<PAGE>
Hartford Mutual Funds
PROSPECTUS -- JANUARY 22, 1998
CLASS IB SHARES
This Prospectus describes a choice of eight mutual funds (each a "Fund" and
together the "Funds") managed by HL Investment Advisors, Inc. which serve as the
underlying investment vehicles for certain variable annuity and variable life
insurance separate accounts of Hartford Life Insurance Company and Hartford Life
and Annuity Insurance Company (collectively, the "The Hartford Life Insurance
Companies"). Each Fund offers two classes of shares: Class IA shares offered
pursuant to another prospectus and Class IB shares offered hereby. The Funds,
which have different investment objectives and policies, are described below.
STOCK FUNDS
<TABLE>
<CAPTION>
FUND NAME GOAL INVESTMENT STYLE
--------------------------- ------------------------------ ------------------------------------------------------------
<S> <C> <C>
Capital Appreciation Growth of capital Equity: Invests in small, medium, and large companies;
portfolio is comprised primarily of a blend of growth and
value stocks and is broadly diversified across industries.
Dividend and Growth High level of income, growth Equity: Invests primarily in large, well-known U.S.
of capital companies that have historically paid above average
dividends and have the ability to sustain and potentially
increase dividends; portfolio is broadly diversified across
industries.
International Opportunities Growth of capital International Equity: Invests primarily in large,
high-quality non-U.S. companies in established markets, and
on a limited basis, in smaller companies and emerging
markets; portfolio is broadly diversified across industries
and countries.
Small Company Growth of capital Equity: Invests primarily in stocks of companies with market
capitalizations in the range represented by the Russell 2000
Index; portfolio is broadly diversified across industries.
Stock Growth of capital, income is Equity: Invests primarily in large, high quality U.S.
secondary companies; portfolio is broadly diversified across
industries which are expected to grow faster than the
overall economy.
</TABLE>
ASSET ALLOCATION FUND
<TABLE>
<CAPTION>
FUND NAME GOAL INVESTMENT STYLE
--------------------------- ------------------------------ ------------------------------------------------------------
<S> <C> <C>
Advisers Long-term total return Asset Allocation: Invests in a mix of stocks, bonds and
money market instruments; portfolio assets are allocated
gradually among the asset classes based upon the portfolio
manager's view of the economy and valuation of the market
sectors; short term market timing is not used.
</TABLE>
BOND FUND
<TABLE>
<CAPTION>
FUND NAME GOAL INVESTMENT STYLE
--------------------------- ------------------------------ ------------------------------------------------------------
<S> <C> <C>
Bond High level of income, total Bond: Invests primarily in investment grade bonds; up to 20%
return may be invested in the highest quality tier of the high
yield rating category.
</TABLE>
MONEY MARKET FUND
<TABLE>
<CAPTION>
FUND NAME GOAL INVESTMENT STYLE
--------------------------- ------------------------------ ------------------------------------------------------------
<S> <C> <C>
Money Market Maximum current income Money Market: Invests in short-term money market
consistent with preservation instruments.
of capital
</TABLE>
<PAGE>
AN INVESTMENT IN THE MONEY MARKET FUND IS NEITHER INSURED NOR GUARANTEED BY THE
U.S. GOVERNMENT. WHILE THE MONEY MARKET FUND SEEKS TO MAINTAIN A STABLE NET
ASSET VALUE OF $1.00 PER SHARE, THERE CAN BE NO ASSURANCE THAT THE MONEY MARKET
FUND WILL ACHIEVE THIS GOAL.
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THIS PROSPECTUS SETS FORTH CONCISELY THE INFORMATION ABOUT A FUND THAT A
PROSPECTIVE INVESTOR SHOULD KNOW BEFORE INVESTING. PLEASE READ AND RETAIN THIS
PROSPECTUS FOR FUTURE REFERENCE. ADDITIONAL INFORMATION ABOUT THE FUNDS HAS BEEN
FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ("SEC") IN A STATEMENT OF
ADDITIONAL INFORMATION DATED JANUARY 22, 1998 ("SAI"), WHICH HAS BEEN
INCORPORATED BY REFERENCE INTO THIS PROSPECTUS. TO OBTAIN A COPY WITHOUT CHARGE
CALL 1-800-862-6668 OR WRITE TO "HARTFORD FAMILY OF FUNDS, C/O INDIVIDUAL
ANNUITY OPERATIONS," P.O. BOX 2999, HARTFORD, CT 06104-2999.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS, OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS, IN CONNECTION WITH THE OFFER CONTAINED IN THIS PROSPECTUS AND, IF
GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON
AS HAVING BEEN AUTHORIZED BY THE FUNDS. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFER BY THE FUNDS TO SELL OR A SOLICITATION OF ANY OFFER TO BUY ANY OF THE
SECURITIES OFFERED HEREBY IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS
UNLAWFUL FOR THE FUNDS TO MAKE SUCH OFFER.
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<PAGE>
2 HARTFORD MUTUAL FUNDS
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Introduction to the Hartford Mutual Funds............................. 3
Investment Objectives and Styles of the Funds......................... 3
Common Investment Policies and Risk Factors........................... 6
Management of the Funds............................................... 12
Administrative Services for the Funds................................. 14
Expenses of the Funds................................................. 14
Performance Related Information....................................... 14
Dividends............................................................. 15
Determination of Net Asset Value...................................... 15
Purchase of Fund Shares............................................... 15
Sale and Redemption of Shares......................................... 15
Federal Income Taxes.................................................. 16
Ownership and Capitalization of the Funds............................. 16
General Information................................................... 17
Appendix A: Description of Securities Ratings......................... 18
Appendix B: Credit Quality Distribution............................... 20
</TABLE>
There is the possibility that an individual Fund may be held liable for a
misstatement, inaccuracy or incomplete disclosure in this Prospectus concerning
the other Fund(s).
Additional information about the performance of each Fund, including
Management's Discussion and Analysis of Results, is contained in the Funds'
annual and semi-annual reports to shareholders, which may be obtained without
charge by calling 1-800-862-6668.
<PAGE>
HARTFORD MUTUAL FUNDS 3
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INTRODUCTION TO THE
HARTFORD MUTUAL FUNDS
The Funds are made available to serve as the underlying investment vehicles
for certain variable annuity and variable life insurance separate accounts of
The Hartford Life Insurance Companies. Each Fund is an open-end management
investment company, commonly known as a mutual fund, organized as a Maryland
corporation. Each Fund has different investment objectives, styles and policies.
These differences affect the types of securities in which each Fund may invest
and, therefore, the potential return of each Fund and the associated risks.
There is no assurance, however, that any Fund will meet its investment goals.
Whether an investment in a particular Fund is appropriate for you depends on
your investment goals, including the return you seek, the expected duration of
your investment and the level of risk you are willing to bear.
Each Fund offers two classes of shares: Class IA shares and Class IB shares.
The shares of each Fund are currently sold only to insurance company separate
accounts in connection with variable life insurance contracts and variable
annuity contracts issued by The Hartford Life Insurance Companies. Both classes
of shares are offered and redeemed at their net asset value without the
imposition of any sales load. Only Class IB shares are offered by this
Prospectus. The Class IB shares were first offered publicly in April, 1998.
Class IA shares are offered pursuant to another prospectus and are subject to
the same expenses as the Class IB shares, but unlike the Class IB shares, they
are not subject to distribution fees imposed pursuant to a distribution plan
("Distribution Plan") adopted pursuant to Rule 12b-1 under the Investment
Company Act of 1940 (the "1940 Act"). Inquiries regarding Class IA shares should
be addressed to Hartford Family of Funds, c/o Individual Annuity Operations,
P.O. Box 2999, Hartford, CT 06104-2999 or by calling 1-800-862-6668.
HL Investment Advisors, Inc. ("HL Advisors") is the investment manager to
each Fund. In addition, under HL Advisors' general management, Wellington
Management Company, LLP ("Wellington Management") serves as sub-adviser to the
Capital Appreciation Fund, Dividend and Growth Fund, International Opportunities
Fund, Small Company Fund, Stock Fund, and Advisers Fund. In addition, under HL
Advisors' general management, The Hartford Investment Management Company
("HIMCO") provides investment management services for the Bond Fund and Money
Market Fund.
HL Advisors was incorporated in Connecticut in 1981 and is a majority-owned
indirect subsidiary of The Hartford Financial Services Group, Inc. ("The
Hartford"), a Connecticut insurance holding company with over $100 billion in
assets. Wellington Management, a Massachusetts limited liability partnership, is
a professional investment counseling firm that provides services to investment
companies, employee benefit plans, endowments, foundations and other
institutions and individuals. Wellington Management and its predecessor
organizations have provided investment advisory services since 1928. HIMCO is a
professional money management firm that provides services to investment
companies, employee benefit plans and its affiliated insurance companies. HIMCO
was incorporated in 1996 and is a wholly-owned subsidiary of The Hartford. As of
December 31, 1997, HL Advisors, HIMCO and their affiliates had investment
management authority with respect to approximately $54.9 billion of assets for
various clients. As of the same date, Wellington Management had investment
management authority with respect to approximately $175 billion of assets for
various clients.
INVESTMENT OBJECTIVES
AND STYLES OF THE FUNDS
The Funds have different investment objectives and policies, as described
below. The differences in objectives and policies among the Funds can be
expected to affect the return of each Fund and the degree of market and
financial risk to which each Fund is subject. For more information about the
investment strategies employed by the Funds, see "Common Investment Policies and
Risk Factors." The investment objective of each Fund and certain other
investment restrictions enumerated in detail in the SAI are considered
fundamental and cannot be changed without the affirmative vote of a majority of
the outstanding voting securities of the particular Fund. All other policies not
specifically designated as fundamental are nonfundamental and may be changed by
the Board of Directors of the particular Fund. See the SAI for a complete
listing of investment restrictions. Stated below is the investment objective and
investment style for each Fund. For a description of each Fund's investment
policies and risk factors, see "Common Investment Policies and Risk Factors."
HARTFORD CAPITAL APPRECIATION FUND, INC.
Hartford Capital Appreciation Fund, Inc. (the "Capital Appreciation Fund")
was incorporated in 1983 under Maryland law. Effective May 1, 1998, the Fund's
name will change to Hartford Capital Appreciation HLS Fund, Inc.
INVESTMENT OBJECTIVE.
The Capital Appreciation Fund seeks growth of capital by investing in equity
securities selected on the basis of potential for capital appreciation.
INVESTMENT STYLE.
The Capital Appreciation Fund invests in a diversified portfolio of
primarily equity securities. Wellington Management identifies, through
fundamental analysis, companies
<PAGE>
4 HARTFORD MUTUAL FUNDS
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that it believes have substantial near-term capital appreciation potential
regardless of company size or industry sector. This approach is sometimes
referred to as a "stock picking" approach and results in having all market
capitalization sectors (i.e., small, medium, and large companies) represented.
Small and medium sized companies are selected primarily on the basis of dynamic
earnings growth potential. Income, if any, is an incidental consideration.
Larger companies are selected primarily based on the expectation for a catalyst
event that will trigger stock price appreciation. Fundamental analysis involves
the assessment of a company through such factors as its business environment,
management, balance sheet, income statement, anticipated earnings, revenues,
dividends, and other related measures of value. Up to 20% of the Capital
Appreciation Fund's total assets may be invested in securities of non-U.S.
companies.
HARTFORD DIVIDEND AND GROWTH FUND, INC.
Hartford Dividend and Growth Fund, Inc. (the "Dividend and Growth Fund") was
incorporated in 1993 under Maryland law. Effective May 1, 1998, the Fund's name
will change to Hartford Dividend and Growth HLS Fund, Inc.
INVESTMENT OBJECTIVE.
The Dividend and Growth Fund seeks a high level of current income consistent
with growth of capital and reasonable investment risk.
INVESTMENT STYLE.
The Dividend and Growth Fund invests in a diversified portfolio of primarily
equity securities that typically have above average income yield and whose
prospects for capital appreciation are considered favorable by Wellington
Management. Under normal market and economic conditions at least 65% of the
Dividend and Growth Fund's total assets are invested in dividend paying equity
securities. Wellington Management uses fundamental analysis to evaluate a
security for purchase or sale by the Dividend and Growth Fund. Fundamental
analysis involves the assessment of a company through such factors as its
business environment, management, balance sheet, income statement, anticipated
earnings, revenues, dividends, and other related measures of value. As a key
component of the fundamental analysis done for the Dividend and Growth Fund,
Wellington Management evaluates a company's ability to sustain and potentially
increase its dividend. The Dividend and Growth Fund's portfolio is broadly
diversified by industry and company. Up to 20% of the Dividend and Growth Fund's
total assets may be invested in securities of non-U.S. companies.
HARTFORD INTERNATIONAL OPPORTUNITIES FUND, INC.
Hartford International Opportunities Fund, Inc. (the "International
Opportunities Fund") was incorporated in 1990 under Maryland law. Effective May
1, 1998, the Fund's name will change to Hartford International Opportunities HLS
Fund, Inc.
INVESTMENT OBJECTIVE.
The International Opportunities Fund seeks growth of capital by investing
primarily in equity securities issued by non-U.S. companies.
INVESTMENT STYLE.
The International Opportunities Fund invests in a diversified portfolio of
primarily equity securities covering a broad range of countries, industries, and
companies. Securities in which the International Opportunities Fund invests are
denominated in both U.S. dollars and non-U.S. currencies (including the European
Currency Unit) and generally are traded in non-U.S. markets. Under normal market
conditions, at least 65% of the International Opportunities Fund's total assets
are invested in equity securities issued by non-U.S. companies. Wellington
Management uses a three-pronged approach. First, Wellington Management
determines the relative attractiveness of the many countries in which the
International Opportunities Fund may invest based upon the economic and
political environment of each country. Second, Wellington Management evaluates
industries on a global basis to determine which industries offer the most value
and potential for capital appreciation given current and projected global and
local economic and market conditions. Finally, Wellington Management conducts
fundamental research on individual companies and considers companies for
inclusion in the International Opportunities Fund's portfolio that are typically
larger, high quality companies that operate in established markets. Fundamental
analysis involves the assessment of a company through such factors as its
business environment, management, balance sheet, income statement, anticipated
earnings, revenues, dividends, and other related measures of value. In analyzing
companies for investment, Wellington Management looks for, among other things, a
strong balance sheet, attractive industry dynamics, strong competitive
advantages and attractive relative value within the context of a security's
primary trading market. The International Opportunities Fund may also invest on
a limited basis in smaller companies and less developed markets. The
International Opportunities Fund anticipates that, under normal market
conditions, it will diversify its investments in at least three countries other
than the United States. The International Opportunities Fund will be subject to
certain risks because it invests primarily in securities issued by non-U.S.
companies.
HARTFORD SMALL COMPANY FUND, INC.
Hartford Small Company Fund, Inc. (the "Small Company Fund") was
incorporated in 1996 under Maryland law. Effective May 1, 1998, the Fund's name
will change to Hartford Small Company HLS Fund, Inc.
<PAGE>
HARTFORD MUTUAL FUNDS 5
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INVESTMENT OBJECTIVE.
The Small Company Fund seeks growth of capital by investing primarily in
equity securities selected on the basis of potential for capital appreciation.
INVESTMENT STYLE.
Under normal market and economic conditions at least 65% of the Small
Company Fund's total assets are invested in equity securities of companies with
market capitalizations within the range represented by the Russell 2000 Index
("Small Capitalization Securities"). Wellington Management identifies, through
fundamental analysis, companies that it believes have substantial near-term
capital appreciation potential regardless of industry sector. However, overall
industry exposure is monitored by Wellington Management so as to maintain broad
industry diversification. In selecting investments, Wellington Management
considers securities of companies that, in its opinion, have potential for
above-average earnings growth, are undervalued in relation to their investment
potential, have business and/or fundamental financial characteristics that are
misunderstood by investors, or are relatively obscure, i.e., undiscovered by the
overall investment community. Fundamental analysis involves the assessment of a
company through such factors as its business environment, management, balance
sheet, income statement, anticipated earnings, revenues, dividends, and other
related measures of value. Up to 20% of the Small Company Fund's total assets
may be invested in securities of non-U.S. companies. Investing in Small
Capitalization Securities involves special risks. See "Common Investment
Policies and Risk Factors-Small Capitalization Securities."
HARTFORD STOCK FUND, INC.
Hartford Stock Fund, Inc. (the "Stock Fund") was incorporated in 1976 under
Maryland law. Effective May 1, 1998, the Fund's name will change to Hartford
Stock HLS Fund, Inc.
INVESTMENT OBJECTIVE.
The Stock Fund seeks long-term growth of capital by investing primarily in
equity securities.
INVESTMENT STYLE.
Under normal market and economic conditions at least 65% of the Stock Fund's
total assets are invested in stocks. The Stock Fund invests in a diversified
portfolio of primarily equity securities using a two-tiered investment approach.
First, under what is sometimes referred to as a "top down" approach, Wellington
Management analyzes the macro economic and investment environment. This includes
an evaluation of economic conditions, U.S. fiscal and monetary policy,
demographic trends, and investor sentiment. Through top down analysis,
Wellington Management anticipates secular and cyclical changes and identifies
industries and economic sectors that are expected to grow faster than the
overall economy. Second, top down analysis is followed by what is sometimes
referred to as a "bottom up" approach, which is the use of fundamental analysis
to identify specific securities for purchase or sale. The Stock Fund's portfolio
emphasizes high-quality growth companies. The key characteristics of
high-quality growth companies include a leadership position within an industry,
a strong balance sheet, a high return on equity, sustainable or increasing
dividends, a strong management team, and a globally competitive position.
Fundamental analysis involves the assessment of a company through such factors
as its business environment, management, balance sheet, income statement,
anticipated earnings, revenues, dividends, and other related measures of value.
Up to 20% of the Stock Fund's total assets may be invested in securities of
non-U.S. companies.
HARTFORD ADVISERS FUND, INC.
Hartford Advisers Fund, Inc. (the "Advisers Fund") was incorporated in 1982
under Maryland law. Effective May 1, 1998, the Fund's name will change to
Hartford Advisers HLS Fund, Inc.
INVESTMENT OBJECTIVE.
The Advisers Fund seeks maximum long-term total rate of return by investing
in common stocks and other equity securities, bonds and other debt securities,
and money market instruments.
INVESTMENT STYLE.
The Advisers Fund seeks to achieve its objective through the active
allocation of its assets among the asset categories of equity securities, debt
securities and money market instruments based upon Wellington Management's
judgment of the projected investment environment for financial assets, relative
fundamental values and attractiveness of each asset category, and expected
future returns of each asset category. Wellington Management bases its asset
allocation decisions on fundamental analysis and does not attempt to make
short-term market timing decisions among asset categories. As a result, shifts
in asset allocation are expected to be gradual and continuous and the Advisers
Fund will normally have some portion of its assets invested in each asset
category. The Advisers Fund does not have percentage limitations on the amount
that may be allocated to each asset category. The Advisers Fund's investments in
equity securities and securities that are convertible into equity securities
will be substantially similar to the investments permitted for the Stock Fund.
See "Hartford Stock Fund." The debt securities in which the Advisers Fund may
invest include securities issued or guaranteed by the U.S. Government and its
agencies or instrumentalities, securities rated investment grade, or if unrated,
are deemed by Wellington Management to be of comparable quality, and with
respect to 5% of the Advisers Fund's assets, securities rated below investment
grade which are known as high
<PAGE>
6 HARTFORD MUTUAL FUNDS
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yield-high risk securities or junk bonds. The money market instruments in which
the Adviser's Fund may invest are described under "Common Investment Policies
and Risk Factors -- Money Market Instruments and Temporary Investment
Strategies." Up to 20% of the Advisers Fund's total assets may be invested in
securities of non-U.S. companies.
HARTFORD BOND FUND, INC.
Hartford Bond Fund, Inc. (the "Bond Fund") was incorporated in 1982 under
Maryland law. Effective May 1, 1998, the Fund's name will change to Hartford
Bond HLS Fund, Inc.
INVESTMENT OBJECTIVE.
The Bond Fund seeks maximum current income consistent with preservation of
capital by investing primarily in fixed-income securities.
INVESTMENT STYLE.
The Bond Fund is comprised of a diversified portfolio of fixed-income
securities. Under normal circumstances at least 80% of the Bond Fund's portfolio
is invested in investment grade bond-type securities. Up to 20% of the Bond Fund
may be invested in securities rated in the highest category of below investment
grade bonds ("Ba" by Moody's or "BB" by S&P, or securities which, if unrated,
are determined by HIMCO to be of comparable quality. Securities rated below
investment grade are commonly referred to as "high yield-high risk securities"
or "junk bonds". No investments are made in debt securities rated below "Ba" and
"BB", or if unrated, determined to be of comparable quality by HIMCO.
Investments in securities rated in the highest category below investment grade
may offer an attractive risk/reward trade-off and investment in this sector may
enhance the current yield and total return of the Bond Fund over time. Investing
in securities within this rating category combined with the investment grade
portion of the portfolio is designed to provide investors with both a high level
of current income and attractive relative total returns.
The Bond Fund will invest at least 65% of its total assets in bonds and debt
securities with a maturity of at least one year. The Bond Fund may invest up to
15% of its total assets in preferred stocks, convertible securities, and
securities carrying warrants to purchase equity securities. The Bond Fund will
not invest in common stocks directly, but may retain, for reasonable periods of
time, common stocks acquired upon conversion of debt securities or upon exercise
of warrants acquired with debt securities. Under normal circumstances, up to 20%
of the Bond Fund's total assets may be invested in securities of non-U.S.
companies.
HVA MONEY MARKET FUND, INC.
HVA Money Market Fund, Inc. (the "Money Market Fund") was incorporated in
1982 under Maryland law. Effective May 1, 1998, the Fund's name will change to
Hartford Money Market HLS Fund, Inc.
INVESTMENT OBJECTIVE.
The Money Market Fund seeks maximum current income consistent with liquidity
and preservation of capital.
INVESTMENT STYLE.
The Money Market Fund seeks to maintain a stable net asset value of $1.00
per share; however, there can be no assurance that the Fund will achieve this
goal. The Money Market Fund's portfolio will consist entirely of cash, cash
equivalents and high quality debt securities as permitted under Rule 2a-7 of the
Investment Company Act of 1940 (the "1940 Act"). Each investment will have an
effective maturity date of 397 days or less computed in accordance with Rule
2a-7. The average maturity of the portfolio will vary according to HIMCO's
appraisal of money market conditions and will not exceed 90 days. All securities
purchased by the Money Market Fund will be U.S. dollar denominated.
COMMON INVESTMENT POLICIES AND RISK FACTORS
MONEY MARKET INSTRUMENTS AND
TEMPORARY INVESTMENT STRATEGIES
In addition to the Money Market Fund, which may invest in cash, cash
equivalents and money market instruments at any time, all other Funds may hold
cash or cash equivalents and invest in high quality money market instruments
under appropriate circumstances as determined by HIMCO or Wellington Management.
Such Funds may invest up to 100% of their assets in cash, cash equivalents or
money market instruments only for temporary defensive purposes.
Money market instruments include: (1) banker's acceptances; (2) obligations
of governments (whether U.S. or non-U.S.) and their agencies and
instrumentalities; (3) short-term corporate obligations, including commercial
paper, notes, and bonds; (4) other short-term debt obligations; (5) obligations
of U.S. banks, non-U.S. branches of U.S. banks (Eurodollars), U.S. branches and
agencies of non-U.S. banks (Yankee dollars), and non-U.S. branches of non-U.S.
banks; (6) asset-backed securities; and (7) repurchase agreements.
<PAGE>
HARTFORD MUTUAL FUNDS 7
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REPURCHASE AGREEMENTS
Each Fund is permitted to enter into fully collateralized repurchase
agreements. A repurchase agreement is an agreement by which the seller of a
security agrees to repurchase the security sold at a mutually agreed upon time
and price. It may also be viewed as the loan of money by a Fund to the seller.
The resale price would be in excess of the purchase price, reflecting an agreed
upon market interest rate. Delays or losses could result if the other party to
the agreement defaults or becomes insolvent. The Fund's Board of Directors has
established standards for evaluation of the creditworthiness of the banks and
securities dealers with which the Funds may engage in repurchase agreements and
monitors on a quarterly basis HIMCO's and Wellington Management's compliance
with such standards.
REVERSE REPURCHASE AGREEMENTS
Each Fund may also enter into reverse repurchase agreements. Reverse
repurchase agreements involve sales by a Fund of portfolio assets concurrently
with an agreement by a Fund to repurchase the same assets at a later date at a
fixed price. Reverse repurchase agreements carry the risk that the market value
of the securities which a Fund is obligated to repurchase may decline below the
repurchase price. A reverse repurchase agreement is viewed as a collateralized
borrowing by a Fund. Borrowing magnifies the potential for gain or loss on the
portfolio securities of a Fund and, therefore, increases the possibility of
fluctuation
in a Fund's net asset value. A Fund will establish a segregated account with the
Fund's custodian bank in which a Fund will maintain liquid assets equal in value
to a Fund's obligations in respect of reverse repurchase agreements. As a non-
fundamental policy, a Fund will not enter into reverse repurchase transactions
if the combination of all borrowings from banks and the value of all reverse
repurchase agreements for the particular Fund equals more than 33 1/3% of the
value of the Fund's total assets.
DEBT SECURITIES
Each Fund is permitted to invest in debt securities including: (1)
securities issued or guaranteed as to principal or interest by the U.S.
Government, its agencies or instrumentalities; (2) debt securities issued or
guaranteed by U.S. corporations or other issuers (including foreign governments
or corporations); (3) asset-backed securities (International Opportunities Fund,
Advisers Fund, Bond Fund and Money Market Fund only); (4) mortgage-related
securities, including collateralized mortgage obligations ("CMO's")
(International Opportunities Fund, Advisers Fund and Bond Fund only); and (5)
securities issued or guaranteed as to principal or interest by a sovereign
government or one of its agencies or political subdivisions, supranational
entities such as development banks, non-U.S. corporations, banks or bank holding
companies, or other non-U.S. issuers.
INVESTMENT GRADE DEBT SECURITIES
Each Fund is permitted to invest in debt securities rated within the four
highest rating categories (i.e., Aaa, Aa, A or Baa by Moody's or AAA, AA, A or
BBB by S&P), or, if unrated, securities of comparable quality as determined by
HIMCO or Wellington Management. These securities are generally referred to as
"investment grade securities." Each rating category has within it different
gradations or sub-categories. If a Fund is authorized to invest in a certain
rating category, the Fund is also permitted to invest in any of the
sub-categories or gradations within that rating category. If a security is
downgraded to a rating category which does not qualify for investment, HIMCO or
Wellington Management will use its discretion on whether to hold or sell based
upon its opinion on the best method to maximize value for shareholders over the
long term. Debt securities carrying the fourth highest rating (i.e., "Baa" by
Moody's and "BBB" by S&P), and unrated securities of comparable quality (as
determined by HIMCO or Wellington Management) are viewed as having adequate
capacity for payment of principal and interest, but do involve a higher degree
of risk than that associated with investments in debt securities in the higher
rating categories.
HIGH YIELD-HIGH RISK DEBT SECURITIES
The Capital Appreciation Fund, Advisers Fund and International Opportunities
Fund may invest up to 5% of their assets in high yield debt securities (i.e.,
rated as low as "C" by Moody's or S&P, and unrated securities of comparable
quality as determined by Wellington Management). The Bond Fund may invest up to
20% of its assets in securities rated in the highest level below investment
grade ("Ba" by Moody's or "BB" by S&P) or if unrated, determined to be of
comparable quality by HIMCO. Securities rated below investment grade are
commonly referred to as "high yield-high risk securities" or "junk bonds". Each
rating category has within it different gradations or sub-categories. If a Fund
is authorized to invest in a certain rating category, the Fund is also permitted
to invest in any of the sub-categories or gradations within that rating
category. If a security is downgraded to a rating category which does not
qualify for investment, HIMCO or Wellington Management will use its discretion
on whether to hold or sell based upon its opinion on the best method to maximize
value for shareholders over the long term. Securities in the rating categories
below "Baa" as determined by Moody's and "BBB" as determined by S&P are
considered to be of poor standing and predominantly speculative. The rating
services' descriptions of securities are set forth in Appendix A. High
yield-high risk securities are considered speculative with respect to the
issuer's capacity to pay interest and repay principal in accordance with the
terms of the obligations. Accordingly, it is
<PAGE>
8 HARTFORD MUTUAL FUNDS
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possible that these types of factors could, in certain instances, reduce the
value of securities held by a Fund with a commensurate effect on the value of
the Fund's shares.
MORTGAGE-BACKED AND ASSET-BACKED SECURITIES
The Advisers Fund, International Opportunities Fund and Bond Fund may invest
in mortgage-backed securities and the Advisers Fund, International Opportunities
Fund, Bond Fund and Money Market Fund may invest in asset-backed securities.
Mortgage-backed securities represent a participation in, or are secured by,
mortgage loans and include securities issued or guaranteed by the U.S.
Government or one of its agencies or instrumentalities; securities issued by
private issuers that represent an interest in, or are collateralized by,
mortgage-backed securities issued or guaranteed by the U.S. Government or one or
its agencies or instrumentalities; or securities issued by private issuers that
represent an interest in or are collateralized by mortgage loans or
mortgage-backed securities without a government guarantee but usually having
some form of private credit enhancement. Asset-backed securities are structured
like mortgage-backed securities, but instead of mortgage loans or interests in
mortgage loans, the underlying assets may include motor vehicle installment
sales or installment loan contracts, leases of various types of real and
personal property, and receivables from credit card agreements.
Due to the risk of prepayment, especially when interest rates decline,
mortgage-backed and asset-backed securities are less effective than other types
of securities as a means of "locking in" attractive long-term interest rates
and, as a result, may have less potential for capital appreciation during
periods of declining interest rates than other securities of comparable
maturities. The ability of an issuer of asset-backed securities to enforce its
security interest in the underlying assets may be limited.
EQUITY SECURITIES
All Funds except the Bond Fund and Money Market Fund may invest in equity
securities including common stocks, preferred stocks, convertible preferred
stock and rights to acquire such securities. In addition, these Funds may invest
in securities such as bonds, debentures and corporate notes which are
convertible into common stock at the option of the holder. The Bond Fund may
invest up to 15% of its total assets in preferred stocks, convertible
securities, and securities carrying warrants to purchase equity securities. The
Bond Fund will not invest in common stocks directly, but may retain, for
reasonable periods of time, common stocks acquired upon conversion of debt
securities or upon exercise of warrants acquired with debt securities.
SMALL CAPITALIZATION SECURITIES
All Funds except the Bond Fund and Money Market Fund may invest in equity
securities (including securities issued in initial public offerings) of
companies with market capitalizations within the range represented by the
Russell 2000 Index ("Small Capitalization Securities"). Because the issuers of
Small Capitalization Securities tend to be smaller or less well-established
companies, they may have limited product lines, market share or financial
resources and may have less historical data with respect to operations and
management. As a result, Small Capitalization Securities are often less
marketable and experience a higher level of price volatility than securities of
larger or more well-established companies. In addition, companies whose
securities are offered in initial public offerings may be more dependent on a
limited number of key employees. Because securities issued in initial public
offerings are being offered to the public for the first time, the market for
such securities may be inefficient and less liquid.
NON-U.S. SECURITIES
Under normal circumstances the International Opportunities Fund intends to
invest at least 65% of its assets in securities issued by non-U.S. companies
("non-U.S. securities"). In addition, the International Opportunities Fund may
invest in commingled pools offered by non-U.S. banks. Each other Fund is
permitted to invest up to 20% of its assets, and the Money Market Fund is
permitted to invest up to 25% of its assets, in non-U.S. securities. The Bond
Fund intends to purchase securities denominated in U.S. dollars, or if not so
denominated, to use currency transactions to reflect U.S. dollar valuation at
the time of purchase or while the security is held by the Fund. Each Fund except
the Bond Fund and Money Market Fund may invest in American Depositary Receipts
("ADRs") and Global Depositary Receipts ("GDRs"). ADRs are certificates issued
by a U.S. bank or trust company and represent the right to receive non-U.S.
securities. ADRs are traded on a U.S. securities exchange, or in an
over-the-counter market, and are denominated in U.S. dollars. GDRs are
certificates issued globally and evidence a similar ownership arrangement. GDRs
are traded on non-U.S. securities exchanges and are denominated in non-U.S.
currencies. The value of an ADR or a GDR will fluctuate with the value of the
underlying security, will reflect any changes in exchange rates and otherwise
will involve risks associated with investing in non-U.S. securities.
When selecting non-U.S. securities HIMCO or Wellington Management will
evaluate the economic and political climate and the principal securities markets
of the country in which the company is located. Investing in non-U.S. securities
involves considerations and potential risks not typically associated with
investing in securities issued by U.S. companies. Less information may be
available about
<PAGE>
HARTFORD MUTUAL FUNDS 9
- --------------------------------------------------------------------------------
non-U.S. companies than about U.S. companies and non-U.S. companies generally
are not subject to uniform accounting, auditing and financial reporting
standards or to other regulatory practices and requirements comparable to those
applicable to U.S. companies. The values of non-U.S. securities are affected by
changes in currency rates or exchange control regulations, restrictions or
prohibitions on the repatriation of non-U.S. currencies, application of non-U.S.
tax laws, including withholding taxes, changes in governmental administration or
economic or monetary policy (in the U.S. or outside the U.S.) or changed
circumstances in dealings between nations. Costs are also incurred in connection
with conversions between various currencies. Although the International
Opportunities Fund will focus on companies that operate in established markets,
from time to time the Funds may invest up to 25% of their assets in companies
located in emerging countries. Compared to the United States and other developed
countries, developing countries may have relatively unstable governments,
economies based on only a few industries, and securities markets that are less
liquid and trade a small number of securities. Prices on these exchanges tend to
be volatile and, in the past, securities in these countries have offered greater
potential for gain (as well as loss) than securities of companies located in
developed countries. See the SAI for additional risk disclosure concerning
non-U.S. securities.
CURRENCY TRANSACTIONS
Each Fund, except the Money Market Fund, may engage in currency transactions
to hedge the value of portfolio securities denominated in particular currencies
against fluctuations in relative value. Currency transactions include forward
currency contracts, currency swaps, exchange-listed and over-the-counter ("OTC")
currency futures contracts and options thereon and exchange listed and OTC
options on currencies.
Forward currency contracts involve a privately negotiated obligation to
purchase or sell a specific currency at a future date, which may be any fixed
number of days from the date of the contract agreed upon by the parties, at a
price set at the time of the contract. Currency swaps are agreements to exchange
cash flows based on the notional difference between or among two or more
currencies. See "Swap Agreements."
The use of currency transactions to protect the value of a Fund's assets
against a decline in the value of a currency does not eliminate potential losses
arising from fluctuations in the value of the Fund's underlying securities.
Further, the Funds may enter into currency transactions only with counterparties
that HIMCO or Wellington Management deem to be creditworthy.
The Funds may also enter into options and futures contracts relative to
foreign currency to hedge against fluctuations in foreign currency rates. See
"Options and Futures Contracts" for a discussion of risk factors relating to
foreign currency transactions including related options and futures contracts.
OPTIONS AND FUTURES CONTRACTS
Each Fund, except the Money Market Fund, may employ certain hedging, income
enhancement and risk management techniques involving options and futures
contracts, though such techniques may also result in losses to the Fund. The
Funds may write covered call options or purchase put and call options on
individual securities, write covered put and call options and purchase put and
call options on foreign currencies, aggregates of equity and debt securities,
indices of prices of equity and debt securities and other financial indices, and
enter into futures contracts and options thereon for the purchase or sale of
aggregates of equity and debt securities, indices of equity and debt securities
and other financial indices.
A Fund may write covered options only. "Covered" means that, so long as a
Fund is obligated as the writer of an option, it will own either the underlying
securities or currency or an option to purchase or sell the same underlying
securities or currency having an expiration date not earlier than the expiration
date of the covered option and an exercise price equal to or less than the
exercise price of the covered option, or will establish or maintain with its
custodian for the term of the option a "segregated account" consisting of cash,
U.S. Government securities or other liquid, high grade debt obligations having a
value equal to the fluctuating market value of the optioned securities or
currencies. A Fund receives a premium from writing a call or put option, which
increases the Fund's return if the option expires unexercised or is closed out
at a net profit.
To hedge against fluctuations in currency exchange rates, these Funds may
purchase or sell foreign currency futures contracts, and write put and call
options and purchase put and call options on such futures contracts. To the
extent that a Fund enters into futures contracts, options on futures contracts
and options on foreign currencies that are traded on an exchange regulated by
the Commodities Futures Trading Commission ("CFTC"), in each case that are not
for BONA FIDE hedging purposes (as defined by the CFTC), the aggregate initial
margin and premiums required to establish those non-hedging positions may not
exceed 5% of the liquidation value of Fund's portfolio, after taking into
account the unrealized profits and unrealized losses on any such contracts the
Fund has entered into.
A Fund's use of options, futures and options thereon and forward currency
contracts (as described under "Currency Transactions") would involve certain
investment risks and transaction costs to which it might not be subject were
such strategies not employed. Such risks include: (1) dependence on the ability
of HIMCO or Wellington
<PAGE>
10 HARTFORD MUTUAL FUNDS
- --------------------------------------------------------------------------------
Management to predict movements in the prices of individual securities,
fluctuations in the general securities markets or market sections and movements
in interest rates and currency markets; (2) imperfect correlation between
movements in the price of the securities or currencies hedged or used for cover;
(3) the fact that skills and techniques needed to trade options, futures
contracts and options thereon or to use forward currency contracts are different
from those needed to select the securities in which a Fund invests; (4) lack of
assurance that a liquid secondary market will exist for any particular option,
futures contract, option thereon or forward contract at any particular time,
which may affect a Fund's ability to establish or close out a position; (5)
possible impediments to effective portfolio management or the ability to meet
current obligations caused by the segregation of a large percentage of a Fund's
assets to cover its obligations; and (6) the possible need to defer closing out
certain options, futures contracts, options thereon and forward contracts in
order to continue to qualify for the beneficial tax treatment afforded
"regulated investment companies" under the Internal Revenue Code of 1986, as
amended (the "Code"). See the SAI for additional information on options and
futures contracts. Options and futures contracts are commonly known as
"derivative" securities.
SWAP AGREEMENTS
Each Fund, except the Money Market Fund, may enter into interest rate swaps,
currency swaps and other types of swap agreements such as caps, collars, and
floors. In a typical interest rate swap, one party agrees to make regular
payments equal to a floating interest rate multiplied by a "notional principal
amount," in return for payments equal to a fixed rate multiplied by the same
amount, for a specified period of time. If a swap agreement provides for
payments in different currencies, the parties might agree to exchange the
notional principal amount as well. Swaps may also depend on other prices or
rates, such as the value of an index or mortgage prepayment rates.
In a typical cap or floor agreement, one party agrees to make payments only
under specified circumstances, usually in return for payment of a fee by the
other party. For example, the buyer of an interest rate cap obtains the right to
receive payments to the extent that a specified interest rate exceeds an
agreed-upon level, while the seller of an interest rate floor is obligated to
make payments to the extent that a specified interest rate falls below an
agreed-upon level. An interest rate collar combines elements of buying a cap and
selling a floor.
Swap agreements will tend to shift a Fund's investment exposure from one
type of investment to another. For example, if a Fund agreed to exchange
floating rate payments for fixed rate payments, the swap agreement would tend to
decrease the Fund's exposure to rising interest rates. Caps and floors have an
effect similar to buying or writing options. Depending on how they are used,
swap agreements may increase or decrease the overall volatility of a Fund's
investments and its share price and yield. Swap agreements are commonly known as
"derivative" securities.
The successful utilization of hedging and risk management transactions
requires skills different from those needed in the selection of a Fund's
portfolio securities and depends on HIMCO's or Wellington Management's ability
to predict correctly the direction and degree of movement in interest rates.
Although the Funds believe that the use of the hedging and risk management
techniques described above will benefit the Funds, if HIMCO's or Wellington
Management's judgment about the direction or extent of the movement in interest
rates is incorrect, a Fund's overall performance would be worse than if it had
not entered into any such transactions. These activities are commonly used when
managing derivative investments.
ILLIQUID SECURITIES
Each Fund is permitted to invest in illiquid securities. The maximum
percentage of illiquid securities which may be purchased by each Fund is 15%
except for the Money Market Fund for which the limit is 10% of their net assets.
"Illiquid Securities" are securities that may not be sold or disposed of in the
ordinary course of business within seven days at approximately the price used to
determine a Fund's net asset value. Each Fund may purchase certain restricted
securities commonly known as Rule 144A securities that can be resold to
institutions and which may be determined to be liquid pursuant to policies and
guidelines of the Board of Directors.
Under current interpretations of the Securities and Exchange Commission
("SEC") staff, the following securities may be considered illiquid: (1)
repurchase agreements maturing in more than seven days; (2) certain restricted
securities (securities whose public resale is subject to legal or contractual
restrictions); (3) options, with respect to specific securities, not traded on a
national securities exchange that are not readily marketable; and (4) any other
securities in which a Fund may invest that are not readily marketable.
WHEN-ISSUED AND DELAYED-DELIVERY SECURITIES
Each Fund is permitted to purchase or sell securities on a when-issued or
delayed-delivery basis. When-issued or delayed-delivery transactions arise when
securities are purchased or sold with payment and delivery taking place in the
future in order to secure what is considered to be an advantageous price and
yield at the time of entering into the transaction. While the Funds generally
purchase securities on a when-issued basis with the intention of acquiring the
<PAGE>
HARTFORD MUTUAL FUNDS 11
- --------------------------------------------------------------------------------
securities, the Funds may sell the securities before the settlement date if
HIMCO or Wellington Management deems it advisable. At the time a Fund makes the
commitment to purchase securities on a when-issued basis, the Fund will record
the transaction and thereafter reflect the value, each day, of such security in
determining net asset value. At the time of delivery of the securities, the
value may be more or less than the purchase price.
OTHER INVESTMENT COMPANIES
Each Fund, except the Money Market Fund, is permitted to invest in other
investment companies. Securities in certain countries are currently accessible
to the Funds only through such investments. The investment in other investment
companies is limited in amount and will involve the indirect payment of a
portion of the expenses, including advisory fees, of such other investment
companies. A Fund will not purchase a security if, as a result, (1) more than
10% of the Fund's assets would be invested in securities of other investment
companies, (2) such purchase would result in more than 3% of the total
outstanding voting securities of any one such investment company being held by
the Fund or (3) more than 5% of the Fund's assets would be invested in any one
such investment company.
PORTFOLIO SECURITIES LENDING
Each Fund may lend its portfolio securities to broker/ dealers and other
institutions as a means of earning interest income. Delays or losses could
result if a borrower of portfolio securities becomes bankrupt or defaults on its
obligation to return the loaned securities. A Fund may lend securities only if:
(1) each loan is fully secured by appropriate collateral at all times as
determined by HL Advisors; and (2) the value of all loaned securities of the
Fund is not more than 33 1/3% of the Fund's total assets (including collateral
received in connection with any loans).
OTHER RISK FACTORS
As mutual funds that primarily invest in equity and/or debt securities, each
Fund is subject to market risk, i.e., the possibility that equity and/or debt
prices in general will decline over short or even extended periods of time. The
financial markets tend to be cyclical, with periods when security prices
generally rise and periods when security prices generally decline.
The value of the debt securities in which the Funds invest will tend to
increase when interest rates are falling and to decrease when interest rates are
rising.
No Fund should be considered to be a complete investment program in and of
itself. Each prospective purchaser should take into account his or her own
investment objectives as well as his or her other investments when considering
the purchase of shares of any investment company.
There can be no assurance that the investment objectives of the Funds will
be met. In addition, the risk inherent in investing in the Funds is common to
any security -- the net asset value will fluctuate in response to changes in
economic conditions, interest rates and the market's perception of the
underlying portfolio securities of each Fund.
In pursuit of a Fund's investment objective, HIMCO and Wellington Management
attempt to select appropriate individual securities for inclusion in a Fund's
portfolio. In addition, HIMCO and Wellington Management attempt to successfully
forecast market trends and increase investments in the types of securities best
suited to take advantage of such trends. Thus, the investor is dependent on
HIMCO's or Wellington Management's success not only in selecting individual
securities, but also in identifying the appropriate mix of securities consistent
with a Fund's investment objective.
INVESTMENT LIMITATIONS
The Funds have adopted certain limitations in an attempt to reduce their
exposure to specific situations. Some of these limitations are that each Fund
will not:
(a) invest more than 25% of its assets in any one industry;
(b) borrow money, except from banks, and then only in amounts not exceeding
33 1/3% of the value of a Fund's total assets (although for purposes of this
restriction reverse repurchase agreements are not considered borrowings, as
a non-fundamental operating policy, each Fund will limit combined borrowings
and reverse repurchase transactions to 33 1/3% of the value of a Fund's
total assets);
(c) with respect to 75% of the value of each Fund's total assets, purchase the
securities of any issuer (other than cash, cash items or securities issued
or guaranteed by the U.S. Government, its agencies, instrumentalities or
authorities) if:
(1) such purchase would cause more than 5% of the Fund's total assets taken
at market value to be invested in the securities of such issuer; or
(2) such purchase would at the time result in more than 10% of the
outstanding voting securities of such issuer being held by the Fund.
These investment restrictions are considered at the time investment
securities are purchased. The limitations described above, except as noted under
(b), and those listed under Fundamental Restrictions of the Funds in the SAI,
are considered fundamental and as such can only be changed with the approval of
a majority of each Fund's shareholders.
<PAGE>
12 HARTFORD MUTUAL FUNDS
- --------------------------------------------------------------------------------
MANAGEMENT OF THE FUNDS
Each Fund's Board of Directors manages the business and affairs of that Fund
and takes action on all matters not reserved for the shareholders, including the
annual election of officers of the Fund who carry out all orders and resolutions
of the Board of Directors and carry out functions relating to the day-to-day
management of the affairs of the Fund.
MANAGEMENT SERVICES
HL Advisors serves as investment manager to each Fund pursuant to written
agreements entered into between HL Advisors and each Fund. Pursuant to such
agreements HL Advisors has overall investment supervisory responsibility for
each Fund. In addition, Hartford Life Insurance Company ("Hartford Life"), an
affiliate of HL Advisors, provides administrative personnel, services, equipment
and facilities and office space for proper operation of the Funds. HL Advisors
has contracted with Wellington Management for the provision of day-to-day
investment management services to the Capital Appreciation Fund, Dividend and
Growth Fund, International Opportunities Fund, Small Company Fund, Stock Fund,
and Advisers Fund. In addition, HL Advisors has contracted with HIMCO for the
provision of day-to-day investment management and other services for the Bond
Fund and Money Market Fund. Each Fund pays a fee to HL Advisors, a portion of
which may be used to compensate Wellington Management or HIMCO.
For services rendered to the Funds, HL Advisors charges a monthly fee based
on the following annual rates as applied to the average of the calculated daily
net asset value of the Funds.
MONEY MARKET FUND
<TABLE>
<CAPTION>
NET ASSET VALUE ANNUAL RATE
- ------------------------------------------- -----------
<S> <C>
All Assets 0.25%
</TABLE>
BOND FUND AND STOCK FUND
<TABLE>
<CAPTION>
NET ASSET VALUE ANNUAL RATE
- ------------------------------------------- -----------
<S> <C>
First $250,000,000 0.325%
Next $250,000,000 0.300%
Next $500,000,000 0.275%
Amount Over $1 Billion 0.250%
</TABLE>
CAPITAL APPRECIATION FUND, DIVIDEND AND GROWTH FUND, INTERNATIONAL OPPORTUNITIES
FUND, SMALL COMPANY FUND AND ADVISERS FUND
<TABLE>
<CAPTION>
NET ASSET VALUE ANNUAL RATE
- ------------------------------------------- -----------
<S> <C>
First $250,000,000 0.575%
Next $250,000,000 0.525%
Next $500,000,000 0.475%
Amount Over $1 Billion 0.425%
</TABLE>
Under the terms of the Investment Management Agreements, HL Advisors,
subject to the supervision of the Funds' Board of Directors, provides investment
management supervision to each Fund in accordance with the Funds' investment
objectives, policies and restrictions.
For 1997, the management fees (advisory and administrative fees) for each
Fund as a percentage of average net assets were as follows:
<TABLE>
<CAPTION>
% OF ASSETS
-----------
<S> <C>
Capital Appreciation Fund .62%
Dividend and Growth Fund .66%
International Opportunities Fund .68%
Small Company Fund .74%
Stock Fund .44%
Advisers Fund .61%
Bond Fund .49%
Money Market Fund .42%
</TABLE>
HL Advisors, Hartford Plaza, Hartford, Connecticut 06115, is a wholly-owned
subsidiary of Hartford Life and was organized under the laws of the State of
Connecticut in 1981. A wholly-owned subsidiary of HL Investment Advisors,
Hartford Investment Financial Services Company, serves as investment adviser to
several other Hartford Life-sponsored funds which are also registered with the
SEC. Hartford Life is a majority owned subsidiary of Hartford Fire Insurance
Company, one of the largest multiple lines insurance carriers in the United
States. Hartford Fire Insurance Company is a subsidiary of The Hartford
Financial Services Group, Inc.
Certain officers of the Funds are also officers and/or directors of HL
Advisors and HIMCO: Joseph H. Gareau is a Director and the President of HL
Advisors and HIMCO; Andrew W. Kohnke is a Managing Director and a Director of HL
Advisors and HIMCO; and C. Michael O'Halloran is a Director, Secretary and
General Counsel of HL Advisors and HIMCO.
INVESTMENT SUB-ADVISORY AND OTHER SERVICES
Wellington Management serves as sub-adviser to the Capital Appreciation
Fund, Dividend and Growth Fund, International Opportunities Fund, Small Company
Fund, Stock Fund, and Advisers Fund pursuant to written contracts entered into
between HL Advisors and Wellington
<PAGE>
HARTFORD MUTUAL FUNDS 13
- --------------------------------------------------------------------------------
Management. In addition, HIMCO provides day-to-day investment management
services to HL Advisors on behalf of the Bond Fund and Money Market Fund
pursuant to written agreements between HL Advisors and HIMCO.
In connection with the services provided to the Funds, Wellington Management
and HIMCO make all determinations with respect to the purchase and sale of
portfolio securities (subject to the terms and conditions of the investment
objectives, policies and restrictions of the Funds and to the general
supervision of the Fund's Boards of Directors and HL Advisors) and places, in
the name of the Funds, all orders for execution of these Funds' portfolio
transactions. In conjunction with such activities, Wellington Management and
HIMCO regularly furnish reports to the Fund's Boards of Directors concerning
economic forecasts, investment strategy, portfolio activity and performance of
the Funds.
For services rendered to the Wellington Management-advised Funds, Wellington
Management charges a quarterly fee to HL Advisors. The Funds do not pay
Wellington Management's fee nor any part thereof, nor do the Funds have any
obligation or responsibility to do so. Wellington Management's quarterly fee is
based upon the following annual rates as applied to the average of the
calculated daily net asset value of each Fund.
DIVIDEND AND GROWTH FUND, STOCK FUND AND
ADVISERS FUND
<TABLE>
<CAPTION>
NET ASSET VALUE ANNUAL RATE
- ------------------------------------------- -----------
<S> <C>
First $50,000,000 0.325%
Next $100,000,000 0.250%
Next $350,000,000 0.200%
Amount Over $500,000,000 0.150%
</TABLE>
CAPITAL APPRECIATION FUND, INTERNATIONAL OPPORTUNITIES FUND AND SMALL COMPANY
FUND
<TABLE>
<CAPTION>
NET ASSET VALUE ANNUAL RATE
- ------------------------------------------- -----------
<S> <C>
First $50,000,000 0.400%
Next $100,000,000 0.300%
Next $350,000,000 0.250%
Amount Over $500,000,000 0.200%
</TABLE>
Wellington Management is a professional investment counseling firm which
provides investment services to investment companies, employee benefit plans,
endowments, foundations and other institutions and individuals. Wellington
Management and its predecessor organizations have provided investment advisory
services since 1928. As of December 31, 1997, Wellington Management held
discretionary management authority with respect to approximately $175 billion of
client assets. Wellington Management, 75 State Street, Boston, MA 02109, is a
Massachusetts limited liability partnership, of which the following persons are
managing partners: Robert W. Doran, Duncan M. McFarland and John R. Ryan.
HIMCO is a professional money management firm which provides services to
investment companies, employee benefit plans and its affiliated insurance
company accounts. HIMCO was incorporated in 1996 and is a wholly owned
subsidiary of The Hartford. As a corporate affiliate of HL Advisors, HIMCO is
reimbursed by HL Advisors for the costs it incurs in providing such services.
PORTFOLIO MANAGERS
Saul J. Pannell, Senior Vice President of Wellington Management, serves as
portfolio manager to the Capital Appreciation Fund. Mr. Pannell has been a
portfolio manager with Wellington Management since 1979.
Laurie A. Gabriel, CFA and Senior Vice President of Wellington Management,
serves as portfolio manager to the Dividend and Growth Fund. Ms. Gabriel joined
Wellington Management in 1976. She has been a portfolio manager with Wellington
Management since 1987.
The International Opportunities Fund is managed by Trond Skramstad, Senior
Vice President of Wellington Management and Chairman of the firm's Global Equity
Strategy Group, a group of senior investment professionals focused on global
investing. Andrew S. Offit, Vice President, is Associate Portfolio Manager.
Prior to joining Wellington Management in 1993, Mr. Skramstad was an
international equity portfolio manager at Scudder, Stevens & Clark since 1990.
Prior to joining Wellington Management in 1997, Mr. Offit was a portfolio
manager at Chestnut Hill Management during 1997, and at Fidelity Investments
since 1987.
Mark S. Waterhouse, Vice President of Wellington Management, serves as
portfolio manager to the Small Company Fund. Mr. Waterhouse joined Wellington
Management in 1995 as an associate portfolio manager of the Capital Appreciation
Fund. Prior to joining Wellington Management in 1995, Mr. Waterhouse was a
portfolio manager with the Pioneer Group. He was previously a financial analyst
at GTE Service Corporation from 1984.
Rand L. Alexander, Senior Vice President of Wellington Management, serves as
portfolio manager to the Stock Fund. Mr. Alexander has been a portfolio manager
with Wellington Management since 1990.
Paul D. Kaplan, Senior Vice President of Wellington Management, serves as
portfolio manager to the Advisers Fund. Mr. Kaplan manages the fixed income
component of the Advisers Fund. He has been a portfolio manager with Wellington
Management since 1982. Rand L. Alexander, who is portfolio manager to the Stock
Fund, manages the equity component of the Advisers Fund.
The Bond Fund is managed by Alison D. Granger. Ms. Granger, a Senior Vice
President of HIMCO, joined The Hartford in 1993 as a senior corporate bond
trader. She
<PAGE>
14 HARTFORD MUTUAL FUNDS
- --------------------------------------------------------------------------------
became Director of Trading in 1994 and a portfolio manager in 1995. Prior to
joining The Hartford, Ms. Granger was a corporate bond portfolio manager at The
Home Insurance Company and Axe-Houghton Management. Ms. Granger holds a CFA and
has over sixteen years of experience with fixed income investments.
PORTFOLIO TURNOVER
Each Fund may sell a portfolio investment soon after its acquisition if
HIMCO and/or Wellington Management believe that such a disposition is in the
Fund's best interest. For the fiscal year ended December 31, 1997, the portfolio
turnover rate of each Fund was below 100% except for the Bond Fund and Small
Company Fund, which were 112% and 222%, respectively. A high rate of portfolio
turnover involves correspondingly greater brokerage commission expenses and
other transaction costs, which must be ultimately borne by a Fund's
shareholders. High portfolio turnover may result in the realization of
substantial capital gains.
BROKERAGE COMMISSIONS
Although the rules of the National Association of Securities Dealers, Inc.
prohibit its members from seeking orders for the execution of investment company
portfolio transactions on the basis of their sales of investment company shares,
under such rules, sales of investment company shares may be considered in
selecting brokers to effect portfolio transactions. Accordingly, some portfolio
transactions are, subject to such rules and to obtaining best prices and
executions, effected through dealers who sell shares of the Funds. HIMCO or
Wellington Management may also select an affiliated broker-dealer to execute
transactions for the Fund, provided that the commissions, fees or other
remuneration paid to such affiliated broker are reasonable and fair as compared
to that paid to non-affiliated brokers for comparable transactions.
ADMINISTRATIVE SERVICES
FOR THE FUNDS
An Administrative Services Agreement between each Fund and Hartford Life
provides that Hartford Life will manage the business affairs and provide
administrative services to each Fund. Under the terms of these Agreements,
Hartford Life will provide the following: administrative personnel, services,
equipment and facilities and office space for proper operation of the Funds.
Hartford Life has also agreed to arrange for the provision of additional
services necessary for the proper operation of the Funds, although the Funds pay
for these services directly. See "Expenses of the Funds." As compensation for
the services to be performed by Hartford Life, each Fund pays to Hartford Life,
as promptly as possible after the last day of each month, a monthly fee equal to
the annual rate of .175% of the average daily net assets of the Fund.
EXPENSES OF THE FUNDS
Each Fund assumes and pays the following costs and expenses: interest;
taxes; brokerage charges (which may be to affiliated broker-dealers); costs of
preparing, printing and filing any amendments or supplements to the registration
forms of each Fund and its securities; all federal and state registration,
qualification and filing costs and fees, (except the initial costs and fees,
which will be borne by Hartford Life), issuance and redemption expenses,
transfer agency and dividend and distribution disbursing agency costs and
expenses; custodian fees and expenses; accounting, auditing and legal expenses;
fidelity bond and other insurance premiums; fees and salaries of directors,
officers and employees of each Fund other than those who are also officers of
Hartford Life or its affiliates; industry membership dues; all annual and
semiannual reports and prospectuses mailed to each Fund's shareholders as well
as all quarterly, annual and any other periodic report required to be filed with
the SEC or with any state; any notices required by a federal or state regulatory
authority, and any proxy solicitation materials directed to each Fund's
shareholders as well as all printing, mailing and tabulation costs incurred in
connection therewith, and any expenses incurred in connection with the holding
of meetings of each Fund's shareholders and other miscellaneous expenses related
directly to the Funds' operations and interest. As discussed in greater detail
below, under "Sale and Redemption of Shares", the Class IB shares may pay for
certain distribution related expenses in connection with activities primarily
intended to result in the sale of Class IB shares.
PERFORMANCE RELATED INFORMATION
The Funds may advertise certain performance related information. Performance
information about a Fund is based on the Fund's past performance only and is no
indication of future performance.
Each Fund may include its total return in advertisements or other sales
material. When a Fund advertises its total return, it will usually be calculated
for one year, five years, and ten years or some other relevant periods if the
Fund has not been in existence for at least ten years. Total return is measured
by comparing the value of an investment in the Fund at the beginning of the
relevant period to the value of the investment at the end of the period
(assuming immediate reinvestment of any dividends or capital gains
distributions).
<PAGE>
HARTFORD MUTUAL FUNDS 15
- --------------------------------------------------------------------------------
The Money Market Fund may advertise yield and effective yield. The yield of
each of those Funds is based upon the income earned by the Fund over a seven-day
period and then annualized, i.e. the income earned in the period is assumed to
be earned every seven 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 Fund shares and
thus compounded in the course of a 52-week period.
DIVIDENDS
The shareholders of each Fund shall be entitled to receive such dividends as
may be declared by each Fund's Board of Directors, from time to time based upon
the investment performance of the assets making up that Fund's portfolio. The
policy with respect to each Fund, except the Money Market Fund, is to pay
dividends from net investment income and to make distributions of realized
capital gains, if any, at least once each year. The Money Market Fund declares
dividends on a daily basis and pays them monthly.
Such dividends and distributions will be automatically invested in
additional full or fractional shares monthly on the last business day of each
month at the per share net asset value on that date. Provision is also made to
pay such dividends and distributions in cash if requested. Such dividends and
distributions will be in cash or in full or fractional shares of the Fund at net
asset value.
DETERMINATION OF
NET ASSET VALUE
The net asset value per share is determined for each Fund as of the close of
the NYSE (normally 4:00 p.m. Eastern Time) on each regular business day (as
previously defined) by dividing the value of the Fund's net assets by the number
of shares outstanding. The assets of each Fund (except the money market funds)
are valued primarily on the basis of market quotations. If quotations are not
readily available, assets are valued by a method that the Board of Directors
believes accurately reflects fair value. The assets of the Money Market Fund are
valued at their amortized cost pursuant to procedures established by the Board
of Directors. Foreign securities are valued on the basis of quotations from the
primary market in which they are traded, and are translated from the local
currency into U.S. dollars using current exchange rates. With respect to all
Funds, short-term investments that will mature in 60 days or less are also
valued at amortized cost, which approximates market value.
PURCHASE OF FUND SHARES
Hartford Securities Distribution Company, Inc., 200 Hopmeadow Street,
Simsbury, CT 06089, (the "Distributor") serves as the principal underwriter of
each Fund's shares pursuant to a principal underwriting agreement with each
Fund. Fund shares are made available by the Distributor to serve as the
underlying investment vehicles for variable annuity and variable life insurance
separate accounts of The Hartford Life Insurance Companies. Shares of the Funds
are sold on a no-load basis at their net asset values. See "Determination of Net
Asset Value" and "Sale and Redemption of Shares."
It is conceivable that in the future it may be disadvantageous for variable
annuity separate accounts and variable life insurance separate accounts to
invest in the Funds simultaneously. Although The Hartford Life Insurance
Companies and the Funds do not currently foresee any such disadvantages either
to variable annuity contract owners or variable life insurance policy owners,
each Fund's Board of Directors intends to monitor events in order to identify
any material conflicts between such contract owners and policy owners and to
determine what action, if any, should be taken in response thereto. If the Board
of Directors of a Fund were to conclude that separate funds should be
established for variable life and variable annuity separate accounts, the
variable life and variable annuity contract holders would not bear any expenses
attendant to the establishment of such separate funds.
SALE AND REDEMPTION
OF SHARES
The Class IB shares of each Fund are sold and redeemed by the Fund at their
net asset value next determined after receipt of a purchase or redemption order
in good order in writing at its home office, P.O. Box 2999, Hartford, CT
06104-2999. The value of shares redeemed may be more or less than original cost,
depending upon the market value of the portfolio securities at the time of
redemption. Payment for shares redeemed will be made within seven days after the
redemption request is received in proper form by the Funds. However, the right
to redeem Fund shares may be suspended or payment therefor postponed for any
period during which: (1) trading on the NYSE is closed for other than weekends
and holidays; (2) an emergency exists, as determined by the SEC, as a result of
which (a) disposal by a Fund of securities owned by it is not reasonably
practicable, or (b) it is not reasonably practicable for a Fund to determine
fairly the value of its net assets; or (3) the SEC by order so permits for the
protection of stockholders of the Funds.
Each Fund has adopted a Distribution Plan pursuant to Rule 12b-1 under the
1940 Act for the Class IB shares.
<PAGE>
16 HARTFORD MUTUAL FUNDS
- --------------------------------------------------------------------------------
Pursuant to the Distribution Plan, each Fund compensates the Distributor from
assets attributable to the Class IB shares for services rendered and expenses
borne in connection with activities primarily intended to result in the sale of
the Class IB shares. It is anticipated that a portion of the amounts received by
the Distributor will be used to defray various costs incurred or paid by the
Distributor in connection with the printing and mailing of Fund prospectuses,
statements of additional information, any supplements thereto and shareholder
reports and holding seminars and sales meetings with wholesale and retail sales
personnel designed to promote the distribution of Class IB shares. The
Distributor may also use a portion of the amounts received to provide
compensation to financial intermediaries and third-party broker-dealers for
their services in connection with the distribution of Class IB shares.
Although the Distribution Plan provides that each Fund may pay annually up
to 0.25% of the average daily net assets of a Fund attributable to its Class IB
shares for activities primarily intended to result in the sale of Class IB
shares, the Distributor has voluntarily agreed to waive .07% of the fee. This
waiver may be withdrawn at any time after notice to shareholders. Under the
terms of the Distribution Plan and the principal underwriting agreement, each
Fund is authorized to make payments monthly to the Distributor which may be used
to pay or reimburse entities providing distribution and shareholder servicing
with respect to the Class IB shares for such entities' fees or expenses incurred
or paid in that regard.
The Distribution Plan is of a type known as a "compensation" plan because
payments are made for services rendered to the Fund with respect to Class IB
shares regardless of the level of expenditures by the Distributor. The Directors
will, however, take into account such expenditures for purposes of reviewing
operations under the Distribution Plan and in connection with their annual
consideration of the Plan's renewal. The Distributor has indicated that it
expects its expenditures to include, without limitation: (a) the printing and
mailing of Fund prospectuses, statements of additional information, any
supplements thereto and shareholder reports for prospective contract owners of
variable insurance products with respect to the Class IB shares of a Fund; (b)
those relating to the development, preparation, printing and mailing of
advertisements, sales literature and other promotional materials describing and/
or relating to the Class IB shares of a Fund; (c) holding seminars and sales
meetings designed to promote the distribution of Fund Class IB shares; (d)
obtaining information and providing explanations to wholesale and retail
distributors of contracts regarding Fund investment objectives and policies and
other information about a Fund, including the performance of the Funds; (e)
training sales personnel regarding the Class IB shares of a Fund; and (f)
financing any other activity that the Distributor determines is primarily
intended to result in the sale of Class IB shares.
FEDERAL INCOME TAXES
Each Fund has elected and intends to qualify under Subchapter M of the Code.
Each Fund intends to distribute all of its net income and gains to shareholders.
Such distributions are taxable income and capital gains. Each Fund will inform
shareholders of the amount and nature of such income and gains. Each Fund may be
subject to a 4% nondeductible excise tax as well as an income tax measured with
respect to certain undistributed amounts of income and capital gain. Each Fund
expects to make such additional distributions of net investment income as are
necessary to avoid the application of these taxes. For a discussion of the tax
implications of a purchase or sale of the Funds' shares by the insurer,
reference should be made to the section entitled "Federal Tax Considerations" in
the appropriate separate account prospectus.
If eligible, each Fund may make an election to pass through to its
shareholders, The Hartford Life Insurance Companies, a credit for any foreign
taxes paid during the year. If such election is made, the pass-through of the
foreign tax credit will result in additional taxable income and income tax to
The Hartford Life Insurance Companies. The amount of additional tax may be more
than offset by the foreign tax credits which are passed through. These foreign
tax credits may provide a benefit to The Hartford Life Insurance Companies.
OWNERSHIP AND CAPITALIZATION
OF THE FUNDS
CAPITAL STOCK
As of the date of this prospectus, the authorized capital stock of the Funds
consisted of the following shares at a par value of $.10 per share: Capital
Appreciation Fund, 2 billion; Dividend and Growth Fund, 2 billion; International
Opportunities Fund, 1.5 billion; Small Company Fund, 750 million; Stock Fund, 2
billion; Advisers Fund, 5 billion; Bond Fund, 800 million; and Money Market
Fund, 1.3 billion. Each Fund currently offers two classes of shares: Class IA
shares and Class IB shares.
VOTING
Under each Fund's multi-class system, shares of each class of a Fund
represent an equal pro rata interest in that Fund and, generally, shall have
identical voting, dividend, liquidation, and other rights, preferences, powers,
restrictions, limitations, qualifications and terms and conditions, except that:
(a) each class shall have a different designation; (b) each class of shares
shall bear its "Class Expenses;" (c) each class shall have exclusive voting
rights on any matter submitted to shareholders that relates solely to its
<PAGE>
HARTFORD MUTUAL FUNDS 17
- --------------------------------------------------------------------------------
distribution arrangements; (d) each class shall have separate voting rights on
any matter submitted to shareholders in which the interests of one class differ
from the interests of any other class; (e) each class may have separate exchange
privileges, although exchange privileges are not currently contemplated; and (f)
each class may have different conversion features, although a conversion feature
is not currently contemplated. Expenses currently designated as "Class Expenses"
by the Fund's Board of Directors under the plan pursuant to Rule 18f-3 are
currently limited to payments made to the Distributor for the Class IB shares,
pursuant to the Distribution Plan for the Class IB shares adopted pursuant to
Rule 12b-1 under the 1940 Act. Each shareholder shall be entitled to one vote
for each share of the Funds held upon all matters submitted to the shareholders
generally. With respect to the Funds' shares, issued as described above under
"Purchase of Fund Shares," as well as Fund shares which are not otherwise
attributable to variable annuity contract owners or variable life policy
holders, The Hartford Life Insurance Companies shall be the shareholders of
record. Each of The Hartford Life Insurance Companies will vote all Fund shares,
pro rata, according to the written instructions of the contract owners of the
variable annuity contracts and the policy holders of the variable life contracts
issued by it using the Funds as investment vehicles. This position is consistent
with the policy of the SEC staff.
OTHER RIGHTS
Each share of Fund stock, when issued and paid for in accordance with the
terms of the offering, will be fully paid and non-assessable. Shares of Fund
stock have no pre-emptive, subscription or conversion rights and are redeemable
as set forth under "Sale and Redemption of Shares." Upon liquidation of a Fund,
the shareholders of that Fund shall be entitled to share, pro rata, in any
assets of the Fund after discharge of all liabilities and payment of the
expenses of liquidation.
GENERAL INFORMATION
REPORTS TO SHAREHOLDERS
The Funds will issue unaudited semiannual reports showing current
investments in each Fund and other information and annual financial statements
examined by independent auditors for the Funds.
CUSTODIAN, TRANSFER AND
DIVIDEND DISBURSING AGENTS
State Street Bank and Trust Company, Boston, Massachusetts, serves as
custodian of the Funds' assets. Hartford Life Insurance Company, P.O. Box 2999,
Hartford, Connecticut 06104-2999, serves as Transfer and Dividend Disbursing
Agent for the Funds.
PENDING LEGAL PROCEEDINGS
As of the date of this Prospectus, there are no material pending legal
proceedings involving the Funds, HL Advisors, HIMCO or Wellington Management as
a party.
REQUESTS FOR INFORMATION
This Prospectus does not contain all the information included in the
Registration Statement filed with the SEC. The Registration Statement, including
the exhibits filed therewith, may be examined at the SEC's office in Washington,
D.C. Statements contained in the Prospectus as to the contents of any contract
or other document referred to herein are not necessarily complete, and, in each
instance, reference is made to the copy of such contract or other document filed
as an exhibit to the Registration Statement of which this Prospectus forms a
part, each such statement being qualified, in all respects by such reference.
For additional information, write to "Hartford Family of Funds", c/o
Individual Annuity Operations, P.O. Box 2999, Hartford, CT 06104-2999.
<PAGE>
18 HARTFORD MUTUAL FUNDS
- --------------------------------------------------------------------------------
APPENDIX A
The rating information which follows describes how the rating services
mentioned presently rate the described securities. No reliance is made upon the
rating firms as "experts" as that term is defined for securities purposes.
Rather, reliance on this information is on the basis that such ratings have
become generally accepted in the investment business.
RATING OF BONDS
MOODY'S INVESTORS SERVICE, INC. ("MOODY'S")
Aaa -- Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edge." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
Aa -- Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long term risks appear somewhat larger than in Aaa securities.
A -- Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate but elements may be
present which suggest a susceptibility to impairment sometime in the future.
Baa -- Bonds which are rated Baa are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba -- Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B -- Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa -- Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca -- Bonds which are rated Ca represent obligations which are speculative
in a high degree. Such issues are often in default or have other marked
shortcomings.
C -- Bonds which are rated C are the lowest rated class of bonds and issues
so rated can be regarded as having extremely poor prospects of ever earning any
real investment standing.
STANDARD & POOR'S CORPORATION ("STANDARD & POOR'S")
AAA -- Bonds rated AAA are the highest grade obligations. Capacity to pay
interest and repay principal is extremely strong.
AA -- Bonds rated AA have a very strong capacity to pay interest and repay
principal and differ from AAA issues only in small degree.
A -- Bonds rated A have a very strong capacity to pay interest and repay
principal although they are somewhat more susceptible to the considerable
investment strength but are not entirely free from adverse effects of changes in
circumstances and economic conditions than debt in the highest rated categories.
BBB -- Bonds rated BBB and regarded as having an adequate capacity to pay
interest and repay principal. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category then in higher rated categories.
BB, B, CCC, CC, C -- Debt rated BB, B, CCC, CC, and C is regarded, on
balance, as predominantly speculative with respect to the issuer's capacity to
pay interest and repay principal in accordance with the terms of the obligation.
While such debt will likely have some quality and protective characteristics,
these are outweighed by large uncertainties or major risk exposures to adverse
conditions.
RATING OF COMMERCIAL PAPER
Purchases of corporate debt securities used for short-term investment,
generally called commercial paper, will be limited to the top two grades of
Moody's, Standard & Poor's, Duff & Phelps, Fitch Investor Services and Thomson
Bank Watch or other NRSROs (nationally recognized statistical
<PAGE>
HARTFORD MUTUAL FUNDS 19
- --------------------------------------------------------------------------------
rating organizations) rating services and will be an eligible security under
Rule 2a-7.
MOODY'S
Issuers rated Prime-1 (or related supporting institutions) have a superior
capacity for repayment of short-term promissory obligations. Prime-1 repayment
capacity will normally be evidenced by the following characteristics:
- - Leading market positions in well-established industries.
- - High rates of return on funds employed.
- - Conservative capitalization structures with moderate reliance on debt and
ample asset protection.
- - Broad margins in earnings coverage of fixed financial charges and high
internal cash generation.
- - Well-established access to a range of financial markets and assured sources of
alternate liquidity.
Issuers rated Prime-2 (or related supporting institutions) have a strong
capacity for repayment of short-term promissory obligations. This will normally
be evidenced by many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, will be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
Issuers rated Prime-3 (or related supporting institutions) have an
acceptable capacity for repayment of short-term promissory obligations. The
effect of industry characteristics and market composition may be more
pronounced. Variability in earnings and profitability may result in changes in
the level of debt protection measurements and the requirement for relatively
high financial leverage. Adequate alternate liquidity is maintained.
Issuers rated Not Prime do not fall within any of the Prime rating
categories.
STANDARD & POOR'S
The relative strength or weakness of the following factors determines
whether the issuer's commercial paper is rated A-1 or A-2.
- - Liquidity ratios are adequate to meet cash requirements.
Liquidity ratios are basically as follows, broken down by the type of
issuer:
Industrial Company: acid test ratio, cash flow as a percent of current
liabilities, short-term debt as a percent of current liabilities, short-term
debt as a percent of current assets.
Utility: current liabilities as a percent of revenues, cash flow as a
percent of current liabilities, short-term debt as a percent of capitalization.
Finance Company: current ratio, current liabilities as a percent of net
receivables, current liabilities as a percent of total liabilities.
- - The long-term senior debt rating is "A" or better; in some instances "BBB"
credits may be allowed if other factors outweigh the "BBB".
- - The issuer has access to at least two additional channels of borrowing.
- - Basic earnings and cash flow have an upward trend with allowances made for
unusual circumstances.
- - Typically, the issuer's industry is well established and the issuer has a
strong position within its industry.
- - The reliability and quality of management are unquestioned.
<PAGE>
20 HARTFORD MUTUAL FUNDS
- --------------------------------------------------------------------------------
APPENDIX B
CREDIT QUALITY DISTRIBUTION
HARTFORD BOND FUND
The average quality distribution of the portfolio of the Hartford Bond Fund
during the year ended December 31, 1997 as assigned by Moody's Investors
Services, Inc. ("Moody's") and Standard & Poor's Corporation ("Standard &
Poors"), was as follows:
<TABLE>
<CAPTION>
QUALITY
DISTRIBUTION QUALITY
AS DISTRIBUTION AS
ASSIGNED BY PERCENTAGE OF ASSIGNED BY PERCENTAGE OF
MOODY'S PORTFOLIO STANDARD & POORS PORTFOLIO
- ------------- ------------- ----------------- -------------
<S> <C> <C> <C>
Aaa 46.0% AAA 47.4%
Aa 9.9% AA 10.7%
A 8.8% A 7.0%
Baa 11.2% BBB 14.4%
Ba 20.8% BB 13.9%
B 1.1% B 4.6%
Unrated 2.2% Unrated 2.0%
------------- -------------
Total 100.0% Total 100.0%
</TABLE>
