<PAGE>
As filed with the Securities and Exchange Commission on February 5, 1999
File No. 333-65187
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM N-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ ]
Pre-Effective Amendment No. 1 [X]
---
Post-Effective Amendment No. [ ]
---
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ ]
Amendment No. 1 [X]
---
SEPARATE ACCOUNT ONE
(formerly known as Royal Life Insurance
Company of America Separate Account One)
(Exact Name of Registrant)
ROYAL LIFE INSURANCE COMPANY OF AMERICA
(Name of Depositor)
P. O. BOX 2999
HARTFORD, CT 06104-2999
(Address of Depositor's Principal Offices)
(860) 843-6320
(Depositor's Telephone Number, Including Area Code)
THOMAS S. CLARK, ESQ.
ROYAL LIFE INSURANCE COMPANY OF AMERICA
P. O. BOX 2999
HARTFORD, CT 06104-2999
(Name and Address of Agent for Service)
Approximate Date of Proposed Public Offering: As soon as practicable after the
effective date of the registration statement.
The registrant hereby amends this registration statement on such date or dates
as may be necessary to delay its effective date until the registrant shall file
a further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the registration shall become effective on such
date as the Commission, acting pursuant to Section 8(a), may determine.
<PAGE>
2
CROSS REFERENCE SHEET
PURSUANT TO RULE 495(a)
N-4 Item No. Prospectus Heading
------------ ------------------
1. Cover Page Royal Life Insurance Company of
America - Separate Account One
2. Definitions Glossary of Special Terms
3. Synopsis or Highlights Summary
4. Condensed Financial Performance Information
Information
5. General Description of About Us
Registrant
6. Deductions Charges
7. General Description of Your Annuity
Annuity Contracts
8. Annuity Period Settlement Provisions
9. Death Benefit Death Benefits
10. Purchases and Contract Payments; Contract Value
11. Redemptions Withdrawals
12. Taxes Federal Tax Considerations
13. Legal Proceedings Legal Matters & Experts
14. Table of Contents of the Table of Contents to
Statement of Additional Statement of Additional
Information Information
15. Cover Page Part B; Statement of Additional
Information
<PAGE>
3
16. Table of Contents Table of Contents
17. General Information and History Introduction
18. Services None
19. Purchase of Securities Distribution of Contracts
being Offered
20. Underwriters Distribution of Contracts
21. Calculation of Performance Data Calculation of Yield and Return
22. Annuity Payments Settlement Provisions
23. Financial Statements Financial Statements
24. Financial Statements and Financial Statements and
Exhibits Exhibits
25. Directors and Officers of the Directors and Officers of the
Depositor Depositor
26. Persons Controlled by or Under Persons Controlled by or Under
Common Control with the Common Control with the Depositor
Depositor or Registrant or Registrant
27. Number of Contract Number of Contract Owners
Owners
28. Indemnification Indemnification
29. Principal Underwriters Principal Underwriters
30. Location of Accounts and Location of Accounts and Records
Records
31. Management Services Management Services
32. Undertakings Undertakings
<PAGE>
Part A
<PAGE>
ROYAL LIFE INSURANCE COMPANY OF AMERICA
SEPARATE ACCOUNT ONE
P. O. Box 5085
Hartford, Connecticut 06102-5085
Telephone: 1-800-862-6668
This Prospectus describes information you should know before you purchase our
variable annuity. Please read it carefully.
The variable annuity is a contract between you and Royal Life Insurance
Company of America where you agree to make payments to us and we agree to
make a series of payments to you at a later date. The variable annuity is a
flexible premium, tax-deferred, variable annuity offered to both individuals
and groups. It is:
- Flexible, because you may add payments at any time.
- Tax-deferred, which means you don't pay taxes until you take payments
out or until we start to make payments to you.
- Variable, because the value of your annuity will fluctuate with the
performance of the stock market.
At purchase, you allocate your payments to "Sub-Accounts" or subdivisions of
our Separate Account, an account that keeps your annuity assets separate from
our company assets. These Sub-Accounts then purchase shares of mutual funds set
up exclusively for variable annuity or variable life insurance products. These
funds are not the same mutual funds that you buy through your stockbroker or
through a retail mutual fund, but they may have similar investment strategies
and the same portfolio managers as retail mutual funds. This annuity offers you
funds with investment strategies ranging from conservative to aggressive and you
may pick those funds that meet your investment style. The Sub-Accounts and the
funds are listed below:
- - Bond Sub-Account which purchases shares of Class IA of Hartford Bond HLS
Fund, Inc.
- - High Yield Sub-Account which purchases shares of Class IA of Hartford
High Yield HLS Fund
- - Index Sub-Account which purchases shares of Class IA of Hartford Index HLS
Fund, Inc.
- - Money Market Sub-Account which purchases shares of Class IA of Hartford
Money Market HLS Fund, Inc.
<PAGE>
2
- - Mortgage Securities Sub-Account which purchases shares of Class IA of
Hartford Mortgage Securities HLS Fund, Inc.
You may also allocate some or all of your payments to the "Fixed Account", which
pays an interest rate guaranteed for at least one year from the time the payment
is made. Payments put in the Fixed Account are not segregated from our assets
like the assets of separate account.
If you decide to buy this annuity, you should keep this prospectus for your
records. You can also call us at 1-800-862-6668 to get a Statement of
Additional Information, free of charge. The Statement of Additional
Information contains more information about this annuity and, like this
prospectus, is filed with the Securities and Exchange Commission. We have
included the Table of Contents for the Statement of Additional Information at
the end of this Prospectus. Although we file the Prospectus and the
Statement of Additional information with the Securities and Exchange
Commission, the Commission doesn't approve or disapprove these securities or
determine if the information is truthful or complete. Anyone who represents
that the Securities and Exchange Commission does these things may be guilty
of a criminal offense.
This Prospectus and the Statement of Additional Information can also be obtained
from the Securities and Exchange Commissions' website (HTTP://WWW.SEC.GOV).
This annuity IS NOT:
- - a bank deposit or obligation
- - federally insured
- - endorsed by any bank or governmental agency
- - available for sale in all states
Prospectus Dated: February 12, 1999
Statement of Additional Information Dated: February 12, 1999
<PAGE>
3
Table Of Contents
PAGE
----
Glossary of Special Terms. . . . . . . . . . . . . . . . . . . . . . . . . . 4
Summary. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
About Us . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Royal Life Insurance Company of America . . . . . . . . . . . . . . . . 12
Separate Account. . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
The Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
The Fixed Account . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Performance Related Information . . . . . . . . . . . . . . . . . . . . 16
Your Annuity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Contract Value. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Transfers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Death Benefits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Withdrawals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Settlement Provisions . . . . . . . . . . . . . . . . . . . . . . . . . 26
Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Federal Tax Considerations . . . . . . . . . . . . . . . . . . . . . . . . . 29
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Taxation of Royal and the Separate Account. . . . . . . . . . . . . . . 30
Taxation of Annuities - General Provisions Affecting Purchasers
other than Qualified Retirement Plans . . . . . . . . . . . . . . . 30
Federal Income Tax Withholding. . . . . . . . . . . . . . . . . . . . . 35
General Provisions Affecting Qualified Retirement Plans . . . . . . . . 35
Annuity Purchases by Nonresident Aliens and Foreign Corporations. . . . 35
Miscellaneous. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
How we Sell our Annuity . . . . . . . . . . . . . . . . . . . . . . . . 36
Legal Matters and Experts . . . . . . . . . . . . . . . . . . . . . . . 37
Year 2000 Compliance . . . . . . . . . . . . . . . . . . . . . . . . . 37
Additional Information. . . . . . . . . . . . . . . . . . . . . . . . . 38
Appendix I Information Regarding Tax-Qualified Plans . . . . . . . . . . . . 39
Table of Contents to Statement of Additional Information . . . . . . . . . . 43
<PAGE>
4
Glossary of Special Terms
Accumulation Unit: A unit of measure we use to calculate values before we begin
to make payments to you.
Administrative Office of Royal: Located at 200 Hopmeadow Street, Simsbury, CT
06089.
Annual Maintenance Fee: An annual $30 charge for annuities having a value of
less than $50,000 on the most recent Contract Anniversary or when the annuity is
surrendered in full. The charge is deducted proportionately from the investment
options in use at the time.
Annual Withdrawal Amount: The amount that can be withdrawn in any Contract Year
before we charge you a surrender charge.
Annuitant: The person on whose life the Contract is issued. The Annuitant may
not be changed.
Annuity: A Contract issued by an insurance company that provides, in exchange
for premium payments, a series of income payments. This Prospectus describes a
deferred annuity where premium payments accumulate tax-deferred until a partial
or full surrender is taken or until we begin to make payments to you.
Annuity Commencement Date: The date we start to make payments to you.
Annuity Unit: A unit of measure we use to calculate the value of the payments we
make to you.
Beneficiary: The person entitled to receive the payment of the death benefit
upon the death of you or the Annuitant.
Code: The Internal Revenue Code of 1986, as amended.
Commission: The Securities and Exchange Commission.
Contingent Annuitant: The person you may designate who becomes the Annuitant if
the original Annuitant dies before we start making payments to you.
Contract: The contract is the individual Annuity and any endorsements or
riders. If you are enrolled under a group annuity, you receive a certificate
rather than a contract.
Contract Anniversary: The anniversary of the Contract Date.
Contract Owner or You: The owner of the annuity.
Contract Value: The total value of your Sub-Accounts plus any amounts you have
in the Fixed Account.
Contract Year: A period of 12 months commencing with the Contract Date the first
year and the Contract Anniversary after the first year.
Death Benefit: The amount we pay when you or the Annuitant dies.
<PAGE>
5
Due Proof of Death: A certified copy of a death certificate, an order of a court
of competent jurisdiction, a statement from a physician who attended the
deceased or any other proof acceptable to Royal.
Fixed Account: This is an account which is part of our General Account and you
may allocate all or a portion of your payments or Contract Value to this
account.
Funds: The Funds described in this Prospectus and any supplements.
General Account: Our General Account that is all our assets other than the
assets in our separate accounts.
Maximum Anniversary Value: One of the values we use to determine your Death
Benefit. It is determined annually on your anniversary date and is equal to the
highest value your annuity reached on any annuity anniversary date. The maximum
anniversary value is calculated only up to age 80, and we use that value each
year after age 80 as your maximum anniversary value.
Premium Tax: A tax charged by a state or municipality on premium payments.
Royal (or us): Royal Life Insurance Company of America.
Separate Account: For this annuity, the separate account is the Royal Life
Insurance Company of America Separate Account One.
Sub-Account: Divisions established within the Separate Account.
Termination Value: What we pay you if you terminate your annuity before we begin
to make payments to you.
Valuation Day: Every day the New York Stock Exchange is open for trading. The
value of the Separate Account is determined as of the close of the New York
Stock Exchange (generally 4:00 p.m. Eastern Time).
Valuation Period: The period between the close of business on successive
Valuation Days.
<PAGE>
6
Fee Table
Summary
<TABLE>
<S> <C>
Your Transaction Expenses
Sales Load Imposed on Purchases (as a percentage of premium payments) . . . . . . . . . None
Deferred Sales Load (as a percentage of amounts surrendered)
First Year (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6%
Second Year. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6%
Third Year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5%
Fourth Year. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5%
Fifth Year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4%
Sixth Year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3%
Seventh Year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2%
Eighth Year. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0%
Annual Maintenance Fee (2). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $30
Separate Account Annual Expenses (as percentage of average contract value)
Mortality and Expense Risk . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.250%
</TABLE>
- ----------
(1) Length of time from premium payment.
(2) The Annual Maintenance Fee is an annual $30 charge for annuities with a
contract value less than $50,000 on your Anniversary Date or when you
surrender your annuity.
Annual Fund Operating Expenses
(As a percentage of net assets)
<TABLE>
<CAPTION>
Other Total Fund
Expenses Operating
Management (after fee Expenses
Fees waivers (after fee waivers
(after fee and expense and expense
waivers) reimbursements) reimbursements)
------- -------------- --------------
<S> <C> <C> <C>
Hartford Bond HLS Fund. . . . . . . . . . . . . . . . . . . . . . . 0.515% 0.020% 0.535%
Hartford High Yield HLS Fund (1). . . . . . . . . . . . . . . . . . 0.200% 0.150% 0.350%
Hartford Money Market HLS Fund. . . . . . . . . . . . . . . . . . . 0.450% 0.015% 0.465%
Hartford Mortgage Securities HLS Fund . . . . . . . . . . . . . . . 0.450% 0.025% 0.475%
Hartford Index HLS Fund . . . . . . . . . . . . . . . . . . . . . . 0.400% 0.015% 0.415%
</TABLE>
- ----------
(1) Hartford High Yield HLS Fund is a new Fund. "Total Fund Operating
Expenses" are based on annualized estimates of such expenses to be incurred
in the current fiscal year. HL Investment Advisors, LLC has agreed to waive
its fee until the assets of the Fund (excluding assets contributed by
companies affiliated with HL Investment Advisors, LLC) reach $20 million.
Before this waiver, the Management Fee would be 0.775%, other Expenses would
be 0.150%, and Total Fund Operating Expenses would be 0.925% (annualized).
<PAGE>
8
EXAMPLE
- -------
<TABLE>
<CAPTION>
If you surrender your If you annuitize your If you do not surrender your
Contract at the end of the Contract at the end of the Contract, you would pay the
applicable time period you applicable time period you following expenses on a
would pay the following would pay the following $1,000 investment,
expenses on a $1,000 expenses on a $1,000 assuming a 5% annual
investment, assuming a 5% investment, assuming a 5% return on assets:
annual return on assets: annual return on assets:
Sub-Account 1 year 3 years 1 year 3 years 1 year 3 years
- ----------- ------ ------- ------ ------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
Bond Fund. . . . $73 $107 $18 $58 $19 $59
High Yield . . . 71 110 16 62 17 62
Money Market 72 104 18 56 18 56
Fund . . . . .
Mortgage 72 105 18 56 18 57
Securities
Fund . . . . .
Index Fund . . . 72 103 17 54 18 55
</TABLE>
The purpose of this table is to assist you in understanding various costs
and expenses that you will bear directly or indirectly. The table reflects
expenses of the Separate Account and underlying Funds. Premium taxes may also be
applicable.
This EXAMPLE should not be considered a representation of past or future
expenses and actual expenses may be greater or less than those shown.
The Annual Maintenance Fee has been reflected in the Example using a method
intended to show the "average" impact of the Annual Maintenance Fee. In the
Example, the Annual Maintenance Fee is approximately a 0.08% annual charge.
<PAGE>
9
SUMMARY
How do I purchase the annuity?
You must complete our enrollment form and submit it to us for approval with your
first payment. Your first payment must be at least $1,000 and subsequent
payments must be at least $500. If you wish to make automatic monthly payments
into your annuity, you may enroll in our pre-authorized checking program. Under
this program, your subsequent monthly payments can be as low as $50.
For a limited time, usually ten days after you receive your annuity, you may
cancel your annuity without paying a sales charge.
What type of sales charge will I pay?
You don't pay a sales charge when you purchase your annuity. We may charge you
deferred sales charge when you terminate or withdraw amounts invested in your
annuity. We assess a sales charge on amounts withdrawn that exceed 10% of the
total amounts you have paid into your annuity if these amounts have been in your
annuity for less than seven years. The sales charge is applied to amounts
withdrawn that exceed 10% of the total amounts paid in and will depend on the
length of time the payment you made has been in your annuity. If the amount you
paid has been in your annuity:
- - For less than two years, the charge is 6%.
- - For more than two years and less than four years, the charge is 5%.
- - For more than four years and less than five years, the charge is 4%.
- - For more than five years and less than six years, the charge is 3%
- - For more than six years and less than seven years, the charge is 2%.
You won't be charged a sales charge on:
- - Payments that have been in your annuity for more than seven years.
- - distributions made due to death
- - most payments we make to you as part of your annuity payments
See "Contingent Deferred Sales Charges" for a complete description of how sales
charges are assessed.
Is there an Annual Maintenance Fee?
Yes. We deduct a $30.00 fee each year on the anniversary of your purchase or
when you terminate your annuity, if the value of your annuity is less than
$50,000.
What charges will I pay on an annual basis?
You pay two different types of charges each year. The first type of charge is
the fee you pay for insurance. This charge is:
- - A mortality and expense risk charge that is subtracted daily and is equal
to an annual payment of
<PAGE>
10
1.25% of your money invested in the funds.
The second type of charge is the fee you pay for the funds.
- - Currently, the total fund charges range from 0.42% to 0.535% of the
average daily value of the amount you have invested in the funds.
The current annual insurance charges and the total fund charges are set forth
in the table below:
<TABLE>
<CAPTION>
ANNUAL ANNUAL ANNUAL TOTAL
THE SUB-ACCOUNTS INSURANCE MAINTENANCE TOTAL FUND CHARGES YOU
CHARGE FEE(1) CHARGES(2) PAY
<S> <C> <C> <C> <C>
Bond 1.25% .08% 0.54% 1.87%
High Yield 1.25% .08% 0.35% 1.68%
Index 1.25% .08% 0.42% 1.75%
Money Market 1.25% .08% 0.47% 1.80%
Mortgage Securities 1.25% .08%. 0.48% 1.81%
</TABLE>
(1) The actual Annual Maintenance Fee is a $30,000 fee. The Annual
Maintenance Fee has been reflected using a method intended to show the
"average" impact of the Annual Maintenance Fee. In the table, the Annual
Maintenance Fee is approximately a 0.08% annual charge.
The figure that appears in the "Annual Total Fund Charges" column illustrates
the sum of the management fees and other expenses that the funds charge. The
figures reflect any fees that may have been waived by the funds' investment
advisers. The figures are as of December 31, 1997, before the sub-accounts
began operations. For more information, see the funds' prospectuses in the
back of this book.
Can I take out any of my money?
/ / You may withdraw all or part of the amounts you have invested at any time
before we start making payments to you.
<PAGE>
11
/ / Each year you may withdraw up to 10% of your payments without having to pay
a sales charge.
You may have to pay tax on the money you take out and, if you take money out
before you are 59 1/2 you may have to pay a tax penalty.
Will we pay a death benefit?
There is a death benefit if you, your joint owner or your annuitant (the person
on whose life this annuity is based), dies before we begin to make payments to
you. The death benefit will be determined as of the date we receive acceptable
proof of death and will be the greater of:
- - The total payments you have made to us minus any amounts you have taken
out, or
- - The total value of your annuity, or
- - Your maximum anniversary value, which is the highest value your annuity
reached on any annuity anniversary date up to age 80, reduced by any
subsequent withdrawals and increased by any subsequent payments.
What payment options are available?
When it comes time for us to pay you, you may choose on of the following annuity
payment options, or receive a lump sum:
- Life Annuity where we make scheduled payments to you for the rest of
your life.
Payments under this option stop upon the death of the annuitant, even if the
annuitant dies after one payment.
- Life Annuity with 120, 180 or 240 Monthly Payments Certain where we
make payments to you for your life but you are at least guaranteed
payments for 120, 180 or 240 months, which ever you select. If the
annuitant dies before the end of the period selected, we will continue
to make payments to your beneficiary until the end of the period
selected.
- Joint and Last Survivor Annuity where we make payments during the
lifetime of you and another designated individual and then throughout
the remaining lifetime of the survivor.
- Payments for a Designated Period where we make payments for a
specified time between 5 and 30 years. If the annuitant dies before
the end of the specified time, we pay the beneficiary the present
value of the annuity in one lump sum or continue making the payments
to the beneficiary. You may terminate this option after payments have
started.
You must begin to take payments before the annuitant's 90th birthday or earlier
in some states. If you do not tell us what payment option you want before that
time, we will pay you under the Payment of a Designated Period option for 5
years from the annuitant's 90th birthday.
<PAGE>
12
About Us
Royal Life Insurance
Company of America
Royal Life Insurance Company of America ("Royal") is a stock life
insurance company engaged in the business of writing life insurance in all
states of the United States and the District of Columbia. Royal was
originally incorporated under the laws of Connecticut on September 16, 1963.
Its offices are located in Simsbury, Connecticut; however, its mailing
address is P.O. Box 5085, Hartford, CT 06104-5085. Royal is a wholly owned
subsidiary of Hartford Life Insurance Company. On December 31, 1997, all of
the common stock of Royal was purchased from Royal Maccabees Life Insurance
Company. Royal is ultimately controlled by Hartford Financial Services
Group, Inc., one of the largest financial service providers in the United
States.
Separate Account
The Separate Account was established on September 1, 1998. It is the
Separate Account in which Royal sets aside and invests the assets attributable
to variable annuity Contracts, including the Contracts sold under this
Prospectus. Separate Account assets are held by Royal under a safekeeping
arrangement. Although the Separate Account is an integral part of Royal, it is
registered as a unit investment trust under the Investment Company Act of 1940.
This registration does not, however, involve Commission supervision of the
management or the investment practices or policies of the Separate Account or
Royal. The Separate Account meets the definition of "separate account" under
federal securities law.
Under Connecticut law, the assets of the Separate Account attributable
to the Contracts offered under this Prospectus are held for the benefit of
the owners of, and the persons entitled to payments under, those Contracts.
Income, gains, and losses, whether or not realized, from assets allocated to
the Separate Account, are, in accordance with the Contracts, credited to or
charged against the Separate Account. Also, the assets in the Separate
Account are not chargeable with liabilities arising out of any other business
Royal may conduct. Contract Values allocated to the Separate Account is not
affected by the rate of return of Royal's General Account, nor by the
investment performance of any of Royal's other separate accounts. The
Separate Account may be subject to liabilities arising from a Sub-Account of
the Separate Account whose assets are attributable to other variable annuity
Contracts offered by the Separate Account which are not described in this
Prospectus. However, all obligations arising under the Contracts are general
corporate obligations of Royal.
Royal does not guarantee the investment results of the Separate Accounts or
any of the underlying investment options. There is no assurance that the value
of a Contract during the years prior to retirement or the aggregate amount of
the Variable Annuity payments will equal the total of Premium Payments made
under the Contract. Since each underlying Fund has different investment
objectives, each is subject to different risks. These risks are more fully
described in the accompanying Funds' prospectus.
The Funds
All of the Funds are sponsored and administered by Royal. HL Investment
Advisors, LLC ("HL Advisors") serves as the investment adviser to each of the
Funds. The Hartford Investment Management Company ("HIMCO") serves as
sub-investment advisor and provides day to day investment services.
<PAGE>
13
Each Fund, except for the Hartford High Yield HLS Fund, is a separate
Maryland corporation registered with the Securities and Exchange Commission
as an open-end management investment company. The Hartford High Yield HLS
Fund is a diversified series of Hartford Series Fund, Inc., a Maryland
corporation, also registered with the Securities and Exchange Commission as
an open-end management investment company. The shares of each Fund have been
divided into Class IA and Class IB. Only Class IA shares are available in this
Annuity.
We do not guarantee the investment results of any of the underlying
Funds. Since each underlying Fund has different investment objectives, each
is subject to different risks. These risks and the Funds' expenses are more
fully described in the accompanying Funds' prospectus and Statement of
Additional Information, which may be ordered from us. The Funds' prospectus
should be read in conjunction with this Prospectus before investing.
The Funds may not be available in all states.
The investment goals of each of the Funds are as follows:
Hartford Bond HLS Fund
Seeks maximum current income consistent with preservation of capital by
investing primarily in investment grade fixed-income securities. Up to 20% of
the total assets of this Fund may be invested in debt securities rated in the
highest category below investment grade ("Ba" by Moody's Investor Services,
Inc. or "BB" by Standard & Poor's) or, if unrated, are determined to be of
comparable quality by the Fund's investment adviser. Securities rated below
investment grade are commonly referred to as "high yield-high risk
securities" or "junk bonds." For more information concerning the risks
associated with investing in such securities, please refer to the section in
the accompanying prospectus for the Funds entitled "Hartford Bond HLS Fund,
Inc. - Investment Policies."
Hartford High Yield HLS Fund
Seeks high current income by investing in non-investment grade
fixed-income securities. Growth of capital is a secondary objective.
Securities rated below investment grade are commonly referred to as "high
yield-high risk securities" or "junk bonds." For more information concerning
the risks associated with investing in such securities, please refer to the
section in the accompanying prospectus for the Funds entitled "Hartford High
Yield HLS Fund." Sub-advised by HIMCO.
Hartford Index HLS Fund
<PAGE>
14
Seeks to provide investment results which approximate the price and yield
performance of publicly-traded common stocks in the aggregate, as represented by
the Standard & Poor's 500 Composite Stock Price Index.*
Hartford Mortgage Securities HLS Fund
Seeks maximum current income consistent with safety of principal and
maintenance of liquidity by investing primarily in mortgage-related securities,
including securities issued by the Government National Mortgage Association.
Hartford Money Market HLS Fund
Seeks maximum current income consistent with liquidity and preservation of
capital.
* Standard & Poor's-Registered Trademark-," "S&P-Registered Trademark-," "S&P
500-Registered Trademark-," "Standard & Poor's 500," and "500" are
trademarks of The McGraw-Hill Companies, Inc. and have been licensed for
use by Hartford. The Index Fund is not sponsored, endorsed, sold or
promoted by Standard & Poor's and Standard & Poor's makes no representation
regarding the advisability of investing in the Index Fund.
<PAGE>
15
Voting Rights - We are the legal owners of all Fund shares held in the Separate
Account and we have the right to vote at the Fund's shareholder meetings. To
the extent required by federal securities laws or regulations, we will:
- - Notify you of any Fund shareholders' meeting if the shares held for your
Contract may be voted.
- - Send proxy materials and a form of instructions that you can use tell us
how to vote the Fund shares held for your Contract.
- - arrange for the handling and tallying of proxies received from Contract
Owners
- - Vote all Fund shares attributable to your Contract according to
instructions received from you, and
- - Vote all Fund shares for which no voting instructions are received in the
same proportion as shares for which instructions have been received.
If any federal securities laws or regulations, or their present interpretation,
change to permit us to vote Fund shares on our own, we may decide to do so. You
may attend any Shareholder Meeting at which shares held for your Contract may be
voted. After we begin to make payments to you, the number of votes you have
will decrease,
Substitutions, Additions, or Deletions of Investments - We reserve the right,
subject to any applicable law, to make certain changes to the investment options
offered under Your Contract. We may, in our sole discretion, establish new
Funds. New Funds will be will be made available to existing Contract Owners as
we determined appropriate. We may also close one or more Funds to additional
Payments or transfers from existing Sub-Accounts.
We reserve the right to eliminate the shares of any of the Funds for any reason
and to substitute shares of another registered investment company for the shares
of any Fund already purchased or to be purchased in the future by the Separate
Account. To the extent required by the 1940 Act, substitutions of shares
attributable to your interest in a Fund will not be made until we have the
approval of the Commission and we have notified you of the change.
In the event of any substitution or change, We may, by appropriate endorsement,
make such changes in the Contract as may be necessary or appropriate to reflect
such substitution or change. If we decide that it is in the best interest
Contracts Owners, the Separate Account may be operated as a management company
under the 1940 Act or any other form permitted by law, may be de-registered
under the 1940 Act in the event such registration is no longer required, or may
be combined with one or more other separate accounts.
The Fixed Account
THAT PORTION OF THE CONTRACT RELATING TO THE FIXED ACCOUNT IS NOT
REGISTERED UNDER THE SECURITIES ACT OF 1933 ("1933 ACT") AND THE FIXED ACCOUNT
IS NOT REGISTERED AS AN INVESTMENT COMPANY UNDER THE INVESTMENT COMPANY ACT OF
1940 ("1940 ACT"). ACCORDINGLY, NEITHER THE FIXED ACCOUNT NOR ANY INTERESTS
THEREIN ARE SUBJECT TO THE PROVISIONS OR RESTRICTIONS OF THE 1933 ACT OR THE
1940 ACT, AND THE DISCLOSURE REGARDING THE FIXED ACCOUNT HAS NOT BEEN REVIEWED
BY THE STAFF OF THE SECURITIES AND EXCHANGE COMMISSION. THE FOLLOWING DISCLOSURE
ABOUT THE FIXED ACCOUNT MAY BE SUBJECT TO CERTAIN GENERALLY APPLICABLE
PROVISIONS OF THE FEDERAL SECURITIES LAWS REGARDING THE ACCURACY AND
COMPLETENESS OF DISCLOSURE.
<PAGE>
16
Premium Payments and Contract Values allocated to the Fixed Account become
a part of the general assets of Royal. Royal invests the assets of the General
Account in accordance with applicable law governing the investments of Insurance
Company General Accounts.
Currently, Royal guarantees that it will credit interest at a rate of not
less than 3% per year, compounded annually, to amounts allocated to the Fixed
Account under the Contracts. However, Royal reserves the right to change the
rate according to state insurance law. Royal may credit interest at a rate in
excess of 3% per year. There is no specific formula for the determination of
excess interest credits. Some of the factors that Royal may consider in
determining whether to credit excess interest to amounts allocated to the Fixed
Account and the amount thereof, are general economic trends, rates of return
currently available and anticipated on Royal 's investments, regulatory and tax
requirements and competitive factors. ANY INTEREST CREDITED TO AMOUNTS ALLOCATED
TO THE FIXED ACCOUNT IN EXCESS OF 3% PER YEAR WILL BE DETERMINED IN THE SOLE
DISCRETION OF ROYAL. THE OWNER ASSUMES THE RISK THAT INTEREST CREDITED TO FIXED
ACCOUNT ALLOCATIONS MAY NOT EXCEED THE MINIMUM GUARANTEE OF 3% FOR ANY GIVEN
YEAR.
From time to time, Royal may credit increased interest rates to you under
certain programs established at the discretion of Royal.
Performance Related Information
The Separate Account may advertise certain performance related information
concerning its Sub-Accounts. Performance information about a Sub-Account is
based on the Sub-Account's past performance only and is no indication of future
performance.
All of the Sub-Accounts may include total return in advertisements or other
sales material.
When a Sub-Account advertises its standardized total return, it will be
calculated to a date not earlier than the effective date of the Separate
Account. This figure will usually be calculated for one year, five years, and
ten years or some other relevant period if the Separate Account has not been in
existence for one, five or ten years. Total return is measured by comparing the
value of an investment in the Sub-Account at the beginning of the relevant
period to the value of the investment at the end of the period.
In addition to the standardized total return, the Sub-Account may advertise
non-standardized total returns. This figure will usually be calculated for one
year, five years, and ten years or other relevant period if the Separate Account
has not been in existence for one, five or ten years. This non-standardized
total return is measured in the same manner as the standardized total return
described above, except that the Annual Maintenance Fee is not deducted.
Therefore, this non-standardized total return for a Sub-Account is higher than
standardized total return for a Sub-Account.
The Separate Account may also advertise non-standard total returns that pre-date
the inception date of the Separate Account. These non-standardized total
returns are calculated by assuming that the Sub-Accounts have been in existence
for the same periods as the underlying Funds and by taking deductions for
charges equal to those currently assessed against the Sub-Accounts. These
non-standardized returns must be accompanied by standardized total returns.
<PAGE>
17
Certain Sub-Accounts, if applicable, may advertise yield in addition to total
return. The yield will be computed in the following manner: The net investment
income per unit earned during a recent one month period is divided by the unit
value on the last day of the period. This figure reflects the recurring charges
at the Separate Account level including the Annual Maintenance Fee.
The Money Market Fund Sub-Account may advertise yield and effective yield. The
yield of the Money Market Fund Sub-Account is based upon the income earned by
the Sub-Account over a 7-day period and then annualized, i.e. the income earned
in the period is assumed to be earned every 7 days over a 52-week period and
stated as a percentage of the investment. Effective yield is calculated
similarly but when annualized, the income earned by the investment is assumed to
be reinvested in Sub-Account units and thus compounded in the course of a
52-week period. Yield and effective yield reflect the recurring charges at the
Separate Account level including the Annual Maintenance Fee.
Royal may provide information on various topics to Contract Owners and
prospective Contract Owners in advertising, sales literature or other materials.
These topics may include the relationship between sectors of the economy and the
economy as a whole and its effect on various securities markets, investment
strategies and techniques (such as value investing, dollar cost averaging and
asset allocation), the advantages and disadvantages of investing in
tax-advantaged and taxable instruments, customer profiles and hypothetical
purchase scenarios, financial management and tax and retirement planning, and
other investment alternatives, including comparisons between the Contracts and
the characteristics of and market for such alternatives.
YOUR ANNUITY
The Contracts are individual tax-deferred Variable Annuity Contracts
designed for retirement planning purposes and may be purchased by any
individual, including any trustee or custodian for a retirement plan qualified
under Sections 401(a) or 403(a) of the Code; annuity purchase plans adopted by
public school systems and certain tax-exempt organizations according to Section
403(b) of the Code; Individual Retirement Annuities adopted according to Section
408 of the Code; employee pension plans established for employees by a state, a
political subdivision of a state, or an agency or instrumentality of either a
state or a political subdivision of a state, and certain eligible deferred
compensation plans as defined in Section 457 of the Code ("Qualified
Contracts"). The maximum issue age for the Contract is 85 years old.
<PAGE>
18
Payments
Generally, the minimum initial Premium Payment is $1,000; the minimum
subsequent payment is $500, if you are in the InvestEase program the minimum
subsequent payment is $50. Certain plans may make smaller periodic payments.
Each Premium Payment may be split among the various Sub-Accounts and/or the
Fixed Account subject to minimum amounts then in effect.
Refund Rights - If you are not satisfied with your purchase you may cancel
the Contract by returning it within ten days (or longer in some states) after
you receive it. A written request for cancellation must accompany the Contract.
In such event, Royal will, without deduction for any charges normally assessed
thereunder, pay you an amount equal to the Contract Value on the date of receipt
of the request for cancellation. You bear the investment risk during the period
prior to Royal's receipt of request for cancellation Royal will refund the
premium paid only for individual retirement annuities (if returned within seven
days of receipt) and in those states where required by law.
Crediting and Valuation - The balance of the initial Premium Payment
remaining after the deduction of any applicable Premium Tax is credited to your
Contract within two business days of receipt of a properly completed application
or an order to purchase a Contract and the initial Premium Payment by Royal at
its Administrative Office. It will be credited to the Sub-Account(s) and/or the
Fixed Account in accordance with your election. If the application or other
information is incomplete when received, the balance of the initial Premium
Payment, after deduction of any applicable Premium Tax, will be credited to the
Sub-Account(s) or the Fixed Account within five business days of receipt. If the
initial Premium Payment is not credited within five business days, the Premium
Payment will be immediately returned unless you have been informed of the delay
and request that the Premium Payment not be returned.
The number of Accumulation Units in each Sub-Account to be credited to a
Contract will be determined by dividing the portion of the Premium Payment being
credited to each Sub-Account by the value of an Accumulation Unit in that
Sub-Account on that date.
Subsequent Premium Payments are priced on the Valuation Day received by
Royal in its Administrative Office.
Contract Value
The value of the Sub-Account investments under your Contract at any time
prior to the commencement of Annuity payments can be determined by multiplying
the total number of Accumulation Units credited to your Contract in each
Sub-Account by the then current Accumulation Unit values for the applicable
Sub-Account. The value of the Fixed Account under your Contract will be the
amount allocated to the Fixed Account plus interest credited.
You will be advised at least semiannually of the number of Accumulation
Units credited to each Sub-Account, the current Accumulation Unit values, the
Fixed Account value, and the total value of your Contract.
Accumulation Unit Values - The Accumulation Unit value for each Sub-Account
will vary to reflect the investment experience of the applicable Fund and will
be determined on each Valuation Day by multiplying the Accumulation Unit value
of the particular Sub-Account on the preceding Valuation Day by a "Net
Investment Factor" for that Sub-Account for the Valuation Period then ended. The
"Net Investment Factor" for each of the Sub-Accounts is equal to (a) the net
asset value per share of the
<PAGE>
19
corresponding Fund at the end of the Valuation Period (plus the per share amount
of any dividends or capital gains distributed by that Fund if the ex-dividend
date occurs in the Valuation Period then ended) divided by the net asset value
per share of the corresponding Fund at the beginning of the Valuation Period,
(b) minus the mortality and expense risk charge and the administration charge
described below. You should refer to the prospectus for each of the Funds which
accompanies this Prospectus for a description of how the assets of each Fund are
valued since each determination has a direct bearing on the Accumulation Unit
value of the Sub-Account and therefore the value of a Contract. The Accumulation
Unit Value is affected by the performance of the underlying Fund(s), expenses
and deduction of the charges described in this Prospectus.
Valuation of Fund Shares - The shares of the Fund are valued at net asset
value on each Valuation Day. A complete description of the valuation method used
in valuing Fund shares may be found in the accompanying Funds' prospectus.
Valuation of the Fixed Account - Royal will determine the value of the
Fixed Account by crediting interest to amounts allocated to the Fixed Account.
Transfers
You may transfer the values of your Sub-Account allocations from one or
more Sub-Accounts to another free of charge. However, Royal reserves the right
to limit the number of transfers to twelve (12) per Contract Year, with no two
(2) transfers occurring on consecutive Valuation Days. Transfers by telephone
may be made by You or by the attorney-in-fact pursuant to a power of attorney.
Telephone transfers may not be permitted by some states.
The policy of Royal and its agents and affiliates is that they will not be
responsible for losses resulting from acting upon telephone requests reasonably
believed to be genuine. Royal will employ reasonable procedures to confirm that
instructions communicated by telephone are genuine. The procedures Royal follows
for transactions initiated by telephone include requirements that callers
provide certain information for identification purposes. All transfer
instructions by telephone are tape recorded.
Royal may permit the Contract Owner to pre-authorize transfers among
Sub-Accounts and between Sub-Accounts and the Fixed Account under certain
circumstances. Transfers between the Sub-Accounts may be made both before and
after Annuity payments commence (limited to once a quarter) provided that the
minimum allocation to any Sub-Account may not be less than $500. No minimum
balance is required in any Sub-Account.
It is the responsibility of the Contract Owner to verify the accuracy of
all confirmations of transfers and to promptly advise Royal of any inaccuracies
within 30 days of receipt of the confirmation. Royal will send the Contract
Owner a confirmation of the transfer within five days from the date of any
instruction.
Transfers from the Fixed Account into a Sub-Account may be made at any time
during the Contract Year. The maximum amount which may be transferred from the
Fixed Account during any Contract Year is the greater of 30% of the Fixed
Account balance as of the last Contract Anniversary or the greatest amount of
any prior transfer from the Fixed Account. If Royal permits pre-authorized
transfers from the Fixed Account to the Sub-Accounts, this restriction is
inapplicable. Also, if any
<PAGE>
20
interest rate is renewed at a rate of at least one percentage point less than
the previous rate, the Contract Owner may elect to transfer up to 100% of the
funds receiving the reduced rate within 60 days of notification of the interest
rate decrease. Generally, transfers may not be made from any Sub-Account into
the Fixed Account for the six-month period following any transfer from the Fixed
Account into one or more of the Sub-Accounts. Royal reserves the right to modify
the limitations on transfers from the Fixed Account and to defer transfers from
the Fixed Account for up to six months from the date of request.
Subject to the exceptions set forth in the following two paragraphs, the
right to reallocate Contract Values is subject to modification if Royal
determines, in its sole opinion, that the exercise of that right by one or more
Contract Owners is, or would be, to the disadvantage of other Contract Owners.
Any modification could be applied to transfers to or from some or all of the
Sub-Accounts and the Fixed Account and could include, but not be limited to, the
requirement of a minimum time period between each transfer, not accepting
transfer requests of an agent acting under a power of attorney on behalf of more
than one Contract Owner, or limiting the dollar amount that may be transferred
between the Sub-Accounts and the Fixed Account by Contract Owners at any one
time. Such restrictions may be applied in any manner reasonably designed to
prevent any use of the transfer right which is considered by Royal to be to the
disadvantage of other Contract Owners.
For Contracts issued in the State of New York, the reservation of rights
set forth in the preceding paragraph is limited to (i) requiring up to a maximum
of 10 Valuation Days between each transfer: (ii) limiting the amount to be
transferred on any one Valuation Day to no more than $2 million; and (iii) upon
30 days prior written notice, to only accepting transfer instructions from You
and not from Your representative, agent or person acting under a power of
attorney for You.
Currently, and with respect to Contracts issued in all states, the only
restriction in effect is that Royal will not accept instructions from agents
acting under a power of attorney of multiple Contract Owners whose accounts
aggregate more than $2 million, unless the agent has entered into a third party
transfer services agreement with Royal.
Charges
Contingent Deferred Sales Charges ("Sales Charges")
Purpose of Sales Charges - Sales Charges cover expenses relating to the
sale and distribution of the Contracts, including commissions paid to
distributing organizations and its sales personnel, the cost of preparing sales
literature and other promotional activities. If these charges are not sufficient
to cover sales and distribution expenses, Royal will pay them from its general
assets, including surplus. Surplus might include profits resulting from unused
mortality and expense risk charges.
Assessment of Sales Charges - There is no deduction for sales expenses from
Premium Payments when made, however, a Sales Charge may be assessed against
Premium Payments when surrendered. The length of time from receipt of a Premium
Payment to the time of surrender determines the percentage of the Sales Charge.
Premium payments are deemed to be surrendered in the order in which they were
received.
During the first seven years from each Premium Payment, a Sales Charge will
be assessed against the surrender of Premium Payments. During this time, all
surrenders in excess of the Annual
<PAGE>
21
Withdrawal Amount will be first from Premium Payments and then from earnings.
The Annual Withdrawal Amount is first from earnings and then from Premium
Payments. After the seventh Contract Year, all surrenders will first be taken
from earnings and then from Premium Payments and a Sales Charge will not be
assessed against the surrender of earnings. If an amount equal to all earnings
has been surrendered, a Sales Charge will not be assessed against Premium
Payments received more than seven years prior to surrender, but will be assessed
against Premium Payments received less than seven years prior to surrender. For
additional information, see "Federal Tax Considerations."
Upon receipt of a request for a full surrender, Royal will assess any
applicable Sales Charge against the surrender proceeds representing the lesser
of: (1) aggregate Premium Payments not previously withdrawn or (2) the Contract
Value, less the Annual Withdrawal Amount available at the time of the full
surrender, less the Annual Maintenance Fee, if applicable. Taking the Annual
Withdrawal Amount prior to the full surrender may, depending upon the amount of
investment gain experienced, reduce the amount of any Sales Charge paid.
The Sales Charge is a percentage of the amount surrendered (not to exceed
the aggregate amount of the Premium Payments made) and equals:
<TABLE>
<CAPTION>
Charge Length of time from
Premium Payment
(Number of Years)
<S> <C>
6% 1
6% 2
5% 3
5% 4
4% 5
3% 6
2% 7
0% 8 or more
</TABLE>
Payments Not Subject to Sales Charges
Annual Withdrawal Amount - During the first seven years from each Premium
Payment, on a non-cumulative basis, You may make a partial surrender of Contract
Values of up to 10% of the aggregate Premium Payments, as determined on the date
of the requested surrender, without the application of the Sales Charge. After
the seventh year from each Premium Payment, also on a non-cumulative basis, You
may make a partial surrender of 10% of Premium Payments made during the seven
years prior to the surrender and 100% of the Contract Value less the Premium
Payments made during the seven years prior to the surrender.
Extended Withdrawal Privilege - This privilege allows Annuitants who attain
age 70 1/2 with a Contract held under an Individual Retirement Account or 403(b)
plan to surrender an amount equal to the required minimum distribution for the
stated Contract without incurring a Sales Charge or not subject to a Sales
Charge.
Waivers of Sales Charges
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22
Death of the Annuitant or Contract Owner or Payments Under an Annuity
Option - No Sales Charge otherwise applicable will be assessed in the event of
death of the Annuitant, death of the Contract Owner or if payments are made
under an Annuity option (other than a surrender out of Annuity Option 4)
provided for under the Contract.
Other Plans or Programs - Certain plans or programs established by Royal
from time to time may have different surrender privileges.
Mortality and Expense Risk Charge
For assuming these risks under the Contracts, Royal will make a daily
charge at the rate of 1.25% per annum against all Contract Values held in the
Sub-Accounts during the life of the Contract (estimated at .90% for mortality
and .35% for expense). Although Variable Annuity payments made under the
Contracts will vary in accordance with the investment performance of the
underlying Fund shares held in the Sub-Account(s), the payments will not be
affected by (a) Royal's actual mortality experience among Annuitants before or
after the Annuity Commencement Date or (b) Royal's actual expenses, if greater
than the deductions provided for in the Contracts because of the expense and
mortality undertakings by Royal.
There are two types of mortality undertakings: those made during the
accumulation or deferral phase and those made during the annuity payout phase.
The mortality undertaking made by Royal in the accumulation phase is that Royal
may experience a loss resulting from the assumption of the mortality risk
relative to the guaranteed death benefit in event of the death of an Annuitant
or Contract Owner before commencement of Annuity payments, in periods of
declining value or in periods where the contingent deferred sales charges would
have been applicable. The mortality undertakings provided by Royal during the
annuity payout phase are to make monthly Annuity payments (determined in
accordance with the 1983a Individual Annuity Mortality Table and other
provisions contained in the Contract) to Annuitants regardless of how long an
Annuitant may live, and regardless of how long all Annuitants as a group may
live. Royal also assumes the liability for payment of a minimum death benefit
under the Contract. These mortality undertakings are based on Royal's
determination of expected mortality rates among all Annuitants. If actual
experience among Annuitants during the Annuity payment period deviates from
Royal's actuarial determination of expected mortality rates among Annuitants
because, as a group, their longevity is longer than anticipated, Royal must
provide amounts from its general funds to fulfill its contractual obligations.
Royal will bear the loss in such a situation.
During the accumulation phase, Royal also provides an expense undertaking.
Royal assumes the risk that the contingent deferred sales charges and the Annual
Maintenance Fee for maintaining the Contracts prior to the Annuity Commencement
Date may be insufficient to cover the actual cost of providing such items.
Annual Maintenance Fee
Each year, on each Contract Anniversary on or before the Annuity
Commencement Date, Royal will deduct an Annual Maintenance Fee, if applicable,
from Contract Values to reimburse it for expenses relating to the maintenance of
the Contract, the Fixed Account, and the Sub-Account(s) thereunder. If during a
Contract Year the Contract is surrendered for its full value, Royal will deduct
the Annual
<PAGE>
23
Maintenance Fee at the time of such surrender. The fee is a flat fee that will
be due in the full amount regardless of the time of the Contract Year that
Contract Values are surrendered. The Annual Maintenance Fee is $30.00 per
Contract Year for Contracts with less than $50,000 Contract Value on the
Contract Anniversary. Fees will be deducted on a pro rata basis according to
the value in each Sub-Account and the Fixed Account under a Contract.
Premium Taxes
Charges are also deducted for premium tax, if applicable, imposed by state
or other governmental entity. Certain states impose a premium tax, currently
ranging up to 3.5%. Some states assess the tax at the time purchase payments are
made; others assess the tax at the time of annuitization. Royal will pay Premium
Taxes at the time imposed under applicable law. At its sole discretion, Royal
may deduct Premium Taxes at the time Royal pays such taxes to the applicable
taxing authorities, at the time the Contract is surrendered, at the time a death
benefit is paid, or at the time the Contract annuitizes.
Fund Charges
The Separate Account purchases shares of The Funds at net asset value.
The net asset value of the Fund shares reflects investment advisory fees and
administrative expenses already deducted from the assets of The Funds. These
charges are described in the Funds' prospectuses accompanying this Prospectus.
Exceptions to Charges Under the Contract
Royal may offer, at its discretion, reduced fees and charges including, but not
limited to, the contingent deferred sales charges, the mortality and expense
risk charge and the maintenance fee for certain sales (including employer
sponsored savings plans) under circumstances which may result in savings of
certain costs and expenses. Reductions in these fees and charges will not be
unfairly discriminatory against any Contract Owner.
Death Benefits
The Contract provides that, in the event the Annuitant dies before the
selected Annuity Commencement Date, the Contingent Annuitant will become the
Annuitant. If (1) the Annuitant dies before the Annuity Commencement Date and
either (a) there is no designated Contingent Annuitant or (b) the Contingent
Annuitant predeceases the Annuitant, or (2) if any Contract Owner dies before
the Annuity Commencement Date, the Beneficiary as determined under the Contract
Control Provisions, will receive the Death Benefit as determined on the date of
receipt of Due Proof of Death by Royal in its Administrative Office. With regard
to Joint Contract Owners, at the first death of a joint Contract Owner prior to
the Annuity Commencement Date, the Beneficiary will be the surviving Contract
Owner notwithstanding that the beneficiary designation may be different.
Guaranteed Death Benefit - If the Annuitant dies before the Annuity
Commencement Date and there is no designated Contingent Annuitant surviving, or
if the Contract Owner dies before the Annuity Commencement Date, the Beneficiary
will receive the greatest of (a) the Contract Value determined as of the day
written proof of death of such person is received by Royal, or (b) 100% of the
total Premium Payments made to such Contract, reduced by the dollar amount of
any partial surrenders since the issue date, or (c) the Maximum Anniversary
Value immediately preceding the date of death. The Maximum Anniversary Value is
equal to the greatest Anniversary Value attained from the following:
As of the date of receipt of Due Proof of Death, Royal will calculate an
Anniversary Value for each Contract Anniversary prior to the deceased's attained
age 81. The Anniversary Value is equal to the Contract Value on a Contract
Anniversary, increased by the dollar amount of any premium payments made since
that anniversary and reduced by the dollar amount of any partial surrenders
<PAGE>
24
since that anniversary.
If the Annuitant or You, as applicable, die after the Annuity Commencement Date,
then the Death Benefit will equal the present value of any remaining payments
under the elected Annuity Option. In computing such present value for the
portion of such remaining payments attributable to the Separate Account, Royal
will assume a net investment rate of 5.0% per year.
Payment of Death Benefit - The calculated Death Benefit will remain
invested in the Separate Account in accordance with the allocation instructions
given by the Contract Owner until the proceeds are paid or Royal receives new
instructions from the Beneficiary. During the time period between Royal's
receipt of written notification of Due Proof of Death and Royal's receipt of the
completed settlement instructions, the calculated Death Benefit will remain
invested in the Sub-Account(s) previously elected by the Contract Owner and will
be subject to market fluctuations. The Death Benefit may be taken in one sum,
payable within seven days after the date Due Proof of Death is received, or
under any of the settlement options then being offered by Royal provided,
however, that: (a) in the event of the death of any Contract Owner prior to the
Annuity Commencement Date, the entire interest in the Contract will be
distributed within five years after the death of the Contract Owner and (b) in
the event of the death of any Contract Owner or Annuitant which occurs on or
after the Annuity Commencement Date, any remaining interest in the Contract will
be paid at least as rapidly as under the method of distribution in effect at the
time of death, or, if the benefit is payable over a period not extending beyond
the life expectancy of the Beneficiary or over the life of the Beneficiary, such
distribution must commence within one year of the date of death. The proceeds
due on the death may be applied to provide variable payments, fixed payments, or
a combination of variable and fixed payments. However, in the event of the
Contract Owner's death where the sole Beneficiary is the spouse of the Contract
Owner and the Annuitant or Contingent Annuitant is living, such spouse may
elect, in lieu of receiving the death benefit, to be treated as the Contract
Owner. The Contract Value and the Maximum Anniversary Value of the Contract will
be unaffected by treating the spouse as the Contract Owner.
If the Contract is owned by a corporation or other non-individual, the
Death Benefit payable upon the death of the Annuitant prior to the Annuity
Commencement Date will be payable only as one sum or under the same settlement
options and in the same manner as if an individual Contract Owner died on the
date of the Annuitant's death.
There may be postponement in the payment of Death Benefits whenever (a) the
New York Stock Exchange is closed, except for holidays or weekends, or trading
on the New York Stock Exchange is restricted as determined by the Commission;
(b) the Commission permits postponement and so orders; or (c) the Commission
determines that an emergency exists making valuation of the amounts or disposal
of securities not reasonably practicable.
Annuity Proceeds Settlement Option
Proceeds from the Death Benefit may be left with Royal for a period not
to exceed five years from the date of the Contract Owner's death prior to the
Annuity Commencement Date. These proceeds will remain in the Sub-Account(s)
to which they were allocated at the time of death unless the Beneficiary
elects to reallocate them. Full or partial withdrawals may be made at any
time. In the event of withdrawals, the remaining value will equal the
Contract Value of the proceeds left with Royal, minus any withdrawals.
Withdrawals
Full Surrenders - At any time prior to the Annuity Commencement Date (and
after the Annuity Commencement Date with respect to values applied to Annuity
Option 4 or the Annuity Proceeds Settlement Option), the Contract Owner has the
right to terminate the Contract. In such event, the Termination Value of the
Contract may be taken in the form of a lump sum cash settlement.
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Under any of the Annuity options excluding Annuity Option 4 and the Annuity
Proceeds Settlement Option, no surrenders are permitted after Annuity payments
commence. Only full surrenders are allowed out of Annuity Option 4 and any such
surrender will be subject to contingent deferred sales charges, if applicable.
Full or partial withdrawals may be made from the Annuity Proceeds Settlement
Option at any time and contingent deferred sales charges will not be applied.
The Termination Value of the Contract is equal to the Contract Value less
any applicable Premium Taxes, the Annual Maintenance Fee if applicable and any
applicable contingent deferred sales charges. The Termination Value may be more
or less than the amount of the Premium Payments made to a Contract.
Partial Surrenders - You may make a partial surrender of Contract Values
at any time prior to the Annuity Commencement Date so long as the amount
surrendered is at least equal to the minimum amount rules then in effect.
Additionally, if the remaining Contract Value following a surrender is less than
$500 ($1,000 in New York), Royal will terminate the Contract and pay the
Termination Value. For Contracts issued in Texas, there is an additional
requirement that the Contract will not be terminated when the remaining Contract
Value after a surrender is less than $500 unless there were no Premium Payments
made during the previous two Contract Years.
In requesting a partial withdrawal you should specify the Sub-Account(s)
and/or the Fixed Account from which the partial withdrawal is to be taken.
Otherwise, such withdrawal and any applicable contingent deferred sales charges
will be effected on a pro rata basis according to the value in the Fixed Account
and each Sub-Account under a Contract.
Royal may permit You to pre-authorize partial surrenders subject to certain
limitations then in effect.
Payment of Surrender Benefits - Payment on any request for a full or
partial surrender from the Sub-Accounts will be made as soon as possible and in
any event no later than seven days after the written request is received by
Royal at its Administrative Office. Royal may defer payment of any amounts from
the Fixed Account for up to six months from the date of the request for
surrender. If Royal defers payment for more than 30 days (10 working days in New
York), Royal will pay interest of at least 3% per annum on the amount deferred.
There may be postponement in the payment of Surrender Benefits whenever (a)
the New York Stock Exchange is closed, except for holidays or weekends, or
trading on the New York Stock Exchange is restricted as determined by the
Commission; (b) the Commission permits postponement and so orders; or (c) the
Commission determines that an emergency exists making valuation of the amounts
or disposal of securities not reasonably practicable.
CERTAIN QUALIFIED CONTRACT SURRENDERS - THERE ARE CERTAIN RESTRICTIONS ON
SECTION 403(b) TAX SHELTERED ANNUITIES. AS OF DECEMBER 31, 1988, ALL SECTION
403(b) ANNUITIES HAVE LIMITS ON FULL AND PARTIAL SURRENDERS. CONTRIBUTIONS TO
THE CONTRACT MADE AFTER DECEMBER 31, 1988 AND ANY INCREASES IN CASH VALUE AFTER
DECEMBER 31, 1988 MAY NOT BE DISTRIBUTED UNLESS THE CONTRACT OWNER/EMPLOYEE HAS
A) ATTAINED AGE 59 1/2, B) SEPARATED FROM SERVICE, C) DIED, D) BECOME DISABLED
OR E) EXPERIENCED FINANCIAL HARDSHIP. (CASH VALUE INCREASES MAY NOT BE
DISTRIBUTED PRIOR TO AGE 59 1/2 FOR HARDSHIPS.)
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26
DISTRIBUTIONS PRIOR TO AGE 59 1/2 DUE TO FINANCIAL HARDSHIP OR SEPARATION
FROM SERVICE MAY STILL BE SUBJECT TO A PENALTY TAX OF 10%.
ROYAL WILL NOT ASSUME ANY RESPONSIBILITY IN DETERMINING WHETHER A
WITHDRAWAL IS PERMISSIBLE, WITH OR WITHOUT TAX PENALTY, IN ANY PARTICULAR
SITUATION; OR IN MONITORING WITHDRAWAL REQUESTS REGARDING PRE OR POST JANUARY 1,
1989 ACCOUNT VALUES.
ANY SUCH FULL OR PARTIAL SURRENDER DESCRIBED ABOVE MAY AFFECT THE
CONTINUING TAX QUALIFIED STATUS OF SOME CONTRACTS OR PLANS AND MAY RESULT IN
ADVERSE TAX CONSEQUENCES TO THE CONTRACT OWNER. THE CONTRACT OWNER, THEREFORE,
SHOULD CONSULT WITH HIS TAX ADVISER BEFORE UNDERTAKING ANY SUCH SURRENDER. (SEE
"FEDERAL TAX CONSIDERATIONS.")
Settlement Provisions
You select an Annuity Commencement Date and an Annuity option which may be
on a fixed or variable basis, or a combination thereof. The Annuity Commencement
Date will not be deferred beyond the Annuitant's 90th birthday. The Annuity
Commencement Date and/or the Annuity option may be changed from time to time,
but any change must be at least 30 days prior to the date on which Annuity
payments are scheduled to begin. The Contract allows You to change the
Sub-Accounts on which variable payments are based after payments have commenced
once every three months. Any Fixed Annuity allocation may not be changed.
The Contract contains the four Annuity payment options and the Annuity
Proceeds Settlement Option. Annuity Options 2, 4, and the Annuity Proceeds
Settlement Option are available to Qualified Contracts only if the guaranteed
payment period is less than the life expectancy of the Annuitant at the time the
option becomes effective. Such life expectancy shall be computed on the basis of
the mortality table prescribed by the IRS, or if none is prescribed, the
mortality table then in use by Royal. With respect to Non-Qualified Contracts,
if you do not elect otherwise, payments in most states will automatically begin
at the Annuitant's age 90 (with the exception of states that do not allow
deferral past age 85) under Annuity Option 2 with 120 monthly payments certain.
For Qualified Contracts and Contracts issued in Texas, if you do not elect
otherwise, payments will begin automatically at the Annuitant's age 90 under
Annuity Option 1 to provide a life Annuity. After the Annuity Commencement Date,
the Annuity option elected may not be changed.
Under any of the Annuity options excluding Annuity Option 4 and the Annuity
Proceeds Settlement Option, no surrenders are permitted after Annuity payments
commence. Only full surrenders are allowed out of Annuity Option 4 and any such
surrender will be subject to contingent deferred sales charges, if applicable.
Full or partial withdrawals may be made from the Annuity Proceeds Settlement
Option at any time and contingent deferred sales charges will not be applied.
Option 1 - Life Annuity
A life Annuity is an Annuity payable during the lifetime of the Annuitant
and terminating with the last payment due preceding the death of the Annuitant.
This option offers the largest payment amount of any of the life Annuity options
since there is no guarantee of a minimum number of payments nor a
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27
provision for a Death Benefit payable to a Beneficiary.
It would be possible under this option for an Annuitant to receive only one
Annuity payment if he died prior to the due date of the second Annuity payment,
two if he died before the date of the third Annuity payment, etc.
Option 2 - Life Annuity with 120, 180 or 240 Monthly Payments Certain
This Annuity option is an Annuity payable monthly during the lifetime of an
Annuitant with the provision that payments will be made for a minimum of 120,
180 or 240 months, as elected. If, at the death of the Annuitant, payments have
been made for less than the minimum elected number of months, then the present
value as of the date of the Annuitant's death, of any remaining guaranteed
payments will be paid in one sum to the Beneficiary or Beneficiaries designated
unless other provisions have been made and approved by Royal.
Option 3 - Joint and Last Survivor Annuity
An Annuity payable monthly during the joint lifetime of the Annuitant and a
designated second person, and thereafter during the remaining lifetime of the
survivor, ceasing with the last payment prior to the death of the survivor.
Based on the options currently offered by Royal, the Annuitant may elect that
the payment to the survivor be less than the payment made during the joint
lifetime of the Annuitant and a designated second person.
It would be possible under this option for an Annuitant and designated
second person to receive only one payment in the event of the common or
simultaneous death of the parties prior to the due date for the second payment
and so on.
Option 4 - Payments for a Designated Period
An amount payable monthly for the number of years selected which may be
from 5 to 30 years. Under this option, you may, at any time, surrender the
Contract and receive, within seven days, the Termination Value of the Contract
as determined by Royal.
In the event of the Annuitant's death prior to the end of the designated
period, the present value as of the date of the Annuitant's death, of any
remaining guaranteed payments will be paid in one sum to the Beneficiary or
Beneficiaries designated unless other provisions have been made and approved by
Royal.
Annuity Option 4 is an option that does not involve life contingencies and
thus no mortality guarantee. Charges made for the mortality undertaking under
the Contracts thus provide no real benefit to You.
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28
Royal may offer other annuity or settlement options from time to time.
Variable and Fixed Annuity Payments - When an Annuity is effected under a
Contract, unless otherwise specified, Contract Values (less applicable Premium
Taxes) held in the Sub-Accounts will be applied to provide a Variable Annuity
based on the pro rata amount in the various Sub-Accounts. Fixed Account Contract
Values will be applied to provide a Fixed Annuity. YOU SHOULD CONSIDER THE
QUESTION OF ALLOCATION OF CONTRACT VALUES (LESS APPLICABLE PREMIUM TAXES) AMONG
SUB-ACCOUNTS OF THE SEPARATE ACCOUNT AND THE GENERAL ACCOUNT OF ROYAL TO MAKE
CERTAIN THAT ANNUITY PAYMENTS ARE BASED ON THE INVESTMENT ALTERNATIVE BEST
SUITED TO YOUR NEEDS FOR RETIREMENT.
The minimum monthly Annuity payment is $50.00. No election may be made
which results in a first payment of less than $50.00. If at any time Annuity
payments are or become less than $50.00, Royal has the right to change the
frequency of payment to intervals that will result in payments of at least
$50.00. For New York Contracts, the minimum monthly Annuity payment is $20.00.
When Annuity payments are to commence, the value of the Contract is
determined as the sum of (1) the value of the Fixed Account no earlier than the
close of business on the fifth Valuation Day preceding the date the first
Annuity payment is due plus (2) the product of (a) the value of the Accumulation
Unit of each Sub-Account on that same day and (b) the number of Accumulation
Units credited to each Sub-Account as of the date the Annuity is to commence.
All annuity payments under any option will occur the same day of the month
as the Annuity Commencement Date, based on the payment frequency selected by
You. Available payment frequencies include monthly, quarterly, semi-annual and
annual. The payment frequency may not be changed after payout has begun.
Variable Annuity - The Contract contains tables indicating the minimum
dollar amount of the first monthly payment under the optional variable forms of
Annuity for each $1,000 of value of a Sub-Account under a Contract. The first
monthly payment varies according to the form and type of Variable Payment
Annuity selected. The Contract contains Variable Payment Annuity tables derived
from the 1983a Individual Annuity Mortality Table with ages set back one year
and with an assumed investment rate ("A.I.R.") of 5% per annum. The total first
monthly Variable Annuity payment is determined by multiplying the value
(expressed in thousands of dollars) of a Sub-Account (less any applicable
Premium Taxes) by the amount of the first monthly payment per $1,000 of value
obtained from the tables in the Contracts.
The amount of the first monthly Variable Annuity payment is divided by the
value of an Annuity Unit for the appropriate Sub-Account no earlier than the
close of business on the fifth Valuation Day preceding the day on which the
payment is due in order to determine the number of Annuity Units represented by
the first payment. This number of Annuity Units remains fixed during the Annuity
payment period, and in each subsequent month the dollar amount of the Variable
Annuity payment is determined by multiplying this fixed number of Annuity Units
by the then current Annuity Unit value.
The value of the Annuity Unit for each Sub-Account in the Separate Account
for any day is
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29
determined by multiplying the value for the preceding day by the product of
(1) the net investment factor for the day for which the Annuity Unit value is
being calculated, and (2) a factor to neutralize the assumed investment rate of
5% per annum. The Annuity Unit value used in calculating the amount of the
Variable Annuity payments will be based on an Annuity Unit value determined as
of the close of business on a day no earlier than the fifth Valuation Day
preceding the date of the Annuity payment.
LEVEL VARIABLE ANNUITY PAYMENTS WOULD BE PRODUCED IF THE INVESTMENT RATE
REMAINED CONSTANT AND EQUAL TO THE A.I.R. IN FACT, PAYMENTS WILL VARY UP OR DOWN
AS THE INVESTMENT RATE VARIES UP OR DOWN FROM THE A.I.R.
Fixed Annuity - Fixed Annuity payments are determined at annuitization by
multiplying the Contract Value (less applicable Premium Taxes) by a rate to be
determined by Royal which is no less than the rate specified in the Fixed
Payment Annuity tables in the Contract. The Annuity payment will remain level
for the duration of the Annuity.
Other Information
Assignment - Ownership of a Contract described herein is generally
assignable. However, if the Contracts are issued pursuant to some form of
Qualified Plan, it is possible that the ownership of the Contracts may not be
transferred or assigned depending on the type of tax-qualified retirement plan
involved. An assignment of a Non-Qualified Contract may subject the Contract
values or assignment proceeds to income taxes and certain penalty taxes.
Contract Modification - The Annuitant may not be changed; however, the
Contingent Annuitant may be changed at any time prior to the Annuity
Commencement Date by written notice to Royal.
Royal reserves the right to modify the Contract, but only if such
modification: (i) is necessary to make the Contract or the Separate Account
comply with any law or regulation issued by a governmental agency to which Royal
is subject; or (ii) is necessary to assure continued qualification of the
Contract under the Code or other federal or state laws relating to retirement
annuities or annuity Contracts; or (iii) is necessary to reflect a change in the
operation of the Separate Account or the Sub-Account(s) or (iv) provides
additional Separate Account options or (v) withdraws Separate Account options.
In the event of any such modification Royal will provide notice to You or to the
payee(s) during the Annuity period. Royal may also make appropriate endorsement
in the Contract to reflect such modification.
Federal Tax Considerations
What are some of the federal tax consequences which affect these Contracts?
A. GENERAL
SINCE THE TAX LAW IS COMPLEX AND SINCE TAX CONSEQUENCES WILL VARY ACCORDING TO
THE ACTUAL STATUS OF THE CONTRACT OWNER INVOLVED AND THE TYPE OF PLAN UNDER
WHICH THE CONTRACT IS PURCHASED, LEGAL AND TAX ADVICE MAY BE NEEDED BY A PERSON,
TRUSTEE OR OTHER ENTITY CONTEMPLATING THE PURCHASE OF A CONTRACT DESCRIBED
HEREIN.
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30
It should be understood that any detailed description of the federal income
tax consequences regarding the purchase of these Contracts cannot be made in
this Prospectus and that special tax rules may be applicable with respect to
certain purchase situations not discussed herein. In addition, no attempt is
made here to consider any applicable state or other tax laws. For detailed
information, a qualified tax adviser should always be consulted. The
discussion here and in Appendix I, is based on Royal's understanding of
existing federal income tax laws as they are currently interpreted.
B. TAXATION OF ROYAL AND THE SEPARATE ACCOUNT
The Separate Account is taxed as part of Royal that is taxed as a life
insurance company in accordance with the Internal Revenue Code of 1986, as
amended (the "Code"). Accordingly, the Separate Account will not be taxed as
a "regulated Investment Company" under subchapter M of Chapter 1 of the Code.
Investment income and any realized capital gains on the assets of the
Separate Account are reinvested and are taken into account in determining the
value of the Accumulation and Annuity Units (See "Accumulation Unit Values.")
As a result, such investment income and realized capital gains are
automatically applied to increase reserves under the Contract.
No taxes are due on interest, dividends and short-term or long-term capital
gains earned by the Separate Account with respect to Qualified or Non-Qualified
Contracts.
C. TAXATION OF ANNUITIES -- GENERAL PROVISIONS AFFECTING PURCHASERS OTHER THAN
QUALIFIED RETIREMENT PLANS
Section 72 of the Code governs the taxation of annuities in general.
1. Non-Natural Persons, Corporations, Etc. Section 72 contains provisions
for Contract Owners that are non-natural persons. Non-natural persons
include corporations, trusts, limited liability companies and
partnerships. The annual net increase in the value of the Contract is
currently includable in the gross income of a non-natural person,
unless the non-natural person holds the Contract as an agent for a
natural person. There are additional exceptions from current
inclusion for (i) certain annuities held by structured settlement
companies, (ii) certain annuities held by an employer with respect to
a terminated qualified retirement plan and (iii) certain immediate
annuities. A non-natural person who is a tax-exempt entity for
federal tax purposes will not be subject to income tax as a result of
this provision.
If the Contract Owner is not an individual, the primary Annuitant
shall be treated as the Contract Owner for purposes of making
distributions which are required to be made upon the death of the
Contract Owner. If there is a change in the primary Annuitant, such
change shall be treated as the death of the Contract Owner.
2. Other Contract Owners (Natural Persons). A Contract Owner is not
taxed on increases in the value of the Contract until an amount is
received or deemed received, e.g., in the form of a lump sum payment
(full or partial value of a Contract) or as Annuity payments under the
settlement option elected.
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31
The provisions of Section 72 of the Code concerning distributions are
summarized briefly below. Also summarized are special rules affecting
distributions from Contracts obtained in a tax-free exchange for other
annuity contracts or life insurance contracts which were purchased
prior to August 14, 1982.
a. Distributions Prior to the Annuity Commencement Date.
i. Total premium payments less amounts received which were not
includable in gross income equal the "investment in the
contract" under Section 72 of the Code.
ii. To the extent that the value of the Contract (ignoring any
surrender charges except on a full surrender) exceeds the
"investment in the contract," such excess constitutes the
"income on the contract."
iii. Any amount received or deemed received prior to the Annuity
Commencement Date (e.g., upon a partial surrender) is deemed
to come first from any such "income on the contract" and
then from "investment in the contract," and for these
purposes such "income on the contract" shall be computed by
reference to any aggregation rule in subparagraph 2.c.
below. As a result, any such amount received or deemed
received (1) shall be includable in gross income to the
extent that such amount does not exceed any such "income on
the contract," and (2) shall not be includable in gross
income to the extent that such amount does exceed any such
"income on the contract." If at the time that any amount is
received or deemed received there is no "income on the
contract" (e.g., because the gross value of the Contract
does not exceed the "investment in the contract" and no
aggregation rule applies), then such amount received or
deemed received will not be includable in gross income, and
will simply reduce the "investment in the contract."
iv. The receipt of any amount as a loan under the Contract or
the assignment or pledge of any portion of the value of the
Contract shall be treated as an amount received for purposes
of this subparagraph a. and the next subparagraph b.
v. In general, the transfer of the Contract, without full and
adequate consideration, will be treated as an amount
received for purposes of this subparagraph a. and the next
subparagraph b. This transfer rule does not apply, however,
to certain transfers of property between spouses or incident
to divorce.
b. Distributions After Annuity Commencement Date. Annuity payments
made periodically after the Annuity Commencement Date are
includable in gross income to the extent the payments exceed the
amount determined by the application of the ratio of the
"investment in the contract" to the total amount of the payments
to be made after the Annuity Commencement Date (the "exclusion
ratio").
i. When the total of amounts excluded from income by
application of the exclusion ratio is equal to the
investment in the contract as of the Annuity Commencement
Date, any additional payments (including surrenders) will be
entirely includable in gross income.
ii. If the annuity payments cease by reason of the death of the
Annuitant and, as of the
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32
date of death, the amount of annuity payments excluded from
gross income by the exclusion ratio does not exceed the
investment in the contract as of the Annuity Commencement
Date, then the remaining portion of unrecovered investment
shall be allowed as a deduction for the last taxable year of
the Annuitant.
iii. Generally, non-periodic amounts received or deemed received
after the Annuity Commencement Date are not entitled to any
exclusion ratio and shall be fully includable in gross
income. However, upon a full surrender after such date,
only the excess of the amount received (after any surrender
charge) over the remaining "investment in the contract"
shall be includable in gross income (except to the extent
that the aggregation rule referred to in the next
subparagraph c. may apply).
c. Aggregation of Two or More Annuity Contracts. Contracts issued
after October 21, 1988 by the same insurer (or affiliated
insurer) to the same Contract Owner within the same calendar year
(other than certain contracts held in connection with a
tax-qualified retirement arrangement) will be treated as one
annuity Contract for the purpose of determining the taxation of
distributions prior to the Annuity Commencement Date. An annuity
contract received in a tax-free exchange for another annuity
contract or life insurance contract may be treated as a new
Contract for this purpose. Royal believes that for any annuity
subject to such aggregation, the values under the Contracts and
the investment in the contracts will be added together to
determine the taxation under subparagraph 2.a., above, of amounts
received or deemed received prior to the Annuity Commencement
Date. Withdrawals will first be treated as withdrawals of income
until all of the income from all such Contracts is withdrawn. As
of the date of this Prospectus, there are no regulations
interpreting this provision.
d. 10% Penalty Tax -- Applicable to Certain Withdrawals and Annuity
Payments.
i. If any amount is received or deemed received on the Contract
(before or after the Annuity Commencement Date), the Code
applies a penalty tax equal to ten percent of the portion of
the amount includable in gross income, unless an exception
applies.
ii. The 10% penalty tax will not apply to the following
distributions (exceptions vary based upon the precise plan
involved):
1. Distributions made on or after the date the recipient
has attained the age of 59 1/2.
2. Distributions made on or after the death of the holder
or where the holder is not an individual, the death of
the primary annuitant.
3. Distributions attributable to a recipient's becoming
disabled.
4. A distribution that is part of a scheduled series of
substantially equal periodic payments (not less
frequently than annually) for the life (or life
expectancy) of the recipient (or the joint lives
or life expectancies of the recipient and the
recipient's designated Beneficiary).
5. Distributions of amounts that are allocable to the
"investment in the contract" prior to August 14,
1982 (see next subparagraph e.).
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33
e. Special Provisions Affecting Contracts Obtained through a
Tax-Free Exchange of Other Annuity or Life Insurance Contracts
Purchased Prior to August 14, 1982. If the Contract was obtained
by a tax-free exchange of a life insurance or annuity Contract
purchased prior to August 14, 1982, then any amount received or
deemed received prior to the Annuity Commencement Date shall be
deemed to come (1) first from the amount of the "investment in
the contract" prior to August 14, 1982 ("pre-8/14/82 investment")
carried over from the prior Contract, (2) then from the portion
of the "income on the contract" (carried over to, as well as
accumulating in, the successor Contract) that is attributable to
such pre-8/14/82 investment, (3) then from the remaining "income
on the contract" and (4) last from the remaining "investment in
the contract." As a result, to the extent that such amount
received or deemed received does not exceed such pre-8/14/82
investment, such amount is not includable in gross income., In
addition, to the extent that such amount received or deemed
received does not exceed the sum of (a) such pre-8/14/82
investment and (b) the "income on the contract" attributable
thereto, such amount is not subject to the 10% penalty tax. In
all other respects, amounts received or deemed received from such
post-exchange Contracts are generally subject to the rules
described in this subparagraph 3.
f. Required Distributions
i. Death of Contract Owner or Primary Annuitant
Subject to the alternative election or spouse beneficiary
provisions in ii or iii below:
1. If any Contract Owner dies on or after the Annuity
Commencement Date and before the entire interest in the
Contract has been distributed, the remaining portion of
such interest shall be distributed at least as rapidly
as under the method of distribution being used as of
the date of such death;
2. If any Contract Owner dies before the Annuity
Commencement Date, the entire interest in the Contract
will be distributed within 5 years after such death;
and
3. If the Contract Owner is not an individual, then for
purposes of 1. or 2. above, the primary annuitant under
the Contract shall be treated as the Contract Owner,
and any change in the primary annuitant shall be
treated as the death of the Contract Owner. The
primary annuitant is the individual, the events in the
life of whom are of primary importance in affecting the
timing or amount of the payout under the Contract.
ii. Alternative Election to Satisfy Distribution Requirements
If any portion of the interest of You described in i.
above is payable to or for the benefit of a designated
beneficiary, such beneficiary may elect to have the
portion distributed over a period that does not extend
beyond the life or life expectancy of the beneficiary.
The election must be made and payments must begin within
a year of the death.
iii. Spouse Beneficiary
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34
If any portion of the interest of the Contract Owner is
payable to or for the benefit of his or her spouse, and the
Annuitant or Contingent Annuitant is living, such spouse
shall be treated as the Contract Owner of such portion for
purposes of section i. above. This spousal continuation
shall apply only once for this Contract.
3. Diversification Requirements. Section 817 of the Code provides that a
variable annuity contract will not be treated as an annuity contract
for any period during which the investments made by the separate
account or underlying fund are not adequately diversified in
accordance with regulations prescribed by the Treasury Department. If
a Contract is not treated as an annuity contract, the Contract Owner
will be subject to income tax on the annual increases in cash value.
The Treasury Department has issued diversification regulations
which generally require, among other things, that no more than
55% of the value of the total assets of the segregated asset
account underlying a variable contract is represented by any one
investment, no more than 70% is represented by any two
investments, no more than 80% is represented by any three
investments, and no more than 90% is represented by any four
investments. In determining whether the diversification
standards are met, all securities of the same issuer, all
interests in the same real property project, and all interests in
the same commodity are each treated as a single investment. In
addition, in the case of government securities, each government
agency or instrumentality shall be treated as a separate issuer.
A separate account must be in compliance with the diversification
standards on the last day of each calendar quarter or within 30
days after the quarter ends. If an insurance company
inadvertently fails to meet the diversification requirements, the
company may comply within a reasonable period and avoid the
taxation of contract income on an ongoing basis. However, either
the company or the Contract Owner must agree to pay the tax due
for the period during which the diversification requirements were
not met.
Royal monitors the diversification of investments in the separate
accounts and tests for diversification as required by the Code.
Royal intends to administer all contracts subject to the
diversification requirements in a manner that will maintain
adequate diversification.
4. Ownership of the Assets in the Separate Account. In order for a
variable annuity contract to qualify for tax deferral, assets in the
segregated asset accounts supporting the variable contract must be
considered to be owned by the insurance company and not by the
variable contract owner. The Internal Revenue Service ("IRS") has
issued several rulings that discuss investor control. The IRS has
ruled that certain incidents of ownership by the Contract Owner, such
as the ability to select and control investments in a separate
account, will cause the Contract Owner to be treated as the owner of
the assets for tax purposes.
Further, in the explanation to the temporary Section 817
diversification regulations, the Treasury Department noted that
the temporary regulations "do not provide guidance concerning the
circumstances in which investor control of the investments of a
segregated asset account may cause the investor, rather than the
insurance company, to be treated as the owner of the assets in
the account." The explanation further indicates that "the
temporary regulations provide that in appropriate cases a
segregated asset account may include
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35
multiple sub-accounts, but do not specify the extent to which policyholders
may direct their investments to particular sub-accounts without being
treated as the owners of the underlying assets. Guidance on this and other
issues will be provided in regulations or revenue rulings under Section
817(d), relating to the definition of variable contract." The final
regulations issued under Section 817 did not provide guidance regarding
investor control, and as of the date of this prospectus, no other such
guidance has been issued. Further, Royal does not know if or in what form
such guidance will be issued. In addition, although regulations are
generally issued with prospective effect, it is possible that regulations
may be issued with retroactive effect. Due to the lack of specific
guidance regarding the issue of investor control, there is necessarily some
uncertainty regarding whether a Contract Owner could be considered the
owner of the assets for tax purposes. Royal reserves the right to modify
the contracts, as necessary, to prevent Contract Owners from being
considered the owners of the assets in the separate accounts.
D. FEDERAL INCOME TAX WITHHOLDING
The portion of a distribution which is taxable income to the recipient will be
subject to federal income tax withholding, pursuant to Section 3405 of the Code.
The application of this provision is summarized below:
1. Non-Periodic Distributions. The portion of a non-periodic
distribution which constitutes taxable income will be subject to
federal income tax withholding unless the recipient elects not to have
taxes withheld. If there is no election to waive withholding,
10% of the taxable distribution will be withheld as federal
income tax. Election forms will be provided at the time distributions
are requested. If the necessary election forms are not submitted to
Royal, Royal will automatically withhold 10% of the taxable
distribution.
2. Periodic Distributions (distributions payable over a period greater
than one year). The portion of a periodic distribution which
constitutes taxable income will be subject to federal income tax
withholding as if the recipient were married claiming three
exemptions. A recipient may elect not to have income taxes withheld
or have income taxes withheld at a different rate by providing a
completed election form. Election forms will be provided at the time
distributions are requested.
E. GENERAL PROVISIONS AFFECTING QUALIFIED RETIREMENT PLANS
The Contract may be used for a number of qualified retirement plans. If the
Contract is being purchased with respect to some form of qualified retirement
plan, please refer to Appendix I for information relative to the types of
plans for which it may be used and the general explanation of the tax
features of such plans.
F. ANNUITY PURCHASES BY NONRESIDENT ALIENS AND FOREIGN CORPORATIONS
The discussion above provides general information regarding U.S. federal income
tax consequences to annuity purchasers that are U.S. citizens or residents.
Purchasers that are not U.S. citizens or residents will generally be subject to
U.S. federal income tax and withholding on annuity distributions at a 30% rate,
unless a lower treaty rate applies. In addition, purchasers may be subject to
state premium tax, other state and/or municipal taxes, and taxes that may be
imposed
<PAGE>
36
by the purchaser's country of citizenship or residence. Prospective purchasers
are advised to consult with a qualified tax adviser regarding U.S., state, and
foreign taxation with respect to an annuity purchase.
MISCELLANEOUS
How We Sell Our Annuity
Hartford Securities Distribution Company, Inc. ("HSD") serves as Principal
Underwriter for the securities issued with respect to the Separate Account. HSD
is a wholly owned subsidiary of Hartford Financial Services Group Inc. The
principal business address of HSD is the same as that of the Hartford.
The securities will be sold by salesperson of HSD who represent Royal as
insurance and variable annuity agents and who are registered representatives.
HSD is registered with the Commission under the Securities Exchange Act of
1934 as a Broker-Dealer and is a member of the National Association of
Securities Dealers, Inc.
Commissions will be paid by Royal and will not be more than 6% of Premium
Payments. From time to time, Royal may pay or permit other promotional
incentives, in cash or credit or other compensation.
Broker-dealers or financial institutions are compensated according to a
schedule set forth by HSD and any applicable rules or regulations for variable
insurance compensation. Compensation is generally based on premium payments
made by policyholders or contract owners. This compensation is usually paid
from the sales charges described in this Prospectus.
In addition, a broker-dealer or financial institution may also receive
additional compensation for, among other things, training, marketing or other
services provided. HSD, its affiliates or Royal may also make compensation
arrangements with certain broker-dealers or financial institutions based on
total sales by the broker-dealer or financial institution of insurance products.
These payments, which may be different for different broker-dealers or financial
institutions, will be made by HSD, its affiliates or Royal out of their own
assets and will not effect the amounts paid by the policyholders or contract
owners to purchase, hold or surrender variable insurance products.
The Contract may be sold directly to certain individuals under certain
circumstances that do not involve payment of any sales compensation to a
registered representative. In such case, Royal will credit the Contract with an
additional 5.0% of the premium payment. This additional percentage of premium
payment in no way affects present or future charges, rights, benefits or current
values of other Contract Owners. The following class of individuals are eligible
for this feature: (1) current or retired officers, directors, trustees and
employees (and their families) of the ultimate parent and affiliates of Royal;
and (2) employees and registered representatives (and their families) of
registered broker-dealers (or financial institutions affiliated therewith) that
have a sales agreement with Royal and its principal underwriter to sell the
Contracts.
<PAGE>
37
Legal Matters and Experts
There are no material legal proceedings pending to which the Separate
Account is a party.
Counsel with respect to federal laws and regulations applicable to the
issue and sale of the Contracts and with respect to Connecticut law is Lynda
Godkin, Senior Vice President, General Counsel and Corporate Secretary, Royal
Life Insurance Company of America, P.O. Box 2999, Hartford, Connecticut
06104-2999.
The audited financial statements included in this registration
statement have been audited by PricewaterhouseCoopers LLP, independent public
accountants, as indicated in their report with respect thereto, and are
included herein in reliance upon the authority of said firm as experts in
giving said reports. The principal business address of PricewaterhouseCoopers
LLP is 400 Renaissance Center, Detroit, Michigan 48243-1507.
Year 2000 Compliance
Many existing computer programs were originally designed without considering the
impact of the year 2000 and currently use only two digits to identify the year
in the date field. Therefore, on January 1, 2000, unless the software is
corrected or replaced, most computers with time-sensitive software programs will
read the "00" to be the year "1900." This issue affects nearly all companies
and organizations and could cause computer applications and systems to fail or
create erroneous results for any transaction with a date of January 1, 2000 or
later.
As a result, many companies must undertake major projects to address the year
2000 issue and each company's costs and uncertainties will depend on a number of
factors, including its software and hardware and the nature of the industry.
Companies must also coordinate with other entities with which they
electronically interact, including investment advisers, brokers, transfer
agents, customers, creditors and other financial services institutions.
In 1988, Royal's ultimate parent company, Hartford Financial Services Group,
Inc. ("Hartford"), recognized the importance of the year 2000 problem and the
potential material adverse consequences it could have on its business and
clients. By 1990, Hartford was addressing this problem with the aim of making
its computer systems Year 2000 compliant by December 31, 1998. Hartford has
replaced many of its older systems with new, state-of-the-art systems that are
Year 2000 compliant. Currently, many of its legacy systems are already
processing "2000" dates. Costs associated with these changes have been expensed
by the company annually as they are incurred to avoid a significant financial
impact to the company in any one year or in the future. Such amounts have not
been and are not expected to be material to the company's business, operations
or financial condition.
Royal (through Hartford) is monitoring how other companies with which it does
business are responding to the year 2000 problem through surveys, regular
mailings. In addition, it is in the process of developing a comprehensive
contingency plan. This plan will be fundamental if Hartford or a company with
which it conducts business experiences year 2000 difficulties after December 31,
1999. The failure by Hartford or one its suppliers of financial services to
achieve timely and complete compliance could have a material adverse effect on
Hartford's ability to conduct its business, including its ability to accurately
and timely respond to customers' surrender and annuitization
<PAGE>
38
requests.
Additional Information
Inquiries will be answered by calling your representative or by writing:
Royal Life Insurance Company of America
Attn: Individual Annuity Services
P.O. Box 5085
Hartford, Connecticut 06102-5085
Telephone: (800) 862-6668
<PAGE>
39
APPENDIX I
INFORMATION REGARDING TAX-QUALIFIED PLANS
The tax rules applicable to tax-qualified contract owners, including
restrictions on contributions and distributions, taxation of distributions and
tax penalties, vary according to the type of plan as well as the terms and
conditions of the plan itself. Various tax penalties may apply to contributions
in excess of applicable limits, distributions prior to age 59 1/2 (subject to
certain exceptions), distributions which do not conform to applicable
commencement and minimum distribution rules, and certain other transactions with
respect to tax-qualified plans. Therefore, this summary does not attempt to
provide more than general information about the tax rules associated with use of
a Contract by a tax-qualified retirement plan. Contract Owners, plan
participants and beneficiaries are cautioned that the rights and benefits of any
person to benefits may be controlled by the terms and conditions of the
tax-qualified retirement plan itself, regardless of the terms and conditions of
a Contract, but that Royal is not bound by the terms and conditions of such
plans to the extent such terms conflict with a Contract, unless Royal
specifically consents to be bound. Additionally, some tax-qualified retirement
plans are subject to distribution and other requirements that are not
incorporated into Royal's administrative procedures. Contract Owners,
participants and beneficiaries are responsible for determining that
contributions, distributions and other transactions comply with applicable law.
Because of the complexity of these rules, owners, participants and beneficiaries
are encouraged to consult their own tax advisors as to specific tax
consequences.
A. TAX-QUALIFIED PENSION OR PROFIT-SHARING PLANS Provisions of the Code
permit eligible employers to establish tax-qualified pension or profit
sharing plans (described in Section 401(a) and 401(k), if applicable, and
exempt from taxation under Section 501(a) of the Code), and Simplified
Employee Pension Plans (described in Section 408(k)). Such plans are
subject to limitations on the amount that may be contributed, the persons
who may be eligible to participate and the time when distributions must
commence. Employers intending to use these contracts in connection with
tax-qualified pension or profit-sharing plans should seek competent tax and
other legal advice.
B. TAX SHELTERED ANNUITIES UNDER SECTION 403(b) Section 403(b) of the Code
permits public school employees and employees of certain types of
charitable, educational and scientific organizations, as specified in
Section 501(c)(3) of the Code, to purchase annuity contracts, and, subject
to certain limitations, to exclude such contributions from gross income.
Generally, such contributions may not exceed the lesser of $10,000
(indexed) or 20% of an employee's "includable compensation" for such
employee's most recent full year of employment, subject to other
adjustments. Special provisions under the Code may allow some employees to
elect a different overall limitation.
Tax-sheltered annuity programs under Section 403(b) are subject to a
PROHIBITION AGAINST DISTRIBUTIONS FROM THE CONTRACT ATTRIBUTABLE TO
CONTRIBUTIONS MADE PURSUANT TO A SALARY REDUCTION AGREEMENT, unless such
distribution is made:
(1) After the participating employee attains age 59 1/2;
(2) Upon separation from service;
(3) Upon death or disability; or
<PAGE>
40
(4) In the case of hardship (and in the case of hardship, any income
attributable to such contributions may not be distributed).
Generally, the above restrictions do not apply to distributions
attributable to cash values or other amounts held under a Section 403(b)
contract as of December 31, 1988.
C. DEFERRED COMPENSATION PLANS UNDER SECTION 457 Employees and independent
contractors performing services for eligible employers may have
contributions made to an Eligible Deferred Compensation Plan of their
employer in accordance with the employer's plan and Section 457 of the
Code. Section 457 places limitations on contributions to Eligible Deferred
Compensation Plans maintained by a State or other tax-exempt organization.
For these purposes, the term "State" means a State, a political
sub-division of a State, and an agency or instrumentality of a State or
political sub-division of a State. Generally, the limitation is 33 1/3% of
includable compensation (typically 25% of gross compensation) or, for 1998,
$8,000 (indexed), whichever is less. Such a plan may also provide for
additional "catch-up" deferrals during the three taxable years ending
before a Participant attains normal retirement age.
An employee electing to participate in an Eligible Deferred
Compensation Plan should understand that his or her rights and
benefits are governed strictly by the terms of the plan and that the
employer is the legal owner of any contract issued with respect to the
plan. The employer, as owner of the contract(s), retains all voting
and redemption rights that may accrue to the contract(s) issued with
respect to the plan. The participating employee should look to the
terms of his or her plan for any charges in regard to participating
therein other than those disclosed in this Prospectus. Participants
should also be aware that effective August 20, 1996, the Small
Business Job Protection Act of 1996 requires that all assets and
income of an Eligible Deferred Compensation Plan established by a
governmental employer which is a State, a political subdivision of a
State, or any agency or instrumentality of a State or political
subdivision of a State, must be held in trust (or under certain
specified annuity contracts or custodial accounts) for the exclusive
benefit of participants and their beneficiaries. Special transition
rules apply to such Eligible governmental Deferred Compensation Plans
already in existence on August 20, 1996, and provide that such plans
need not establish a trust before January 1, 1999. However, this
requirement of a trust does not apply to amounts under an Eligible
Deferred Compensation Plan of a tax-exempt (non-governmental)
organization, and such amounts will be subject to the claims of such
tax-exempt employer's general creditors.
In general, distributions from an Eligible Deferred Compensation Plan
are prohibited under Section 457 of the Code unless made after the
participating employee attains age 70, separates from service, dies,
or suffers an unforeseeable financial emergency. Present federal tax
law does not allow tax-free transfers or rollovers for amounts
accumulated in a Section 457 plan except for transfers to other
Section 457 plans in limited cases.
D. INDIVIDUAL RETIREMENT ANNUITIES UNDER SECTION 408 Section 408 of the Code
permits eligible individuals to establish individual retirement programs
through the purchase of Individual Retirement Annuities ("IRAs"). IRAs are
subject to limitations on the amount that may be contributed, the
contributions that may be deducted from taxable income, the persons who may
be eligible and the time when distributions may commence. Also,
distributions from certain qualified plans may be "rolled-over" on a
tax-deferred basis into an IRA.
<PAGE>
41
The Contracts may be offered as SIMPLE IRAs in connection with a SIMPLE IRA
plan of an employer. Special rollover rules apply to SIMPLE IRAs. Amounts
can be rolled over from one SIMPLE IRA to another SIMPLE IRA. However,
amounts can be rolled over from a SIMPLE IRA to a regular IRA only after
two years have expired since the participant first commenced participation
in your employer's SIMPLE IRA plan. Amounts cannot be rolled over to a
SIMPLE IRA from a qualified plan or a regular IRA. Royal is a
non-designated financial institution.
Beginning in 1998, the Contracts may be offered as ROTH IRAs under Section
408A of the Code. Contributions to a ROTH IRA are not deductible. Subject
to special limitations, a regular IRA may be converted into a ROTH IRA or a
distribution from a regular IRA may be rolled over to a ROTH IRA. However,
a conversion or a rollover from a regular IRA to a ROTH IRA is not
excludable from gross income. If certain conditions are met, qualified
distributions from a ROTH IRA are tax-free.
E. FEDERAL TAX PENALTIES AND WITHHOLDING Distributions from retirement plans
are generally taxed under Section 72 of the Code. Under these rules, a
portion of each distribution may be excludable from income. The excludable
amount is the portion of the distribution that bears the same ratio as the
after-tax contributions bear to the expected return.
1. PREMATURE DISTRIBUTION Distributions from a tax-qualified plan before
the Participant attains age 59 1/2 are generally subject to an
additional penalty tax equal to 10% of the taxable portion of the
distribution. The 10% penalty does not apply to distributions made
after the employee's death, on account of disability, for eligible
medical expenses and distributions in the form of a life annuity and,
except in the case of an IRA, certain distributions after separation
from service after age 55. For these purposes, a life annuity means a
scheduled series of substantially equal periodic payments for the life
or life expectancy of the Participant (or the joint lives or life
expectancies of the Participant and Beneficiary).
In addition, effective for distributions made from an IRA after
December 31, 1997, there is no such penalty tax on distributions that
do not exceed the amount of certain qualifying higher education
expenses, as defined by Section 72(t)(7) of the Code, or which are
qualified first-time home buyer distributions meeting the requirements
of Section 72(t)(8) of the Code.
If you are a participant in a SIMPLE IRA plan, you should be aware
that the 10% penalty tax discussed above is increased to 25% with
respect to non-exempt premature distributions made from your SIMPLE
IRA during the first two years following the date you first commenced
participation in any SIMPLE IRA plan of your employer.
2. MINIMUM DISTRIBUTION TAX If the amount distributed is less than the
minimum required distribution for the year, the Participant is subject
to a 50% tax on the amount that was not properly distributed.
An individual's interest in a tax-qualified retirement plan generally
must be distributed, or begin to be distributed, not later than April
1 of the calendar year following the later of (i) the calendar year in
which the individual attains age 70 1/2 or (ii) the calendar year in
which the individual retires from service with the employer sponsoring
the plan ("required beginning date"). However, the required beginning
date for an individual who is a five (5) percent owner (as defined in
the Code), or who is the owner of an IRA, is April 1 of the calendar
year
<PAGE>
42
following the calendar year in which the individual attains age 70
1/2. The entire interest of the Participant must be distributed
beginning no later than the required beginning date over a period that
may not extend beyond a maximum of the life expectancy of the
Participant and a designated Beneficiary. Each annual distribution
must equal or exceed a "minimum distribution amount" which is
determined by dividing the account balance by the applicable life
expectancy. This account balance is generally based upon the account
value as of the close of business on the last day of the previous
calendar year. In addition, minimum distribution incidental benefit
rules may require a larger annual distribution.
If an individual dies before reaching his or her required beginning
date, the individual's entire interest must generally be distributed
within five years of the individual's death. However, this rule will
be deemed satisfied, if distributions begin before the close of the
calendar year following the individual's death to a designated
Beneficiary (or over a period not extending beyond the life expectancy
of the beneficiary). If the Beneficiary is the individual's surviving
spouse, distributions may be delayed until the individual would have
attained age 70 1/2.
If an individual dies after reaching his or her required beginning
date or after distributions have commenced, the individual's interest
must generally be distributed at least as rapidly as under the method
of distribution in effect at the time of the individual's death.
3. WITHHOLDING In general, distributions from IRAs and plans described
in Section 457 of the Code are subject to regular wage withholding
rules. Periodic distributions from other tax-qualified retirement
plans that are made for a specified period of 10 or more years or for
the life or life expectancy of the participant (or the joint lives or
life expectancies of the participant and beneficiary) are generally
subject to federal income tax withholding as if the recipient were
married claiming three exemptions. The recipient of periodic
distributions may generally elect not to have withholding apply or to
have income taxes withheld at a different rate by providing a
completed election form.
Other distributions from such other tax-qualified retirement plans are
generally subject to mandatory income tax withholding at the flat rate
of 20% unless such distributions are:
a) The non-taxable portion of the distribution;
b) Required minimum distributions; or
c) Direct transfer distributions.
Direct transfer distributions are direct payments to an IRA or to
another eligible retirement plan under Code section 401(a)(31).
<PAGE>
43
Table of Contents
To
Statement of Additional Information
Section Page
- ------- ----
Description of Royal Life Insurance Company of America 3
Safekeeping of Assets 3
Independent Public Accountants 3
Distribution of Contracts 3
Calculation of Yield and Return 4
Performance Comparisons 6
Financial Statements 8
<PAGE>
44
This form must be completed for all tax-sheltered annuities.
SECTION 403(b)(11) ACKNOWLEDGMENT FORM
The Royal Variable Annuity Contract that you have recently purchased is subject
to certain restrictions imposed by the Tax Reform Act of 1986. Contributions to
the Contract after December 31, 1988 and any increases in cash value after
December 31, 1988 may not be distributed to you unless you have:
a. Attained age 59 1/2,
b. Separated from service,
c. Died, or
d. Become disabled.
Distributions of post December 31, 1988 contributions (excluding any income
thereon) may also be made if you have experienced a financial hardship.
Also, there may be a 10% penalty tax for distributions made prior to age 59 1/2
because of financial hardship or separation from service.
Also, please be aware that your 403(b) Plan may also offer other financial
alternatives other than the Royal Variable Annuity. Please refer to your Plan.
Please complete the following and return to:
Royal Life Insurance Company
Individual Annuity Services
P.O. Box 5085
Royal, CT 06102-5085
- - - - - - - - - - - - - - - - - - - - - - - -
Name of You/Participant
Address
City or Plan/School District
Date:
Contract No:
Signature:
<PAGE>
45
- - - - - - - - - - - - - - - - - - - - - - - -
To Obtain a Statement of Additional Information, please complete the form below
and mail to:
Royal Life Insurance Company
Attn: Individual Annuity Services
P.O. Box 5085
Hartford, CT 06102-5085
Please send a Statement of Additional Information for (Marketing Name) to me at
the following address:
- ----------------------------------
Name
- ----------------------------------
Address
- ----------------------------------
City/State Zip Code
- - - - - - - - - - - - - - - - - - - - - - - -
<PAGE>
PART B
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
ROYAL LIFE INSURANCE COMPANY OF AMERICA
SEPARATE ACCOUNT ONE
This Statement of Additional Information is not a prospectus. The information
contained herein should be read in conjunction with the Prospectus.
To obtain a Prospectus, send a written request to Royal Life Insurance Company
of America Attn: Individual Annuity Services, P.O. Box 5085, Hartford, CT
06102-5085.
Date of Prospectus: February 12, 1999
Date of Statement of Additional Information: February 12, 1999
<PAGE>
-2-
TABLE OF CONTENTS
SECTION PAGE
- ------- ----
DESCRIPTION OF ROYAL LIFE INSURANCE COMPANY OF AMERICA . . . . . . . . . . . 3
SAFEKEEPING OF ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
INDEPENDENT PUBLIC ACCOUNTANTS . . . . . . . . . . . . . . . . . . . . . . . 3
DISTRIBUTION OF CONTRACTS. . . . . . . . . . . . . . . . . . . . . . . . . . 3
CALCULATION OF YIELD AND RETURN. . . . . . . . . . . . . . . . . . . . . . . 4
PERFORMANCE COMPARISONS. . . . . . . . . . . . . . . . . . . . . . . . . . . 6
FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
<PAGE>
-3-
DESCRIPTION OF ROYAL LIFE INSURANCE COMPANY OF AMERICA
Royal Life Insurance Company of America ("Royal") is a stock life insurance
company engaged in the business of writing life insurance in all states of
the United States and the District of Columbia. Royal was originally
incorporated under the laws of Connecticut on September 16, 1963. Its
offices are located in Simsbury, Connecticut; however, its mailing address is
P.O. Box 2999, Hartford, CT 06104-2999. Royal is a wholly owned subsidiary
of Hartford Life Insurance Company. On December 31, 1997, all of the common
stock of Royal was purchased from Royal Maccabees Life Insurance Company.
Royal is ultimately controlled by Hartford Financial Services Group, Inc.,
one of the largest financial service providers in the United States.
SAFEKEEPING OF ASSETS
Title to the assets of the Separate Account is held by Royal. The assets are
kept physically segregated and are held separate and apart from Royal's general
corporate assets. Records are maintained of all purchases and redemptions of
Fund shares held in each of the Sub-Accounts.
INDEPENDENT PUBLIC ACCOUNTANTS
The audited financial statements included in this prospectus and elsewhere in
the registration statement have been audited by PricewaterhouseCoopers LLP,
independent public accountants, as indicated in their report with respect
thereto, and are included herein in reliance upon the authority of said firm
as experts in giving said reports. The principal business address of
PricewaterhouseCoopers LLP is 400 Renaissance Center, Detroit,
Michigan 48243-1507.
DISTRIBUTION OF CONTRACTS
Hartford Securities Distribution Company, Inc. ("HSD") serves as principal
underwriter for the securities issued with respect to the Separate Account and
will offer the Contracts on a continuous basis.
HSD is a wholly-owned subsidiary of Hartford Financial Services Group Inc. The
principal business address of HSD is the same as Royal.
The securities will be sold by salespersons of HSD, who represent Royal as
insurance and Variable Annuity agents and who are registered representatives of
Broker-Dealers who have entered into distribution agreements with HSD.
HSD is registered with the Securities and Exchange Commission under the
Securities and Exchange Act of 1934 as a Broker-Dealer and is a member of the
National Association of Securities Dealers, Inc. ("NASD").
<PAGE>
-4-
CALCULATION OF YIELD AND RETURN
YIELD AND EFFECTIVE YIELD OF THE MONEY MARKET FUND SUB-ACCOUNT. As summarized
in the Prospectus under the heading "Performance Related Information," the yield
of the Money Market Fund Sub-Account for a seven day period (the "base period")
will be computed by determining the "net change in value" (calculated as set
forth below) of a hypothetical account having a balance of one accumulation unit
of the Sub-Account at the beginning of the period, subtracting a hypothetical
charge reflecting deductions from Contract Owner accounts, and dividing the
difference by the value of the account at the beginning of the base period to
obtain the base period return, and then multiplying the base period return by
365/7 with the resulting yield figure carried to the nearest hundredth of one
percent. Net changes in value of a hypothetical account will include net
investment income of the account (accrued daily dividends as declared by the
underlying funds, less daily expense charges of the account) for the period, but
will not include realized gains or losses or unrealized appreciation or
depreciation on the underlying fund shares.
The effective yield is calculated by compounding the base period return by
adding 1, raising the sum to a power equal to 365/7 and subtracting 1 from the
result, according to the following formula:
365/7
Effective Yield = [(Base Period Return + 1) ] - 1
THE MONEY MARKET FUND SUB-ACCOUNT'S YIELD AND EFFECTIVE YIELD WILL VARY IN
RESPONSE TO FLUCTUATIONS IN INTEREST RATES AND IN THE EXPENSES OF THE
SUB-ACCOUNT. THE CURRENT YIELD AND EFFECTIVE YIELD REFLECT RECURRING CHARGES ON
THE SEPARATE ACCOUNT LEVEL, INCLUDING THE MAXIMUM ANNUAL MAINTENANCE FEE.
As the Money Market Fund Sub-Account has not been in existence for more than one
year, no performance data is shown here.
CALCULATION OF YIELD. As summarized in the Prospectus under the heading
"Performance Related Information," certain Sub-Accounts may advertise yield in
addition to total return. Yield will be computed by annualizing a recent
month's net investment income, divided by a Fund share's net asset value on the
last trading day of that month. Net changes in the value of a hypothetical
account will assume the change in the underlying mutual fund's "net asset value
per share" for the same period in addition to the daily expense charge assessed,
at the sub-account level for the respective period. The Sub-Accounts' yields
will vary from time to time depending upon market conditions and, the
composition of the underlying funds' portfolios. Yield should also be considered
relative to changes in the value of the Sub-Accounts' shares and to the relative
risks associated with the investment objectives and policies of the underlying
Fund.
THE YIELD REFLECTS RECURRING CHARGES ON THE SEPARATE ACCOUNT LEVEL, INCLUDING
THE ANNUAL MAINTENANCE FEE.
<PAGE>
-5-
Yield calculations of the Sub-Accounts used for illustration purposes reflect
the interest earned by the Sub-Accounts, less applicable asset charges assessed
against a Contract Owner's account over the base period. Yield quotations based
on a 30 day period were computed by dividing the dividends and interests earned
during the period by the maximum offering price per unit on the last day of the
period, according to the following formula:
Example:
6
Current Yield Formula for the Sub-Account 2[((A-B)/(CD) + 1) - 1]
Where A = Dividends and interest earned during the period.
B = Expenses accrued for the period (net of reimbursements).
C = The average daily number of units outstanding during the period
that were entitled to receive dividends.
D = The maximum offering price per unit on the last day of the period.
As the Sub-Accounts have not been in existence for more than one year, no
performance data is shown here.
At any time in the future, yields and total return may be higher or lower than
past yields and there can be no assurance that any historical results will
continue.
CALCULATION OF TOTAL RETURN. As summarized in the Prospectus under the heading
"Performance Related Information," total return is a measure of the change in
value of an investment in a Sub-Account over the period covered. The formula
for total return used herein includes three steps: (1) calculating the value of
the hypothetical initial investment of $1,000 as of the end of the period by
multiplying the total number of units owned at the end of the period by the unit
value per unit on the last trading day of the period; (2) assuming redemption at
the end of the period and deducting any applicable contingent deferred sales
charge and (3) dividing this account value for the hypothetical investor by the
initial $1,000 investment and annualizing the result for periods of less than
one year. Total return will be calculated for one year, five years and ten
years or some other relevant periods if a Sub-Account has not been in existence
for at least ten years.
As the Sub-Accounts have not been in existence for more than one year, no
standardized returns are shown here.
In addition to the standardized total return, the Sub-Accounts may advertise a
non-standardized total return. This figure will usually be calculated for one
year, five years, and ten years or other periods. Non-standardized total return
is measured in the same manner as the standardized total return described above,
except that the contingent deferred sales charge and the Annual Maintenance Fee
are not deducted. Therefore, non-standardized total return for a Sub-Account is
<PAGE>
-6-
higher than standardized total return for a Sub-Account.
As the Sub-Accounts have not been in existence for more than one year, no
non-standardized returns are shown here.
PERFORMANCE COMPARISONS
YIELD AND TOTAL RETURN. Each Sub-Account may from time to time include its
total return in advertisements or in information furnished to present or
prospective shareholders. Each Sub-Account may from time to time include its
yield and total return in advertisements or information furnished to present or
prospective shareholders. Each Sub-Account may from time to time include in
advertisements its total return (and yield in the case of certain Sub-Accounts)
the ranking of those performance figures relative to such figures for groups of
other annuities analyzed by Lipper Analytical Services and Morningstar, Inc. as
having the same investment objectives.
The total return and yield may also be used to compare the performance of the
Sub-Accounts against certain widely acknowledged outside standards or indices
for stock and bond market performance. The Standard & Poor's Composite Index of
500 Stocks (the "S&P 500") is a market value-weighted and unmanaged index
showing the changes in the aggregate market value of 500 stocks relative to the
base period 1941-43. The S&P 500 is composed almost entirely of common stocks
of companies listed on the New York Stock Exchange, although the common stocks
of a few companies listed on the American Stock Exchange or traded
over-the-counter are included. The 500 companies represented include 400
industrial, 60 transportation and 40 financial services concerns. The S&P 500
represents about 80% of the market value of all issues traded on the New York
Stock Exchange.
The NASDAQ-OTC Composite Price Index (The "NASDAQ Index") is a market
value-weighted and unmanaged index showing the changes in the aggregate market
value of approximately 3,500 stocks relative to the base measure of 100.00 on
February 5, 1971. The NASDAQ Index is composed entirely of common stocks of
companies traded over-the-counter and often through the National Association of
Securities Dealers Automated Quotations ("NASDAQ") system. Only those
over-the-counter stocks having only one market maker or traded on exchanges are
excluded.
The Morgan Stanley Capital International EAFE Index (the "EAFE Index") is an
unmanaged index, which includes over 1,000 companies representing the stock
markets of Europe, Australia, New Zealand, and the Far East. The EAFE Index is
weighted by market capitalization, and therefore, it has a heavy representation
in countries with large stock markets, such as Japan.
The Shearson Lehman Government Bond Index (the "SL Government Index") is a
measure of the market value of all public obligations of the U.S. Treasury; all
publicly issued debt of all
<PAGE>
-7-
agencies of the U.S. Government and all quasi-federal corporations; and all
corporate debt guaranteed by the U.S. Government. Mortgage-backed securities,
flower bonds and foreign targeted issues are not included in the SL Government
Index.
The Shearson Lehman Government/Corporate Bond Index (the "SL
Government/Corporate Index") is a measure of the market value of approximately
5,300 bonds with a face value currently in excess of $1.3 trillion. To be
included in the SL Government/Corporate Index, an issue must have amounts
outstanding in excess of $1 million, have at least one year to maturity and be
rated "Baa" or higher ("investment grade") by a nationally recognized rating
agency.
The Composite Index for Hartford Advisers Fund is comprised of the S&P 500
(55%), the Lehman Government/Corporate Bond Index (35%), both mentioned above,
and 90 Day U.S. Treasury Bills (10%).
<PAGE>
Royal Life Insurance Company of America
Statutory Balance Sheet
($000's)
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
---------- ----------
(unaudited)
<S> <C> <C>
Assets
Bonds $ 5,728 $ 5,583
Cash and short-terms 4,604 4,311
---------- ----------
Total invested assets 10,332 9,894
Investment income due or accrued 125 106
Other assets 2 --
---------- ----------
Total assets $ 10,459 $ 10,000
========== ==========
Liabilities and Capital and Surplus
Taxes, licenses and fees payable $ 12 $ --
Federal income tax payable 130 --
Other liabilities 8 --
---------- ----------
Total Liabilities 150 --
Capital Stock 2,500 2,500
Gross paid-in and contributed surplus 7,569 7,500
Unassigned Funds 240 --
---------- ----------
Total Surplus 10,309 10,000
---------- ----------
Total Liabilties and Capital and Surplus $ 10,459 $ 10,000
========== ==========
</TABLE>
<PAGE>
Royal Life Insurance Company of America
Statutory Statement of Summary of Operations
($000's)
<TABLE>
<CAPTION>
September 30,
1998 1997
-------------------
(unaudited)
<S> <C> <C>
Revenues
Premiums and annuity considerations $ -- $ 17,456
Net investment income 429 16,799
Other revenues 10 222
-------- --------
Total revenues 439 34,477
Expenses
Death benefits -- 716
Annuity benefits -- 3,939
Disability benefits -- 48
Surrender benefits and other fund withdrawals -- 33,512
Change in reserve for life and accident and
health policies and contracts -- (8,620)
Commissions 10 474
General insurance expenses -- 1,169
Taxes, licenses and fees 56 252
Other expenses -- 18
-------- --------
Total expenses 66 31,508
Net gain from operations before federal income tax 373 2,969
Federal income tax 130 876
-------- --------
Net gain from operations 243 2,093
Net realized losses -- (565)
-------- --------
Net income $ 243 $ 1,528
======== ========
</TABLE>
<PAGE>
Royal Life Insurance Company of America
Statutory Statement of Changes in Capital and Surplus
($000's)
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
----------- -----------
(unaudited)
<S> <C> <C>
Capital and Surplus - Beginning of Period $ 10,000 $ 66,723
----------- -----------
Net income 243 2,112
Change in net unrealized losses -- (11,295)
Change in Asset Valuation Reserve (3) 3,036
Change in non-admitted assets -- 51
Paid In capital 69 (46,850)
Net effect of recapitalization -- (3,777)
----------- -----------
Change in Capital and Surplus 309 (56,723)
----------- -----------
Capital and Surplus - End of Period $ 10,309 $ 10,000
=========== ===========
</TABLE>
<PAGE>
Royal Life Insurance Company of America
Statutory Statements of Cashflow
($000's)
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
----------- -----------
(unaudited)
<S> <C> <C>
Operations
Premiums, annuity considerations and fund deposits $ -- $ 19,737
Investment income 434 26,814
Other income 10 173
----------- -----------
Total Income 444 46,724
----------- -----------
Benefits paid -- 49,832
Federal income taxes paid on operations -- 1,155
Other expenses 54 2,172
----------- -----------
Total benefits and expenses 54 53,159
----------- -----------
Net cash from operations 390 (6,435)
----------- -----------
Proceeds from investments
Bonds -- 290,444
Common stocks -- 29,001
Mortgage loans -- 206
Real estate -- 1,187
----------- -----------
Net investment proceeds -- 320,838
----------- -----------
Other cash provided
Paid-in Capital 69 (46,850)
Reserves transferred -- (267,772)
Other sources 2,119 7,986
----------- -----------
Total proceeds 2,578 7,767
----------- -----------
Cost of investments acquired
Bonds 2,283 4,843
Decrease in policy loans -- (3,802)
Other 2 5,321
----------- -----------
Total investments acquired 2,285 6,362
----------- -----------
Net Change in Cash and Short-Term Investments 293 1,405
Cash and Short-Term Investments, Beginning of Year 4,311 2,906
----------- -----------
Cash and Short-Term Investments, End of Period $ 4,604 $ 4,311
=========== ===========
</TABLE>
<PAGE>
ROYAL LIFE INSURANCE COMPANY OF AMERICA
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1998 (UNAUDITED)
NOTE 1. SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements of Royal Life
Insurance Company of America ("Company") have been prepared in conformity with
statutory accounting practices of the National Association of Insurance
Commissioners ("NAIC") as prescribed or permitted by the Insurance Department of
the State of Connecticut. Prescribed statutory accounting practices include a
variety of publications of the NAIC, as well as state laws, regulations and
general administrative rules. Permitted statutory accounting practices
encompass accounting practices not so prescribed. Certain information and note
disclosures which are normally included in statutory financial statements have
been condensed or omitted pursuant to rules and regulations of the Securities
and Exchange Commission. The Company believes that the disclosures made are
adequate to make the information presented not misleading. In the opinion of
management, these statements include all adjustments which were normal recurring
adjustments necessary to present fairly the financial position, results of
operations and cash flows for the periods presented. For a description of
significant accounting policies, see Note A of Notes to Financial Statements in
the Company's 1997 audited financial statements.
The Company is a wholly owned subsidiary of Hartford Life Insurance Company.
Effective December 31, 1997, all of the common stock of the Company was
purchased from Royal Maccabees Life Insurance Company ("RMLIC"). Prior to the
sale, the insurance business of the Company was transferred to RMLIC as part of
a coinsurance/assumption reinsurance agreement. Accordingly, the assets and
liabilities of the Company were transferred to RMLIC at book value.
The Company sold principally annuity contracts and certain other life insurance
products throughout most of the United States, and as of December 31, 1997 the
Company is not writing any new business.
<PAGE>
[Letterhead of PricewaterhouseCoopers LLP]
- --------------------------------------------------------------------------------
ROYAL LIFE INSURANCE COMPANY OF AMERICA
AND SUBSIDIARIES
---------
REPORT ON AUDIT OF FINANCIAL STATEMENTS
(statutory basis of accounting)
for the year ended December 31, 1997
- --------------------------------------------------------------------------------
PricewaterhouseCoopers LLP
<PAGE>
ROYAL LIFE INSURANCE COMPANY OF AMERICA
AND SUBSIDIARIES
CONTENTS
------
Pages:
------
Report of Independent Accountants 1
Financial Statements:
Statement of Admitted Assets, Liabilities, Capital
and Surplus 2
Statement of Operations 3
Statement of Capital and Surplus 4
Statement of Cash Flows 5
Notes to Financial Statements 6-15
<PAGE>
[Letterhead of PricewaterhouseCoopers LLP]
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholder of
Royal Life Insurance Company of America:
We have audited the accompanying statement of admitted assets, liabilities,
capital and surplus (statutory basis of accounting) of Royal Life Insurance
Company of America and Subsidiaries as of December 31, 1997, and the related
statements of operations, capital and surplus and cash flows (statutory basis
of accounting) for the year then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
As described more fully in Note A to the financial statements, the Company
prepared these financial statements using accounting practices prescribed or
permitted by the Insurance Department of the State of Connecticut, which
practices differ from generally accepted accounting principles. The effects
on the financial statements of the variances between the statutory basis of
accounting and generally accepted accounting principles, although not
reasonably determinable, are presumed to be material.
In our opinion, because of the effects of the matter discussed in the
preceding paragraph, the financial statements referred to above do not
present fairly, in conformity with generally accepted accounting principles,
the financial position of Royal Life Insurance Company of America and
Subsidiaries as of December 31, 1997, or the results of its operations or its
cash flows for the year then ended.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the admitted assets, liabilities, capital and surplus
of Royal Life Insurance Company of America and Subsidiaries as of December
31, 1997, and the results of its operations and its cash flows for the year
then ended, on the basis of accounting described in Note A.
/s/ PricewaterhouseCoopers LLP
Detroit, Michigan
February 6, 1998
1
<PAGE>
ROYAL LIFE INSURANCE COMPANY OF AMERICA
AND SUBSIDIARIES
STATEMENT OF ADMITTED ASSETS, LIABILITIES, CAPITAL AND SURPLUS
(statutory basis of accounting)
as of December 31, 1997
(dollars in thousands)
--------
<TABLE>
<CAPTION>
1997
----
<S> <C>
ADMITTED ASSETS
Cash and invested assets:
Bonds $ 5,583
Cash and short-term investments 4,311
--------
Total cash and invested assets 9,894
Investment income due and accrued 106
--------
Total admitted assets $ 10,000
========
LIABILITIES, CAPITAL AND SURPLUS
Liabilities, Capital and Surplus:
Common stock, par value $100; 50,000 shares authorized,
25,000 issued and outstanding $ 2,500
Additional paid-in capital 7,500
Retained earnings --
--------
Total capital and surplus 10,000
--------
Total liabilities, capital and surplus $ 10,000
========
</TABLE>
The accompanying notes are an integral
part of the financial statements.
2
<PAGE>
ROYAL LIFE INSURANCE COMPANY OF AMERICA
AND SUBSIDIARIES
STATEMENT OF OPERATIONS
(statutory basis of accounting)
for the year ended December 31, 1997
(dollars in thousands)
--------
<TABLE>
<CAPTION>
1997
----
<S> <C>
Revenue:
Premiums and annuity considerations $ 19,492
Investment income, net of expenses of $375 22,209
Amortization of interest maintenance reserve 127
---------
Total revenue 41,828
---------
Benefits and reserve changes, net:
Decrease in future policy benefit reserves (280,477)
Reserves transferred 267,772
Annuity benefits 5,516
Surrender benefits 43,049
Death benefits 846
Other benefits to policyholders and beneficiaries 61
---------
Total benefits and reserve changes 36,767
---------
Other operating expenses (income):
Commissions, net 373
General and administrative expenses 1,671
Taxes, licenses and fees (1,116)
Other expense, net 65
---------
Total other operating expenses 993
---------
Income from operations before federal
income taxes and net realized capital losses 4,068
Federal income tax expense 1,390
---------
Income before net realized capital losses 2,678
Net realized capital losses, net of transfers to the
interest maintenance reserve of $122, and income
tax benefit of $305 (566)
---------
Net income $ 2,112
---------
---------
</TABLE>
The accompanying notes are an integral
part of the financial statements.
3
<PAGE>
ROYAL LIFE INSURANCE COMPANY OF AMERICA
AND SUBSIDIARIES
STATEMENT OF CAPITAL AND SURPLUS
(statutory basis of accounting)
for the year ended December 31, 1997
(dollars in thousands)
--------
<TABLE>
<CAPTION>
1997
----
<S> <C>
Common stock, beginning and end of year $ 2,500
--------
Additional paid-in capital:
Balance, beginning of year $ 54,350
Net transfer to parent (46,850)
--------
Balance, end of year 7,500
--------
Retained earnings:
Balance, beginning of year 9,029
Net income 2,112
Net unrealized capital losses (10,452)
Decrease in asset valuation reserve 3,037
Decrease in nonadmitted assets 51
Net transfer to parent (3,777)
--------
Balance, end of year --
--------
Total capital and surplus, end of year $ 10,000
========
</TABLE>
The accompanying notes are an integral
part of the financial statements.
4
<PAGE>
ROYAL LIFE INSURANCE COMPANY OF AMERICA
AND SUBSIDIARIES
STATEMENT OF CASHFLOWS
(statutory basis of accounting)
for the year ended December 31, 1997
(dollars in thousands)
--------
<TABLE>
<CAPTION>
1997
----
<S> <C>
Cash from Operations
Premiums and annuity considerations $ 19,910
Investment income 26,814
Policy claims (49,832)
Commissions and other expenses (2,172)
Federal income tax payments (1,155)
Reserves transferred (267,772)
---------
Net cash used for operations (274,207)
---------
Cash from Investments
Proceeds from investments sold, matured or repaid:
Bonds 290,444
Stocks 29,001
Mortgage loans 206
Real estate 1,187
Net decrease in policy loans (3,802)
Tax on capital losses / (gains) 5
---------
Total cash provided 324,645
---------
Cost of investments acquired:
Bonds 4,845
---------
Total investments acquired 4,845
---------
Net cash from investments 319,800
---------
Cash from Financing and Miscellaneous Sources
Net transfer to parent (50,627)
Other sources 7,986
Other applications (1,547)
---------
Net cash from financing and miscellaneous sources (44,188)
---------
Net change in cash and short term investments 1,405
---------
Cash and short term investments;
Balance, beginning of year 2,906
---------
Balance, end of year $ 4,311
=========
</TABLE>
The accompanying notes are an integral
part of the financial statements.
5
<PAGE>
ROYAL LIFE INSURANCE COMPANY OF AMERICA
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(dollars in thousands)
---------
A. Summary of Significant Accounting Policies:
Basis of Presentation
Royal Life Insurance Company of America (the "Company") is a wholly owned
subsidiary of Hartford Life Insurance Company. Effective December 31,
1997, all of the common stock of the Company was purchased from Royal
Maccabees Life Insurance Company ("RMLIC"). Prior to the sale, the
insurance business of the Company was transferred to RMLIC as part of a
coinsurance/assumption reinsurance agreement. Accordingly, the assets and
liabilities of the Company were transferred to RMLIC at book value.
The Company sold principally annuity contracts and certain other life
insurance products throughout most of the United States, and as of
December 31, 1997 the Company is not writing any new business.
In accordance with the National Association of Insurance Commissioners'
("NAIC") securities valuation guidelines, the common stock of the
Company's subsidiaries are valued using the equity method. Any changes in
the surplus of the subsidiaries are reflected through the Company's
surplus as unrealized capital gain or loss.
The accompanying statutory financial statements have been prepared in
conformity with statutory accounting practices of the National Association
of Insurance Commissioners ("NAIC") as prescribed or permitted by the
Insurance Department of the State of Connecticut. Prescribed statutory
accounting practices include a variety of publications of the NAIC, as
well as state laws, regulations and general administrative rules.
Permitted statutory accounting practices encompass accounting practices
nor so prescribed. The significant differences, the effects of which have
not been determined, between statutory accounting practices and generally
accepted accounting principles are:
(1) costs directly related to generating new premium revenues are
charged to operations as incurred, rather than being deferred and
amortized; (2) future policy benefit reserves are based on statutory
mortality and interest requirements without the consideration of
lapses or surrenders; (3) certain assets, described as nonadmitted,
are excluded from the statutory statement of admitted assets,
liabilities, capital and surplus by direct charges to surplus; (4)
unrealized capital gains and losses are recorded as charges or
credits to surplus, without provision for federal income taxes; (5)
changes in certain reserve valuations are charged against surplus;
(6) equity in earnings of the Company's unconsolidated subsidiaries
is recorded directly to surplus, and the equity in net assets is
included as an investment rather than the individual accounts being
consolidated in the financial statements; (7) the asset valuation
reserve is included in liabilities rather than being restored to
surplus; (8) adjustments for prior years' income taxes are charged
or credited to surplus; (9) deferred federal income taxes are not
provided for temporary differences between book and tax bases of
assets and liabilities; (10) the interest maintenance reserve defers
certain realized capital gains and losses rather than being included
in the statement of operations; (11) the Statement of Cash Flows is
prepared in accordance with NAIC guidelines as opposed to Statement
of Financial Accounting Standards No. 95; (12) certain reinsurance
amounts are reported on a net rather than on a gross basis; (13)
bonds and stocks are recorded in accordance with rules promulgated
by the NAIC, as opposed to the standards established in Statement of
Financial Accounting Standards No. 115; and (14) amounts received as
consideration for annuity contracts are accounted for as premiums
received as opposed to deposits.
6
<PAGE>
ROYAL LIFE INSURANCE COMPANY OF AMERICA
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS, Continued
(dollars in thousands)
---------
A. Summary of Significant Accounting Policies, continued:
Investments
Investments are recorded in accordance with rules promulgated by the NAIC.
Bonds eligible for amortization under such rules are stated at amortized
cost. Short-term investments consist of money market funds and are stated
at cost, which approximates fair value.
Policy and mortgage loans are stated at their aggregate unpaid balances.
The maximum percentage of any one mortgage loan to the value of collateral
at the time of the loan is 75 percent. Property insurance is required on
all properties covered by mortgage loans. Mortgage loans are
collateralized by real estate located primarily in the midwestern United
States. From time to time, the Company acquires real estate holdings
through foreclosures of commercial mortgages. Real estate held for sale is
recorded at the lower of cost or its market value at the date of
foreclosure.
Realized gains or losses on sales of investments are determined on a
specific-identification basis and are either included in the interest
maintenance reserve calculation or are recognized as a component of
operations. Unrealized losses on real estate at the date of foreclosure
are recorded directly to surplus, as permitted by the Insurance Department
of the State of Connecticut.
Investment Reserves
The interest maintenance reserve ("IMR") and asset valuation reserve
("AVR") are computed in accordance with NAIC guidelines and are recorded
as liabilities. The IMR defers realized gains and losses, net of income
tax effects, arising from interest rate sales which are amortized over the
remaining years to maturity of the assets sold. The AVR is designed to
provide a standardized reserve process for realized and unrealized losses
due to the default and equity risks associated with invested assets.
Amortization of the IMR is recorded in the statement of operations while
the change in the AVR is recorded directly to surplus.
Federal Income Taxes
Federal income taxes are charged to operations, net of the amount
allocated to the IMR, based on income that is currently taxable. Deferred
income taxes are not provided for temporary differences between the book
and tax bases of assets and liabilities.
Nonadmitted Assets
Certain assets designated as "nonadmitted assets", principally agents'
debit balances, have been excluded from the statutory statement of
admitted assets, liabilities, capital and surplus by direct charges to
surplus.
Recognition of Premium Revenue
Annuity and universal life considerations are recognized when received.
Other premium income is earned over the lives of the related insurance
contracts.
7
<PAGE>
ROYAL LIFE INSURANCE COMPANY OF AMERICA
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS, Continued
(dollars in thousands)
---------
A. Summary of Significant Accounting Polices, continued:
Acquisition Costs
Costs and expenses incurred in generating new premium revenue are charged
to expense when incurred.
Estimates
The preparation of financial statements in conformity with prescribed or
permitted statutory accounting practices requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
B. Investment in Bonds:
The estimated fair value of bonds was determined by the Company primarily
using independent pricing services. For securities not actively traded,
the estimated fair value was determined using a Company-derived matrix
pricing method. The carrying value and estimated fair value of investments
in bonds, by category, as of December 31, 1997 are as follows:
<TABLE>
<CAPTION>
-------------------------------------------------
Gross Gross Estimated
Carrying Unrealized Unrealized Fair
Value Gains Losses Values
----- ----- ------ ------
<S> <C> <C> <C> <C>
U.S. Treasury securities
and obligations of U.S.
government corporations
and agencies $5,583 $ 74 $ -- $5,657
------ ----- ------ ------
Totals $5,583 $ 74 $ -- $5,657
------ ----- ------ ------
------ ----- ------ ------
</TABLE>
8
<PAGE>
ROYAL LIFE INSURANCE COMPANY OF AMERICA
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS, Continued
(dollars in thousands)
---------
B. Investment in Bonds, continued:
The market value of bonds, as indicated in the Company's annual statement,
column 7 of Schedule D, Part 1, is determined on the basis of market
values listed by the NAIC, or amortized cost if no market quotation is
available. Such market values were $5,654 at December 31, 1997.
The carrying value and estimated fair value of bonds at December 31,
1997 by contractual maturity is shown below. Expected maturities will
differ from contractual maturities because borrowers may have the right
to call or prepay obligations with or without call or prepayment
penalties. Actual maturities may differ from both expected and
contractual maturities.
<TABLE>
<CAPTION>
Estimated
Carrying Fair
Value Value
----- -----
<S> <C> <C>
Due in one year or less $2,159 $2,181
Due after one year
through five years 3,424 3,476
------ ------
$5,583 $5,657
------ ------
------ ------
</TABLE>
Proceeds from sales and calls of investments in bonds that resulted in
gains and losses were $11,108 in 1997. Gross gains of $215 and gross
losses of $28 and $33 were realized on those sales in 1997.
Bonds with a carrying value of $5,583 were on deposit as of December 31,
1997 with various regulatory authorities as required.
Net realized gains of $187 less taxes of $65 were credited to the IMR
during 1997. Also, $703 of IMR was transferred to RMLIC in the current
year as a result of the coinsurance/assumption reinsurance agreement.
9
<PAGE>
ROYAL LIFE INSURANCE COMPANY OF AMERICA
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS, Continued
(dollars in thousands)
---------
C. Investment in Unconsolidated Subsidiaries
On December 31, 1997, the Company sold its investment in subsidiaries to
RMLIC. The results of operations for the year ended December 31, 1997 of
the Company's unconsolidated subsidiaries are summarized as follows:
<TABLE>
<CAPTION>
<S> <C>
Premium and annuity considerations $ 90,424
Investment income, net 53,103
Benefits and reserve changes 130,370
Other expenses 9,884
---------
Net income 3,273
Other charges to surplus, net (43,569)
---------
Change in capital and surplus
for the year $ (40,296)
=========
</TABLE>
10
<PAGE>
ROYAL LIFE INSURANCE COMPANY OF AMERICA
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS, Continued
(dollars in thousands)
---------
D. Federal Income Taxes:
The Company will file a consolidated federal income tax return with RMLIC
and other subsidiaries for the period through the date of sale, December
31, 1997. Income tax expense or benefit was allocated to the Company on a
separate return basis. The Company paid or recovered from RMLIC the amount
of the expense or benefit.
The Company will be included in the consolidated federal income tax
return of the affiliated Hartford Group for activity beginning on
January 1, 1998.
Federal taxable income differs from financial statement income primarily
due to bond discounts not being accreted currently for tax, the
capitalization of certain policy acquisition costs for tax purposes and
differences between statutory and tax reporting of future policy benefit
reserves.
E. Dividend Restriction:
The Connecticut State Insurance Law limits the payment of dividends to
stockholders. Accordingly, the Company may pay no dividends in 1998
without prior approval.
11
<PAGE>
ROYAL LIFE INSURANCE COMPANY OF AMERICA
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS, Continued
(dollars in thousands)
---------
F. Reinsurance:
The Company reinsured portions of certain policies that it underwrites to
limit disproportionate risks. The Company had standard coinsurance and
yearly renewable term reinsurance agreements with several companies. A
summary of reinsurance information for 1997 follows:
<TABLE>
<CAPTION>
Gross Ceded Net
-------- ------- --------
<S> <C> <C> <C>
Premiums $ 20,253 $ 761 $ 19,492
Benefits 50,755 1,283 49,472
Future policy benefit reserves 86,749 86,749 --
Policy and contract claim reserves 5 5 --
</TABLE>
As part of the sales agreement of the Company to Hartford Life Insurance
Company, the company ceded 100% of all business to RMLIC which was not
otherwise ceded through a standard coinsurance agreement. This
coinsurance/assumption agreement will remain in effect until all existing
business is novated to RMLIC.
The Company is contingently liable with respect to reinsurance in the
event assuming reinsurers are unable to meet their obligations.
G. Transactions with Affiliates:
Approximately $1,196 of general expenses incurred by the Company in
1997, represented direct and indirect expenses allocated from RMLIC and
RLNY. Direct expenses are based on bills specifically paid for expenses
of the Company. The indirect expenses are costs incurred by RMLIC and
RLNY for the benefit of the Company and are billed based on internal
time studies or studies of other services provided. Additionally, $150
of the Company's investment expenses in 1997, represent charges from
Royal Investment Management Company.
12
<PAGE>
ROYAL LIFE INSURANCE COMPANY OF AMERICA
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS, Continued
(dollars in thousands)
---------
H. Contingencies:
In the normal course of its business operations, the Company is involved
in litigation from time to time with claimants, beneficiaries and others,
and a number of lawsuits were pending as of December 31, 1997. There are
pending legal proceedings within the ordinary course of business which,
under the terms of the coinsurance/assumption reinsurance agreement, are
the responsibility of RMLIC.
The Company participates in the various guaranty funds existing in the
states in which the Company writes business. The Company is not aware of
any liabilities for future assessments as of December 31, 1997.
13
<PAGE>
PART C
<PAGE>
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) All financial statements are included in Part A and Part B of the
Registration Statement.
(b) (1) Resolution of the Board of Directors of Royal Life Insurance
Company of America ("Royal") authorizing the establishment of
the Separate Account.
(2) Not applicable.
(3) (a) Principal Underwriter Agreement.
(3) (b) Form of Dealer Agreement.
(4) Form of Individual Flexible Premium Variable Annuity Contract.(1)
(5) Form of Application.(1)
(6) (a) Certificate of Incorporation of Royal.(1)
(6) (b) Bylaws of Royal.(1)
(7) Not applicable.
(8) Fund Participation Agreement.
(9) Opinion and Consent of Lynda Godkin, Senior Vice President, General
Counsel, and Corporate Secretary.
(10) Consent of PricewaterhouseCoopers LLP
(11) No financial statements are omitted.
(12) Not applicable.
(13) Not applicable.
(14) Not applicable.
- --------------------
(1) Incorporated by reference to the initial filing of Registration Statement
No. 333-65187 filed on October 1, 1998.
<PAGE>
(15) Copy of Power of Attorney.
(16) Organizational Chart.
Item 25. Directors and Officers of the Depositor
- --------------------------------------------------------------------------------
NAME POSITION WITH ROYAL
- --------------------------------------------------------------------------------
Gregory A. Boyko Senior Vice President and Treasurer, Director*
- --------------------------------------------------------------------------------
Mary Jane Fortin Chief Accounting Officer
- --------------------------------------------------------------------------------
Lynda Godkin Senior Vice President, General Counsel and Corporate
Secretary, Director*
- --------------------------------------------------------------------------------
Thomas M. Marra Director*
- --------------------------------------------------------------------------------
Craig R. Raymond Senior Vice President and Chief Actuary
- --------------------------------------------------------------------------------
Charles F. Shabunia Vice President and Controller
- --------------------------------------------------------------------------------
Lowndes A. Smith President, Director*
- --------------------------------------------------------------------------------
Raymond P. Welnicki Director*
- --------------------------------------------------------------------------------
Lizabeth H. Zlatkus Senior Vice President, Director*
- --------------------------------------------------------------------------------
Unless otherwise indicated, the principal business address of each the above
individuals is P.O. Box 2999, Hartford, CT 06104-2999.
*Denotes Board of Directors.
Item 26. Persons Controlled By or Under Common Control with the Depositor or
Registrant
Filed herewith as Exhibit 16.
<PAGE>
Item 27. Number of Contract Owners
Not Applicable
Item 28. Indemnification
Under Section 33-772 of the Connecticut General Statutes, unless
limited by its certificate of incorporation, the Registrant must
indemnify a director who was wholly successful, on the merits or
otherwise, in the defense of any proceeding to which he was a party
because he is or was a director of the corporation against reasonable
expenses incurred by him in connection with the proceeding.
The Registrant may indemnify an individual made a party to a
proceeding because he is or was a director against liability incurred
in the proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of
the Registrant, and, with respect to any criminal proceeding, had no
reason to believe his conduct was unlawful. Conn. Gen. Stat.
33-771(a). Additionally, pursuant to Conn. Gen. Stat. 33-776, the
Registrant may indemnify officers and employees or agents for
liability incurred and for any expenses to which they becomes subject
by reason of being or having been an employees or officers of the
Registrant. Connecticut law does not prescribe standards for the
indemnification of officers, employees and agents and expressly states
that their indemnification may be broader than the right of
indemnification granted to directors.
The foregoing statements are specifically made subject to the detailed
provisions of Section 33-770 et seq.
Notwithstanding the fact that Connecticut law obligates the Registrant
to indemnify only a director that was successful on the merits in a
suit, the Registrant's bylaws state:
"The Company shall indemnify to the full extent authorized or
permitted by law any person made, or threatened to be made a party to
an action, suit or proceeding (whether civil, criminal, administrative
or investigative) by reason of the fact that he, his testator or
intestate is or was a Director, Officer or employee of the company or
serves or served any other enterprise at the request of the
corporation. The foregoing right of indemnification shall not be
deemed exclusive of any other rights to which those seeking
indemnification may be entitled under any By-Laws, agreement, vote of
Shareholders or disinterested Directors or otherwise, and shall
continue as to a person who has ceased to be a Director, Officer,
employee or agent shall inure to the benefit or the heirs, executors
and administrators of such a person."
Additionally, the directors and officers of Royal and Hartford
Securities
<PAGE>
Distribution Company, Inc. ("HSD") are covered under a directors and
officers liability insurance policy issued to The Hartford Financial
Services Group, Inc. and its subsidiaries. Such policy will reimburse
the Registrant for any payments that it shall make to directors and
officers pursuant to law and will, subject to certain exclusions
contained in the policy, further pay any other costs, charges and
expenses and settlements and judgments arising from any proceeding
involving any director or officer of the Registrant in his past or
present capacity as such, and for which he may be liable, except as to
any liabilities arising from acts that are deemed to be uninsurable.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 (the "Act") may be permitted to directors,
officers and controlling persons of the Registrant pursuant to the
foregoing provisions, the Registrant has been advised that in the
opinion of the Securities and Exchange Commission such indemnification
is against public policy as expressed in the Act and is, therefore,
unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the
Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has
been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Act and will be
governed by the final adjudication of such issue.
Item 29. Principal Underwriters
(a) HSD acts as principal underwriter for the following investment
companies:
<TABLE>
<S> <C>
Hartford Life Insurance Company - Separate Account One
Hartford Life Insurance Company - Separate Account Two
Hartford Life Insurance Company - Separate Account Two (DC Variable Account I)
Hartford Life Insurance Company - Separate Account Two (DC Variable Account II)
Hartford Life Insurance Company - Separate Account Two (QP Variable Account)
Hartford Life Insurance Company - Separate Account Two (Variable Account "A")
Hartford Life Insurance Company - Separate Account Two (NQ Variable Account)
Hartford Life Insurance Company - Putnam Capital Manager Trust Separate
Account
Hartford Life Insurance Company - Separate Account Three
Hartford Life Insurance Company - Separate Account Five
Hartford Life and Annuity Insurance Company - Separate Account One
Hartford Life and Annuity Insurance Company - Putnam Capital Manager
Trust Separate Account Two
Hartford Life and Annuity Insurance Company - Separate Account Three
Hartford Life and Annuity Insurance Company - Separate Account Five
Hartford Life and Annuity Insurance Company - Separate Account Six
American Maturity Life Insurance Company - Separate Account AMLVA
</TABLE>
<PAGE>
(b) Directors and Officers of HSD
Name and Principal Positions and Offices
Business Address With Underwriter
------------------ ---------------------
Lowndes A. Smith President and Chief Executive Officer,
Director
Thomas M. Marra Executive Vice President, Director
Peter W. Cummins Senior Vice President
Lynda Godkin Senior Vice President, General Counsel and
Corporate Secretary
Donald E. Waggaman, Jr. Treasurer
George R. Jay Controller
Unless otherwise indicated, the principal business address of each the
above individuals is P.O. Box 2999, Hartford, CT 06104-2999.
Item 30. Location of Accounts and Records
All of the accounts, books, records or other documents required to be
kept by Section 31(a) of the Investment Company Act of 1940 and rules
thereunder, are maintained by Hartford at 200 Hopmeadow Street,
Simsbury, Connecticut 06089.
Item 31. Management Services
All management contracts are discussed in Part A and Part B of this
Registration Statement.
Item 32. Undertakings
(a) The Registrant hereby undertakes to file a post-effective
amendment to this Registration Statement as frequently as is
necessary to ensure that the audited financial statements in the
Registration Statement are never more than 16 months old so long
as payments under the variable annuity Contracts may be accepted.
(b) The Registrant hereby undertakes to include either (1) as part of
any application to purchase a Contract offered by the Prospectus,
a space that an applicant can check to request a Statement of
Additional Information, or (2) a post card or similar written
communication affixed to or included in the Prospectus that the
applicant can remove to send for a Statement of Additional
Information.
<PAGE>
(c) The Registrant hereby undertakes to deliver any Statement of
Additional Information and any financial statements required to
be made available under this Form promptly upon written or oral
request.
(d) Royal hereby represents that the aggregate fees and charges under
the Contract are reasonable in relation to the services rendered,
the expenses expected to be incurred, and the risks assumed by
Royal.
The Registrant is relying on the no-action letter issued by the
Division of Investment Management to American Counsel of Life
Insurance, Ref. No. IP-6-88, November 28, 1988. The Registrant has
complied with conditions one through four of the no-action letter.
<PAGE>
SIGNATURES
As required by the Securities Act of 1933 and the Investment Company Act of
1940, the Registrant has caused this Registration Statement to be signed on its
behalf, in the City of Hartford, and State of Connecticut on this 5th day of
February, 1999.
SEPARATE ACCOUNT ONE
(Registrant)
By: Lynda Godkin
----------------------------------------
Lynda Godkin, Senior Vice President,
General Counsel and Corporate Secretary*
ROYAL LIFE INSURANCE COMPANY OF AMERICA
(Depositor)
By: Lynda Godkin
----------------------------------------
Lynda Godkin, Senior Vice President, *By: /s/ Marianne O'Doherty
General Counsel and Corporate Secretary* ----------------------
Marianne O'Doherty
Attorney-in-Fact
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed below by the following persons and in the
capacity and on the date indicated.
Gregory A. Boyko, Senior Vice President,
& Treasurer, Director *
Lynda Godkin, Senior Vice President,
General Counsel & Corporate Secretary, Director*
Thomas M. Marra, Director* *By: /s/ Thomas S. Clark
Lowndes A. Smith, President, Director -------------------------
Raymond P. Welnicki, Director* Thomas S. Clark
Lizabeth H. Zlatkus, Senior Vice President, Attorney-In-Fact
Director *
Dated: February 5, 1999
<PAGE>
EXHIBIT INDEX
(1) Resolution of the Board of Directors of Royal Life Insurance Company
of America ("Royal") authorizing the establishment of the Separate
Account.
(3)(a) Principal Underwriter Agreement
(3)(b) Form of Dealer Agreement
(8) Fund Participation Agreement
(9) Opinion and Consent of Lynda Godkin, Senior Vice President, General
Counsel and Corporate Secretary
(10) Consent of PricewaterhouseCoopers LLP
(15) Copy of Power of Attorney
(16) Organizational Chart
<PAGE>
Exhibit 1
ROYAL LIFE INSURANCE COMPANY OF AMERICA
CONSENT OF DIRECTORS
The undersigned, being all of the Directors of Royal Life Insurance Company of
America (the "Company"), hereby consent to and ratify the following action, such
action to have the same force and effect as if taken at a meeting of the Board
of Directors duly called and held for such purpose.
ESTABLISHMENT OF SEPARATE ACCOUNT ONE - VARIABLE ANNUITY
- --------------------------------------------------------
WHEREAS, Section 38a-433 of Connecticut General Statutes permits a domestic life
insurance company to establish one or more separate accounts; and
WHEREAS, the Company desires to establish a separate account pursuant to the
aforementioned Section 38a-433 in connection with the offer and sale of certain
flexible premium variable annuity insurance contracts (the "Contracts").
NOW, THEREFORE, BE IT
RESOLVED, that the Company hereby establishes a separate account, to be
initially designated "Separate Account One" (hereinafter, the "Separate
Account"), to which the Company will allocate such amounts as may be required in
connection with the Contracts in accordance with Section 38a-433 and such other
law and regulations as may be applicable; and be it further
RESOLVED, that consistent with the provisions of Section 38a-433, the income,
gains and losses, realized or unrealized, from assets allocated to the Separate
Account shall be credited to or charged against the Separate Account, without
regard to income, gains or losses of the Company; and be it further
RESOLVED, that each Contract issued by the Company shall provide, in effect,
that the portion of the assets of the Separate Account equal to the reserves and
other Contract liabilities with respect to such account shall not be chargeable
with liabilities arising out of any other business the Company may conduct; and
be it further
RESOLVED, that the appropriate officers of the Company, and each of them, with
full power to act without the others, be and hereby are severally authorized and
directed to take all actions that, in their sole discretion, may be necessary or
desirable from time to time (i) to establish and designate one or more
investment divisions of the Separate Account, (ii) to redesignate or eliminate
any such investment division, (iii) to change or modify the designation of the
Separate Account to any other desirable and appropriate designation, (iv) to
establish, amend, modify or change in accordance with applicable law and
regulation the terms and conditions pursuant to which interests in the Separate
Account will be sold to contract owners, (v) to establish, amend, modify or
change such procedures, standards and other arrangements as may be necessary or
appropriate for the operation of the Separate Account, and (vi) with advice of
counsel, to comply with the requirements of such laws and regulations as may be
applicable to the establishment and operation of the Separate Account; and be it
further
RESOLVED, that the appropriate officers of the Company, and each of them, with
full power to act without the others, be and hereby are severally authorized and
directed to execute and deliver such papers,
1
<PAGE>
documents and instruments and to take such further action as they may deem
necessary or desirable to carry out the purposes and intent of the foregoing
resolutions.
/s/ Gregory A. Boyko /s/ John P. Ginnetti
- ----------------------------------- -----------------------------------
Gregory A. Boyko John P. Ginnetti
/s/ Lynda Godkin /s/ Thomas M. Marra
- ----------------------------------- -----------------------------------
Lynda Godkin Thomas M. Marra
/s/ Lowndes A. Smith /s/ Raymond P. Welnicki
- ----------------------------------- -----------------------------------
Lowndes A. Smith Raymond P. Welnicki
/s/ Lizabeth H. Zlatkus
- -----------------------------------
Lizabeth H. Zlatkus
Dated as of: September 1, 1998
2
<PAGE>
Exhibit 3(a)
PRINCIPAL UNDERWRITER AGREEMENT
THIS AGREEMENT, dated as of November 3, 1998, made by and between ROYAL LIFE
INSURANCE COMPANY OF AMERICA ("ROYAL" or the "Sponsor"), a corporation organized
and existing under the laws of the State of Connecticut, and HARTFORD SECURITIES
DISTRIBUTION COMPANY, INC. ("HSD"), a corporation organized and existing under
the laws of the State of Connecticut,
WITNESSETH:
WHEREAS, the Board of Directors of ROYAL has made provision for the
establishment of a separate account within ROYAL in accordance with the laws of
the State of Connecticut, which separate account was organized and is
established and registered as a unit investment trust type investment company
with the Securities and Exchange Commission under the Investment Company Act of
1940 ("1940 Act"), as amended, and which is designated Separate Account One of
ROYAL LIFE INSURANCE COMPANY OF AMERICA (referred to as the "UIT"); and
WHEREAS, HSD offers to the public a certain Flexible Premium Variable Annuity
Contract (the "Contract") issued by ROYAL with respect to the UIT units of
interest thereunder which are registered under the Securities Act of 1933 ("1933
Act"), as amended; and
WHEREAS, HSD is agreeing to act as distributor in connection with offers and
sales of the Contract under the terms and conditions set forth in this Principal
Underwriter Agreement.
NOW THEREFORE, in consideration of the mutual agreements made herein, ROYAL and
HSD agree as follows:
I.
HSD'S DUTIES
1. HSD, will use its best efforts to effect offers and sales of the Contract
through registered representatives that are members of the National
Association of Securities Dealers, Inc. and who are duly licensed as
insurance agents of ROYAL. HSD is responsible for compliance with all
applicable requirements of the 1933 Act, as amended, the Securities
Exchange Act of 1934 ("1934 Act"), as amended, and the 1940 Act, as
amended, and the rules and regulations relating to the sales and
distribution of the Contract, the need for which arises out of its duties
as principal underwriter of said Contract and relating to the creation of
the UIT.
2. HSD agrees that it will not use any prospectus, sales literature, or any
other printed matter or material or offer for sale or sell the Contract if
any of the foregoing in any way
1
<PAGE>
represent the duties, obligations, or liabilities of ROYAL as being greater
than, or different from, such duties, obligations and liabilities as are
set forth in this Agreement, as it may be amended from time to time.
3. HSD agrees that it will utilize the then currently effective prospectus
relating to the UIT's Contracts in connection with its selling efforts.
As to the other types of sales materials, HSD agrees that it will use only
sales materials which conform to the requirements of federal and state
insurance laws and regulations and which have been filed, where necessary,
with the appropriate regulatory authorities.
4. HSD agrees that it or its duly designated agent shall maintain records of
the name and address of, and the securities issued by the UIT and held by,
every holder of any security issued pursuant to this Agreement, as required
by the Section 26(a)(4) of the 1940 Act, as amended.
5. HSD's services pursuant to this Agreement shall not be deemed to be
exclusive, and it may render similar services and act as an underwriter,
distributor, or dealer for other investment companies in the offering of
their shares.
6. In the absence of willful misfeasance, bad faith, gross negligence, or
reckless disregard of its obligations and duties hereunder on the part of
HSD, HSD shall not be subject to liability under a Contract for any act or
omission in the course, or connected with, rendering services hereunder.
II.
1. The UIT reserves the right at any time to suspend or limit the public
offering of the Contracts upon 30 days' written notice to HSD, except where
the notice period may be shortened because of legal action taken by any
regulatory agency.
2. The UIT agrees to advice HSD immediately:
(a) Of any request by the Securities and Exchange Commission for amendment
of its 1933 Act registration statement or for additional information;
(b) Of the issuance by the Securities and Exchange Commission of any stop
order suspending the effectiveness of the 1933 Act registration
statement relating to units of interest issued with respect to the UIT
or of the initiation of any proceedings for that purpose;
(c) Of the happening of any material event, if known, which makes untrue
any statement in said 1933 Act registration statement or which
requires a change therein
2
<PAGE>
in order to make any statement therein not misleading.
ROYAL will furnish to HSD such information with respect to the UIT and the
Contracts in such form and signed by such of its officers and directors and
HSD may reasonably request and will warrant that the statements therein
contained when so signed will be true and correct. ROYAL will also
furnish, from time to time, such additional information regarding the UIT's
financial condition as HSD may reasonably request.
III.
COMPENSATION
ROYAL is obligated to reimburse HSD for all operating expenses associated with
the services provided on behalf of the UIT under this Principal Underwriter
Agreement.
IV.
RESIGNATION AND REMOVAL OF PRINCIPAL UNDERWRITER
HSD may resign as a Principal Underwriter hereunder, upon 120 days' prior
written notice to ROYAL. However, such resignation shall not become effective
until either the UIT has been completely liquidated and the proceeds of the
liquidation distributed through ROYAL to the Contract owners or a successor
Principal Underwriter has been designated and has accepted its duties.
V.
MISCELLANEOUS
1. This Agreement may not be assigned by any of the parties hereto without the
written consent of the other party.
2. All notices and other communications provided for hereunder shall be in
writing and shall be delivered by hand or mailed first class, postage
prepaid, addressed as follows:
(a) If to ROYAL - Royal Life Insurance Company of America
P.O. Box 2999, Hartford, Connecticut 06104.
(b) If to HSD - Hartford Securities Distribution Company, Inc.,
P.O. Box 2999, Hartford, Connecticut 06104.
or to such other address as HSD or ROYAL shall designate by written notice
to the other.
3
<PAGE>
3. This Agreement may be executed in any number of counterparts, each of which
shall be deemed an original and all of which shall be deemed one
instrument, and an executed copy of this Agreement and all amendments
hereto shall be kept on file by the Sponsor and shall be open to inspection
any time during the business hours of the Sponsor.
4. This Agreement shall inure to the benefit of and be binding upon the
successor of the parties hereto.
5. This Agreement shall be construed and governed by and according to the laws
of the State of Connecticut.
6. This Agreement may be amended from time to time by the mutual agreement and
consent of the parties hereto.
7. (a) This Agreement shall become effective November 3, 1998 and shall
continue in effect for a period of two years from that date and,
unless sooner terminated in accordance with 7(b) below, shall continue
in effect from year to year thereafter provided that its continuance
is specifically approved at least annually by a majority of the
members of the Board of Directors of ROYAL.
(b) This Agreement (1) may be terminated at any time, without the payment
of any penalty, either by a vote of a majority of the members of the
Board of Directors of ROYAL on 60 days' prior written notice to HSD;
(2) shall immediately terminate in the event of its assignment and (3)
may be terminated by HSD on 60 days' prior written notice to ROYAL,
but such termination will not be effective until ROYAL shall have an
agreement with one or more persons to act as successor principal
underwriter of the Contracts. HSD hereby agrees that it will continue
to act as successor principal underwriter until its successor or
successors assume such undertaking.
4
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed and their respective corporate seals to be hereunto affixed and
attested, all as of the day and year first above written.
ROYAL LIFE INSURANCE COMPANY
OF AMERICA
BY: /s/ Charles F. Shabunia
------------------------------------
Charles F. Shabunia
Vice President and Controller
HARTFORD SECURITIES DISTRIBUTION
COMPANY, INC.
BY: /s/ George Jay
------------------------------------
George Jay
Controller
(SEAL)
Attest:
/s/ Jeanette Toce
- -------------------------
5
<PAGE>
Exhibit 3(b)
BROKER-DEALER SALES AND
SUPERVISION AGREEMENT
This Broker-Dealer Sales and Supervision Agreement ("Agreement") is made by and
between [DISTRIBUTORS] ("Distributors"), each a broker-dealer registered with
the Securities and Exchange Commission ("SEC") under the Securities and Exchange
Act of 1934 ("1934 Act") and a member of the National Association of Securities
Dealers, Inc. ("NASD"), [INSURANCE COMPANIES] (referred to collectively as
"Companies"), and ___________________________ [BROKER-DEALER], an independent
broker-dealer registered with the SEC under the 1934 Act and a member of the
NASD ("Broker-Dealer"), or a bank as defined by Section 3(a)(6) of the 1934 Act
and Article I(b) of the NASD By-Laws, and any and all undersigned insurance
agency affiliates ("Affiliates") of Broker-Dealer. Distributors and Companies
are sometimes collectively referred to as "Hartford Life".
WHEREAS, Companies offer certain variable life insurance policies and variable
and modified guaranteed annuity contracts which are deemed to be securities
under the Securities Act of 1933 (the "Registered Products") and other
nonregistered life policies and annuity contracts ("Nonregistered Products, and
with the "Registered Products, collectively the "Products"); and
WHEREAS, Companies wish to appoint the Broker-Dealer and Affiliates as agents of
the Companies for the solicitation and procurement of applications for those
specific Products listed on the lines of business page(s) hereto, as the same
may be amended from time to time; and
WHEREAS, Distributors are the principal underwriters of the Products; and
WHEREAS, Distributors anticipate having representatives who are associated with
Broker-Dealer, who are NASD registered and are duly licensed under applicable
state insurance law and who are, where required, appointed as insurance agents
of Companies to solicit and sell the Registered and Nonregistered Products
("Registered Representatives"); and
WHEREAS, Distributors and the Companies acknowledge that Broker-Dealer will
provide certain supervisory and administrative services to Registered
Representatives who are associated with the Broker-Dealer in connection with the
solicitation, service and sale of the Registered and Nonregistered Products; and
WHEREAS, Broker-Dealer agrees to provide the aforementioned supervisory and
administrative services to its Registered Representatives who have been
appointed by the Companies to sell the Registered and Nonregistered Products.
NOW THEREFORE, in consideration of the mutual covenants contained in this
Agreement, the parties agree to the following:
1. APPOINTMENT OF THE BROKER-DEALER
Companies hereby appoint, effective upon compliance with individual state
requirements, Broker-Dealer and Affiliates, if any, as an agent of the
Companies for the solicitation and procurement of applications for the
Products offered by the Companies, as outlined in the lines of business
page(s) attached herein, in all states in which the Companies are
authorized to do business and in which Broker-Dealer or any Affiliates
are properly insurance licensed. Broker-Dealer shall
1
<PAGE>
supervise Registered Representatives in the solicitation, servicing and
sale of the Products in accordance with all applicable securities laws.
The Companies hereby authorize Broker-Dealer under applicable state
insurance laws to supervise Registered Representatives in connection with
the solicitation, servicing and sale of the Companies Registered and
Nonregistered Products.
2. AUTHORITY OF THE BROKER-DEALER
Broker-Dealer has the authority to represent Distributors and Companies
only to the extent expressly granted in this Agreement. Broker-Dealer
and any associated Registered Representatives shall not hold themselves
out to be employees of Companies or Distributors in any dealings with the
public. Broker-Dealer and any Registered Representatives shall be
independent contractors as to Distributors or Companies. Nothing
contained herein is intended to create a relationship of employer and
employee between Broker-Dealer and Distributors or Companies or between
Registered Representatives and Distributors or Companies.
3. BROKER-DEALER REPRESENTATION
Broker-Dealer represents that it is either:_____ a registered
broker-dealer under the 1934 Act, a member in good standing of the NASD,
and a registered broker-dealer under applicable state law to the extent
necessary to perform the duties described in this Agreement or _____ a
bank as defined by Section 3(a)(6) of the 1934 Act. Broker-Dealer
represents that its Registered Representatives, who will be soliciting
applications for the Registered Products, will be duly registered
representatives associated with Broker-Dealer and that they will be
representatives in good standing with accreditation as required by the
NASD to sell the Registered Products. Broker-Dealer agrees to abide by
all rules and regulations of the NASD, 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
Products by Broker-Dealer or any of its associated Registered
Representatives.
4. BROKER-DEALER OBLIGATIONS
4.1 TRAINING AND SUPERVISION
Broker-Dealer has full responsibility for the training and
supervision of all Registered Representatives and any other
persons associated with Broker-Dealer and any other persons who
are engaged directly or indirectly in the offer or sale of the
Products. Broker-Dealer shall, during the term of this Agreement,
establish and implement reasonable procedures for periodic
inspection and supervision of sales practices of its Registered
Representatives including all applicable continuing education
requirements. Companies and Distributors reserve the right to
monitor the Broker-Dealer's Registered Representatives as to sales
supervision and continuing education.
If a Registered Representative ceases to be a Registered
Representative of Broker-Dealer, is disqualified for continued
NASD registration or has its registration suspended by the NASD or
otherwise fails to meet the rules and standards imposed by
Broker-Dealer, Broker-Dealer shall immediately notify such
Registered Representative that he or she is no longer authorized
to solicit applications for the sale of Products on behalf of the
Companies. Broker-Dealer shall immediately notify the Companies
of such termination or suspension or failure to abide by he rules
and standards of Broker-Dealer.
4.2 SOLICITATION
Broker-Dealer agrees to supervise its Registered Representatives
so that they will only solicit applications in states where the
Products are approved for sale and where the Registered
Representatives are properly licensed and appointed in accordance
with applicable state laws
2
<PAGE>
and Companies' rules, procedures and ethical standards then in
effect. Companies shall notify Broker-Dealer of the availability
of the Products in each state.
4.3 IMPROPER REPLACEMENT
Broker-Dealer and its Registered Representatives shall not make
any misrepresentation or in complete comparison of products for
the purpose of inducing a current or potential contract owner or
policyholder to lapse, forfeit or surrender his or her current
insurance contract in favor of purchasing Companies' or other
insurer's product. Communication with clients shall include
sufficient information regarding the appropriateness of the
transaction to allow the client to make an informed decision.
4.4 PROSPECTUS DELIVERY AND SUITABILITY REQUIREMENTS
Broker-Dealer shall ensure that its Registered Representatives
comply with the prospectus delivery requirements under the
Securities Act of 1933. In addition, Broker-Dealer shall ensure
that its Registered Representatives shall not make recommendations
to an applicant to purchase a Product in the absence of reasonable
grounds to believe that the purchase is suitable for such
applicant, as required by applicable state insurance laws, the
suitability requirements of the 1934 Act and the NASD Conduct
Rules. Broker-Dealer shall ensure that each application obtained
by its Registered Representatives shall bear evidence of approval
by one of its principals indicating that the application has been
reviewed for suitability.
4.5 PROMOTIONAL MATERIAL
Broker-Dealer and its Registered Representatives are not
authorized to provide any information or make any representation
in connection with this Agreement or the solicitation of the
Products other than those contained in the prospectus or in other
promotional material produced or authorized by Companies and
Distributors.
Broker-Dealer agrees that if it develops any promotional material
for sales, training, explanatory or other purposes in connection
with the solicitation of applications for Products, including
generic advertising, illustrations and/or training materials which
may be used in connection with the sale of Products, it will
obtain the prior written approval of Companies, such approval not
to be unreasonably withheld. Broker-Dealer agrees that it has
full responsibility for any training or other promotional material
it distributes to sales personnel unless the prior written
approval of Companies has been obtained.
4.6 RECORD KEEPING
Broker-Dealer is responsible for maintaining the records of its
Registered Representatives. Broker-Dealer shall maintain such
other records as are required of it by applicable laws and
regulations. The books, accounts and records maintained by
Broker-Dealer that relate to the sale of the Products, or dealings
with the Companies or Distributors shall be maintained so as to
clearly and accurately disclose the nature and details of each
transaction.
Broker-Dealer acknowledges that all the records maintained by
Broker-Dealer relating to the solicitation, service or sale of the
Products subject to this Agreement, including but not limited to
applications, authorization cards, complaint files, supervisory
and inspection procedures and suitability reviews, shall be
available to Companies and Distributors upon request during normal
business hours. Companies and Distributors may retain copies of
any such records which Companies and Distributors, in their
discretion, deem necessary or desirable to keep.
4.7 REFUND OF COMPENSATION
Broker-Dealer agrees to repay Companies the total amount of any
compensation which may have been paid to it within thirty (30)
business days of notice of the request for such refund should
Companies for any reason return any premium on a Product which was
solicited by a Registered Representative of Broker-Dealer.
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4.8 PREMIUM COLLECTION
Broker-Dealer and Registered Representatives only have the
authority to collect initial premiums except as specifically set
forth in the applicable commission schedule. Unless previously
authorized by Distributors, neither Broker-Dealer nor any of its
Registered Representatives shall have any right to withhold or
deduct any part of any premium it shall receive for purposes of
payment of commission or otherwise.
5. COMPANIES' AND/OR DISTRIBUTORS' OBLIGATIONS
5.1 PROSPECTUS/PROMOTIONAL MATERIAL
Companies will provide Broker-Dealer with reasonable quantities of
the currently effective prospectus for the Registered Products and
appropriate sales promotional material which has been filed with
the NASD, approved by Companies and filed as applicable with state
insurance departments.
5.2 COMPENSATION
Companies will pay Broker-Dealer as full compensation for all
services rendered by Broker-Dealer under this Agreement,
commissions and/or service fees in the amounts, in the manner and
for the period of time as set forth in the Commission Schedules
attached to this Agreement or subsequently made a part hereof, and
which are in effect at the time such Products are sold. The
manner of commission payments (I.E. including without limitation
fronted or trail) is not subject to change after the effective
date of a contract for which the compensation is payable.
Companies may change the Commission Schedules attached to this
Agreement at any time. Such change shall become effective only
when Distributors or Companies provide the Broker-Dealer with
written notice of the change. No such change shall affect
first-year commissions on any contracts issued as a result of
applications received by Companies at Companies' Home Office prior
to the effective date of such change.
Distributors agree to identify to Broker-Dealer, for each such
payment, the name of the Registered Representative of
Broker-Dealer who solicited each contract covered by the payment.
Distributors will not compensate Broker-Dealer for any Product
which is tendered for redemption after acceptance of the
application. Any chargebacks will be assessed against the
Broker-Dealer of record at the time of the redemption.
Distributors will only compensate Broker-Dealer or Affiliates, as
outlined below, for those applications accepted by Companies, and
only after receipt of the required premium by Companies at
Companies' Home Office or at such other location as Companies may
designate from time to time for its various lines of business, and
compliance by Broker-Dealer with any outstanding contract and
prospectus delivery requirements.
In the event that this Agreement terminates due to fraudulent
activities or a material breach of this Agreement by the
Broker-Dealer, Distributors will only pay to Broker-Dealer or
Affiliates commissions or other compensation earned prior to
discovery of events requiring termination. No further commissions
or other compensation shall thereafter be payable.
5.3 COMPENSATION PAYABLE TO AFFILIATES
If Broker-Dealer is unable to comply with state licensing
requirements because of a legal impediment which prohibits a
non-domiciliary corporation from becoming a licensed insurance
agency or prohibits non-resident ownership of a licensed insurance
agency, Distributors agree to pay compensation to Broker-Dealer's
contractually affiliated insurance
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agency, a wholly-owned agency affiliate of Broker-Dealer, or a
Registered Representative or principal of Broker-Dealer who is
properly state licensed and/or appointed. As appropriate, any
reference in this Agreement to Broker-Dealer shall apply equally
to such Affiliate. Distributors agree to pay compensation to an
Affiliate subject to Affiliate's agreement to comply with the
requirements of Exhibit A attached hereto. All other obligations
of Broker-Dealer continue to apply.
5.4 APPOINTMENT OF AGENT/REGISTERED REPRESENTATIVES
Companies, subject to internal standards for appointment of
agents/Registered Representatives, shall appoint all
agents/Registered Representatives designated by Broker-Dealer
prior to any solicitation of Products, unless specifically allowed
by state law. Such appointments shall be at the Companies
expense. The Companies shall not terminate any designated
agent/Registered Representative for non-production without prior
written notice to Broker-Dealer.
6. TERMINATION
6.1 This Agreement may be terminated by Distributors or Broker-Dealer
by giving sixty (60) days' notice in writing to the other parties.
6.2 Such notice of termination shall be sent by registered mail to the
last known address of Broker-Dealer appearing on Companies'
records, or in the event of termination by Broker-Dealer, to the
Home Office, Hartford Life, P.O. Box 5085, Hartford, Connecticut
06104-5085.
6.3 Such notice shall be an effective notice of termination of this
Agreement as of the time the notice is deposited in the United
States mail or the time of actual receipt of such notice if
delivered by means other than mail.
6.4 This Agreement shall automatically terminate without notice upon
the occurrence of any of the events set forth below:
6.4.1 Upon the bankruptcy or dissolution of Broker-Dealer.
6.4.2 When and if Broker-Dealer commits fraud or gross negligence
in the performance of any duties imposed upon Broker-Dealer
by this Agreement or wrongfully withholds or
misappropriates, for Broker-Dealer's own use, funds of
Companies, its policyholders or applicants.
6.4.3 When and if Broker-Dealer materially breaches this
Agreement or materially violates any applicable state or
federal law and/or administrative regulation in a
jurisdiction where Broker-Dealer transacts business.
6.4.4 When and if Broker-Dealer fails to obtain renewal of a
necessary license in any jurisdiction, but only as to that
jurisdiction and only until Broker-Dealer renews its
license in such jurisdiction.
6.5 The parties agree that on termination of this Agreement, any
outstanding indebtedness to Companies shall become immediately due
and payable.
7. GENERAL PROVISIONS
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7.1 COMPLAINTS AND INVESTIGATIONS
Broker-Dealer shall cooperate with Companies in the investigation
and settlement of all complaints or claims against Broker-Dealer
and/or Companies relating to the solicitation or sale of the
Products under this Agreement. Broker-Dealer, Distributors and
Companies each shall promptly forward to the others any complaint,
notice of claim or other relevant information which may come into
its possession. Broker-Dealer, Distributors and Companies agree
to cooperate fully in any investigation or proceeding in order to
attempt to achieve a prompt and equitable resolution to all
complaints or claims and to ensure that Broker-Dealer's,
Distributors' and Companies' procedures with respect to related
solicitation or servicing are consistent with any applicable law
or regulation.
In the event any legal process or notice is served on
Broker-Dealer in a suit or proceeding against Distributors or
Companies, Broker-Dealer shall forward forthwith such process or
notice to Hartford Life at its Home Office in Hartford,
Connecticut, by registered mail.
7.2 WAIVER
The failure of Distributors or Companies to enforce any provisions
of this Agreement shall not constitute a waiver of any such
provision. The past waiver of a provision by Distributors or
Companies shall not constitute a course of conduct or a waiver in
the future of that same provision.
7.3 INDEMNIFICATION
7.3.1 INDEMNITY DEFINITIONS. The following definitions shall
apply for purposes of this Article VII (c):
"Claim" means any civil, administrative and/or criminal
action, claim, suit, and/or legal proceeding of any kind
that is brought against an Indemnitee by a third party (the
"Claimant") unaffiliated with such Indemnitee.
"Costs" means any damages, settlements, judgments, losses,
expenses interest, penalties, reasonable legal fees and
disbursements (including without limitation fees and costs
for investigators, expert witnesses and other litigation
advisors) and other costs incurred by an Indemnitee to
investigate, defend or settle a Claim, except that no
settlement payments shall be included in Costs unless the
applicable Indemnitor has given its prior express written
consent to the settlement, which consent shall not be
unreasonably withheld. Costs shall not include any
expenses for any investigation or defense of a Claim
incurred by Indemnitee after the date on which Indemnitor
gives notice of its election to assume the defense of such
Claim.
7.3.2 PARTIES LIABILITY.
(i) Broker-Dealer shall indemnify and hold Distributors and
Companies, and each of their respective directors,
officers, and employees, harmless from any Costs sustained
by Companies and/or the Distributors (including reasonable
attorneys' fees) on account of any claim, arising out of,
based upon, or otherwise relating to: (a) any breach of any
representation, warranty, covenant, agreement or other
obligation of Broker-Dealer or any Affiliate contained in
this Agreement; (b) a violation of state and/or federal
laws, regulations or rules, or the rules and regulations of
any applicable self-regulatory organizations by
Broker-Dealer or any Affiliate; (c) negligent, fraudulent,
illegal or wrongful action or inaction by Broker-Dealer or
any Affiliate or by persons employed or appointed by
Broker-Dealer. In any of the foregoing cases Broker-Dealer
or any Affiliate shall be an "Indemnitor" as such term is
used in this Agreement and each of the Distributors and the
Companies, and each of their directors, officers and
employees, as applicable, shall be an "Indemnitee" as such
term is used in this Agreement.
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(ii) Each Affiliate shall indemnify and hold Distributors
and Companies, and each of their respective directors,
officers, and employees, harmless from any Costs sustained
by Companies or Distributors (including reasonable
attorneys' fees) on account of any claim, arising out of,
based upon, or otherwise relating to: (a) any breach of any
representation, warranty, covenant, agreement or other
obligation of the Affiliate contained in this Agreement;
(b) a violation of state and/or federal laws, regulations
or rules, or the rules and regulations of any applicable
self-regulatory organizations by Affiliate; (c) negligent,
fraudulent, illegal or wrongful action or inaction by the
Affiliate or by persons employed or appointed by the
Affiliate. In any of the foregoing cases the Affiliates
shall be an "indemnitor" as such term is used in this
Agreement and each of the Distributors and the Companies,
and each of their directors, officers and employees, as
applicable, shall be an "indemnitee" as such term is used
in this Agreement.
(iii) Distributors shall indemnify and hold Broker-Dealer,
and its directors, officers, and employees, harmless from
any Costs sustained by Broker-Dealer (including reasonable
attorneys' fees) on account of, arising out of, based upon,
or otherwise relating to: (a) any breach of any
representation, warranty, covenant, agreement or other
obligation of Distributors contained in this Agreement; (b)
a violation of state and/or federal laws, regulations or
rules, or the rules and regulations of any applicable
self-regulatory organizations by Distributors; (c)
negligent, fraudulent, illegal or wrongful action or
inaction by Distributors or by persons employed or
appointed by Distributors other than Broker-Dealer or its
employees or appointees. In any of the foregoing cases
Distributors shall be an "Indemnitor" as such term is used
in this Agreement and Broker-Dealer, and each of its
directors, officers and employees, as applicable, shall be
an "Indemnitee" as such term is used in this Agreement.
(iv) Companies shall indemnify and hold Broker-Dealer, and
its directors, officers, and employees, harmless from any
Costs sustained by Broker-Dealer (including reasonable
attorneys' fees) on account of, arising out of any claim,
based upon, or otherwise relating to: (a) any breach of any
representation, warranty, covenant, agreement or other
obligation of Companies contained in this Agreement; (b) a
violation of state and/or federal securities or insurance
laws, regulations or rules, or the rules and regulations of
any applicable self-regulatory organizations by
Companies(c) negligent, fraudulent, illegal or wrongful
action or inaction by Companies or by persons employed or
appointed by Companies other than Broker-Dealer or its
employees or appointees. In any of the foregoing cases
Companies shall be an "Indemnitor" as such term is used in
this Agreement and Broker-Dealer, and each of its
directors, officers and employees, as applicable, shall be
an "Indemnitee" as such term is used in this Agreement.
7.3.3 INDEMNIFICATION CLAIM NOTICE AND CASE MANAGEMENT.
Indemnitor shall not be liable under this indemnification
provision with respect to any Claim made against an Indemnitee
unless that Indemnitee shall have notified the Indemnitor in
writing within a reasonable time after the summons or other first
legal process giving information of the nature of the Claim shall
have been served upon that Indemnitee (or after the Indemnitee
shall have received notice of such service on any designated
agent). At any time after such notice, any Indemnitor may deliver
to the Indemnitee its written acknowledgment that Indemnitee is
entitled to indemnification under this Article VII (c) for all
Costs associated with the Claim. The Indemnitor shall thereafter
be entitled to assume the defense of the Claim and shall bear all
expenses associated therewith, including without limitation,
payment on a current basis of all previous Costs incurred by the
Indemnitee in relation to the Claim from the date the Claim was
brought. After notice from any Indemnitor to the Indemnitee of an
election to assume the defense of any Claim, the Indemnitee shall
not be liable to the Indemnitors for any Costs related to the
Claim. Until such time as Indemnitee receives notice of an
Indemnitor's election to assume the defense of any Claim,
Indemnitee may defend itself against the Claim and may
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hire counsel and other experts of its choice and Indemnitors,
jointly and severally, shall be liable for payment of counsel and
other expert fees on a current basis as the same are billed.
7.3.4 COOPERATION AND UPDATES. To the extent that an Indemnitee
makes a claim for indemnification against an Indemnitor,
Indemnitee and Indemnitor shall each give the other reasonable
access during normal business hours to its books, records and
employees and those books, records and employees within its
control in connection with the Claim for which indemnification is
sought hereunder and shall otherwise cooperate with one another in
the defense of any such Claim. Regardless of which party defends
a particular Claim, the defending party shall give the other
parties written notice of any significant development in the case
as soon as practicable, but in any event within five (5) business
days after such development. In no event shall either Indemnitor
or Indemnitee be required to divulge any privileged information.
7.3.5 SETTLEMENT. If an Indemnitee is defending a Claim and: (1)
a settlement proposal is made by the Claimant, or (2) the
Indemnitee desires to present a settlement proposal to the
Claimant, then the Indemnitee promptly shall notify the
Indemnitors of such settlement proposal together with its
counsel's recommendation and shall request the consent of
Indemnitor(s). Indemnitee, in making such request, shall make
available complete access, during normal business hours, to any
and all discovery up to the date of such request. If the
Indemnitee desires to enter into the settlement and less than all
of the Indemnitors consent within five (5) business days (unless
such period is extended, in writing, by mutual agreement of the
parties hereto), then Indemnitors, from the time they fail to
consent forward, shall defend the Claim and shall further
indemnify the Indemnitees for all Costs associated with the Claim
which are in excess of the proposed settlement amount even if the
same were not originally covered under this Article VII. If an
Indemnitor is defending a Claim and a settlement requires an
admission of liability by Indemnitee or would require Indemnitee
to either take action (other than purely ministerial action) or
refrain from taking action (due to an injunction or otherwise),
Indemnitor may agree to such settlement only after obtaining the
express, written consent of Indemnitee.
7.3.6 INDEMNIFICATION DISPUTES. In the event that there is a
dispute between an Indemnitee and an Indemnitor over whether the
Indemnitor is liable for a Claim, then:
(i) Indemnitee shall defend the Claim in accordance with
the provisions of Article VII(c)(3) hereof in the same
manner and under the same terms as though there were no
dispute and Indemnitor had failed to elect to defend the
Claim itself and Indemnitee shall have the right to settle
such Claim pursuant to Article VII(c)(5) hereof;
(ii) In addition, Indemnitor must advise Indemnitee of
such a dispute and the reasons therefor, in writing, within
thirty (30) days after the Claim is first tendered to
Indemnitor, unless the Indemnitee and Indemnitor mutually
agree, in writing, to extend the time; and
(iii) The Indemnitee and the Indemnitor shall use good
faith efforts to resolve any dispute as to Indemnitor's
indemnification obligation. Should those efforts fail to
resolve the dispute, the ultimate resolution shall be
determined in a DE NOVO proceeding, separate and apart from
the underlying Claim brought by the Claimant, before a
court of competent jurisdiction. No finding or judgment in
any litigation on the underlying Claim, except for Cost
amounts, shall be given any weight in the court proceedings
on the indemnification issue. Either party may initiate
such proceedings with a court of competent jurisdiction at
any time following the termination of the efforts by such
parties to resolve the dispute (termination of such efforts
shall be deemed to have occurred 30 days from the
commencement of the same unless such time period is
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extended by the written mutual agreement of the parties).
The prevailing party in such a proceeding shall be entitled
to recover reasonable attorneys' fees, costs and expenses.
From and after the date on which responsibility for a
disputed indemnity Claim is resolved: (I) Indemnitor shall
continue to pay all Costs that are determined by the
parties or the court, as the case may be, to be allocable
to any such Claim which is determined to be a Claim subject
to indemnity, and (II) Indemnitee shall (i) pay all future
Costs that are determined by the parties or the court, as
the case may be, to be allocable to any such Claim which is
determined to be a Claim not subject to indemnity and (ii)
reimburse Indemnitor for all Costs previously paid by
Indemnitor which are allocable to such Claim determined to
be a claim not subject to indemnity.
Broker-Dealer and Affiliates expressly authorize Companies
Distributors to charge against all compensation due or to become
due to Broker-Dealer or its Affiliates under this Agreement any
monies paid or liabilities incurred by Companies or Distributors
under this Indemnification provision.
7.4 ASSIGNMENT
No assignment of this Agreement, or commissions payable hereunder,
shall be valid unless authorized in writing by each of the
non-assigning parties. Every assignment shall be subject to any
indebtedness and obligation of the assigning parties that may be
due or become due to non-assigning parties and any applicable
state insurance regulations pertaining to such assignments.
7.5 OFFSET
Broker-Dealer expressly authorizes Companies to deduct, from any
monies due under this Agreement, every indebtedness or obligation
of Broker-Dealer to Companies or to any of its affiliates under
this agreement.
7.8 CONFIDENTIALITY
Companies, Distributors and Broker-Dealer agree that all facts or
information received by any party related to a contract owner
shall remain confidential, unless such facts or information is
required to be disclosed by any regulatory authority or court of
competent jurisdiction.
7.9 PRIOR AGREEMENTS
This Agreement terminates all previous agreements, if any, between
Companies, Distributors and Broker-Dealer with respect to the
Products set forth in the lines of business page(s). However, the
execution of this Agreement shall not affect any obligations which
have already accrued under any prior agreement.
7.10 CHOICE OF LAW
This Agreement shall be governed by and construed in accordance
with the laws of the State of Connecticut.
By executing this Broker-Dealer Sales and Supervision Agreement, Broker-Dealer
acknowledges that it has read this Agreement in its entirety and is in agreement
with the terms and conditions outlining the rights of Distributors, Companies
and Broker-Dealer and Affiliates under this Agreement.
IN WITNESS WHEREOF, the undersigned parties have executed this Agreement to be
effective as set forth above, upon the effective date below.
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EXHIBIT A
In accordance with Section V.(c) of the Broker-Dealer-Dealer Sales and
Supervision Agreement, no compensation is payable unless Broker-Dealer and
Registered Representative have first complied with all applicable state
insurance laws, rules and regulations. Distributors must ensure that any
Broker-Dealer with whom Distributors intend to enter into an Agreement and any
Registered Representatives meet the licensing and registration requirements of
the state(s) Broker-Dealer operates in and the NASD.
Companies are required by the Insurance Department in all 50 states to pay
compensation only to individuals and entities that are properly insurance
licensed and, in some states, appointed. For registered products, Distributors
must also comply with NASD regulations that require Distributors to pay
compensation to an NASD registered Broker-Dealer. Distributors must comply with
both state and NASD requirements.
Distributors require confirmation that Broker-Dealer holds current state
insurance licenses or markets insurance products through a contractual affiliate
or wholly-owned agency, which is properly insurance licensed and, if applicable,
appointed. If Broker-Dealer is properly state licensed then compensation must
be paid to Broker-Dealer in compliance with both state and NASD requirements.
If Broker-Dealer is not state insurance licensed and relies on the licensing of
a contractual affiliate or wholly-owned agency, the SEC has issued a number of
letters indicating that, under specific limited circumstances, it will take "no
action" against insurers (Distributors) paying compensation on registered
products to Broker-Dealer's contractual affiliate or wholly-owned agency. At
the request of Broker-Dealer, Distributors will provide copies of several of
these letters as well as a summary of their requirements.
If Broker-Dealer intends to rely on one of these "no-action" letters, legal
counsel for Broker-Dealer must confirm to Distributors in writing that all of
the circumstances of any one of the SEC no-action letters are applicable,
specifically including the jurisdictions for which Broker-Dealer does not hold
current state insurance licenses. Broker-Dealer's counsel must summarize each
point upon which the no-action relief was granted and represent that
Broker-Dealer's method of operation is identical or meets the same criteria.
Broker-Dealer's counsel must also confirm that, to the best of counsel's
knowledge, the SEC has not rescinded or modified its no-action position since
the letter was released.
The Broker-Dealer Sales and Supervision Agreement will not be finalized and no
new applications for products will be accepted or no new compensation will be
payable unless the appropriate proof of state licensing or no-action relief is
confirmed. In addition to a letter from Broker-Dealer's counsel, copies of the
following documentation is required:
insurance licenses for all states in which Broker-Dealer holds
these licenses and intends to operate and/or;
insurance licenses for any contractual affiliate or wholly-owned
agency; and
the SEC No-Action Letter that will be relied upon.
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Exhibit 8
PARTICIPATION AGREEMENT
Among
HARTFORD BOND HLS FUND, INC.,
HARTFORD INDEX HLS FUND, INC.,
HARTFORD MONEY MARKET HLS FUND, INC.,
HARTFORD MORTGAGE SECURITIES HLS FUND, INC.,
HARTFORD SERIES FUND, INC.,
HARTFORD SECURITIES DISTRIBUTION COMPANY, INC.,
and
ROYAL LIFE INSURANCE COMPANY OF AMERICA
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I. Fund Shares 4
ARTICLE II. Representations and Warranties 6
ARTICLE III. Prospectuses, Reports to Shareholders and 8
Proxy Statements; Voting
ARTICLE IV. Sales Material and Information 10
ARTICLE V. Reserved 11
ARTICLE VI. Diversification 11
ARTICLE VII. Potential Conflicts 12
ARTICLE VIII. Indemnification 13
ARTICLE IX. Applicable Law 17
ARTICLE X. Termination 17
ARTICLE XI. Notices 19
ARTICLE XII. Foreign Tax Credits 20
ARTICLE XIII. Miscellaneous 20
SCHEDULE A Separate Accounts and Contracts 27
SCHEDULE B Participating Fund Shares 25
SCHEDULE C Proxy Voting Procedures 26
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PARTICIPATION AGREEMENT
Among
HARTFORD BOND HLS FUND, INC.
HARTFORD INDEX HLS FUND, INC.
HARTFORD MONEY MARKET HLS FUND, INC.
HARTFORD MORTGAGE SECURITIES HLS FUND, INC.
HARTFORD SERIES FUND, INC.
HARTFORD SECURITIES DISTRIBUTION COMPANY, INC.
and
ROYAL LIFE INSURANCE COMPANY OF AMERICA
THIS AGREEMENT, made and entered into as of the 1st day of December, 1998 by and
among ROYAL LIFE INSURANCE COMPANY OF AMERICA (hereinafter the "Company"); a
Connecticut corporation, on its behalf and on behalf of each separate account of
the Company set forth on Schedule A hereto as may be amended from time to time
(each such account hereinafter referred to as the "Account") and HARTFORD BOND
HLS FUND, INC., HARTFORD INDEX HLS FUND, INC., HARTFORD MONEY MARKET HLS FUND,
INC., HARTFORD, MORTGAGE SECURITIES HLS FUND, INC., HARTFORD SERIES FUND, INC.,
each a corporation established under the laws of the state of Maryland ("state")
(hereinafter the "Funds"); and HARTFORD SECURITIES DISTRIBUTION COMPANY, INC., a
Connecticut corporation (hereinafter the "Underwriter").
WHEREAS, each Fund engages in business as an open-end management investment
company and is available to act as the investment vehicle for separate accounts
established by insurance companies for individual and group life insurance
policies and annuity contracts with variable accumulation and/or pay-out
provisions (hereinafter referred to individually and/or collectively as
"Variable Insurance Products"); and
WHEREAS, insurance companies desiring to utilize the Funds as an investment
vehicle under their Variable Insurance Products are required to enter into
participation agreements with the Funds and the Underwriter (the "Participating
Insurance Companies"); and
WHEREAS, shares of the Funds are divided into series and classes of shares,
which may be made available for Variable Insurance Products of Participating
Insurance Companies; and
WHEREAS, the Funds intend to offer the shares set forth in Schedule B as
may be
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amended from time to time by mutual agreement of the parties hereto, under this
Agreement to the Accounts of the Company; and
WHEREAS, each Fund is registered as an open-end management investment
company under the 1940 Act and its shares are registered under the Securities
Act of 1933, as amended (hereinafter the "1933 Act"); and
WHEREAS, the Underwriter is registered as a broker/dealer under the
Securities Exchange Act of 1934, as amended (hereinafter the "1934 Act"), is a
member in good standing of the National Association of Securities Dealers, Inc.
(hereinafter"NASD") and serves as principal underwriter of the shares of each
Fund; and
WHEREAS, the Company has registered or will register certain Variable
Insurance Products under the 1933 Act; and
WHEREAS, each Account is a duly organized, validly existing segregated
asset account, established by resolution or under authority of the Board of
Directors of the Company, on the date shown for such Account on Schedule A
hereto, to set aside and invest assets attributable to the aforesaid Variable
Insurance Products; and
WHEREAS, the Company has registered or will register each Account as a unit
investment trust under the 1940 Act unless exempt from such registration; and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Company intends to purchase shares in the Funds on behalf of
each Account to fund certain of the aforesaid Variable Insurance Products and
the Underwriter is authorized to sell such shares to each such Account at net
asset value.
NOW, THEREFORE, in consideration of their mutual promises, the Company, the
Funds, the Underwriter agree as follows:
ARTICLE I. Fund Shares
1.1. The Fund and the Underwriter agree to make available for purchase
by the Company shares of the Funds and shall execute orders placed for each
Account on a daily basis at the net asset value next computed after receipt by
each Fund or its designee of such order. For purposes of this Section 1.1, the
Company shall be the designee of each Fund and Underwriter for receipt of such
orders from each Account and receipt by such designee shall constitute receipt
by the Fund; provided that the Fund receives notice of such order by 10:00 a.m.
(local time where the Fund processes orders) on the next following Business Day.
Notwithstanding the foregoing, the Company shall use its best efforts to
provide the Fund with notice of such orders by 9:15 a.m. on the next following
Business Day. "Business Day" shall mean any day on which
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the New York Stock Exchange is open for trading and on which the Fund calculates
its net asset value pursuant to the rules of the Securities and Exchange
Commission, as set forth in the Fund's prospectus and statement of additional
information. Notwithstanding the foregoing, the Board of Directors of each Fund
(hereinafter the "Board") may refuse to permit the Fund to sell shares to any
person, or suspend or terminate the offering of shares if such action is
required by law or by regulatory authorities having jurisdiction or is, in the
sole discretion of the Board acting in good faith and in light of their
fiduciary duties under federal and any applicable state laws, necessary in the
best interests of the shareholders.
1.2. Each Fund and the Underwriter agree that shares of the Funds will
be sold only to Participating Insurance Companies for their Variable Insurance
Products. No shares will be sold to the general public.
1.3. Each Fund will not make its shares available for purchase by any
insurance company or separate account unless the Fund is in compliance with
Sections 2.1, 2.4, 2.9, 3.4 and Article VII of this Agreement.
1.4. Each Fund and the Underwriter agree to redeem for cash, on the
Company's request, any full or fractional shares of the Fund held by the
Company, executing such requests on a daily basis at the net asset value next
computed after receipt by the Fund or its designee of the request for
redemption. For purposes of this Section 1.4, the Company shall be the designee
of each Fund for receipt of requests for redemption from each Account and
receipt by such designee shall constitute receipt by the Fund; provided that the
Underwriter receives notice of such request for redemption on the next following
Business Day in accordance with the timing rules described in Section 1.1.
1.5. The Company agrees that purchases and redemptions of Fund shares
offered by the then current prospectus of each Fund shall be made in accordance
with the provisions of such prospectus. The Accounts of the Company, under which
amounts may be invested in the Funds are listed on Schedule A attached hereto
and incorporated herein by reference, as such Schedule A may be amended from
time to time by mutual written agreement of all of the parties hereto. The
Company will give the Funds and the Underwriter concurrent written notice of its
intention to make available in the future, as a funding vehicle under the
Contracts, any other investment company.
1.6. The Company will place separate orders to purchase or redeem
shares of each Fund. Each order shall describe the net amount of shares and
dollar amount of each Fund to be purchased or redeemed. In the event of net
purchases, the Company shall pay for Fund shares no later than the third
Business Day after an order to purchase Fund shares is made in accordance with
the provisions of Section 1.1 hereof. Payment shall be in federal funds
transmitted by wire. In the event of net redemptions, the Fund shall pay the
redemption proceeds in federal funds transmitted by wire on the next Business
Day after an order to redeem Fund shares is made in accordance with the
provisions of Section 1.4 hereof. Notwithstanding the foregoing, if the
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payment of redemption proceeds on the third Business Day would require the Fund
to dispose of Fund securities or otherwise incur substantial additional costs,
and if the Fund has determined to settle redemption transactions for all
shareholders on a delayed basis, proceeds shall be wired to the Company within
seven (7) days and the Fund shall notify in writing the person designated by the
Company as the recipient for such notice of such delay by 3:00 p.m. Eastern Time
on the same Business Day that the Company transmits the redemption order to the
Fund.
1.7. Issuance and transfer of Fund shares will be by book entry only.
Share certificates will not be issued to the Company or any Account. Shares
ordered from the Fund will be recorded in an appropriate title for each Account
or the appropriate subaccount of each Account.
1.8. The Underwriter shall use its best efforts to furnish same day
notice by 6:00 p.m. in its local time zone (by wire or telephone, followed by
written confirmation) to the Company of any dividends or capital gain
distributions payable on the Fund's shares. The Company hereby elects to receive
all such dividends and capital gain distributions as are payable on the Fund
shares in additional shares of the Fund. The Company reserves the right to
revoke this election and to receive all such dividends and capital gain
distributions in cash. The Fund shall notify the Company of the number of shares
so issued as payment of such dividends and distributions.
1.9. The Underwriter shall make the net asset value per share of each
Fund available to the Company on a daily basis as soon as reasonably practical
after the net asset value per share is calculated.
1.10. If Underwriter provides materially incorrect share net asset value
information through no fault of the Company, the Company shall be entitled to an
adjustment with respect to the Fund shares purchased or redeemed to reflect the
correct net asset value per share. The determination of the materiality of any
net asset value pricing error shall be based on the SEC's recommended guidelines
regarding such errors. The correction of any such errors shall be made at the
Company level pursuant to the SEC's recommended guidelines. Any material error
in the calculation or reporting of net asset value per share, dividend or
capital gain information shall be reported promptly upon discovery to the
Company.
ARTICLE II. REPRESENTATIONS AND WARRANTIES
2.1. The Company represents and warrants that the interests of the
Accounts which offer the Funds (the "Contracts") are or will be registered
unless exempt and that it will maintain such registration under the 1933 Act and
the regulations thereunder to the extent required by the 1933 Act; that the
Contracts will be issued and sold in compliance with all applicable federal and
state laws and regulations. The Company further represents and warrants that it
is an insurance company duly organized and in good standing under applicable law
and that it has legally and validly established each Account prior to any
issuance or sale thereof as a segregated asset account under the Connecticut
Insurance Code and the regulations thereunder and has registered or, prior to
any issuance or sale of the Contracts, will register and will maintain the
registration
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of each Account as a unit investment trust in accordance with and to the extent
required by the provisions of the 1940 Act and the regulations thereunder,
unless exempt therefrom, to serve as a segregated investment account for the
Contracts. The Company shall amend its registration statement for its contracts
under the 1933 Act and the 1940 Act from time to time as required in order to
effect the continuous offering of its Contracts.
2.2. The Funds and the Underwriter represent and warrant that Fund
shares sold pursuant to this Agreement shall be registered under the 1933 Act
and the regulations thereunder to the extent required by the 1933 Act, duly
authorized for issuance in accordance with the laws of State and sold in
compliance with all applicable federal and state securities laws and regulations
and that each Fund is and shall remain registered under the 1940 Act and the
regulations thereunder to the extent required by the 1940 Act. Each Fund shall
amend the registration statement for its shares under the 1933 Act and the 1940
Act from time to time as required in order to effect the continuous offering of
its shares. Each Fund shall register and qualify the shares for sale in
accordance with the laws of the various states only if and to the extent deemed
advisable by the Fund.
2.3. Each Fund represents that it is currently qualified as a Regulated
Investment Company under Subchapter M of the Internal Revenue Code of 1986, as
amended (the "Code") and that each will make every effort to maintain such
qualification (under Subchapter M or any successor or similar provision) and
that each will notify the Company immediately upon having a reasonable basis for
believing that the Fund has ceased to so qualify or that the Fund might not so
qualify in the future.
2.4. The Company represents that each Account is and will continue to
be a "segregated account" under applicable provisions of the Code and that each
Contract is and will be treated as a "variable contract" under applicable
provisions of the Code and that it will make every effort to maintain such
treatment and that it will notify the Fund immediately upon having a reasonable
basis for believing that the Account or Contract has ceased to be so treated or
that they might not be so treated in the future.
2.5. Each Fund represents that to the extent that it decides to
finance distribution expenses pursuant to Rule 12b-1 under the 1940 Act, the
Fund undertakes to have a board of directors, a majority of whom are not
interested persons of the Fund, formulate and approve any plan under Rule 12b-1
to finance distribution expenses.
2.6. Each Fund makes no representation as to whether any aspect of its
operations (including, but not limited to, fees and expenses and investment
policies) complies with the insurance laws or regulations of the various states.
2.7. Each Fund represents that it is duly organized and validly
existing under the laws of the state of Maryland and that the Fund does and will
comply in all material respects with the 1940 Act.
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2.8. The Underwriter represents and warrants that it is and shall
remain duly registered under all applicable federal and state laws and
regulations and that it will perform its obligations for the Funds and the
Company in compliance with the laws and regulations of its state of domicile and
any applicable state and federal laws and regulations.
2.9. The Company represents and warrants that all of its officers,
employees, investment advisers, and other individuals/entities dealing with the
money and/or securities of the Funds are covered by a blanket fidelity bond or
similar coverage, in an amount equal to the greater of $5 million or any amount
required by applicable federal or state law or regulation. The aforesaid
includes coverage for larceny and embezzlement is issued by a reputable bonding
company.
ARTICLE III. PROSPECTUSES; REPORTS TO SHAREHOLDERS AND PROXY STATEMENTS; VOTING
3.1 Each Fund shall provide the Company with as many printed copies of
the Fund's current prospectus and statement of additional information as the
Company may reasonably request. If requested by the Company in lieu of providing
printed copies the Fund shall provide camera-ready film or computer diskettes
containing the Fund's prospectus and statement of additional information, and
such other assistance as is reasonably necessary in order for the Company once
each year (or more frequently if the prospectus and/or statement of additional
information for the Fund is amended during the year) to have the prospectus for
the Contracts and the Fund's prospectus printed together in one document or
separately. The Company may elect to print the Fund's prospectus and/or its
statement of additional information in combination with other fund companies'
prospectuses and statements of additional information.
3.2(a). Except as otherwise provided in this Section 3.2, all expenses of
preparing, setting in type and printing and distributing Fund prospectuses and
statements of additional information shall be the expense of the Company. For
prospectuses and statements of additional information provided by the Company to
its existing owners of Contracts in order to update disclosure as required by
the 1933 Act and/or the 1940 Act, the cost of setting in type, printing and
distributing shall be borne by the Fund. If the Company chooses to receive
camera-ready film or computer diskettes in lieu of receiving printed copies of
the Fund's prospectus and/or statement of additional information, the Fund shall
bear the cost of typesetting to provide the Fund's prospectus and/or statement
of additional information to the Company in the format in which the Fund is
accustomed to formatting prospectuses and statements of additional information,
respectively, and the Company shall bear the expense of adjusting or changing
the format to conform with any of its prospectuses and/or statements of
additional information. In such event, the Fund will reimburse the Company in an
amount equal to the product of x and y where x is the number of such
prospectuses distributed to owners of the Contracts, and y is the Fund's per
unit cost of printing the Fund's prospectuses. The same procedures shall be
followed with respect to the Fund's statement of additional information. The
Fund shall not pay any costs of typesetting, printing and distributing the
Fund's prospectus and/or statement of additional
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information to prospective Contract owners.
3.2(b). Each Fund, at its expense, shall provide the Company with copies
of its proxy statements, reports to shareholders, and other communications
(except for prospectuses and statements of additional information, which are
covered in Section 3.2(a) above) to shareholders in such quantity as the Company
shall reasonably require for distributing to Contract owners. The Fund shall
not pay any costs of distributing such proxy-related material, reports to
shareholders, and other communications to prospective Contract owners.
3.2(c). The Company agrees to provide each Fund or its designee with such
information as may be reasonably requested by the Fund to assure that the Fund's
expenses do not include the cost of typesetting, printing or distributing any of
the foregoing documents other than those actually distributed to existing
Contract owners.
3.2(d) Each Fund shall pay no fee or other compensation to the Company
under this Agreement, except that if the Fund adopts and implements a plan
pursuant to Rule 12b-1 to finance distribution expenses, then the Underwriter
may make payments to the Company or to the underwriter for the Contracts if and
in amounts agreed to by the Underwriter in writing.
3.2(e) All expenses, including expenses to be borne by each Fund pursuant
to Section 3.2 hereof, incident to performance by the Fund under this Agreement
shall be paid by the Fund. Each Fund shall see to it that all its shares are
registered and authorized for issuance in accordance with applicable federal law
and, if and to the extent deemed advisable by the Fund, in accordance with
applicable state laws prior to their sale. The Fund shall bear the expenses for
the cost of registration and qualification of the Fund's shares.
3.3. Each Fund's statement of additional information shall be
obtainable from the Fund, the Underwriter, the Company or such other person as
the Fund may designate.
3.4. If and to the extent required by law the Company shall distribute
all proxy material furnished by each Fund to Contract Owners to whom voting
privileges are required to be extended and shall:
(i) solicit voting instructions from Contract owners;
(ii) vote the Fund shares in accordance with instructions
received from Contract owners; and
(iii) vote Fund shares for which no instructions have been
received in the same proportion as Fund shares for which
instructions have been received, so long as and to the
extent that the Securities and Exchange Commission
continues to interpret the 1940 Act to require
pass-through voting privileges for variable contract
owners. The Company reserves the right to
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<PAGE>
vote Fund shares held in any segregated asset account in
its own right, to the extent permitted by law. The Fund
and the Company shall follow the procedures, and shall
have the corresponding responsibilities, for the handling
of proxy and voting instruction solicitations, as set
forth in Schedule C attached hereto and incorporated
herein by reference. Participating Insurance Companies
shall be responsible for ensuring that each of their
separate accounts participating in the Fund calculates
voting privileges in a manner consistent with the
standards set forth on Schedule C, which standards will
also be provided to the other Participating Insurance
Companies.
(iv) For unregistered separate accounts subject to the
Employee Retirement Income Security Act of 1974 ("ERISA")
to refrain from voting shares for which no instructions
are received if such shares are held in an unregistered
segregated asset account subject to ERISA.
3.5. Each Fund will comply with all provisions of the 1940 Act
requiring voting by shareholders, and in particular the Fund will either provide
for annual meetings (except insofar as the Securities and Exchange Commission
may interpret Section 16 not to require such meetings). Further, the Fund will
act in accordance with the Securities and Exchange Commission's interpretation
of the requirements of Section 16(a) with respect to periodic elections of
directors and with whatever rules the Commission may promulgate with respect
thereto.
ARTICLE IV. SALES MATERIAL AND INFORMATION
4.1. The Company shall furnish, or shall cause to be furnished, to the
Funds, the Underwriter or their designee, each piece of sales literature or
other promotional material prepared by the Company or any person contracting
with the Company in which the Funds or the Underwriter is described, at least
ten Business Days prior to its use. No such material shall be used if the Funds,
the Underwriter or their designee reasonably objects to such use within ten
Business Days after receipt of such material.
4.2. Neither the Company nor any person contracting with the Company
shall give any information or make any representations or statements on behalf
of the Funds or concerning the Funds in connection with the sale of the
Contracts other than the information or representations contained in the
registration statement or Fund prospectus, as such registration statement or
Fund prospectus may be amended or supplemented from time to time, or in reports
to shareholders or proxy statements for the Fund, or in sales literature or
other promotional material approved by the Fund or its designee, except with the
permission of the Fund or its designee.
4.3. Each Fund shall furnish, or shall cause to be furnished, to the
Company or its
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designee, each piece of sales literature or other promotional material prepared
by the Fund in which the Company or its Accounts, are described at least ten
Business Days prior to its use. No such material shall be used if the Company or
its designee reasonably objects to such use within ten Business Days after
receipt of such material.
4.4. Neither the Funds nor the Underwriter shall give any information
or make any representations on behalf of the Company or concerning the Company,
each Account, or the Contracts, other than the information or representations
contained in a registration statement or prospectus for the Contracts, as such
registration statement or prospectus may be amended or supplemented from time to
time, or in published reports or solicitations for voting instruction for each
Account which are in the public domain or approved by the Company for
distribution to Contract owners, or in sales literature or other promotional
material approved by the Company or its designee, except with the permission of
the Company.
4.5. Each Fund will provide to the Company, at the Company's request,
at least one complete copy of all registration statements, prospectuses,
statements of additional information, reports, proxy statements, sales
literature and other promotional materials, applications for exemptions,
requests for no-action letters, and all amendments to any of the above, that
relate to the Fund or its shares, contemporaneously with the filing of such
document with the Securities and Exchange Commission or other regulatory
authorities.
4.6. The Company will provide to each Fund, upon the Fund's request, at
least one complete copy of all registration statements, prospectuses, statements
of additional information, reports, solicitations for voting instructions, sales
literature and other promotional materials, applications for exemptions,
requests for no action letters, and all amendments to any of the above, that
relate to the investment in an Account or Contract, contemporaneously with the
filing of such document with the Securities and Exchange Commission or other
regulatory authorities.
4.7. For purposes of this Article IV, the phrase "sales literature or
other promotional material" includes, but is not limited to, any of the
following: advertisements (such as material published, or designed for use in, a
newspaper, magazine, or other periodical, radio, television, telephone or tape
recording, videotape display, signs or billboards, motion pictures, or other
public media), sales literature (i.e., any written communication distributed or
made generally available to customers or the public, including brochures,
circulars, research reports, market letters, form letters, seminar texts,
reprints or excerpts of any other advertisement, sales literature, or published
article), educational or training materials or other communications distributed
or made generally available to some or all agents or employees, and registration
statements, prospectuses, statements of additional information, shareholder
reports, and proxy materials.
ARTICLE V. [RESERVED]
ARTICLE VI. DIVERSIFICATION
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6.1. Each Fund represents and warrants that, at all times, each Fund
will comply with Section 817(h) of the Code and Treasury Regulation 1.817-5,
relating to the diversification requirements for variable annuity, endowment, or
life insurance contracts and any amendments or other modifications to such
Section or Regulations. In the event any Fund ceases to so qualify, it will take
all reasonable steps (a) to notify Company of such event and (b) to adequately
diversify the Fund so as to achieve compliance within the grace period afforded
by Regulation 817-5.
ARTICLE VII. POTENTIAL CONFLICTS
7.1. The Board will monitor the Funds for the existence of any material
irreconcilable conflict between the interests of the contract owners of all
separate accounts investing in the Fund. An irreconcilable material conflict may
arise for a variety of reasons, including: (a) an action by any state insurance
regulatory authority; (b) a change in applicable federal or state insurance,
tax, or securities laws or regulations, or a public ruling, private letter
ruling, no-action or interpretative letter, or any similar action by insurance,
tax, or securities regulatory authorities; (c) an administrative or judicial
decision in any relevant proceeding; (d) the manner in which the investments of
any Fund are being managed; (e) a difference in voting instructions given by
variable annuity contract owners and variable life insurance contract owners; or
(f) a decision by a Participating Insurance Company to disregard the voting
instructions of contract owners. The Board shall promptly inform the Company if
it determines that an irreconcilable material conflict exists and the
implications thereof.
7.2. The Company will report any potential or existing material
irreconcilable conflict of which it is aware to the Board. The Company will
assist the Board by providing the Board with all information reasonably
necessary for the Board to consider any issues raised. This includes, but is not
limited to, an obligation by the Company to inform the Board whenever contract
owner voting instructions are disregarded.
7.3. If it is determined by a majority of the Board, or a majority of
its disinterested trustees, that a material irreconcilable conflict exists, the
Company and other Participating Insurance Companies shall, at their expense and
to the extent reasonably practicable (as determined by a majority of the
disinterested trustees), take whatever steps are necessary to remedy or
eliminate the irreconcilable material conflict, up to and including: (1)
withdrawing the assets allocable to some or all of the separate accounts from
the Fund or any series of the Fund and reinvesting such assets in a different
investment medium, including (but not limited to) another series of the Fund, or
submitting the question whether such segregation should be implemented to a vote
of all affected Contract owners and, as appropriate, segregating the assets of
any appropriate group (i.e., annuity contract owners, life insurance policy
owners, or variable contract owners of one or more Participating Insurance
Companies) that votes in favor of such segregation, or offering to the affected
contract owners the option of making such a change; and (2) establishing a new
registered management investment company or managed separate account.
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No charge or penalty will be imposed as a result of such withdrawal. The Company
agrees that it bears the responsibility to take remedial action in the event of
a Board determination of an irreconcilable material conflict and the cost of
such remedial action, and these responsibilities will be carried out with a view
only to the interests of Contract owners.
7.4. If a material irreconcilable conflict arises because of a decision
by the Company to disregard contract owner voting instructions and that decision
represents a minority position or would preclude a majority vote, the Company
may be required, at the Fund's election, to withdraw the affected Account's
investment in the Fund and terminate this Agreement with respect to such Account
(at the Company's expense); provided, however that such withdrawal and
termination shall be limited to the extent required by the foregoing material
irreconcilable conflict as determined by a majority of the disinterested members
of the Board. No charge or penalty will be imposed as a result of such
withdrawal. The Company agrees that it bears the responsibility to take remedial
action in the event of a Board determination of an irreconcilable material
conflict and the cost of such remedial action, and these responsibilities will
be carried out with a view only to the interests of Contract owners.
7.5. For purposes of Sections 7.3 through 7.4 of this Agreement, a
majority of the disinterested members of the Board shall determine whether any
proposed action adequately remedies any irreconcilable material conflict, but in
no event will the Fund be required to establish a new funding medium for the
Contracts. The Company shall not be required by Section 7.3 through 7.4 to
establish a new funding medium for the Contracts if an offer to do so has been
declined by vote of a majority of Contract owners materially adversely affected
by the irreconcilable material conflict.
7.6. If and to the extent that Rule 6e-2 and Rule 6e-3(T) are amended,
or Rule 6e-3 is adopted, to provide exemptive relief from any provision of the
1940 Act or the rules promulgated thereunder with respect to mixed or shared
funding, then the Fund and/or the Participating Insurance Companies, as
appropriate, shall take such steps as may be necessary to comply with Rules 6e-2
and 6e-3(T), as amended, and Rule 6e-3, as adopted, to the extent such rules are
applicable.
7.7 The Company shall at least annually submit to the Board such
reports, materials or data as the Board may reasonably request so that the Board
may fully carry out the obligations with respect to mixed and shared funding.
All reports received by the Board of potential or existing conflicts, and all
Board action with regard to determining the existence of a conflict, notifying
Participating Insurance Companies of a conflict, and determining whether any
proposed action adequately remedies a conflict, shall be properly recorded in
the minutes of the Board or other appropriate records, and such minutes or other
records shall be made available to the Securities and Exchange Commission upon
request.
ARTICLE VIII. INDEMNIFICATION
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8.1. INDEMNIFICATION BY THE COMPANY
8.1(a). The Company agrees to indemnify and hold harmless the Funds, the
Underwriter and each member of their respective Board and officers and each
person, if any, who controls the Fund within the meaning of Section 15 of the
1933 Act (collectively, the "Indemnified Parties" for purposes of this Section
8.1) against any and all losses, claims, damages, liabilities (including amounts
paid in settlement with the written consent of the Company) or litigation
(including legal and other expenses), to which the Indemnified Parties may
become subject under any statute, regulation, at common law or otherwise,
insofar as such losses, claims, damages, liabilities or expenses (or actions in
respect thereof) or settlements are related to the sale or acquisition of the
Fund's shares or the Contracts and:
(i) arise out of or are based upon any untrue statements or
alleged untrue statements of any material fact contained
in the registration statement or prospectus for the
Contracts or contained in the Contracts or sales
literature for the Contracts (or any amendment or
supplement to any of the foregoing), or arise out of or
are based upon the omission or the alleged omission to
state therein a material fact required to be stated
therein or necessary to make the statements therein not
misleading, provided that this agreement to indemnify
shall not apply as to any Indemnified Party if such
statement or omission or such alleged statement or
omission was made in reliance upon and in conformity with
information furnished to the Company by or on behalf of
the Funds for use in the registration statement or
prospectus for the Contracts or in the Contracts or sales
literature (or any amendment or supplement) or otherwise
for use in connection with the sale of the Contracts or
Fund shares; or
(ii) arise out of or as a result of statements or
representations (other than statements or representations
contained in the registration statement, prospectus or
sales literature of the Funds not supplied by the
Company, or persons under its control and other than
statements or representations authorized by the Funds or
the Underwriter) or unlawful conduct of the Company or
persons under its control, with respect to the sale or
distribution of the Contracts or Fund shares; or
(iii) arise out of or as a result of any untrue statement or
alleged untrue statement of a material fact contained in
a registration statement, prospectus, or sales literature
of the Funds or any amendment thereof or supplement
thereto or the omission or alleged omission to state
therein a material fact required to be stated therein or
necessary to make the statements therein not misleading
if such a statement or omission was made in reliance upon
and in conformity with information furnished to the Funds
by or on behalf of the Company; or
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(iv) arise as a result of any failure by the Company to
provide the services and furnish the materials under the
terms of this Agreement; or
(v) arise out of or result from any material breach of any
representation and/or warranty made by the Company in
this Agreement or arise out of or result from any other
material breach of this Agreement by the Company.
8.1(b). The Company shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or litigation
incurred or assessed against an Indemnified Party as such may arise from such
Indemnified Party's willful misfeasance, bad faith, or gross negligence in the
performance of such Indemnified Party's duties or by reason of such Indemnified
Party's reckless disregard of obligations or duties under this Agreement.
8.1(c). The Company shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified the Company in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify the Company of any
such claim shall not relieve the Company from any liability which it may have to
the Indemnified Party against whom such action is brought otherwise than on
account of this indemnification provision. In case any such action is brought
against the Indemnified Parties, the Company shall be entitled to participate,
at as own expense, in the defense of such action. The Company also shall be
entitled to assume the defense thereof, with counsel satisfactory to the party
named in the action. After notice from the Company to such party of the
Company's election to assume the defense thereof, the Indemnified Party shall
bear the fees and expenses under this Agreement for any legal or other expenses
subsequently incurred by such Party independently in connection with the defense
thereof other than reasonable costs of investigation.
8.1(d). The Indemnified Parties will promptly notify the Company of the
commencement of any litigation or proceedings against them in connection with
the issuance or sale of Fund shares or the Contracts or the operation of the
Funds.
8.2. INDEMNIFICATION BY UNDERWRITER
8.2(a). The Underwriter agrees, with respect to each Fund that it
distributes, to indemnify and hold harmless the Company and each of its
directors and officers and each person, if any, who controls the Company within
the meaning of Section 15 of the 1933 Act (collectively, the "Indemnified
Parties" for purposes of this Section 8.2) against any and all losses, claims,
damages, liabilities (including amounts paid in settlement with the written
consent of the Underwriter) or litigation (including legal and other expenses)
to which the Indemnified Parties may become subject under any statute, at common
law or otherwise, insofar as such losses,
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<PAGE>
claims, damages, liabilities or expenses (or actions in respect thereof) or
settlements are related to the sale or acquisition of shares of the Fund that it
distributes or the Contracts and:
(i) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained
in the registration statement or prospectus or sales
literature of the Funds (or any amendment or supplement
to any of the foregoing), or arise out of or are based
upon the omission or the alleged omission to state
therein a material fact required to be stated therein or
necessary to make the statements therein not misleading,
provided that this agreement to indemnify shall not apply
as to any Indemnified Party if such statement or omission
or such alleged statement or omission was made in
reliance upon and in conformity with information
furnished to the Funds or the Underwriter by or on behalf
of the Company for use in the registration statement or
prospectus for the Fund or in sales literature (or any
amendment or supplement) or otherwise for use in
connection with the sale of the Contracts or Fund shares;
or
(ii) arise out of or as a result of statements or
representations (other than statements or representations
contained in the registration statement, prospectus or
sales literature for the Contracts not supplied by the
Fund, the Underwriter or persons under their respective
control and other than statements or representations
authorized by the Company) or unlawful conduct of the
Fund or Underwriter or persons under their control, with
respect to the sale or distribution of the Contracts or
Fund shares; or
(iii) arise out of or as a result of any untrue statement or
alleged untrue statement of a material fact contained in
a registration statement, prospectus, or sales literature
covering the Contracts, or any amendment thereof or
supplement thereto, or the omission or alleged omission
to state therein a material fact required to be stated
therein or necessary to make the statement or statements
therein not misleading, if such statement or omission was
made in reliance upon information furnished to the
Company by or on behalf of the Funds or the Underwriter;
or
(iv) arise as a result of any failure by the Funds or the
Underwriter to provide the services and furnish the
materials under the terms of this Agreement; or
(v) arise out of or result from any material breach of any
representation and/or warranty made by the Underwriter in
this Agreement or arise out of or result from any other
material breach of this Agreement by the Underwriter; as
limited by and in accordance with the provisions of
Section 8.2(b) and 8.2(c) hereof.
16
<PAGE>
8.2(b). The Underwriter shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or litigation
incurred or assessed against an Indemnified Party as such may arise from such
Indemnified Party's willful misfeasance, bad faith, or gross negligence in the
performance of such Indemnified Party's duties or by reason of such Indemnified
Party's reckless disregard of obligations and duties under this Agreement.
8.2(c). The Underwriter shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified the Underwriter in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify the Underwriter of
any such claim shall not relieve the Underwriter from any liability which it may
have to the Indemnified Party against whom such action is brought otherwise than
on account of this indemnification provision. In case any such action is brought
against the Indemnified Parties, the Underwriter will be entitled to
participate, at its own expense, in the defense thereof. The Underwriter also
shall be entitled to assume the defense thereof, with counsel satisfactory to
the party named in the action. After notice from the Underwriter to such party
of the Underwriter's election to assume the defense thereof, the Indemnified
Party shall bear the fees and expenses of any additional counsel retained by it,
and the Underwriter will not be liable to such party under this Agreement for
any legal or other expenses subsequently incurred by such party independently in
connection with the defense thereof other than reasonable costs of
investigation.
8.2(d). The Company agrees promptly to notify the Underwriter of the
commencement of any litigation or proceedings against it or any of its officers
or directors in connection with the issuance or sale of the Contracts or the
operation of each Account in which the Funds are made available.
ARTICLE IX. APPLICABLE LAW
9.1. This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the State of Connecticut.
9.2. This Agreement shall be subject to the provisions of the 1933,
1934 and 1940 Acts, and the rules and regulations and rulings thereunder,
including such exemptions from those statutes, rules and regulations as the
Securities and Exchange Commission may grant and the terms hereof shall be
interpreted and construed in accordance therewith.
ARTICLE X. TERMINATION
10.1. This Agreement shall continue in full force and effect until the
first to occur of:
17
<PAGE>
(a) termination by any party for any reason upon six-months advance
written notice delivered to the other parties; or
(b) termination by the Company by written notice to the Funds and the
Underwriter with respect to any portfolio based upon the Company's
determination that shares of such portfolio are not reasonably
available to meet the requirements of the Contracts. Reasonable
advance notice of election to terminate shall be furnished by the
Company, said termination to be effective ten (10) days after
receipt of notice unless the Fund makes available a sufficient
number of shares to reasonably meet the requirements of the
Account within said ten (10) day period; or
(c) termination by the Company upon written notice to the Fund and the
Underwriter with respect to any Fund in the event any of the
Fund's shares are not registered, issued or sold in accordance
with applicable state and/or federal law or such law precludes the
use of such shares as the underlying investment medium of the
Contracts issued or to be issued by the Company. The terminating
party shall give prompt notice to the other parties of its
decision to terminate; or
(d) termination by the Company upon written notice to the Funds and
the Underwriter with respect to any portfolio in the event that
such portfolio ceases to qualify as a Regulated Investment Company
under Subchapter M of the Code or under any successor or similar
provision; or
(e) termination by the Company upon written notice to the Fund and the
Underwriter with respect to any portfolio in the event that such
portfolio fails to meet the diversification requirements specified
in Article VI hereof; or
(f) termination by either the Fund or the Underwriter by written
notice to the Company, if either one or more of the Funds or the
Underwriter, shall determine, in its or their sole judgment
exercised in good faith, that the Company and/or their affiliated
companies has suffered a material adverse change in its business,
operations, financial condition or prospects since the date of
this Agreement or is the subject of material adverse publicity,
provided that the Funds or the Underwriter will give the Company
sixty (60) days' advance written notice of such determination of
as intent to terminate this Agreement, and provided further that
after consideration of the actions taken by the Company and any
other changes in circumstances since the giving of such notice,
the determination of the Funds or the Underwriter shall continue
to apply on the 60th day since giving of such
18
<PAGE>
notice, then such 60th day shall be the effective date of
termination; or
(g) termination by the Company by written notice to the Funds and the
Underwriter, if the Company shall determine, in its sole judgment
exercised in good faith, that either the Funds or the Underwriter
has suffered a material adverse change in its business,
operations, financial condition or prospects since the date of
this Agreement or is the subject of material adverse publicity,
provided that the Company will give the Funds and the Underwriter
sixty (60) days' advance written notice of such determination of
its intent to terminate this Agreement, and provided further that
after consideration of the actions taken by the Funds or the
Underwriter and any other changes in circumstances since the
giving of such notice, the determination of the Company shall
continue to apply on the 60th day since giving of such notice,
then such 60th day shall be the effective date of termination; or
(i) termination by any party upon the other party's breach of any
representation in Section 2 or any material provision of this
Agreement, which breach has not been cured to the satisfaction of
the terminating party within ten (10) days after written notice of
such breach is delivered to the Funds or the Company, as the case
may be; or
(j) termination by the Funds or Underwriter by written notice to the
Company in the event an Account or Contract is not registered
(unless exempt from registration) or sold in accordance with
applicable federal or state law or regulation, or the Company
fails to provide pass-through voting privileges as specified in
Section 3.4.
10.2. EFFECT OF TERMINATION. Notwithstanding any termination of this
Agreement, each Fund shall at the option of the Company, continue to make
available additional shares of the Fund pursuant to the terms and conditions of
this Agreement, for all Contracts in effect on the effective date of termination
of this Agreement (hereinafter referred to as "Existing Contracts") unless such
further sale of Fund shares is proscribed by law, regulation or applicable
regulatory body, or unless the Fund determine that liquidation of the Fund
following termination of this Agreement is in the best interests of the Fund and
its shareholders. Specifically, without limitation, the owners of the Existing
Contracts shall be permitted to direct reallocation of investments in the Fund,
redemption of investments in the Fund and/or investment in the Fund upon the
making of additional purchase payments under the Existing Contracts. The parties
agree that this Section 10.2 shall not apply to any terminations under Article
VII and the effect of such Article Vii terminations shall be governed by Article
VII of this Agreement.
10.3. The Company shall not redeem Fund shares attributable to the
Contracts (as distinct from Fund shares attributable to the Company's assets
held in the Account) except (i) as
19
<PAGE>
necessary to implement Contract Owner initiated or approved transactions, or
(ii) as required by state and/or federal laws or regulations or judicial or
other legal precedent of general application (hereinafter referred to as a
"Legally Required Redemption") or (iii) as permitted by an order of the SEC
pursuant to Section 26(b) of the 1940 Act. Upon request, the Company will
promptly furnish to the Funds and the Underwriter the opinion of counsel for the
Company (which counsel shall be reasonably satisfactory to the Funds and the
Underwriter) to the effect that any redemption pursuant to clause (ii) above is
a Legally Required Redemption. Furthermore, except in cases where permitted
under the terms of the Contracts, the Company shall not prevent Contract Owners
from allocating payments to a Fund that was otherwise available under the
Contracts without first giving the Fund 30 days notice of its intention to do
so.
ARTICLE XI. NOTICES
Any notice shall be sufficiently given when sent by registered or certified
mail to the other party at the address of such party set forth below or at such
other address as such party may from time to time specify in writing to the
other party.
If to any of the Funds:
The Hartford Investment Management Company
55 Farmington Avenue
Hartford, CT 06105
Attn: Joseph H. Gareau, President
If to the Underwriter:
Hartford Securities Distribution Company, Inc.
200 Hopmeadow Street
Simsbury, CT 06070
Attn: Peter W. Cummins, Senior Vice President
If to the Company: With a copy to:
Royal Life Insurance Company Royal Life Insurance Company
of America of America
200 Hopmeadow Street 200 Hopmeadow Street
Simsbury, Connecticut 06070 Simsbury, Connecticut 06070
Attn: Thomas Marra Attn: Lynda Godkin, General Counsel
ARTICLE XII. FOREIGN TAX CREDITS
20
<PAGE>
12.1. The Funds agree to consult in advance with the Company concerning
whether any series of the Funds qualifies to provide a foreign tax credit
pursuant to Section 853 of the Code.
ARTICLE XIII. MISCELLANEOUS
13.1. All persons dealing with the Funds must look solely to the
property of the Funds for the enforcement of any claims against the Funds as
neither the Board, officers, agents or shareholders assume any personal
liability for obligations entered into on behalf of the Funds.
13.2. Subject to the requirements of legal process and regulatory
authority, each party hereto shall treat as confidential the names and addresses
of the owners of the Contracts and all information reasonably identified as
confidential in writing by any other party hereto and, except as permitted by
this Agreement, shall not disclose, disseminate or utilize such names and
addresses and other confidential information until such time as it may come into
the public domain without the express written consent of the affected party.
13.3. The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof or
otherwise affect their construction or effect.
13.4. This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
13.5. If any provision of this Agreement shall be held or made invalid by a
court decision, statute, rule or otherwise, the remainder of this Agreement
shall not be affected thereby.
13.6. Each party hereto shall cooperate with each other party and all
appropriate governmental authorities (including without limitation the
Securities and Exchange Commission, the National Association of Securities
Dealers and state insurance regulators) and shall permit such authorities (and
other parties hereto) reasonable access to its books and records in connection
with any investigation or inquiry relating to this Agreement or the transactions
contemplated hereby.
13.7. The rights, remedies and obligations contained in this Agreement
are cumulative and are in addition to any and all rights, remedies and
obligations at law or in equity, which the parties hereto are entitled to under
state and federal laws.
13.8. This Agreement or any of the rights and obligations hereunder may
not be assigned by any party without the prior written consent of all parties
hereto.
21
<PAGE>
13.9. The Company shall furnish, or shall cause to be furnished, to each
of the Funds or their designee upon request, copies of the following reports:
(a) the Company's annual statement (prepared under statutory
accounting principles) and annual report (prepared under
generally accepted accounting principles ("GAAP"), if
any), as soon as practical and in any event within 90
days after the end of each fiscal year;
(b) the Company's June 30th quarterly statements (statutory),
as soon as practical and in any event within 45 days
following such period;
(c) any financial statement, proxy statement, notice or
report of the Company sent to stockholders and/or
policyholders, as soon as practical after the delivery
thereof to stockholders;
(d) any registration statement (without exhibits) and
financial reports of the Company filed with the
Securities and Exchange Commission or any state insurance
regulator, as soon as practical after the filing thereof;
(e) any other public report submitted to the Company by
independent accountants in connection with any annual,
interim or special audit made by them of the books of the
Company, as soon as practical after the receipt thereof.
22
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be executed in as name and on its behalf by its duly authorized representative
as of the date specified above.
ROYAL LIFE INSURANCE COMPANY OF AMERICA
on behalf of Itself and each of its Accounts named in
Schedule A hereto, as amended from time to time
By: /s/ Craig R. Raymond
----------------------------------------------
Craig R. Raymond
Its Senior Vice President & Chief Actuary
HARTFORD BOND HLS FUND, INC*.
HARTFORD INDEX HLS FUND, INC.*
HARTFORD MONEY MARKET HLS FUND, INC.*
HARTFORD MORTGAGE SECURITIES HLS FUND, INC.*
HARTFORD SERIES FUND, INC.*
*By: /s/ Joseph H. Gareau
----------------------------------------------
Joseph H. Gareau
President of each Fund
HARTFORD SECURITIES DISTRIBUTION COMPANY, INC.
By: /s/ George R. Jay
----------------------------------------------
George R. Jay
Its Controller
23
<PAGE>
SCHEDULE A
SEPARATE ACCOUNTS AND CONTRACTS
- --------------------------------------------------------------------------------
Name of Separate Account and Date Established by Form Numbers
Board of Directors Funded by Separate Account
- --------------------------------------------------------------------------------
Separate Account One VA-ROYAL SAMPLE
- --------------------------------------------------------------------------------
Separate Account Two VL-ROYAL SAMPLE
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
24
<PAGE>
SCHEDULE B
PARTICIPATING FUND SHARES
CLASS IA SHARES OF HARTFORD BOND HLS FUND, INC.
CLASS IA SHARES OF HARTFORD INDEX HLS FUND, INC.
CLASS IA SHARES OF HARTFORD MONEY MARKET HLS FUND, INC.
CLASS IA SHARES OF HARTFORD MORTGAGE SECURITIES HLS FUND, INC.
CLASS IA SHARES OF HARTFORD HIGH YIELD HLS FUND OF HARTFORD SERIES FUND, INC.
25
<PAGE>
SCHEDULE C
PROXY VOTING PROCEDURES
The following is a list of procedures and corresponding responsibilities for the
handling of proxies and voting instructions relating to a Fund. The defined
terms herein shall have the meanings assigned in the Participation Agreement
except that the term "Company" shall also include the department or third party
assigned by the Company to perform the steps delineated below.
1. The proxy proposals are given to the Company by the Fund as early as
possible before the date set by the Fund for the shareholder meeting to
enable the Company to consider and prepare for the solicitation of voting
instructions from owners of the Contracts and to facilitate the
establishment of tabulation procedures. At this time the Fund will inform
the Company of the Record, Mailing and Meeting dates. This will be done
verbally approximately two months before meeting.
2. Promptly after the Record Date, the Company will perform a "tape run," or
other activity, which will generate the names, address and number of units
which are attributed to each contract owner/policyholder (the "Customer")
as of the Record Date. Allowance should be made for account adjustments
made after this date that could affect the status of the Customers'
accounts as of the Record Date.
Note: The number of proxy statements is determined by the activities
described in Step #2. The Company will use its best efforts to call in the
number of Customers to the Fund, as soon as possible, but no later than two
weeks after the Record Date.
3. The Fund's Annual Report must be sent to each Customer by the Company
either before or together with the Customers' receipt of voting instruction
solicitation material. The Fund will provide the last Annual Report to the
Company pursuant to the terms of Section 3.3 of the Agreement to which this
Schedule relates.
4. The text and format for the Voting Instruction Cards ("Cards" or "Card") is
provided to the Company by the Fund. The Company, at its expense, shall
produce and personalize the Voting Instruction Cards. The Fund or its
affiliate must approve the Card before it is printed. Allow approximately
2-4 business days for printing information on the Cards. Information
commonly found on the Cards includes:
a. name (legal name as found on account registration)
b. address
c. fund or account number
d. coding to state number of units (or equivalent shares)
e. individual Card number for use in tracking and verification of votes
(already on
26
<PAGE>
Cards as printed by the Fund).
5. During this time, the Fund will develop, produce, and the Fund will
pay for the Notice of Proxy and the Proxy Statement (one document).
Printed and folded notices and statements will be sent to Company for
insertion into envelopes (envelopes and return envelopes are provided
and paid for by the Company). Contents of envelope sent to Customers
by the Company will include:
a. Voting Instruction Card(s)
b. One proxy notice and statement (one document)
c. return envelope (postage pre-paid by Company) addressed to the Company
or its tabulation agent
d. "urge buck slip"- optional, but recommended. (This is a small, single
sheet of paper that requests Customers to vote as quickly as possible
and that their vote is important. One copy will be supplied by the
Fund.)
e. cover letter - optional, supplied by Company and reviewed and approved
in advance by the Fund.
6. The above contents should be received by the Company approximately 3-5
business days before mail date. Individual in charge at Company reviews and
approves the contents of the mailing package to ensure correctness and
completeness. Copy of this approval sent to the Fund.
7. Package mailed by the Company at the Fund's expense.
*The Fund must allow at least a 15-day solicitation time to the Company as
the shareowner. (A 5-week period is recommended.) Solicitation time is
calculated as calendar days from (but not including,) the meeting, counting
backwards.
8. Collection and tabulation of Cards begins. Tabulation usually takes place
in another department or another vendor depending on process used. An often
used procedure is to sort Cards on arrival by proposal into vote categories
of all yes, no, or mixed replies, and to begin data entry.
Note: Postmarks are not generally needed. A need for postmark information
would be due to an insurance company's internal procedure and has not been
required by the Fund in the past.
9. Signatures on Card checked against legal name on account registration which
was printed on the Card.
Note: For example, if the account registration is under "John A. Smith,
Trustee," then that is the exact legal name to be printed on the Card and
is the signature needed on the Card.
27
<PAGE>
10. If Cards are mutilated, or for any reason are illegible or are not signed
properly, they are sent back to Customer with an explanatory letter and a
new Card and return envelope. The mutilated or illegible Card is
disregarded and considered to be not received for purposes of vote
tabulation. Any Cards that have been "kicked out" (e.g., mutilated,
illegible) of the procedure are "hand verified," (i.e., examined as to why
they did not complete the system). Any questions on those Cards are usually
remedied individually.
11. There are various control procedures used to ensure proper tabulation of
votes and accuracy of that tabulation. The most prevalent is to sort the
Cards as they first arrive into categories depending upon their vote; an
estimate of how the vote is progressing may then be calculated. If the
initial estimates and the actual vote do not coincide, then an internal
audit of that vote should occur. This may entail a recount.
12. The actual tabulation of votes is done in units (or equivalent shares)
which is then converted to shares. (It is very important that the fund
receives the tabulations stated in terms of a percentage and the number of
shares.) The Fund must review and approve tabulation format.
13. Final tabulation in shares is verbally given by the Company to the Fund on
the morning of the meeting not later then 10:00 A.M. Eastern time. The Fund
may request an earlier deadline if reasonable and if required to calculate
the vote in time for the meeting.
14. A Certification of Mailing and Authorization to Vote Shares will be
required from the Company as well as an original copy of the final vote.
The Fund will provide a standard form for each Certification.
15. The Company will be required to box and archive the Cards received from the
Customers. In the event that any vote is challenged or if otherwise
necessary for legal, regulatory, or accounting purposes, the Fund will be
permitted reasonable access to such Cards.
16. All approvals and "signing-off" may be done orally, but must always be
followed up in writing.
28
<PAGE>
Exhibit 9
February 5, 1999 LYNDA GODKIN
Senior Vice President, General
Counsel Corporate Secretary
Board of Directors
Royal Life Insurance Company of America
200 Hopmeadow Street
Simsbury, CT 06089
RE: SEPARATE ACCOUNT ONE ("Separate Account")
ROYAL LIFE INSURANCE COMPANY OF AMERICA ("Company")
Dear Sir/Madam:
In my capacity as General Counsel of the Company, I have supervised the
establishment of the Separate Account by the Board of Directors of the Company
as a separate account for assets applicable to Contracts offered by the Company
pursuant to Connecticut Law. I have participated in the preparation of the
registration statement for the Separate Account on Form N-4 under the Securities
Act of 1933 and the Investment Company Act of 1940 with respect to the
Contracts.
I am of the following opinion:
1. The Separate Account is a duly authorized and existing separate account
established pursuant to the provisions of Section 38a-433 of the
Connecticut Statutes.
2. To the extent so provided under the Contracts, that portion of the assets
of the Separate Account equal to the reserves and other contract
liabilities with respect to the Separate Account will not be chargeable
with liabilities arising out of any other business that the Company may
conduct.
3. The Contracts, when issued as contemplated by the Form N-4 Registration
Statement, will constitute legal, validly issued and binding obligations of
the Company.
I hereby consent to the filing of this opinion as an exhibit to the Form N-4
registration statement for the Contracts and the Separate Account.
Sincerely,
/s/ Lynda Godkin
Lynda Godkin
<PAGE>
Exhibit 10
PRICEWATERHOUSECOOPERS LLP
CONSENT OF INDEPENDENT AUDITOR
We agree to the inclusion in this registration statement of Form N-4 (File
No. 333-65187) of our report, dated February 6, 1998, on our audit of the
statutory basis financial statements of Royal Life Insurance Company of
America and Subidiaries as of and for the year ended December 31, 1997. We
also consent to the reference to us under the heading "Legal Matters and
Experts" in this registration statement.
/s/ PricewaterhouseCoopers LLP
Detroit, Michigan
February 5, 1999
<PAGE>
Exhibit 15
ROYAL LIFE INSURANCE COMPANY OF AMERICA
POWER OF ATTORNEY
Gregory A. Boyko
John P. Ginnetti
Lynda Godkin
Thomas M. Marra
Lowndes A. Smith
Raymond P. Welnicki
Lizabeth H. Zlatkus
do hereby jointly and severally authorize Lynda Godkin, Marianne O'Doherty, and
Thomas S. Clark to sign as their agent, any Registration Statement,
pre-effective amendment, post-effective amendment and any application for
exemptive relief of the Royal Life Insurance Company of America under the
Securities Act of 1933 and/or the Investment Company Act of 1940.
/s/ Gregory A. Boyko Dated as of September 15, 1998
- -----------------------------------
Gregory A. Boyko
/s/ John P. Ginnnetti Dated as of September 15, 1998
- -----------------------------------
John P. Ginnnetti
/s/ Lynda Godkin Dated as of September 15, 1998
- -----------------------------------
Lynda Godkin
/s/ Thomas M. Marra Dated as of September 15, 1998
- -----------------------------------
Thomas M. Marra
/s/ Lowndes A. Smith Dated as of September 15, 1998
- -----------------------------------
Lowndes A. Smith
/s/ Raymond P. Welnicki Dated as of September 15, 1998
- -----------------------------------
Raymond P. Welnicki
/s/ Lizabeth H. Zlatkus Dated as of September 15, 1998
- -----------------------------------
Lizabeth H. Zlatkus
<PAGE>
Exhibit 16
<TABLE>
<CAPTION>
<S> <C>
THE HARTFORD
The Hartford Financial Services Group, Inc.
(Delaware)
|
- -------------------------------------------------------------------------------------------------------------
Nutmeg Insurance Company The Hartford Investment
(Connecticut) Management Company
| (Delaware)
Hartford Fire Insurance Company |
(Connecticut) Hartford Investment
| Services, Inc.
Hartford Accident and Indemnity Company (Connecticut)
(Connecticut)
|
Hartford Life, Inc.
(Delaware)
|
Hartford Life and Accident Insurance Company
(Connecticut)
|
|
|
- -------------------------------------------------------------------------------------------------------------
Alpine Life Hartford Financial Hartford Life American Maturity ITT Hartford Canada
Insurance Services Life Insurance Company Life Insurance Holdings, Inc.
Company Insurance Co. (Connecticut) Company (Canada)
(New Jersey) (Connecticut) | (Connecticut) |
| | |
| AML Financial, Inc. |
| (Connecticut) Hartford Life
| Insurance Company
| of Canada
| (Canada)
|
|
- -------------------------------------------------------------------------------------------------------------
Hartford Life and Annuity ITT Hartford International Hartford Financial Services Royal Life
Insurance Company Life Reassurance Corporation Corporation Insurance
(Connecticut) (Connecticut) (Delaware) Company of
| | America
| | (Connecticut)
| |
ITT Hartford Life, Ltd. |
(Bermuda) |
|
|
- -------------------------------------------------------------------------------------------------------------
MS Fund HL Funding HL Investment Hartford Hartford Securities Hartford-Comp. Emp.
America Company, Inc. Advisors, Inc. Equity Sales Distribution Benefit Service
1993-K, Inc. (Connecticut) (Connecticut) Company, Inc. Company, Inc. Company
(Delaware) | (Connecticut) (Connecticut) (Connecticut)
|
Hartford Investment
Financial Services
Company
(Delaware)
</TABLE>
