Broker-Dealer Variable Contract
Supervisory and Service Agreement
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Princor Financial Services Corporation ("Princor"), and Principal Mutual Life
Insurance Company (the "Insurer"), distributor and issuer for and of the
Policies hereunder described and the undersigned broker-dealer (the
"Broker-Dealer"), enter into this Agreement as of the date indicated, for the
purpose of appointing the Broker-Dealer to perform the services hereunder
described, subject to the following provisions:
1. Except as provided below, Princor hereby appoints the Broker-Dealer to
provide sales assistance with respect to, and to cause applications to be
solicited for the purchase of variable life policies issued by the Insurer.
Broker-Dealer accepts such appointment and agrees to use its best efforts
to provide sales assistance to registered representatives of the
Broker-Dealer and to cause applications for the purchase of Policies to be
solicited by such registered representatives. Broker-Dealer agrees to pay a
commission to such registered representatives.
2. The Broker-Dealer will promptly forward to the appropriate office of
Princor, or its authorized designee, all Policy applications along with
other documents, if any, and any payments received with such applications
and will have no rights of set off for any reason. Any Policy application
which is rejected, together with any payment made and other documents
submitted, shall be returned to the Broker-Dealer.
3. Insurer, on behalf of Princor, shall pay the Broker-Dealer pursuant to
Exhibits A and B. The Broker-Dealer agrees to return promptly all
compensation received for any Policy returned within the "free look" period
as specified in the Policy.
4. The Broker-Dealer represents that it is a registered broker-dealer under
the Securities Exchange Act of 1934, a member in good standing of the
National Association of Securities Dealers, Inc. ("NASD"), and is
registered as a broker-dealer under state law to the extent required in
order to provide the services described in this Agreement. Broker-Dealer
agrees to abide by all rules and regulations of the NASD Regulation, Inc.
("NASDR"), including its Conduct Rules, and to comply with all applicable
state and federal laws and the rules and regulations of authorized
regulatory agencies affecting the sale of the Policies, including the
prospectus delivery requirements under the Securities Act of 1933 for the
Policies and any underlying mutual fund. The Broker-Dealer agrees to notify
Princor promptly of any change, termination, or suspension of its status.
Broker-Dealer shall immediately notify Princor with respect to (i) the
initiation and disposition of any form of disciplinary action by the NASDR
or any other agency or instrumentality having jurisdiction with respect to
the subject matter hereof against Broker-Dealer or any of its employees or
agents; (ii) the issuance of any form of deficiency notice by the NASDR or
any such agency regarding Broker-Dealer's training, supervision or sales
practices; and/or (iii) the effectuation of any consensual order with
respect thereto.
5. In connection with the solicitation of applications for the purchase of
Policies, Broker-Dealer agrees to indemnify and hold harmless Princor and
the Insurer from any damage or expense as a result of (a) the negligence,
misconduct or wrongful act of Broker-Dealer or any employee, representative
or agent of the Broker-Dealer and/or (b) any actual or alleged violation of
any securities or insurance laws, regulations or orders. Any indebtedness
or obligation of the Broker-Dealer to Princor or the Insurer, whether
arising hereunder or otherwise, and any liabilities incurred or moneys paid
by Princor or the Insurer to any person as a result of any
misrepresentation, wrongful or unauthorized act or omission, negligence of
or failure of Broker-Dealer or its employees, producers, and registered
representatives to comply with this Agreement, shall be set off against any
compensation payable under this Agreement. Notwithstanding the foregoing,
Broker-Dealer shall not indemnify and hold harmless Princor and the Insurer
from any damage or expense on account of the negligence, misconduct or
wrongful act of Broker-Dealer or any employee, representative or producer
of Broker-Dealer if such negligence, misconduct or wrongful act arises out
of or is based upon any untrue statement or alleged untrue statement of
material fact, or the omission or alleged omission of a material fact in:
(i) any registration statement, including any prospectus or any
post-effective amendment thereto; or (ii) any material prepared and/or
supplied by Princor or the Insurer for use in conjunction with the offer or
sale of Policies, or (iii) any state registration or other document filed
in any state or jurisdiction in order to qualify any Policies under the
securities laws of such state or jurisdiction. The terms of this provision
shall not be impaired by termination of this Agreement.
In connection with the solicitation of applications for the purchase of
Policies, Princor and the Insurer agree to indemnify and hold harmless
Broker-Dealer from any damage or expense on account of the negligence,
misconduct or wrongful act of Princor or the Insurer or any employee,
representative or producer of Princor or the Insurer, including but not
limited to, any damage or expense which arises out of or is based upon any
untrue statement or alleged untrue statement of material fact, or the
omission or alleged omission of a material fact in: (i) any registration
statement, including any prospectus or any post-effective amendment
thereto; or (ii) any material prepared and/or supplied by Princor or the
Insurer for use in conjunction with the offer or sale of the Policies; or
(iii) any state registration or other document filed in any state or other
jurisdiction in order to qualify any Policy under the securities laws of
such state or jurisdiction. The terms of this provision shall not be
impaired by termination of this Agreement.
6. The Broker-Dealer will itself be, or will select persons associated with it
who are trained and qualified to solicit applications for purchase of
Policies in conformance with applicable state and federal laws. Any such
persons shall be registered representatives of the Broker-Dealer in
accordance with the rules of the NASDR, be licensed to offer the Policies
in accordance with the insurance laws of any jurisdiction in which such
person solicits applications and be licensed with and appointed by the
Insurer to solicit applications for the Policies. Broker-Dealer will
supervise its representatives to insure that purchase of a Policy is not
recommended to an applicant in the absence of reasonable grounds to believe
that the purchase of a Policy is suitable for that applicant. Broker-Dealer
shall pay the fees to regulatory authorities in connection with obtaining
necessary securities licenses and authorizations for registered
representatives to solicit applications for the purchase of Policies.
Broker-Dealer is not responsible for fees in connection with the
appointment of registered representatives as producers of the Insurer.
7. The activities of all producers referred to in Paragraph 6 will be under
the direct supervision and control of the Broker-Dealer. The right of such
producers to solicit applications for the purchase of Policies is subject
to their continued compliance with the rules and procedures which may be
established by the Broker-Dealer, or the Insurer, including, but not
limited to, those set forth in this Agreement.
8. The Broker-Dealer shall ensure that applications for the purchase of
Policies are solicited only in the states where the Policies are qualified
for sale, and only in accordance with the terms and conditions of the then
current prospectus applicable to the Policies and will make no
representations not included in the prospectus, Statement of Additional
Information, or in any authorized supplemental material supplied by
Princor. With regard to the Policies, the Broker-Dealer shall not use or
permit its producers to use any sales promotion materials or any form of
advertising other than that supplied or approved by Princor.
9. Broker-Dealer shall ensure that the prospectus delivery requirements under
the Securities Act of 1933 and all other applicable securities and
insurance laws, rules and regulations are met and that delivery of any
prospectus for the Policies will be accompanied by delivery of the
prospectus for the underlying mutual funds, and, where required by state
law, the Statement of Additional Information for the underlying mutual
funds.
10. The Broker-Dealer understands and agrees that in performing the services
covered by this Agreement, it is acting in the capacity of an independent
contractor and not as an agent or employee of Princor or the Insurer and
that it is not authorized to act for, or make any representation on behalf
of, Princor or the Insurer except as specified herein. Broker-Dealer
understands and agrees that the Insurer shall execute telephone
transactions only in accordance with the terms and conditions of the then
current prospectus applicable to the Policies and agrees that in
consideration for the Broker-Dealer's right to exercise the telephone
transaction services neither Princor nor the Insurer will be liable for any
loss, injury or damage incurred as a result of acting upon, nor will they
be held responsible for the authenticity of any telephone instructions
containing unauthorized, incorrect or incomplete information. Broker-Dealer
agrees to indemnify and hold harmless Princor and the Insurer against any
loss, injury or damage resulting from any telephone transactions
instruction containing unauthorized, incorrect or incomplete information
received from Broker-Dealer or any of its registered representatives.
(Telephone instructions are recorded on tape.)
11. This Agreement may not be assigned by the Broker-Dealer without the prior
written consent of Princor. Any party hereto may cancel this Agreement at
any time upon written notice. This Agreement shall automatically terminate
if the Broker-Dealer voluntarily or involuntarily ceases to be or is
suspended from being, a member in good standing of the NASD. Provided
further, Princor and the Insurer reserve the right to terminate this
Agreement in the event that any employee or agent of Broker-Dealer is
suspended, disciplined or found to be in violation of governing insurance
or securities laws, rules or regulations. Furthermore, Princor and the
Insurer reserve the right to revise the payments for services described in
this Agreement as set forth in Exhibits A and B at any time upon the
mailing of written notice to the Broker-Dealer. Failure of any party to
terminate this Agreement for any of the causes set forth in this Agreement
shall not constitute a waiver of the right to terminate this Agreement at a
later time for any such causes.
12. This Agreement on the part of the Broker-Dealer runs to Princor and the
Insurer and is for the benefit of and enforceable by each. This Agreement
shall be governed by and construed in accordance with the laws of the State
of Iowa.
AGREED TO BY:
(COMPANY)
By:
Title:
Date:
PRINCOR FINANCIAL SERVICES CORPORATION
By:
Title:
Date:
PRINCIPAL MUTUAL LIFE INSURANCE COMPANY
By:
Title:
Date:
EXHIBIT A - Compensation Schedule
Broker-Dealer Variable Contract
Supervisory and Service Agreement
Principal Mutual Life Insurance Company will pay commissions on sales of
policies made pursuant to the Broker-Dealer Variable Contract Supervisory and
Service Agreement according to the schedule below on premiums we receive.
We may, by written notice to you, change this compensation schedule. We may
discontinue the issuance of any form of policy and fix the amount of
compensation on policies issued in exchange for previously issued policies.
First Year Commissions
a) 50% of premium received up to the planned periodic premium, not to
exceed target premium*.
b) 3% of premium received above the lesser of planned periodic or target
premium.
*The target premium is determined according to a rate per $1,000 of face
amount. This rate varies by age and sex of the insured.
Target Premiums (Annual per $1,000 face amount)
Age Male Female Unisex Age Male Female Unisex
--- ---- ------ ------ --- ---- ------ ------
0 3.50 2.83 3.41 45 14.31 11.93 14.00
1 3.50 2.83 3.41 46 15.08 12.53 14.75
2 3.50 2.83 3.41 47 15.90 13.16 15.54
3 3.50 2.83 3.41 48 16.77 13.83 16.39
4 3.50 2.83 3.41 49 17.70 14.54 17.29
5 3.50 2.83 3.41 50 18.68 15.30 18.24
6 3.50 2.83 3.41 51 19.74 16.10 19.27
7 3.50 2.83 3.41 52 20.86 16.94 20.35
8 3.50 2.83 3.41 53 22.05 17.85 21.50
9 3.50 2.83 3.41 54 23.32 18.80 22.73
10 3.50 2.83 3.41 55 24.67 19.82 24.04
11 3.65 2.91 3.55 56 26.11 20.90 25.43
12 3.80 3.00 3.70 57 27.65 22.05 26.92
13 3.95 3.08 3.84 58 29.30 23.29 28.52
14 4.10 3.17 3.98 59 31.05 24.62 30.21
15 4.25 3.25 4.12 60 32.93 26.06 32.04
16 4.62 3.63 4.49 61 34.94 27.60 33.99
17 4.99 4.00 4.86 62 37.10 29.26 36.08
18 5.36 4.38 5.23 63 39.40 31.06 38.32
19 5.73 4.75 5.60 64 41.86 32.97 40.70
20 6.10 5.13 5.97 65 44.48 35.02 43.25
21 6.11 5.16 5.99 66 47.29 37.21 45.98
22 6.12 5.20 6.00 67 50.30 39.58 48.91
23 6.13 5.23 6.01 68 53.52 42.14 52.04
24 6.14 5.27 6.03 69 56.98 44.93 55.41
25 6.15 5.30 6.04 70 60.71 47.98 59.06
26 6.29 5.42 6.18 71 64.73 51.30 62.98
27 6.43 5.54 6.31 72 69.02 54.93 67.19
28 6.57 5.65 6.45 73 73.62 58.86 71.70
29 6.71 5.77 6.59 74 78.48 63.12 76.48
30 6.85 5.89 6.73 75 83.65 67.71 81.58
31 7.17 6.16 7.04 76 87.77 71.45 85.65
32 7.51 6.44 7.37 77 91.89 75.20 89.72
33 7.87 6.74 7.72 78 96.00 78.94 93.78
34 8.26 7.06 8.10 79 100.12 82.69 97.85
35 8.66 7.40 8.50 80 104.24 86.43 101.92
36 9.10 7.76 8.93 81 113.32 95.74 111.03
37 9.55 8.13 9.37 82 122.40 105.05 120.14
38 10.03 8.53 9.84 83 131.48 114.36 129.25
39 10.54 8.94 10.33 84 140.56 123.67 138.36
40 11.09 9.38 10.87 85 149.64 132.98 147.47
41 11.66 9.83 11.42
42 12.26 10.32 12.01
43 12.91 10.82 12.64
44 13.59 11.36 13.30
Service Fees
A service fee of 3% on all premium received beyond the first policy
year is paid as long as the policy remains in effect and the
Broker-Dealer Variable Contract Supervisory and Service Agreement
remains active.
Compensation on Increases
An increase is defined as a face amount increase. We will compare the
increased face amount of the policy against the highest policy face
amount over the latest three year period to determine if there is a
policy face amount increase during the current year.
A 50% commission will be paid on premium received during the first 12
months following the date of an face amount increase that is greater
than the premium level on which a high [50%] first year commission rate
was previously paid. The maximum premium on which a high [50%] first
year commission rate is paid will be limited to the lesser of total
planned periodic premium or total target premium amount of the policy
after a face amount increase has occurred.
Compensation for Replacement of Life Policies Issued by Principal Mutual Life
Insurance Company
A. First year commission is the sum of 1,2, 3 and 4 which follow.
1. A full first year commission rate as set out in First Year Commissions
of the exhibit will be applied to all new policy premium in excess of
the replaced premium but less than the planned periodic, not to exceed
target premium.
2. A percentage of the first year commission rate of the new policy
determined from the table below according to the number of years since
the replaced policy was issued or updated will be applied to the new
policy planned periodic premium, not to exceed target premium. The
resulting commission rate in the table shall in no event exceed the
applicable first year commissions rates as set out in the First Year
Commissions section of this exhibit.
Percentage of New Percentage of New
Years Since Policy's First Year Years Since Policy's First Year
Date of Issue Commission Rate Payable Date of Issue Commission Rate Payable
or Update on Replaced Premium* or Update On Replaced Premium*
------------- ----------------------- ------------- -----------------------
0 - 3 0 12 36
4 20 13 38
5 22 14 40
6 24 15 42
7 26 16 44
8 28 17 46
9 30 18 48
10 32 19 and later 50
11 34
* Replaced premium amounts will be defined as the level of premium on which a
first year commission was previously paid.
** A commission equal to the renewal rate of the new policy will be paid on
replaced premium.
3. Commissions on cash values conserved and transferred into the new
policy will be paid as follows:
3% of cash value transferred from a non-Updated policy.
1% on cash value transferred from an Updated policy or current
yield policy.
These commissions will be paid on cash values deposited as unscheduled
premiums. However, in situations where a policy loan is carried over
to the new policy, we will not pay a commission on the unscheduled
premium deposit created for the purpose of carrying over the loan.
There will be a limit on the amount of non-Updated cash value
transferred to the new policy which will earn the 3% commission rate.
When the commissions on replaced premium [exclusive of any commissions
paid as described in 4. below] and cash value transferred reach a
level equal to the new policy's first year commission [on the amount
of premium being replaced], the commission rate on any remaining cash
value transferred to the new policy will be 1%.
4. An additional 5% commission will be paid on the amount of policy
premium being replaced if the total premium in the new policy is at
least 25% greater than the premium of the replaced policy.
B. Service fees are determined according to the applicable rates for such as
set out in the exhibit.
C. Commissions will not be paid when partial surrender amounts are used to
fund premium increases or new business.
D. For special situations defined by the Insurer involving replacement of
life policies, the insurer reserves the right to further modify
commissions payable on replacements outlined above.
EXHIBIT B - Expense Reimbursement Schedule
Broker-Dealer Variable Contract
Supervisory and Service Agreement
Principal Mutual Life Insurance Company will reimburse the broker-dealer for
expenses incurred by them on sales of policies made pursuant to the
Broker-Dealer Variable Contract Supervisory and Service Agreement according to
the schedule below. We may, by written notice to you, change this compensation
schedule. We may discontinue the issuance of any form of policy and fix the
amount of compensation on policies issued in exchange for previously issued
policies.
New York Insurance Department Limitations
The Broker-Dealer and the Insurer agree that the maximum payment under this
agreement shall be subject to the terms of a plan submitted and approved by the
New York State Insurance Department. The determination of whether payments do
not exceed the maximum amount permissible shall be the sole responsibility of
the Insurer. Any amounts paid by the Insurer to the Broker-Dealer that are
deemed to exceed the maximum amount permissible shall become a debt from the
Broker-Dealer to the Insurer. The Insurer reserves the right to off set any
indebtedness against any amount payable under this Schedule or any other
contract with the Insurer or an affiliate of the Insurer.
Expense Reimbursement Amounts
The insurer agrees to pay the Broker-Dealer an expense reimbursement allowance
on premiums during the first policy year as follows:
25% of premium received up to the planned periodic premium, not to exceed
target premium. See Exhibit A for schedule of Target Premiums.
