4,153.2 4,014.3 3,946.8 ------------------------------------------- ------------------------------------------- Corporate and Other...................... (4.2) 24.2 13.1 -------------------- ------------------- ------------------- Total operating revenues................. $ 7,769.0 $7,555.2 $7,619.6 ------------------------------------------- ==================== =================== =================== ==================== =================== =================== ------------------------------------------- ------------------------------------------- Total operating revenues................. $ 7,769.0 $7,555.2 $7,619.6 ------------------------------------------- Net realized/unrealized capital losses, including recognition of front-end fee revenues and certain market value adjustments to fee revenues............ (119.8) (103.5) (441.0) ------------------------------------------- -------------------- ------------------- ------------------- Total U.S. GAAP revenues................. $ 7,649.2 $7,451.7 $7,178.6 ==================== =================== ==================--
21. Stock-Based Compensation Plans As of December 31, 2004, our ultimate parent, Principal Financial Group, Inc., sponsors the Stock Incentive Plan, Stock Purchase Plan and Long Term Performance Plan, which result in an expense for us. Under the terms of the Stock Incentive Plan, grants may be nonqualified stock options, incentive stock options qualifying under Section 422 of the Internal Revenue Code, restricted stock, restricted stock units or stock appreciation rights. Options outstanding under the Stock Incentive Plan were granted at a price equal to the market value of Principal Financial Group, Inc. common stock on the date of grant, and expire ten years after the grant date. Options granted have graded or cliff vesting over a three-year period. Beginning in 2003, restricted stock units were issued to certain employees pursuant to the Stock Incentive Plan and have graded or cliff vesting over a three-year period. Beginning in 2003, stock appreciation rights were issued to agents meeting certain production requirements and will vest ratably over a three-year-period. For the years ended December 31, 2004 and 2003, we recorded compensation expense of $0.3 million and $0.1 million, respectively, related to the stock appreciation rights. Principal Financial Group, Inc. also maintains the Long Term Performance Plan, which provides the opportunity for eligible executives to receive additional rewards if specified minimum corporate performance objectives are achieved over a three-year period. This plan was amended in May 2001, to utilize stock as an option for payment starting with payments in 2003. For the years ended December 31, 2004, 2003 and 2002, we recorded compensation expense of $4.7 million, $6.6 million and $3.0 million, respectively, related to the plan. Under Principal Financial Group, Inc.'s Stock Purchase Plan, participating employees have the opportunity to purchase shares of Principal Financial Group, Inc.'s common stock on a quarterly basis. For 2002 and 2003, the maximum amount an employee could contribute during any plan year was the lesser of $10,000, or such greater or lesser amount as determined by the plan administrator, and 10% of the employee's salary. Effective January 1, 2004, employees may purchase up to $25,000 worth of Principal Financial Group, Inc. stock each year. Employees may purchase shares of Principal Financial Group, Inc. 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. The compensation cost that has been charged against income for the Stock Incentive Plan and Stock Purchase Plan was $38.5 million, $20.3 million and $9.1 million for 2004, 2003 and 2002, respectively. For awards with graded vesting, we use an accelerated expense attribution method. The weighted-average estimated fair value of stock options granted during 2004, 2003 and 2002, using the Black-Scholes option valuation model was $13.55, $10.64 and $10.18 per share, respectively. The fair value of each option was estimated on the date of grant using the Black-Scholes option pricing model and the following assumptions: 2004 2003 2002 ------------ ----------- ------------ ------------ Dividend yield............ 1.26 % .91 % .91 % ============ =========== ============ ============ Expected volatility....... 39.2 % 38.6 % 32.5 % ============ =========== ============ ============ Risk-free interest rate... 3.3 % 3.1 % 4.7 % ============ =========== ============ ============ Expected life (in years).. 6 6 6 ============ =========== ============ 22. Quarterly Results of Operations (Unaudited) The following is a summary of unaudited quarterly results of operations for 2004 and 2003:
For the three months ended ----------------------------------------------------------------------- ----------------------------------- ----------------- March 31 June 30 September 30 December 31 ----------------------------------- ----------------------------------- (in millions) 2004 Total revenues....................... $ 1,842.6 $ 1,834.3 $ 1,926.6 $ 2,045.7 Total expenses....................... 1,638.0 1,655.2 1,680.8 1,781.7 Income from continuing operations, net of related income taxes........ 152.4 135.6 183.5 195.7 Income (loss) from discontinued operations, net of related income taxes....................... 30.2 (20.1) 94.1 (1.2) Net income........................... 180.2 115.5 277.6 194.5 2003 Total revenues....................... $ 1,783.9 $ 1,813.9 $ 1,827.8 $ 2,026.1 Total expenses....................... 1,655.4 1,618.9 1,602.4 1,753.9 Income from continuing operations, net of related income taxes........ 97.7 144.9 167.0 229.6 Income (loss) from discontinued operations, net of related income taxes.............................. 41.9 35.0 (12.7) (40.7) Net income........................... 139.6 179.9 150.9 188.9