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[LOGO] 1998
Hartford Life ANNUAL REPORT
- Manager Discussions
- Financials
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Table of Contents
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<TABLE>
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PAGE
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Investment Review........................................................................................................ 3
Performance Summary of Hartford Mutual Funds............................................................................. 21
Hartford Life Insurance Companies Separate Account Financial Statements and Notes to Financial Statements
Hartford Life Insurance Company Separate Account Two................................................................. 22
Hartford Life and Annuity Insurance Company Separate Account One..................................................... 44
Hartford Life Insurance Company Separate Account Five................................................................ 60
Hartford Life and Annuity Insurance Company Separate Account Five.................................................... 76
Hartford Mutual Funds
Statements of Net Assets as of December 31, 1998:
Hartford Bond HLS Fund, Inc.......................................................................................... MF-1
Hartford Stock HLS Fund, Inc......................................................................................... MF-5
Hartford Money Market HLS Fund, Inc.................................................................................. MF-7
Hartford Advisers HLS Fund, Inc...................................................................................... MF-9
Hartford Capital Appreciation HLS Fund, Inc.......................................................................... MF-13
Hartford Mortgage Securities HLS Fund, Inc........................................................................... MF-16
Hartford Index HLS Fund, Inc......................................................................................... MF-18
Hartford International Opportunities HLS Fund, Inc................................................................... MF-24
Hartford Dividend and Growth HLS Fund, Inc........................................................................... MF-27
Hartford International Advisors HLS Fund, Inc........................................................................ MF-30
Hartford Small Company HLS Fund, Inc................................................................................. MF-35
Hartford MidCap HLS Fund, Inc........................................................................................ MF-37
Hartford Growth and Income HLS Fund.................................................................................. MF-39
Hartford High Yield HLS Fund......................................................................................... MF-41
Hartford Global Leaders HLS Fund..................................................................................... MF-44
Statements of Operations for the Year Ended December 31, 1998:
Hartford Mutual Funds................................................................................................ MF-46
Statements of Changes in Net Assets for the Years Ended December 31, 1998 and December 31, 1997:
Hartford Mutual Funds................................................................................................ MF-50
Notes to Financial Statements:
Hartford Mutual Funds................................................................................................ MF-56
Hartford Mutual Funds Financial Highlights............................................................................. MF-68
Report of Independent Accountants...................................................................................... MF-72
BB&T Growth and Income Fund
Statement of Portfolio Investments as of December 31, 1998:............................................................ MF-73
Statement of Assets and Liabilities as of December 31, 1998:........................................................... MF-75
Statement of Operations for the Year Ended December 31, 1998:.......................................................... MF-76
Statement of Changes in Net Assets for the Years Ended December 31, 1998 and December 31, 1997:........................ MF-77
Notes to Financial Statements:......................................................................................... MF-78
Financial Highlights................................................................................................... MF-80
Report of Independent Accountants...................................................................................... MF-81
AmSouth Equity Income Fund
Statement of Portfolio Investments as of December 31, 1998:............................................................ MF-82
Statement of Assets and Liabilities as of December 31, 1998:........................................................... MF-84
Statement of Operations for the Year Ended December 31, 1998:.......................................................... MF-85
Statement of Changes in Net Assets for the Years Ended December 31, 1998 and December 31, 1997:........................ MF-86
Notes to Financial Statements:......................................................................................... MF-87
Financial Highlights................................................................................................... MF-89
Report of Independent Accountants...................................................................................... MF-90
Mentor Mutual Funds
Portfolio of Investments as of December 31, 1998:
Mentor VIP Growth Portfolio.......................................................................................... MF-91
Mentor VIP Perpetual International Portfolio......................................................................... MF-93
Mentor VIP Capital Growth Portfolio.................................................................................. MF-96
Statement of Assets and Liabilities as of December 31, 1998:........................................................... MF-97
Statement of Operations for the Period from March 3, 1998 to December 31, 1998:
Mentor Mutual Funds.................................................................................................. MF-98
Statement of Changes in Net Assets for the Period from March 3, 1998 to December 31, 1998:
Mentor Mutual Funds.................................................................................................. MF-99
Notes to Financial Statements:
Mentor Mutual Funds.................................................................................................. MF-100
Mentor Mutual Funds Financial Highlights............................................................................... MF-103
Report of Independent Accountants...................................................................................... MF-104
</TABLE>
Contract owners should refer to the prospectus provided to them at the time of
purchase of their contract for a description of investment alternatives
available in the Separate Accounts. This prospectus, along with the financial
information contained in this report, provides them with complete and up-to-date
financial information regarding the separate Accounts.
This report is prepared for the general information of contract owners and is
not an offer of contracts. It should not be used in connection with any offer,
except in conjunction with the appropriate prospectus which contains all
pertinent information including the applicable sales, administrative and other
charges.
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HARTFORD
SMALL COMPANY HLS FUND
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Portfolio Manager
Q.
How Did The Fund Perform?
[PHOTOGRAPH]
The Hartford Small Company HLS Fund outperformed
its Lipper peer group for the year ending
December 31, 1998. The Fund provided a total
return of 11.6% versus 1.5% for the Lipper Small
MARK S. WATERHOUSE Company VA-UF Average, placing the Fund in the
Vice President first quartile of performance for funds in the
Wellington Management group.
Company, LLP
Q.
Why Did The Fund Perform This Way?
The greatest single contributor to the great
performance in 1998 was maintaining our
conviction on our holdings during periods of
market volatility, while adhering to our
discipline and taking advantage of market
gyrations to acquire attractively valued
smaller companies.
Q.
What Is Your Outlook For 1999?
We are very optimistic about small cap stocks
in 1999. In light of larger cap companies'
greater reliance on markets outside of the U.S.
for profit growth, aggregate earnings estimates
for small caps exceed the expected growth for
major companies. In addition, due to their
recent relative underperformance, small caps
are attractively valued with multiples, in some
instances, at 15-20 year lows. Going forward,
we will continue to focus on identifying the
most attractive opportunities in the small cap
universe. As a guide, we will concentrate on
those economic sectors where we see the
Performance Overview greatest potential and on those small companies
8/9/96 - 12/31/98 with strong, healthy balance sheets and 15-20%
Growth of a $10,000 earnings growth.
investment.
[GRAPH]
$14,158 Small Company Fund IA
$13,293 Russell 2000
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Annualized Returns
Average Annual Returns
Period Ended December 31, 1998
1 YEAR SINCE INCEPTION
Small Co IA 11.62% 15.63%
Russell 2000 -2.55% 12.62%
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THE CHART REPRESENTS A HYPOTHETICAL
INVESTMENT IN THE SMALL COMPANY HLS FUND.
(THE ANNUALIZED RETURNS INCLUDE THE FUND
LEVEL EXPENSES, BUT EXCLUDE THE INSURANCE
CHARGES). PAST PERFORMANCE DOES NOT
GUARANTEE FUTURE RESULTS. THE VALUE OF THE
CONTRACT WILL FLUCTUATE SO THAT WHEN
REDEEMED, IT MAY BE WORTH MORE OR LESS
THAN THE ORIGINAL INVESTMENT.
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HARTFORD
CAPITAL APPRECIATION HLS FUND
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Portfolio Manager
Q.
How Did The Fund Perform?
[PHOTOGRAPH]
The Hartford Capital Appreciation HLS Fund
underperformed its Lipper peer group for the
year ending December 31, 1998. The Fund
provided a total return of 15.5% versus 22.2%
SAUL J. PANNELL, CFA for the Lipper Capital Appreciation VA-UF
Senior Vice President Average. On a longer term basis, the Fund has
and Partner performed in line with its Lipper peer group
Wellington Management and ranks at the median point of its
Company, LLP competition.
Q.
Why Did The Fund Perform This Way?
Due to their perceived safe haven
characteristics, large cap, blue chip growth
stocks dominated the market in 1998. There was
a wide disparity between the performance of
"mega-caps" and everything else in the market.
The Capital Appreciation Fund is invested in
many mid and small cap companies that we
believe have great capital appreciation
potential. However, this exposure limited the
Fund's returns this year.
Q.
What Is Your Outlook For 1999?
During 1999, we may well see a reversal of the
large cap dominance of the equity market.
Therefore, we are confident that our approach
of focusing on opportunities for capital
appreciation, regardless of market
capitalization, will provide satisfactory
returns. The overall strategy for the Fund is
dual faceted: we will emphasize smaller
companies with dynamic earnings growth
prospects, and use larger stocks as
opportunistic trades where we see a catalyst
for outperformance. We have tended to roam off
the beaten path, historically where the most
upside potential has been. This approach
should provide positive absolute and relative
Performance Overview results over the longer term. While the
1/1/89 - 12/31/98 overall market outlook remains controversial,
Growth of a $10,000 macroeconomic and valuation factors endorse our
investment. positioning.
[GRAPH]
$57,928 S&P 500
$54,748 Capital Appreciation Fund IA
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Annualized Returns
Average Annual Returns
Period Ended December 31, 1998
1 YEAR 5 YEAR 10 YEAR
Cap App IA 15.48% 17.89% 18.55%
S&P 500 28.60% 24.05% 19.19%
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THE CHART REPRESENTS A HYPOTHETICAL
INVESTMENT IN THE CAPITAL APPRECIATION HLS
FUND. (THE ANNUALIZED RETURNS INCLUDE THE
FUND LEVEL EXPENSES, BUT EXCLUDE THE
INSURANCE CHARGES). PAST PERFORMANCE DOES
NOT GUARANTEE FUTURE RESULTS. THE VALUE OF
THE CONTRACT WILL FLUCTUATE SO THAT WHEN
REDEEMED, IT MAY BE WORTH MORE OR LESS
THAN THE ORIGINAL INVESTMENT.
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HARTFORD
MIDCAP HLS FUND
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Portfolio Manager
Q.
How Did The Fund Perform?
[PHOTOGRAPH]
The Hartford MidCap HLS Fund outperformed its
Lipper peer group for the year ending December
31, 1998. The Fund provided a total return of
26.6% versus 19.3% for the Lipper MidCap VA-UF
Average, placing the Fund in the second
quartile of performance for funds in the group.
PHILLIP H. PERELMUTER
Vice President Q.
Wellington Management Why Did The Fund Perform This Way?
Company, LLP
Although the market's performance in 1998 was
driven by large cap stocks, mid caps fared
relatively well. A strong rebound in the 4th
quarter was especially helpful. Mid-caps, as
measured by the S&P Mid Cap 400 Index, returned
28.2% in the 4th quarter alone. This
performance was better than that of both
large-cap and small-cap stocks for the same
period. In addition, our steadfast focus on
high-quality mid-cap companies operating in the
highest growth areas of the economy provided a
performance advantage versus the competition.
Q.
What Is Your Outlook For 1999?
Although large cap stocks outperformed mid caps
in 1998, we may be near an inflection point in
relative performance. Mid-cap stocks generally
perform well relative to large-caps after
Federal Reserve interest rate cuts, of which we
have recently had three. Also supportive of
the asset class, the current gap in valuations
between mid- and large-caps is very wide. We
will continue to focus on companies on the
verge of greatness within our five sectors of
opportunity: consumer products, finance, health
care, services, and technology. These are the
sectors we believe will show greater earnings
growth than the overall market over the next
12-18 months. High-quality, market-leading,
mid-cap growth companies, which have minimal
overseas exposure, should fare relatively well
Performance Overview during a period of modest growth in the U.S.
7/15/97 - 12/31/98 and continued turbulence overseas.
Growth of a $10,000
investment.
[GRAPH]
$14,406 MidCap Fund IA
$13,093 S&P 400
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Annualized Returns
Average Annual Returns
Period Ended December 31, 1998
1 YEAR SINCE INCEPTION
MidCap IA 26.57% 28.28%
S&P 400 19.11% 20.22%
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THE CHART REPRESENTS A HYPOTHETICAL
INVESTMENT IN THE MIDCAP HLS FUND. (THE
ANNUALIZED RETURNS INCLUDE THE FUND LEVEL
EXPENSES, BUT EXCLUDE THE INSURANCE
CHARGES). PAST PERFORMANCE DOES NOT
GUARANTEE FUTURE RESULTS. THE VALUE OF THE
CONTRACT WILL FLUCTUATE SO THAT WHEN
REDEEMED, IT MAY BE WORTH MORE OR LESS
THAN THE ORIGINAL INVESTMENT.
<PAGE>
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HARTFORD
INTERNATIONAL OPPORTUNITIES HLS FUND
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Lead Portfolio Manager
Q.
How Did The Fund Perform?
[PHOTOGRAPH]
The Hartford International Opportunities HLS
Fund performed in line with its Lipper peer
group for the year ending December 31, 1998.
The Fund provided a total return of 13.2%
versus 13.3% for the Lipper International VA-UF
Average.
TROND SKRAMSTAD Q.
Senior Vice President Why Did The Fund Perform This Way?
and Partner
Wellington Management Despite a volatile year for international
Company, LLP equity markets, the Hartford International
Opportunities Fund fared well as a result of
its strategic country allocation decisions.
The Fund was positioned to benefit from strong
performing markets in Europe and to limit
losses in crisis areas such as Japan and the
Emerging Markets. The Fund was also
repositioned to have greater exposure to large
cap stocks capable of withstanding the
challenges of less dynamic global economic
growth.
Q.
What Is Your Outlook For 1999?
We expect lackluster corporate profits growth
globally in 1999. Although profit growth will
slow, equities should post good performance due
to lower global interest rates. We believe
owning stable growth companies during such a
period of decelerating corporate profits and
global economic weakness is the prudent
investment strategy. We are bullish on Europe,
where the corporate restructuring and
increased focus on shareholder returns will be
accelerated by the Euro. We are concerned by
the slow pace of change in Japan and will limit
exposure to this market until we see
substantial progress on structural reforms.
Despite Japan's problems, there are select
investment opportunities, such as in the
attractively valued technology sector. The
investment risks in the Emerging Markets
currently outweigh the prospective rewards, but
Performance Overview we will continue to monitor developments in
7/2/90 - 12/31/98 these regions to identify attractive
Growth of a $10,000 opportunities.
investment.
[GRAPH]
$18,255 International Opportunities IA
$19,564 EAFE GDP
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Annualized Returns
Average Annual Returns
Period Ended December 31, 1998
1 YEAR 5 YEAR SINCE INCEP.
Int'l Opp IA 13.16% 7.45% 7.33%
EAFE GDP* 26.71% 11.57% 8.21%
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THE CHART REPRESENTS A HYPOTHETICAL
INVESTMENT IN THE INTERNATIONAL
OPPORTUNITIES HLS FUND. (THE ANNUALIZED
RETURNS INCLUDE THE FUND LEVEL EXPENSES,
BUT EXCLUDE THE INSURANCE CHARGES). PAST
PERFORMANCE DOES NOT GUARANTEE FUTURE
RESULTS. THE VALUE OF THE CONTRACT WILL
FLUCTUATE SO THAT WHEN REDEEMED, IT MAY BE
WORTH MORE OR LESS THAN THE ORIGINAL
INVESTMENT.
* THE MORGAN STANLEY EUROPE AUSTRALIA FAR EAST GDP-NET INDEX.
<PAGE>
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HARTFORD
GLOBAL LEADERS HLS FUND
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Portfolio Managers
RAND L. ALEXANDER, CFA Q.
Senior Vice President How Did The Fund Perform?
and Partner [PHOTOGRAPH]
Wellington Management With a return of 31.9% during the
Company, LLP fourth quarter, the Hartford Global
Leaders Fund ranked #1 out of 245
funds in the Lipper Global category
for the quarter ending December 31,
1998.
[PHOTOGRAPH] ANDREW S. OFFIT
Vice President Q.
Wellington Management Why Did The Fund Perform This Way?
Company, LLP
The portfolio invests in the best
companies around the world. We focus
on companies with superior products,
services and management. These
global leaders are capable of
delivering admirable earnings even
during difficult economic times. The
factors which give them comparative
advantages translate into strong
earnings growth and stock price
performance.
Q.
What Is Your Outlook For 1999?
Overall, there is a clear focus
toward growth sectors and, while the
valuations may be higher in these
areas, we believe our strategy is
appropriate for this stage of the
world economy. Commodity price
deflation, industrial capacity
oversupply, and intense competition
worldwide have made it difficult for
companies to grow revenues and
profits. Companies that can deliver
growth in this environment will
command investor attention. The
sectors on which we are currently
most focused are information
technology, health-care, and
information and entertainment. We
are cautious on the materials and
energy sectors which require a more
Performance Overview robust economic backdrop for
10/1/98 - 12/31/98 healthier earnings growth.
Growth of a $10,000
investment.
[GRAPH]
$13,188 Global Leaders IA
$12,115 MSCI World
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Cumulative Returns
Cumulative Returns
Period Ended December 31, 1998
SINCE INCEPTION
Global Leaders IA 31.88%
MSCI World 21.15%
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THE CHART REPRESENTS A HYPOTHETICAL
INVESTMENT IN THE GLOBAL LEADERS HLS FUND.
(THE CUMULATIVE RETURNS INCLUDE THE FUND
LEVEL EXPENSES, BUT EXCLUDE THE INSURANCE
CHARGES). PAST PERFORMANCE DOES NOT
GUARANTEE FUTURE RESULTS. THE VALUE OF THE
CONTRACT WILL FLUCTUATE SO THAT WHEN
REDEEMED, IT MAY BE WORTH MORE OR LESS
THAN THE ORIGINAL INVESTMENT.
<PAGE>
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HARTFORD
STOCK HLS FUND
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Portfolio Manager
Q.
How Did The Fund Perform?
[PHOTOGRAPH]
The Hartford Stock HLS Fund outperformed its
Lipper peer group for the year ending December
31, 1998. The Fund provided a total return of
33.5% versus 24.9% for the Lipper Growth VA-UF
Average, placing the Fund in the second
quartile of performance for funds in the group.
RAND L. ALEXANDER, CFA
Senior Vice President Q.
and Partner Why Did The Fund Perform This Way?
Wellington Management
Company, LLP In spite of the market turmoil in 1998,
investors who focused on large-cap, high
quality companies with consistent or
accelerating earnings growth were well
rewarded. The market's performance was
dominated by a small number of very large
companies who were able to deliver in a
difficult environment. These are exactly the
type of companies in which the Stock Fund
invests. The Fund also benefited from our
overweight positions in technology, healthcare,
retail and media -- sectors which performed
well in 1998.
Q.
What Is Your Outlook For 1999?
With low inflation, less dynamic economic
growth, and the potential for lower interest
rates, we expect the market to continue
focusing on companies with consistent and
predictable earnings growth. The Federal
Reserve's interest rate cuts have been welcomed
by Wall Street but have not had much impact on
global economic growth; therefore, we expect
further efforts on the part of the world's
central bankers to stimulate the worldwide
economy. These efforts could lead to a period
of rapid growth which would turn investors'
attention to more cyclical sectors of the
Performance Overview market. At such time, we would increase our
1/1/89 - 12/31/98 exposure to commodities producers and
Growth of a $10,000 manufacturing.
investment.
[GRAPH]
$54,653 Stock Fund IA
$57,928 S&P 500
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Annualized Returns
Average Annual Returns
Period Ended December 31, 1998
1 YEAR 5 YEAR 10 YEAR
Stock IA 33.47% 23.47% 18.48%
S&P 500 28.60% 24.05% 19.19%
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THE CHART REPRESENTS A HYPOTHETICAL
INVESTMENT IN THE STOCK HLS FUND. (THE
ANNUALIZED RETURNS INCLUDE THE FUND LEVEL
EXPENSES, BUT EXCLUDE THE INSURANCE
CHARGES). PAST PERFORMANCE DOES NOT
GUARANTEE FUTURE RESULTS. THE VALUE OF THE
CONTRACT WILL FLUCTUATE SO THAT WHEN
REDEEMED, IT MAY BE WORTH MORE OR LESS
THAN THE ORIGINAL INVESTMENT.
<PAGE>
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HARTFORD
GROWTH AND INCOME HLS FUND
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Portfolio Manager
Q.
How Did The Fund Perform?
[PHOTOGRAPH]
The Hartford Growth and Income HLS Fund
outperformed its Lipper peer group for the
quarter ending December 31, 1998. The Fund
provided a total return of 23.8% for the
quarter, versus 17.8% for the Lipper Growth &
Income VA-UF Average.
JAMES A. RULLO, CFA
Vice President Q.
Wellington Management Why Did The Fund Perform This Way?
Company, LLP
Large-cap stocks were the key beneficiaries of
the fourth quarter stock market rally. Within
large stocks, growth companies, the focus of
the Growth and Income Fund, outperformed value
stocks. In addition, our significant weighting
in technology stocks, which led the stock
market recovery, also boosted returns.
Q.
What Is Your Outlook For 1999?
We anticipate slower U.S. economic activity and
corporate earnings growth in 1999. However,
the interest rate environment is very positive
for equities, particularly for those stocks
which produce stable earnings growth. We expect
additional interest rate cuts by the Federal
Reserve, which will also be supportive of stock
market returns. Finding superior stocks will
be a more difficult task in 1999 as valuations
are stretched by historical standards.
Performance Overview However, we still feel there are interesting
6/1/98 - 12/31/98 opportunities in technology and mid-to-small
Growth of a $10,000 drug stocks.
investment.
[GRAPH]
$11,905 Growth and Income Fund IA
$11,366 S&P 500
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Cumulative Returns
Cumulative Returns
Period Ended December 31, 1998
SINCE INCEPTION
Growth and Income IA 19.05%
S&P 500 13.66%
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THE CHART REPRESENTS A HYPOTHETICAL
INVESTMENT IN THE GROWTH AND INCOME HLS
FUND. (THE CUMULATIVE RETURNS INCLUDE THE
FUND LEVEL EXPENSES, BUT EXCLUDE THE
INSURANCE CHARGES). PAST PERFORMANCE DOES
NOT GUARANTEE FUTURE RESULTS. THE VALUE OF
THE CONTRACT WILL FLUCTUATE SO THAT WHEN
REDEEMED, IT MAY BE WORTH MORE OR LESS
THAN THE ORIGINAL INVESTMENT.
<PAGE>
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HARTFORD
DIVIDEND AND GROWTH HLS FUND
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Portfolio Manager
Q.
How Did The Fund Perform?
[PHOTOGRAPH]
The Hartford Dividend and Growth HLS Fund
performed in line with its Lipper peer group
for the year ending December 31, 1998. The
Fund provided a total return of 16.4% versus
16.8% for the Lipper Equity Income VA-UF
Average.
LAURIE A. GABRIEL, CFA
Senior Vice President Q.
and Partner Why Did The Fund Perform This Way?
Wellington Management
Company, LLP During 1998, growth-oriented stocks outpaced
value stocks. In light of our
dividend-oriented value bias, some of the
Fund's holdings were under pressure. Our lack
of holdings in the information technology area
which we find to be overvalued, was also a
drawback. Substantial holdings in the
industrial/commercial and
information/entertainment sectors were
beneficial to the Fund.
Q.
What Is Your Outlook For 1999?
We will continue to look for value plays across
all industries. This is a key feature of the
Fund's investment strategy. Since the focus of
our investment approach is stock selection, the
sector representation will be fairly stable
over time. In light of slower global growth
and benign inflation trends, we are well
positioned going into 1999 as we have limited
our exposure to cyclical companies
(commodities, manufacturing) while maximizing
holdings in more promising areas such as health
care and consumer products. In our stock
Performance Overview selection, we will continue identifying stocks
3/9/94 - 12/31/98 with above average yields and below average
Growth of a $10,000 price/earnings ratios.
investment.
[GRAPH]
$26,240 Dividend and Growth Fund IA
$29,207 S&P 500
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Annualized Returns
Average Annual Returns
Period Ended December 31, 1998
1 YEAR SINCE INCEPTION
Div and Grow IA 16.42% 22.18%
S&P 500 28.60% 24.92%
- --------------------------------------------
THE CHART REPRESENTS A HYPOTHETICAL
INVESTMENT IN THE DIVIDEND AND GROWTH HLS
FUND. (THE ANNUALIZED RETURNS INCLUDE THE
FUND LEVEL EXPENSES, BUT EXCLUDE THE
INSURANCE CHARGES). PAST PERFORMANCE DOES
NOT GUARANTEE FUTURE RESULTS. THE VALUE OF
THE CONTRACT WILL FLUCTUATE SO THAT WHEN
REDEEMED, IT MAY BE WORTH MORE OR LESS
THAN THE ORIGINAL INVESTMENT.
<PAGE>
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HARTFORD
INTERNATIONAL ADVISERS HLS FUND
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Portfolio Managers
ROBERT EVANS Q.
Vice President How Did The Fund Perform?
Wellington Management [PHOTOGRAPH]
Company, LLP The Hartford International Advisers
HLS Fund underperformed its benchmark
for the year ended December 31, 1998.
The Fund provided a total return of
13.4% versus 19.6% for the Composite
Index (55% EAFE GDP Net, 35% SB World
Govt non-U.S. Bond -- hedged, 10%
T-Bill). Over longer time periods,
the Fund has outperformed its market
[PHOTOGRAPH] TROND SKRAMSTAD index.
Senior Vice President
and Partner Q.
Wellington Management Why Did The Fund Perform This Way?
Company, LLP
It was a volatile year in the
international equity and fixed income
markets. Through our ability to
allocate assets between stocks, bonds
and cash, we were able to take
advantage of attractive
opportunities. However, our
allocation did not prove to be the
most optimal mix for surpassing the
returns of our Composite index
benchmark.
Q.
What Is Your Outlook For 1999?
The global economy will experience
weak, but positive, growth in 1999.
World GDP should average only 1.3%
next year -- the slowest growth rate
since the early 1980's. Weak
economic activity and very low
inflation provide a backdrop for
stable to lower global interest
rates. This provides a positive
backdrop for most global fixed income
markets in 1999.
Weaker worldwide economic growth will
result in lackluster corporate
profits growth. Despite the slower
profit growth, equities should post
good performance in light of the low
level of global interest rates.
During a period of decelerating
corporate profits and global economic
Performance Overview weakness, we believe owning stable,
3/1/95 - 12/31/98 well-established growth companies is
Growth of a $10,000 investment. the most prudent investment strategy.
[GRAPH]
$15,489 International Advisers Fund IA
$16,475 EAFE GDP
$15,618 Salomon World Government Bond ex-US Index
- --------------------------------------------
Annualized Returns
Average Annual Returns
Period Ended December 31, 1998
1 Year Since Inception
Int'l Advisers IA 13.35% 12.07%
EAFE GDP 26.71% 13.89%
Salomon 11.54% 12.32%
- --------------------------------------------
THE CHART REPRESENTS A HYPOTHETICAL
INVESTMENT IN THE INTER-NATIONAL ADVISERS
HLS FUND. (THE ANNUALIZED RETURNS INCLUDE
THE FUND LEVEL EXPENSES, BUT EXCLUDE THE
INSURANCE CHARGES). PAST PERFORMANCE DOES
NOT GUARANTEE FUTURE RESULTS. THE VALUE OF
THE CONTRACT WILL FLUCTUATE SO THAT WHEN
REDEEMED, IT MAY BE WORTH MORE OR LESS
THAN THE ORIGINAL INVESTMENT.
<PAGE>
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HARTFORD
ADVISERS HLS FUND
- ------------------------------------------------------------------------------
Portfolio Managers
RAND L. ALEXANDER, CFA Q.
Senior Vice President How Did The Fund Perform?
and Partner [PHOTOGRAPH]
Wellington Management The Hartford Advisers HLS Fund
Company, LLP outperformed its Lipper peer group
for the year ending December 31,
1998. The Fund had a total return
of 24.7% versus 13.5% for the Lipper
Flexible VA-UF Average, placing the
fund in the first quartile of
performance for funds in the group.
[PHOTOGRAPH] PAUL D. KAPLAN
Senior Vice President Q.
and Partner Why Did The Fund Perform This Way?
Wellington Management
Company, LLP During volatile times, allocating
assets between stocks and bonds
within a portfolio is an enormous
advantage. Merely having that
flexibility, however, is not enough.
The asset allocation we used within
the portfolio allowed us to capture
strong stock market performance and
utilize fixed income to protect the
Fund during difficult times, such as
in the third quarter '98. By
gradually adjusting the weighting
between stocks, bonds and cash, we
were able to use our expectations of
market developments to produce
attractive Fund returns.
Q.
What Is Your Outlook For 1999?
Short- and intermediate-term yields
are likely to fall as the eventual
weakening of the economy will permit
the Federal Reserve to lower
short-term interest rates. The
current backdrop of slower economic
growth and historically low inflation
bodes well for the U.S. fixed income
market.
While we are optimistic about U.S.
equities, we are also wary about
market valuation levels. Therefore,
we will maintain our exposure to
equities around 55%. This is a
neutral stance versus our benchmark
index. In addition, we will continue
to focus on well-established, larger
companies which will be capable of
Performance Overview delivering consistent earnings
1/1/89 - 12/31/98 results despite a more challenging
Growth of a $10,000 investment. economic environment.
[GRAPH]
$57,928 S&P 500
$40,728 Advisers Fund IA
$24,410 Lehman Govt/Corp
- --------------------------------------------
Annualized Returns
Average Annual Returns
Period Ended December 31, 1998
1 YEAR 5 YEAR 10 YEAR
Advisers IA 24.66% 17.70% 15.08%
S&P 500 28.60% 24.05% 19.19%
Lehman
Govt/Corp 9.47% 7.30% 9.33%
- --------------------------------------------
THE CHART REPRESENTS A HYPOTHETICAL
INVESTMENT IN THE ADVISERS HLS FUND. (THE
ANNUALIZED RETURNS INCLUDE THE FUND LEVEL
EXPENSES, BUT EXCLUDE THE INSURANCE
CHARGES). PAST PERFORMANCE DOES NOT
GUARANTEE FUTURE RESULTS. THE VALUE OF THE
CONTRACT WILL FLUCTUATE SO THAT WHEN
REDEEMED, IT MAY BE WORTH MORE OR LESS
THAN THE ORIGINAL INVESTMENT.
<PAGE>
- ------------------------------------------------------------------------------
THE HARTFORD
HIGH YIELD HLS FUND
- ------------------------------------------------------------------------------
Portfolio Manager
Q.
How Did The Fund Perform?
[PHOTOGRAPH]
The Hartford High Yield HLS Fund commenced
operations on October 1, 1998. The Fund's
Class IA shares placed in the 2nd quartile of
its Lipper peer group for the three-months
ending December 31, 1998, producing a total
return of 3.58% versus the 2.94% return of the
ALISON D. GRANGER, CFA Lipper High Current Yield Variable Annuity Fund
Senior Vice President average. The Fund's return also outpaced that
The Hartford Investment of its benchmark index, the Lehman Corporate
Management Company (HIMCO) High Yield Index, which returned 2.13% for the
quarter.
Q.
Why Did The Fund Perform This Way?
The decline in the high yield fixed income
market during early October provided the Fund
with the opportunity to purchase many of its
initial investments at levels which contributed
to the Fund's overall outperfomance. The Fund's
allocation to issues which possess a relatively
high degree of market liquidity aided the
portfolio's performance, as these securities
were in demand during the fourth quarter. An
underweighting of the steel, finance, and
energy industries during the quarter also
provided additional performance at the margin.
Q.
What Is Your Outlook For 1999?
As we enter 1999, we are emphasizing three
themes in the high yield fund. The first theme
reflects our belief that there are
opportunities in selected
economically-sensitive issues which, in the
opinion of our analysts, have the wherewithal
to survive the current downturn. While the
outlook for a number of the cyclical industries
remains challenging, the pricing of these
securities reflects a high level of perceived
risk. We therefore feel that the risk/reward
characteristics of these issues are very
attractive.
The second portfolio theme we are emphasizing
focuses on the process of deregulation,
convergence and consolidation that can be
witnessed in a variety of industries, including
the telecommunications and independent power
producing industries. When these conditions
are present, we seek to purchase bonds of
companies whose assets are attractive on their
own or to a higher-rated potential acquirer in
the changing competitive environment.
Our final theme aims to invest in relatively
liquid issues of large companies who are
leaders in their industries. We seek out
investments in these companies in part because
of their expected continued ability to access
capital in these times of declining credit
availability. These companies are also likely
to have the staying power to weather a period
Performance Overview of declining earnings and may be able to find
10/1/98 - 12/31/98 opportunities left behind by smaller, weaker
Growth of a $10,000 competitors.
investment.
[GRAPH]
$10,358 High Yield Fund IA
$10,213 Lehman High Yield
- --------------------------------------------
Cumulative Returns
Cumulative Returns
Period Ended December 31, 1998
SINCE INCEPTION
High Yield IA 3.58%
Lehman High Yield 2.13%
- --------------------------------------------
THE CHART REPRESENTS A HYPOTHETICAL
INVESTMENT IN THE HIGH YIELD HLS FUND.
(THE CUMULATIVE RETURNS INCLUDE THE FUND
LEVEL EXPENSES, BUT EXCLUDE THE INSURANCE
CHARGES). PAST PERFORMANCE DOES NOT
GUARANTEE FUTURE RESULTS. THE VALUE OF THE
CONTRACT WILL FLUCTUATE SO THAT WHEN
REDEEMED, IT MAY BE WORTH MORE OR LESS
THAN THE ORIGINAL INVESTMENT.
<PAGE>
- ------------------------------------------------------------------------------
THE HARTFORD
BOND HLS FUND
- ------------------------------------------------------------------------------
Portfolio Manager
Q.
How Did The Fund Perform?
[PHOTOGRAPH]
The Hartford Bond HLS Fund Class IA shares
placed in the 2nd quartile of its Lipper peer
group for the year ending December 31, 1998,
producing a total return of 8.15% versus the
7.44% return of the Lipper Corporate Debt "BBB"
rated Variable Annuity Underlying Fund Universe.
ALISON D. GRANGER, CFA
Senior Vice President Q.
The Hartford Investment Why Did The Fund Perform This Way?
Management Company (HIMCO)
The average maturity and interest rate duration
of the Fund remained longer than its benchmark
index for 1998, resulting in price gains as
Treasury yields declined by roughly a full
percent during the year. We began 1998 with a
higher than average portfolio credit quality,
and continued to increase Treasury holdings
through September. This contributed to the
Fund's outperformance relative to its peer
average during the credit market declines of
the summer and early fall. Although they were
relatively minimal, the fund's holdings in
non-investment grade debt offset some of the
outperformance produced by its longer duration
and high average credit quality. A
concentration in U.S. Treasury Inflation
Protected Secur-ities failed to produce the
expected returns we anticipated, as their
historically attractive real yields did not
decline to the extent expected given 1998's
significant decline in nominal Treasury yields.
Q.
What Is Your Outlook For 1999?
The domestic economy appears indecisive.
Consumer-related indicators, such as retail
sales and housing markets are booming, but
inflation remains in check for now. We
believe any Federal Reserve easing bias will be
delayed, and could be tempered by foreign
influences, with the advent of the Euro and
potential repatriation of assets to Japan.
Corporate, asset-backed and mortgage-related
fixed income securities are still at
historically attractive levels, but pitfalls
abound for the unwary. For that reason, we
expect to continue our high-average-credit-
quality approach to management of the Fund.
Select opportunities can be found in the
Performance Overview commodity sectors, which underperformed during
1/1/89 - 12/31/98 1998, and now display an attractive risk/reward
Growth of a $10,000 profile.
investment.
[GRAPH]
$24,410 Lehman Govt/Corp
$23,373 Bond IA
- --------------------------------------------
Annualized Returns
Average Annual Returns
Period Ended December 31, 1998
1 YEAR 5 YEAR 10 YEAR
Bond IA 8.15% 7.25% 8.86%
Lehman Govt/Corp 9.47% 7.30% 9.33%
- --------------------------------------------
THE CHART REPRESENTS A HYPOTHETICAL
INVESTMENT IN THE BOND HLS FUND. (THE
ANNUALIZED RETURNS INCLUDE THE FUND LEVEL
EXPENSES, BUT EXCLUDE THE INSURANCE
CHARGES). PAST PERFORMANCE DOES NOT
GUARANTEE FUTURE RESULTS. THE VALUE OF THE
CONTRACT WILL FLUCTUATE SO THAT WHEN
REDEEMED, IT MAY BE WORTH MORE OR LESS
THAN THE ORIGINAL INVESTMENT.
<PAGE>
- ------------------------------------------------------------------------------
THE HARTFORD
MORTGAGE SECURITIES HLS FUND
- ------------------------------------------------------------------------------
Portfolio Manager
Q.
How Did The Fund Perform?
[PHOTOGRAPH]
The Hartford Mortgage Securities HLS Fund
provided a total return of 6.7% for the year
ending December 31, 1998, versus 6.9% for the
Lipper U.S. Mortgage Universe.
Q.
Timothy J. Wilhide Why Did The Fund Perform This Way?
Senior Vice President
The Hartford Investment Fixed Income yields declined by about one
Management Company (HIMCO) percentage point during the year as the Federal
Reserve lowered interest rates to ease the
effects of the worldwide financial crises on
the United States economy. All domestic bond
sectors performed well as a result, although
the best returns were on U.S. Treasury
securities which benefited from their perceived
"safe haven" status during the turmoil.
Mortgage securities lagged the total returns of
U.S. Treasuries as investors feared the risks
of early principal repayments due to widespread
homeowner refinancings. For example, the 1998
total return of intermediate maturity U.S.
Treasury securities, as measured by the Lehman
Bros. Index, was 8.62% while the Lehman Bros.
Mortgage Securities Index earned 6.96%.
Q.
What Is Your Outlook For 1999?
A silver lining to the underperformance of
mortgage securities is that they now offer a
yield advantage over U.S. Treasury and many
corporate investment grade securities which
fully reflect the risks of interest rate
fluctuations. Said another way, mortgage
securities are now priced for further rate
declines and so should deliver a fair risk
adjusted return in that event and very
attractive relative returns should rates stay
near current levels or move modestly higher.
As we begin 1999, the Fund will continue to
emphasize high quality and highly liquid
mortgage securities in its holdings.
Principally these are passthrough mortgages of
U.S. Government Agencies such as GNMA., FNMA
and FHLMC, although from time to time other
attractive mortgage securities such as CMO's
Performance Overview and AAA Commercial Mortgage Backed Securities
1/1/89 - 12/31/98 will be purchased to add additional value to
Growth of a $10,000 the Fund.
investment.
[GRAPH]
$23,951 Lehman Mortgage Backed Securities
$22,116 Mortgage Securities Fund IA
- --------------------------------------------
Annualized Returns
Average Annual Returns
Period Ended December 31, 1998
1 YEAR 5 YEAR 10 YEAR
Mort. Sec. IA 6.72% 6.92% 8.27%
Lehman Mort. 6.96% 7.23% 9.13%
- --------------------------------------------
THE CHART REPRESENTS A HYPOTHETICAL
INVESTMENT IN THE MORTGAGE SECURITIES HLS
FUND. (THE ANNUALIZED RETURNS INCLUDE THE
FUND LEVEL EXPENSES, BUT EXCLUDE THE
INSURANCE CHARGES). PAST PERFORMANCE DOES
NOT GUARANTEE FUTURE RESULTS. THE VALUE OF
THE CONTRACT WILL FLUCTUATE SO THAT WHEN
REDEEMED, IT MAY BE WORTH MORE OR LESS
THAN THE ORIGINAL INVESTMENT.
<PAGE>
- ------------------------------------------------------------------------------
BB&T GROWTH & INCOME FUND
- ------------------------------------------------------------------------------
Portfolio Manager
RICK B. JONES, CFA Q.
Vice President How Did The Fund Perform?
Branch Banking & Trust Co.
The BB&T Growth & Income Variable Annuity Fund
provided a total return of 13.36% for the
12-month period ending December 31, 1998. In
comparison, the Lipper Growth & Income Variable
Annuity-Underlying Fund average gained 16.37%.
Q.
Why Did The Fund Perform This Way?
Although we're not pure value managers, we do
have a strong, diversified value bias; we
pursue stocks we consider reasonably priced.
However, last year's stock market did not
reward a value orientation. Stocks were led by
two distinct groups: the type of
large-capitalization, growth names that
generally don't fit our style, and Internet
stocks that were valued at levels we found hard
to support. While some investors see a
tremendous future for the Internet, a lot of
the companies in that sector aren't going to
earn money for the next two or three years.
Many will never justify the stratospheric
market capitalizations they now enjoy. We
believe that, in the end, there are going to be
a lot more losers than winners, and we're not
comfortable risking our investors' money on
that type of gamble. As always, our goal is to
achieve competitive returns over a full market
cycle, but with less risk.
As of December 31, 1998 the portfolio's five
largest holdings were: Johnson & Johnson,
Anheuser Busch, SUPERVALU, SBC Communications
and AT&T.
Q.
What Is Your Outlook For 1999?
We're going to approach the coming year the
same way we approached last year. We are
long-term investors. We pay little or no
attention to what the stocks or sectors are
"hot" at any given time. We will continue to
practice the diversified value strategy our
shareholders expect. We will focus on
Performance Overview companies we believe have good prospects going
6/3/97 - 12/31/98 forward, and we'll buy them when they're
Growth of a $10,000 available at reasonable prices.
investment.
[GRAPH]
$14,922 S&P 500
$13,599 BB&T Growth and Income
- --------------------------------------------
Annualized Returns
Average Annual Returns
Period Ended December 31, 1998
1 YEAR SINCE INCEPTION
BB&T G&I 13.36% 21.51%
S&P 500 28.60% 28.87%
- --------------------------------------------
THE CHART REPRESENTS A HYPOTHETICAL
INVESTMENT IN THE BB&T GROWTH AND INCOME
FUND. (THE ANNUALIZED RETURNS INCLUDE THE
FUND LEVEL EXPENSES, BUT EXCLUDE THE
INSURANCE CHARGES). PAST PERFORMANCE DOES
NOT GUARANTEE FUTURE RESULTS. THE VALUE OF
THE CONTRACT WILL FLUCTUATE SO THAT WHEN
REDEEMED, IT MAY BE WORTH MORE OR LESS
THAN THE ORIGINAL INVESTMENT.
<PAGE>
- ------------------------------------------------------------------------------
AMSOUTH EQUITY INCOME FUND
- ------------------------------------------------------------------------------
Portfolio Manager
CHRISTOPHER WILES, CFA Q.
President How Did The Fund Perform?
Rockhaven Asset Management
The AmSouth Equity Income Variable Annuity Fund
provided a total return of 12.36% for the
12-month period ending December 31, 1998.
Q.
Why Did The Fund Perform This Way?
The first six months of 1998, the market
rewarded top-line revenue growth. We're
entering a period of very low inflation, or
perhaps even disinflation. In this type of
environment, the ability to grow revenues is
critical. After a difficult first half of
1998, we started to focus on companies that
could deliver robust revenue growth going
forward. Some of the stocks we bought included
Monstanto, in the basic material sector,
Perkin-Elmer, a healthcare company that
provides the instrumentation and computers
needed to map DNA; Costco, the retailing
company; and Disney, which we bought at year
end.
Q.
What Is Your Outlook For 1999?
First of all, because of the very narrow
leadership in the stock market and the very
high valuations many of the largest stocks
carry, we believe we're in for another
roller-coaster ride. We would be surprised if
we didn't have at least one significant
correction of 10% or more. Also, the
disinflation that's going on globally, the Y2K
problem, the Internet -- all these factors
could benefit larger, stronger companies,
rather than smaller ones. In this next year,
we'll maintain our focus on those larger-cap,
healthy multi-nationals that can deliver solid
Performance Overview revenue growth. And even though the market has
10/23/97 - 12/31/98 all the makings for another topsy-turvy year,
Growth of a $10,000 it could still go up another 20% in 1999.
investment.
[GRAPH]
$13,187 S&P 500
$11,491 AmSouth Equity Income
- --------------------------------------------
Annualized Returns
Average Annual Returns
Period Ended December 31, 1998
1 YEAR SINCE INCEPTION
Equity Income 12.36% 12.67%
S&P 500 28.60% 26.20%
- --------------------------------------------
THE CHART REPRESENTS A HYPOTHETICAL
INVESTMENT IN THE AMSOUTH EQUITY INCOME
FUND. (THE ANNUALIZED RETURNS INCLUDE THE
FUND LEVEL EXPENSES, BUT EXCLUDE THE
INSURANCE CHARGES). PAST PERFORMANCE DOES
NOT GUARANTEE FUTURE RESULTS. THE VALUE OF
THE CONTRACT WILL FLUCTUATE SO THAT WHEN
REDEEMED, IT MAY BE WORTH MORE OR LESS
THAN THE ORIGINAL INVESTMENT.
<PAGE>
- ------------------------------------------------------------------------------
MENTOR
VIP GROWTH PORTFOLIO
- ------------------------------------------------------------------------------
Portfolio Managers
TED PRICE, CFA Q.
Managing Director How Did The Fund Perform?
Mentor Investment Group
For the quarter ending December 31, 1998 the
LINDA ZIGLAR, CFA Mentor VIP Growth Portfolio returned 21.66%,
Managing Director significantly outperforming the Russell 2000
Mentor Investment Group Index benchmark return of 16.31%. Since
inception through December 31, 1998 the fund
JEFF DRUMMOND, CFA has returned -8.32% versus the Russell 2000
Senior Vice President Index return of -7.86%.
Mentor Investment Group
Q.
Why Did The Fund Perform This Way?
The past year has been one of the more
turbulent periods for small-cap stocks.
Small-cap performance lagged large-cap
performance despite one of the greatest
divergences in earning growth rates between
these two groups of stocks. Earnings of
small-cap growth companies continued to expand
at strong rates, while large-cap company
earnings slowed sharply. Volatility remained
at high levels throughout the year for all
small-caps. In addition, uncertainties
surrounding the outlook for the economy kept
pressure on small-cap performance, as the
impact of economic and Federal Reserve
uncertainties culminated in a plunge in most
markets during late September and the first
week in October. Low year-end valuations
existed despite the very strong performance of
small-cap stocks coming off the market bottom
in early October.
Q.
What Is Your Outlook For 1999?
We believe that the outlook for the Portfolio
is positive. Conversations with our companies'
management leads us to the conclusion that, on
the whole, earnings results for 1999 will
continue the strong gains that we saw in 1998.
While there are pockets of economic weakness in
price-sensitive areas such as retailing, the
management of early cyclical stocks such as
trucking firms, regional airlines, and radio
broadcasters tells us that the business outlook
for the first half of 1999 is quite good. The
expected earnings growth rate of our stocks on
average is 35% for the next 12 months, while
the P/E ratio of the Portfolio is at a 25%
discount to this growth rate. When compared to
the expected flat earnings growth of large-cap
Performance Overview companies and record high P/E ratios of that
3/3/98 - 12/31/98 group, we believe that the outlook for
Growth of a $10,000 small-cap stocks is exceptional.
investment.
[GRAPH]
$9,214 Russell 2000
$9,168 VIP Growth
- --------------------------------------------
Cumulative Returns
Cumulative Returns
Period Ended December 31, 1998
SINCE INCEPTION
VIP Growth -8.32%
Russell 2000 -7.86%
- --------------------------------------------
THE CHART REPRESENTS A HYPOTHETICAL
INVESTMENT IN THE MENTOR VIP GROWTH
PORTFOLIO. (THE CUMULATIVE RETURNS INCLUDE
THE FUND LEVEL EXPENSES, BUT EXCLUDE THE
INSURANCE CHARGES). PAST PERFORMANCE DOES
NOT GUARANTEE FUTURE RESULTS. THE VALUE OF
THE CONTRACT WILL FLUCTUATE SO THAT WHEN
REDEEMED, IT MAY BE WORTH MORE OR LESS
THAN THE ORIGINAL INVESTMENT.
<PAGE>
- ------------------------------------------------------------------------------
MENTOR VIP
PERPETUAL INTERNATIONAL PORTFOLIO
- ------------------------------------------------------------------------------
Portfolio Managers
SCOTT MCGLASHAN Q.
Far East Team Leader How Did The Fund Perform?
Perpetual, PLC
For the quarter ending December 31, 1998 the
KATHRYN LANGRIDGE Mentor VIP International Portfolio returned
Southeast Asia Team Leader 16.07%, lagging the MSCI EAFE Index benchmark
Perpetual, PLC return of 20.75%. Since inception through
December 31, 1998 the fund has returned 12.08%
STEPHEN WHITTAKER versus the MSCI EAFE Index return of 6.59%.
UK Team Leader
Perpetual, PLC Q.
Why Did The Fund Perform This Way?
MARGARET RODDAN
Europe Team Leader We added value through superior stock selection
Perpetual, PLC in Japan and Continental Europe, but lost a
portion of that through our UK stock selection.
MARK TURNER The major portfolio change that we implemented
Latin America Team Leader during the quarter occurred in early November
Perpetual, PLC when we moved 10% of the Portfolio out of
Continental Europe, reinvesting the proceeds
in Japan, Asia and small-cap UK stocks. Our
assessment was that some European markets were
beginning to over-discount the potential
short-term benefits from the establishment of
the Euro. On the other hand, recessionary
conditions throughout Asia were producing
attractive investment opportunities. The
consequences of this strategy will become
apparent during the next few months and will
depend significantly on evidence that Japanese
domestic consumption is beginning to recover.
Q.
What Is Your Outlook For 1999?
The critical questions for international
markets over the coming months will be the
behavior of the U.S. consumer and to what
extent that behavior is dependent on buoyant
stock markets and easy U.S. monetary
conditions. Suffice it to say that the U.S.
can be described as the world's "consumer of
last resort," providing markets for everything
from Brazilian steel to plastic and electronic
toys made in China. If the apparent
super-valuation of segments of the U.S. market
were to reverse course, and the U.S. consumer
ceased to be the beneficiary of capital gains
to match credit purchases, investors around the
Performance Overview world would likely focus more closely on the
3/3/98 - 12/31/98 earnings squeeze which deflationary conditions
Growth of a $10,000 are precipitating in many countries.
investment.
[GRAPH]
$11,208 VIP International
$10,659 EAFE
- --------------------------------------------
Cumulative Returns
Cumulative Returns
Period Ended December 31, 1998
SINCE INCEPTION
VIP International 12.08%
EAFE 6.59%
- --------------------------------------------
THE CHART REPRESENTS A HYPOTHETICAL
INVESTMENT IN THE MENTOR VIP INTERNATIONAL
PORTFOLIO. (THE CUMULATIVE RETURNS INCLUDE
THE FUND LEVEL EXPENSES, BUT EXCLUDE THE
INSURANCE CHARGES). PAST PERFORMANCE DOES
NOT GUARANTEE FUTURE RESULTS. THE VALUE OF
THE CONTRACT WILL FLUCTUATE SO THAT WHEN
REDEEMED, IT MAY BE WORTH MORE OR LESS
THAN THE ORIGINAL INVESTMENT.
<PAGE>
- ------------------------------------------------------------------------------
MENTOR
VIP CAPITAL GROWTH PORTFOLIO
- ------------------------------------------------------------------------------
Portfolio Managers
JOHN DAVENPORT, CFA Q.
Managing Director How Did The Fund Perform?
Mentor Investment Group
For the quarter ending December 31, 1998 the
RICHARD SKEPPSTROM Mentor VIP Capital Growth Portfolio returned
Senior Vice President 20.07%, slightly lagging the S&P 500 Index
Mentor Investment Group benchmark return of 21.30%. Since inception
through December 31, 1998 the fund has returned
CHRIS RUSBULDT, CFA 8.62% versus the S&P 500 Index return of 18.30%.
Vice President
Mentor Investment Group Q.
Why Did The Fund Perform This Way?
STEVE CERTO
Vice President The market's recent advances have been very
Mentor Investment Group narrow, with the gains becoming increasingly
concentrated in fewer and fewer mega-cap
stocks, stocks that represent the top 50 in the
S&P 500. Although we have not been as
concentrated in the largest-capitalization
growth stocks as the S&P 500, our performance
has held up well. If these largest growth
stocks stop outperforming the broader market,
as we strongly believe will happen, our
relative performance could benefit
significantly. We continue to own strong
companies that we believe can grow their
earnings, on average, at solid above-average
rates. Also, we own these stocks at what we
believe are relatively attractive valuations.
Q.
What Is Your Outlook For 1999?
It is impossible to predict where the stock
market will go in 1999. We do want to caution
that, much like the second half of 1998, the
ingredients are in place for a potentially very
volatile year in 1999. Valuations are high,
expectations are high, and the economic and
corporate environments are quite fluid.
Regardless of the 1999 market environment, we
will continue to focus on our proven,
fundamental strategy of holding a diversified
Performance Overview group of reasonably-valued quality companies
3/3/98 - 12/31/98 capable of sustaining above-average long-term
Growth of a $10,000 earnings growth.
investment.
[GRAPH]
$11,830 S&P 500
$10,864 VIP Capital Growth
- --------------------------------------------
Cumulative Returns
Cumulative Returns
Period Ended December 31, 1998
SINCE INCEPTION
VIP Capital Growth 8.64%
S&P 500 18.30%
- --------------------------------------------
THE CHART REPRESENTS A HYPOTHETICAL
INVESTMENT IN THE MENTOR VIP CAPITAL
GROWTH PORTFOLIO. (THE CUMULATIVE RETURNS
INCLUDE THE FUND LEVEL EXPENSES, BUT
EXCLUDE THE INSURANCE CHARGES). PAST
PERFORMANCE DOES NOT GUARANTEE FUTURE
RESULTS. THE VALUE OF THE CONTRACT WILL
FLUCTUATE SO THAT WHEN REDEEMED, IT MAY BE
WORTH MORE OR LESS THAN THE ORIGINAL
INVESTMENT.
<PAGE>
Performance Summary of Hartford HLS Mutual Funds
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FUNDS
<CAPTION>
TOTAL RETURNS FOR THE YEAR ENDED DECEMBER 31,
1998 1997 1996 1995 1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Stock HLS Fund... 33.47% 31.38% 24.37% 34.10% (1.89)% 14.34% 10.04% 24.58% (3.87)%
Bond HLS Fund.... 8.15 11.35 3.52 18.49 (3.95) 10.24 5.53 16.43 8.39
Money Market HLS
Fund............ 5.25 5.31 5.19 5.74 3.95 2.94 3.63 6.01 8.09
Advisers HLS
Fund............ 24.66 24.51 16.59 28.34 (2.74) 12.25 8.30 20.33 1.26
Capital
Appreciation HLS
Fund............ 15.48 22.34 20.70 30.25 2.50 20.80 16.98 53.99 (10.90)
Mortgage
Securities HLS
Fund............ 6.72 9.01 5.07 16.17 (1.61) 6.31 4.64 14.71 9.70
Index HLS Fund... 28.06 32.61 22.09 36.55 0.94 9.12 6.82 29.53 (3.99)
International
Opportunities
HLS Fund........ 13.16 0.34 12.93 13.93 (1.94) 33.73 (4.43) 13.00 (11.76)*
Dividend and
Growth HLS
Fund............ 16.42 31.89 22.91 36.37 1.96* -- -- -- --
International
Advisers HLS
Fund............ 13.35 5.52 11.79 15.84* -- -- -- -- --
Small Company HLS
Fund............ 11.62 18.38 7.15* -- -- -- -- -- --
MidCap HLS
Fund............ 26.57 13.81* -- -- -- -- -- -- --
Growth & Income
HLS Fund........ 19.05* -- -- -- -- -- -- -- --
Global Leaders
HLS Fund........ 31.88* -- -- -- -- -- -- -- --
High Yield HLS
Fund............ 3.58* -- -- -- -- -- -- -- --
MARKET INDICES
Standard & Poor's
500 Stock
Index........... 28.60 % 33.35 % 22.95 % 37.52 % 1.31 % 10.06 % 7.61 % 30.39 % (3.11)%
Standard & Poor's
400 Stock Index
(MidCap)........ 19.11 32.25 19.18 30.88 (3.59) 11.03 7.58 16.13 8.28
Shearson Lehman
Gov't/ Corp.
Bond Index...... 9.47 9.76 2.90 19.24 (3.51) 11.03 7.58 16.13 8.28
90-Day Treasury
Bills........... 4.98 5.33 5.29 5.80 4.14 3.12 3.70 5.90 7.95
EAFEGDP.......... 26.71 5.77 7.63 11.16 7.81 33.56 (9.65) 10.73 --
Frank Russell
2000 Index...... (2.55) 22.36 16.51 28.45 (1.82) 18.71 18.41 46.04 (19.48)
Frank Russell
2500 Index...... 0.38 24.43 19.04 31.70 (1.07) 16.54 16.18 46.69 (14.88)
Shearson Lehman
Brothers
Mortgage Backed
Bond Index...... 6.96 9.49 5.35 16.80 (1.61) 6.84 8.96 15.72 10.72
<CAPTION>
FUNDS
1989 1988 1987 1986 1985
<S> <C> <C> <C> <C> <C>
Stock HLS Fund... 26.02% 19.00% 5.41% 12.33% 31.49%
Bond HLS Fund.... 12.10 7.60 (0.01) 12.19 20.62
Money Market HLS
Fund............ 9.10 7.40 6.49 6.77 8.53
Advisers HLS
Fund............ 21.72 14.24 6.08 12.70 26.85
Capital
Appreciation HLS
Fund............ 24.11 26.37 (4.31) 9.03 36.18
Mortgage
Securities HLS
Fund............ 13.13 8.38 2.64 11.13 20.61
Index HLS Fund... 30.47 16.35 (12.91)* -- --
International
Opportunities
HLS Fund........ -- -- -- -- --
Dividend and
Growth HLS
Fund............ -- -- -- -- --
International
Advisers HLS
Fund............ -- -- -- -- --
Small Company HLS
Fund............ -- -- -- -- --
MidCap HLS
Fund............ -- -- -- -- --
Growth & Income
HLS Fund........ -- -- -- -- --
Global Leaders
HLS Fund........ -- -- -- -- --
High Yield HLS
Fund............ -- -- -- -- --
MARKET INDICES
Standard & Poor's
500 Stock
Index........... 31.62 % 16.60 % 5.49 % 18.66 % 31.70 %
Standard & Poor's
400 Stock Index
(MidCap)........ 14.24 7.58 2.29 15.62 21.30
Shearson Lehman
Gov't/ Corp.
Bond Index...... 14.24 7.58 2.29 15.62 21.30
90-Day Treasury
Bills........... 8.67 6.56 5.97 6.41 7.97
EAFEGDP.......... -- -- -- -- --
Frank Russell
2000 Index...... 16.26 25.02 (8.80) 5.68 31.04
Frank Russell
2500 Index...... 19.43 21.39 1.75 12.62 --
Shearson Lehman
Brothers
Mortgage Backed
Bond Index...... 15.35 8.55 2.81 -- --
</TABLE>
* The inception dates of the Funds are as follows: Stock and Bond
Securities--August 31, 1977, HVA Money Market--June 30 1980, Advisers--March
31, 1983, Capital Appreciation--April 2, 1984, Mortgage Securities--January
1, 1985, Index--May 1, 1987, International Opportunities--July 2, 1990,
Dividend and Growth--March 8, 1994, International Advisers--March 1, 1995,
Small Company--August 9, 1996, MidCap--July 15, 1997, Growth & Income--April
30, 1998, High Yield--September 21, 1998 and Global Leaders--September 30,
1998
The performance figures for mutual funds do not include insurance charges that
are included in the unit values of individual plans.
Total return consists of any change in the market price of securities owned by
the various mutual funds, as well as income from dividends or interest.
Calculations assume reinvestment of income. Performance figures represent past
results and are not a guarantee of future performance. An investor's unit when
redeemed, may be worth more or less than the original cost. Results do not
take into account personal income taxes and capital gains where applicable.
Market indices are included as a broad measure of market performance, and no
direct comparison with funds is intended.
---------------------------------------------------- 21
----------------------------------------------------
<PAGE>
SEPARATE ACCOUNT TWO
- --------------------------------------------------------------------------------
HARTFORD LIFE INSURANCE COMPANY
STATEMENTS OF ASSETS AND LIABILITIES
DECEMBER 31, 1998
<TABLE>
<CAPTION>
BOND FUND STOCK FUND
SUB-ACCOUNT SUB-ACCOUNT
------------ --------------
<S> <C> <C>
ASSETS:
Investments:
Hartford Bond HLS
Fund, Inc. - Class
IA
Shares 349,618,159
Cost $365,928,024
Market Value....... $377,820,108 --
Hartford Stock HLS
Fund, Inc. - Class
IA
Shares 380,740,509
Cost $1,321,699,321
Market Value....... -- $2,498,292,052
Hartford Money Market
HLS Fund, Inc. -
Class IA
Shares 342,816,331
Cost $342,816,331
Market Value....... -- --
Hartford Advisers HLS
Fund, Inc. - Class
IA
Shares
1,646,987,741
Cost $3,054,571,935
Market Value....... -- --
Hartford Capital
Appreciation HLS
Fund, Inc. - Class
IA
Shares 417,240,558
Cost $1,302,905,756
Market Value....... -- --
Hartford Mortgage
Securities HLS Fund,
Inc. - Class IA
Shares 175,411,395
Cost $189,578,583
Market Value....... -- --
Hartford Index HLS
Fund, Inc. - Class
IA
Shares 174,516,110
Cost $371,361,315
Market Value....... -- --
Hartford
International
Opportunities HLS
Fund, Inc. - Class
IA
Shares 294,203,798
Cost $340,518,189
Market Value....... -- --
Hartford Dividend and
Growth HLS Fund,
Inc. - Class IA
Shares 451,028,566
Cost $725,280,325
Market Value....... -- --
Due from Hartford Life
Insurance Company..... 204,248 389,733
Receivable from fund
shares sold........... -- --
------------ --------------
Total Assets........... 378,024,356 2,498,681,785
------------ --------------
LIABILITIES:
Due to Hartford Life
Insurance Company..... -- --
Payable for fund shares
purchased............. 204,309 389,945
------------ --------------
Total Liabilities...... 204,309 389,945
------------ --------------
Net Assets (variable
annuity contract
liabilities).......... $377,820,047 $2,498,291,840
------------ --------------
------------ --------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
---------------------------------------------------- 22
----------------------------------------------------
<PAGE>
<TABLE>
<CAPTION>
MONEY CAPITAL MORTGAGE
MARKET FUND ADVISERS FUND APPRECIATION FUND SECURITIES FUND INDEX FUND
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
------------ -------------- ------------------ ---------------- --------------
<S> <C> <C> <C> <C> <C>
ASSETS:
Investments:
Hartford Bond HLS
Fund, Inc. - Class
IA
Shares 349,618,159
Cost $365,928,024
Market Value....... -- -- -- -- --
Hartford Stock HLS
Fund, Inc. - Class
IA
Shares 380,740,509
Cost $1,321,699,321
Market Value....... -- -- -- -- --
Hartford Money Market
HLS Fund, Inc. -
Class IA
Shares 342,816,331
Cost $342,816,331
Market Value....... $342,816,331 -- -- -- --
Hartford Advisers HLS
Fund, Inc. - Class
IA
Shares
1,646,987,741
Cost $3,054,571,935
Market Value....... -- $4,916,675,095 -- -- --
Hartford Capital
Appreciation HLS
Fund, Inc. - Class
IA
Shares 417,240,558
Cost $1,302,905,756
Market Value....... -- -- $1,985,681,614 -- --
Hartford Mortgage
Securities HLS Fund,
Inc. - Class IA
Shares 175,411,395
Cost $189,578,583
Market Value....... -- -- -- $190,242,955 --
Hartford Index HLS
Fund, Inc. - Class
IA
Shares 174,516,110
Cost $371,361,315
Market Value....... -- -- -- -- $ 623,101,394
Hartford
International
Opportunities HLS
Fund, Inc. - Class
IA
Shares 294,203,798
Cost $340,518,189
Market Value....... -- -- -- -- --
Hartford Dividend and
Growth HLS Fund,
Inc. - Class IA
Shares 451,028,566
Cost $725,280,325
Market Value....... -- -- -- -- --
Due from Hartford Life
Insurance Company..... -- 662,986 10,643,121 -- 267,176
Receivable from fund
shares sold........... 19,488,693 -- -- 412,430 --
------------ -------------- ------------------ ---------------- --------------
Total Assets........... 362,305,024 4,917,338,081 1,996,324,735 190,655,385 623,368,570
------------ -------------- ------------------ ---------------- --------------
LIABILITIES:
Due to Hartford Life
Insurance Company..... 19,483,630 -- -- 408,162 --
Payable for fund shares
purchased............. -- 664,510 10,643,361 -- 267,984
------------ -------------- ------------------ ---------------- --------------
Total Liabilities...... 19,483,630 664,510 10,643,361 408,162 267,984
------------ -------------- ------------------ ---------------- --------------
Net Assets (variable
annuity contract
liabilities).......... $342,821,394 $4,916,673,571 $1,985,681,374 $190,247,223 $ 623,100,586
------------ -------------- ------------------ ---------------- --------------
------------ -------------- ------------------ ---------------- --------------
<CAPTION>
INTERNATIONAL DIVIDEND AND
OPPORTUNITIES FUND GROWTH FUND
SUB-ACCOUNT SUB-ACCOUNT
------------------- ---------------
<S> <C> <C>
ASSETS:
Investments:
Hartford Bond HLS
Fund, Inc. - Class
IA
Shares 349,618,159
Cost $365,928,024
Market Value....... -- --
Hartford Stock HLS
Fund, Inc. - Class
IA
Shares 380,740,509
Cost $1,321,699,321
Market Value....... -- --
Hartford Money Market
HLS Fund, Inc. -
Class IA
Shares 342,816,331
Cost $342,816,331
Market Value....... -- --
Hartford Advisers HLS
Fund, Inc. - Class
IA
Shares
1,646,987,741
Cost $3,054,571,935
Market Value....... -- --
Hartford Capital
Appreciation HLS
Fund, Inc. - Class
IA
Shares 417,240,558
Cost $1,302,905,756
Market Value....... -- --
Hartford Mortgage
Securities HLS Fund,
Inc. - Class IA
Shares 175,411,395
Cost $189,578,583
Market Value....... -- --
Hartford Index HLS
Fund, Inc. - Class
IA
Shares 174,516,110
Cost $371,361,315
Market Value....... -- --
Hartford
International
Opportunities HLS
Fund, Inc. - Class
IA
Shares 294,203,798
Cost $340,518,189
Market Value....... $398,604,075 --
Hartford Dividend and
Growth HLS Fund,
Inc. - Class IA
Shares 451,028,566
Cost $725,280,325
Market Value....... -- $974,440,901
Due from Hartford Life
Insurance Company..... -- 122,495
Receivable from fund
shares sold........... 364,279 --
------------------- ---------------
Total Assets........... 398,968,354 974,563,396
------------------- ---------------
LIABILITIES:
Due to Hartford Life
Insurance Company..... 364,240 --
Payable for fund shares
purchased............. -- 122,730
------------------- ---------------
Total Liabilities...... 364,240 122,730
------------------- ---------------
Net Assets (variable
annuity contract
liabilities).......... $398,604,114 $974,440,666
------------------- ---------------
------------------- ---------------
</TABLE>
---------------------------------------------------- 23
----------------------------------------------------
<PAGE>
SEPARATE ACCOUNT TWO
- --------------------------------------------------------------------------------
HARTFORD LIFE INSURANCE COMPANY
STATEMENTS OF ASSETS AND LIABILITIES -- (CONTINUED)
DECEMBER 31, 1998
<TABLE>
<CAPTION>
INTERNATIONAL SMALL MIDCAP SMITH BARNEY
ADVISERS FUND COMPANY FUND FUND CASH PORTFOLIO
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
-------------- ------------- ------------ ---------------
<S> <C> <C> <C> <C>
ASSETS:
Investments:
International
Advisers HLS Fund,
Inc. - Class IA
Shares 65,678,237
Cost $75,055,437
Market Value....... $75,837,939 -- -- --
Small Company HLS
Fund, Inc. - Class
IA
Shares 93,203,695
Cost $112,102,718
Market Value....... -- $123,132,800 -- --
MidCap HLS Fund, Inc.
- Class IA
Shares 32,171,652
Cost $39,368,682
Market Value....... -- -- $46,303,243 --
Smith Barney Cash
Portfolio
Shares 486,806
Cost $486,806
Market Value....... -- -- -- $486,808
Smith Barney
Appreciation Fund
Shares 13,052
Cost $99,509
Market Value....... -- -- -- --
Smith Barney
Government Portfolio
Shares 34,357
Cost $34,357
Market Value....... -- -- -- --
BB&T Growth & Income
Fund
Shares 1,782,787
Cost $21,373,783
Market Value....... -- -- -- --
AmSouth Equity Income
Fund
Shares 1,999,203
Cost $21,507,113
Market Value....... -- -- -- --
Mentor VIP Capital
Growth Portfolio
Shares 1,375,385
Cost $16,981,499
Market Value....... -- -- -- --
Mentor VIP Perpetual
International
Portfolio
Shares 771,760
Cost $10,211,028
Market Value....... -- -- -- --
Mentor VIP Growth
Portfolio
Shares 913,633
Cost $9,860,193
Market Value....... -- -- -- --
Due from Hartford Life
Insurance Company..... 37,942 8,326,029 197,604 26,345
Receivable from fund
shares sold........... -- -- -- --
-------------- ------------- ------------ ---------------
Total Assets........... 75,875,881 131,458,829 46,500,847 513,153
-------------- ------------- ------------ ---------------
LIABILITIES:
Due to Hartford Life
Insurance Company..... -- -- -- --
Payable for fund shares
purchased............. 37,943 8,325,756 198,464 26,450
-------------- ------------- ------------ ---------------
Total Liabilities...... 37,943 8,325,756 198,464 26,450
-------------- ------------- ------------ ---------------
Net Assets (variable
annuity contract
liabilities).......... $75,837,938 $123,133,073 $46,302,383 $486,703
-------------- ------------- ------------ ---------------
-------------- ------------- ------------ ---------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
---------------------------------------------------- 24
----------------------------------------------------
<PAGE>
<TABLE>
<CAPTION>
SMITH BARNEY SMITH BARNEY BB&T GROWTH & AMSOUTH EQUITY MENTOR
APPRECIATION FUND GOVERNMENT PORTFOLIO INCOME FUND INCOME FUND CAPITAL GROWTH
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
------------------ --------------------- ----------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
ASSETS:
Investments:
International
Advisers HLS Fund,
Inc. - Class IA
Shares 65,678,237
Cost $75,055,437
Market Value....... -- -- -- -- --
Small Company HLS
Fund, Inc. - Class
IA
Shares 93,203,695
Cost $112,102,718
Market Value....... -- -- -- -- --
MidCap HLS Fund, Inc.
- Class IA
Shares 32,171,652
Cost $39,368,682
Market Value....... -- -- -- -- --
Smith Barney Cash
Portfolio
Shares 486,806
Cost $486,806
Market Value....... -- -- -- -- --
Smith Barney
Appreciation Fund
Shares 13,052
Cost $99,509
Market Value....... $199,776 -- -- -- --
Smith Barney
Government Portfolio
Shares 34,357
Cost $34,357
Market Value....... -- $34,356 -- -- --
BB&T Growth & Income
Fund
Shares 1,782,787
Cost $21,373,783
Market Value....... -- -- $23,711,070 -- --
AmSouth Equity Income
Fund
Shares 1,999,203
Cost $21,507,113
Market Value....... -- -- -- $22,511,025 --
Mentor VIP Capital
Growth Portfolio
Shares 1,375,385
Cost $16,981,499
Market Value....... -- -- -- -- $18,677,728
Mentor VIP Perpetual
International
Portfolio
Shares 771,760
Cost $10,211,028
Market Value....... -- -- -- -- --
Mentor VIP Growth
Portfolio
Shares 913,633
Cost $9,860,193
Market Value....... -- -- -- -- --
Due from Hartford Life
Insurance Company..... -- -- 29,049 -- 11,902
Receivable from fund
shares sold........... 117 31 -- 30,849 --
-------- ------- ----------------- --------------- ---------------
Total Assets........... 199,893 34,387 23,740,119 22,541,874 18,689,630
-------- ------- ----------------- --------------- ---------------
LIABILITIES:
Due to Hartford Life
Insurance Company..... 106 30 -- 30,853 --
Payable for fund shares
purchased............. -- -- 29,053 -- 11,898
-------- ------- ----------------- --------------- ---------------
Total Liabilities...... 106 30 29,053 30,853 11,898
-------- ------- ----------------- --------------- ---------------
Net Assets (variable
annuity contract
liabilities).......... $199,787 $34,357 $23,711,066 $22,511,021 $18,677,732
-------- ------- ----------------- --------------- ---------------
-------- ------- ----------------- --------------- ---------------
<CAPTION>
MENTOR PERPETUAL MENTOR
INTERNATIONAL GROWTH
SUB-ACCOUNT SUB-ACCOUNT
----------------- --------------
<S> <C> <C>
ASSETS:
Investments:
International
Advisers HLS Fund,
Inc. - Class IA
Shares 65,678,237
Cost $75,055,437
Market Value....... -- --
Small Company HLS
Fund, Inc. - Class
IA
Shares 93,203,695
Cost $112,102,718
Market Value....... -- --
MidCap HLS Fund, Inc.
- Class IA
Shares 32,171,652
Cost $39,368,682
Market Value....... -- --
Smith Barney Cash
Portfolio
Shares 486,806
Cost $486,806
Market Value....... -- --
Smith Barney
Appreciation Fund
Shares 13,052
Cost $99,509
Market Value....... -- --
Smith Barney
Government Portfolio
Shares 34,357
Cost $34,357
Market Value....... -- --
BB&T Growth & Income
Fund
Shares 1,782,787
Cost $21,373,783
Market Value....... -- --
AmSouth Equity Income
Fund
Shares 1,999,203
Cost $21,507,113
Market Value....... -- --
Mentor VIP Capital
Growth Portfolio
Shares 1,375,385
Cost $16,981,499
Market Value....... -- --
Mentor VIP Perpetual
International
Portfolio
Shares 771,760
Cost $10,211,028
Market Value....... $10,812,357 --
Mentor VIP Growth
Portfolio
Shares 913,633
Cost $9,860,193
Market Value....... -- $10,470,235
Due from Hartford Life
Insurance Company..... 15,306 67,722
Receivable from fund
shares sold........... -- --
----------------- --------------
Total Assets........... 10,827,663 10,537,957
----------------- --------------
LIABILITIES:
Due to Hartford Life
Insurance Company..... -- --
Payable for fund shares
purchased............. 15,308 67,727
----------------- --------------
Total Liabilities...... 15,308 67,727
----------------- --------------
Net Assets (variable
annuity contract
liabilities).......... $10,812,355 $10,470,230
----------------- --------------
----------------- --------------
</TABLE>
---------------------------------------------------- 25
----------------------------------------------------
<PAGE>
SEPARATE ACCOUNT TWO
- --------------------------------------------------------------------------------
HARTFORD LIFE INSURANCE COMPANY
STATEMENTS OF ASSETS AND LIABILITIES -- (CONTINUED)
DECEMBER 31, 1998
<TABLE>
<CAPTION>
GROWTH AND
INCOME FUND
SUB-ACCOUNT
------------
<S> <C>
ASSETS:
Investments:
Hartford Growth and
Income HLS Fund -
Class IA
Shares 5,269,425
Cost $5,509,163
Market Value....... $6,249,337
Hartford High Yield
HLS Fund - Class IA
Shares 1,911,536
Cost $1,953,422
Market Value....... --
Hartford Global
Leaders HLS Fund -
Class IA
Shares 466,167
Cost $588,674
Market Value....... --
Mitchell Hutchins
Growth & Income
Portfolio
Shares 673
Cost $9,994
Market Value....... --
Mitchell Hutchins
Strategic Income
Portfolio
Shares 808
Cost $9,994
Market Value....... --
Mitchell Hutchins
Tactical Allocation
Portfolio
Shares 705
Cost $9,995
Market Value....... --
Investment Income
Receivable............ --
Due from Hartford Life
Insurance Company..... --
Receivable from fund
shares sold........... 67,470
------------
Total Assets........... 6,316,807
------------
LIABILITIES:
Due to Hartford Life
Insurance Company..... 67,470
Payable for fund shares
purchased............. --
------------
Total Liabilities...... 67,470
------------
Net Assets (variable
annuity contract
liabilities).......... $6,249,337
------------
------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
---------------------------------------------------- 26
----------------------------------------------------
<PAGE>
<TABLE>
<CAPTION>
HIGH GLOBAL MITCHELL HUTCHINS GROWTH MITCHELL HUTCHINS STRATEGIC
YIELD FUND LEADERS FUND AND INCOME PORTFOLIO INCOME PORTFOLIO
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
------------ ------------- ------------------------- ----------------------------
<S> <C> <C> <C> <C>
ASSETS:
Investments:
Hartford Growth and
Income HLS Fund -
Class IA
Shares 5,269,425
Cost $5,509,163
Market Value....... -- -- -- --
Hartford High Yield
HLS Fund - Class IA
Shares 1,911,536
Cost $1,953,422
Market Value....... $1,943,548 -- -- --
Hartford Global
Leaders HLS Fund -
Class IA
Shares 466,167
Cost $588,674
Market Value....... -- $599,110 -- --
Mitchell Hutchins
Growth & Income
Portfolio
Shares 673
Cost $9,994
Market Value....... -- -- $ 9,973 --
Mitchell Hutchins
Strategic Income
Portfolio
Shares 808
Cost $9,994
Market Value....... -- -- -- $9,849
Mitchell Hutchins
Tactical Allocation
Portfolio
Shares 705
Cost $9,995
Market Value....... -- -- -- --
Investment Income
Receivable............ -- -- 746 122
Due from Hartford Life
Insurance Company..... 47,113 -- -- --
Receivable from fund
shares sold........... -- 73,610 6 5
------------ ------------- ------- ------
Total Assets........... 1,990,661 672,720 10,725 9,976
------------ ------------- ------- ------
LIABILITIES:
Due to Hartford Life
Insurance Company..... -- 73,610 6 5
Payable for fund shares
purchased............. 47,114 -- -- --
------------ ------------- ------- ------
Total Liabilities...... 47,114 73,610 6 5
------------ ------------- ------- ------
Net Assets (variable
annuity contract
liabilities).......... $1,943,547 $599,110 $10,719 $9,971
------------ ------------- ------- ------
------------ ------------- ------- ------
<CAPTION>
MITCHELL HUTCHINS TACTICAL
ALLOCATION PORTFOLIO
SUB-ACCOUNT
---------------------------
<S> <C>
ASSETS:
Investments:
Hartford Growth and
Income HLS Fund -
Class IA
Shares 5,269,425
Cost $5,509,163
Market Value....... --
Hartford High Yield
HLS Fund - Class IA
Shares 1,911,536
Cost $1,953,422
Market Value....... --
Hartford Global
Leaders HLS Fund -
Class IA
Shares 466,167
Cost $588,674
Market Value....... --
Mitchell Hutchins
Growth & Income
Portfolio
Shares 673
Cost $9,994
Market Value....... --
Mitchell Hutchins
Strategic Income
Portfolio
Shares 808
Cost $9,994
Market Value....... --
Mitchell Hutchins
Tactical Allocation
Portfolio
Shares 705
Cost $9,995
Market Value....... $10,502
Investment Income
Receivable............ 69
Due from Hartford Life
Insurance Company..... --
Receivable from fund
shares sold........... 6
-------
Total Assets........... 10,577
-------
LIABILITIES:
Due to Hartford Life
Insurance Company..... 6
Payable for fund shares
purchased............. --
-------
Total Liabilities...... 6
-------
Net Assets (variable
annuity contract
liabilities).......... $10,571
-------
-------
</TABLE>
---------------------------------------------------- 27
----------------------------------------------------
<PAGE>
SEPARATE ACCOUNT TWO
- --------------------------------------------------------------------------------
HARTFORD LIFE INSURANCE COMPANY
STATEMENTS OF ASSETS AND LIABILITIES -- (CONTINUED)
DECEMBER 31, 1998
<TABLE>
<CAPTION>
UNITS
OWNED BY UNIT CONTRACT
PARTICIPANTS PRICE LIABILITY
------------- ---------- ---------------
<S> <C> <C> <C>
DEFERRED ANNUITY CONTRACTS IN THE
ACCUMULATION PERIOD:
INDIVIDUAL SUB-ACCOUNTS:
Bond Fund Qualified 1.00%........ 232,939 $ 4.373600 $ 1,018,782
Bond Fund Non-Qualified 1.00%.... 1,961,849 4.307093 8,449,866
Bond Fund 1.25%.................. 162,500,684 2.257591 366,860,082
Bond Fund .25%................... 55,518 1.533539 85,139
Bond Fund........................ 306,878 1.030758 316,317
Stock Fund Qualified 1.00%....... 802,936 11.737647 9,424,579
Stock Fund Non-Qualified 1.00%... 2,912,842 11.223740 32,692,982
Stock Fund 1.25%................. 403,629,126 6.065754 2,448,314,988
Stock Fund .25%.................. 1,056,753 3.251658 3,436,199
Stock Fund....................... 849,480 1.036706 880,661
Money Market Fund Qualified
1.00%........................... 612,050 2.679268 1,639,846
Money Market Fund Non-Qualified
1.00%........................... 9,019,394 2.680536 24,176,811
Money Market Fund 1.25%.......... 183,614,324 1.715714 315,029,666
Money Market Fund .25%........... 373,199 1.299644 485,026
Money Market Fund................ 725,403 1.016497 737,370
Advisers Fund Qualified 1.00%.... 3,191,360 6.604239 21,076,505
Advisers Fund Non-Qualified
1.00%........................... 9,942,207 6.604240 65,660,718
Advisers Fund 1.25%.............. 1,095,048,448 4.397886 4,815,898,238
Advisers Fund .25%............... 1,220,271 2.502440 3,053,655
Advisers Fund.................... 1,915,141 1.035292 1,982,730
Capital Appreciation Fund
Qualified 1.00%................. 774,553 9.322862 7,221,051
Capital Appreciation Fund
Non-Qualified 1.00%............. 2,433,361 9.318523 22,675,331
Capital Appreciation Fund
1.25%........................... 352,482,012 5.525767 1,947,733,468
Capital Appreciation Fund .25%... 2,264,988 2.712640 6,144,097
Capital Appreciation Fund........ 271,922 0.984021 267,577
Mortgage Securities Fund
Qualified 1.00%................. 484,096 2.844764 1,377,139
Mortgage Securities Fund
Non-Qualified 1.00%............. 5,584,466 2.844767 15,886,504
Mortgage Securities Fund 1.25%... 78,025,873 2.210954 172,511,615
Mortgage Securities Fund .25%.... 14,431 1.458457 21,047
Mortgage Securities Fund......... 10,000 1.022300 10,223
Index Fund 1.00%................. 146,209 1.866581 272,911
Index Fund Non-Qualified 1.00%... 569,781 1.866580 1,063,542
Index Fund 1.25%................. 131,578,849 4.712432 620,056,376
Index Fund .25%.................. 212,284 3.080896 654,025
Index Fund....................... 249,634 1.044934 260,851
International Opportunities Fund
Qualified 1.00%................. 197,097 1.676915 330,515
International Opportunities Fund
Non-Qualified 1.00%............. 1,314,169 1.676023 2,202,578
International Opportunities Fund
1.25%........................... 240,089,691 1.641190 394,032,800
International Opportunities Fund
.25%............................ 681,620 1.874113 1,277,433
International Opportunities
Fund............................ 140,095 0.924280 129,487
Dividend and Growth Fund
Qualified 1.00%................. 417,549 2.500875 1,044,238
Dividend and Growth Fund
Non-Qualified 1.00%............. 1,616,066 2.500878 4,041,584
Dividend and Growth Fund 1.25%... 391,151,359 2.470981 966,527,576
Dividend and Growth Fund .25%.... 250,697 2.592664 649,973
Dividend and Growth Fund......... 523,054 1.008273 527,381
International Advisers Fund
Sub-Account 1.00%............... 23,172 1.490549 34,539
International Advisers Fund
Non-Qualified 1.00%............. 201,485 1.490538 300,321
International Advisers Fund
1.25%........................... 50,971,459 1.476317 75,250,031
International Advisers Fund
.25%............................ 39,807 1.534052 61,066
International Advisers Fund...... 80,466 0.971292 78,156
Small Company Fund 1.00%......... 227,701 1.382431 314,781
Small Company Fund Non-Qualified
1.00%........................... 3,669,917 1.382433 5,073,414
Small Company Fund 1.25%......... 85,431,351 1.374218 117,401,300
Small Company Fund .25%.......... 61,838 1.407436 87,033
Small Company Fund............... 100,223 0.975195 97,737
MidCap Fund Sub-Account 1.00%
Qualified....................... 89,724 1.375964 123,457
MidCap Fund Sub-Account 1.00%
Non-Qualified................... 242,882 1.375969 334,198
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
---------------------------------------------------- 28
----------------------------------------------------
<PAGE>
<TABLE>
<CAPTION>
UNITS
OWNED BY UNIT CONTRACT
PARTICIPANTS PRICE LIABILITY
------------- ---------- ---------------
<S> <C> <C> <C>
INDIVIDUAL SUB-ACCOUNTS --
(CONTINUED)
MidCap Fund 1.25%................ 33,348,056 $ 1.371074 $ 45,722,653
MidCap Fund 1.00% Qualified...... 29,907 1.390711 41,592
MidCap Fund...................... 79,150 1.016841 80,483
Smith Barney Cash Portfolio
Qualified 1.00%................. 52,115 2.889398 150,581
Smith Barney Cash Portfolio
Non-Qualified 1.00%............. 112,418 2.989930 336,122
Smith Barney Appreciation
Qualified 1.00%................. 18,002 11.098045 199,787
Smith Barney Government Portfolio
Qualified 1.00%................. 13,202 2.602409 34,357
BB&T Growth and Income Fund...... 17,799,083 1.332151 23,711,066
AMSouth Equity Income Fund 1.00%
Qualified....................... 19,801,638 1.135502 22,484,800
Mentor Capital Growth Fund....... 17,370,611 1.075249 18,677,732
Mentor Perpetual International
Fund............................ 9,747,833 1.109206 10,812,355
Mentor Growth Fund............... 11,540,088 0.907292 10,470,230
Growth and Income Fund........... 181,057 1.183528 214,286
Growth and Income Fund........... 10,000 1.183500 11,835
Growth and Income Fund........... 4,982,306 1.181798 5,888,079
Growth and Income Fund........... 16,550 1.188761 19,674
Growth and Income Fund........... 105,902 1.090282 115,463
High Yield Fund.................. 15,798 1.035511 16,359
High Yield Fund.................. 10,000 1.035500 10,355
High Yield Fund.................. 1,832,207 1.034881 1,896,116
High Yield Fund.................. 10,000 1.037462 10,375
High Yield Fund.................. 10,000 1.034245 10,342
Global Leaders Fund.............. 10,000 1.315500 13,155
Global Leaders Fund.............. 10,000 1.315500 13,155
Global Leaders Fund.............. 415,660 1.314733 546,482
Global Leaders Fund.............. 10,000 1.317944 13,179
Global Leaders Fund.............. 10,000 1.313892 13,139
Mitchell Hutchins Growth and
Income Portfolio................ 10,000 1.071942 10,719
Mitchell Hutchins Strategic
Income Portfolio................ 10,000 0.997127 9,971
Mitchell Hutchins Tactical
Allocation Portfolio............ 10,000 1.057099 10,571
---------------
SUB-TOTAL INDIVIDUAL
SUB-ACCOUNTS.................... 12,628,840,528
---------------
ANNUITY CONTRACTS IN THE ANNUITY
PERIOD:
INDIVIDUAL SUB-ACCOUNTS:
Bond Fund Non-Qualified 1.00%.... 19,762 4.307092 85,115
Bond Fund 1.25%.................. 445,052 2.257591 1,004,746
Stock Fund Non-Qualified 1.00%... 25,544 11.223888 286,703
Stock Fund 1.25%................. 536,739 6.065754 3,255,728
Money Market Fund Qualified
1.00%........................... 648 2.679268 1,736
Money Market Fund Non-Qualified
1.00%........................... 85,788 2.680536 229,959
Money Market Fund 1.25%.......... 303,652 1.715714 520,980
Advisers Fund Qualified 1.00%.... 2,600 6.604240 17,172
Advisers Fund Non-Qualified
1.00%........................... 74,716 6.604240 493,441
Advisers Fund 1.25%.............. 1,930,726 4.397886 8,491,112
Capital Appreciation Fund
Non-Qualified 1.00%............. 18,217 9.318439 169,754
Capital Appreciation Fund
1.25%........................... 266,044 5.525767 1,470,096
Mortgage Securities Fund
Non-Qualified 1.00%............. 58,753 2.844767 167,139
Mortgage Securities Fund 1.25%... 123,728 2.210954 273,556
Index Fund 1.25%................. 168,253 4.712432 792,881
International Opportunities Fund
Non-Qualified 1.00%............. 6,240 1.676024 10,459
International Opportunities Fund
1.25%........................... 378,288 1.641190 620,842
Dividend and Growth Fund 1.25%... 667,716 2.470981 1,649,914
International Advisers Fund
1.25%........................... 77,101 1.476317 113,825
Small Company Fund 1.25%......... 115,562 1.374218 158,808
AMSouth Equity Income Fund....... 23,092 1.135502 26,221
---------------
SUB-TOTAL INDIVIDUAL
SUB-ACCOUNTS.................... 19,840,187
---------------
GRAND TOTAL........................ $12,648,680,715
---------------
---------------
</TABLE>
---------------------------------------------------- 29
----------------------------------------------------
<PAGE>
SEPARATE ACCOUNT TWO
- --------------------------------------------------------------------------------
HARTFORD LIFE INSURANCE COMPANY
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
BOND FUND STOCK FUND
SUB-ACCOUNT SUB-ACCOUNT
----------- ------------
<S> <C> <C>
INVESTMENT INCOME:
Dividends.............. $17,912,357 $ 18,915,114
EXPENSES:
Mortality and expense
undertakings.......... (3,795,666) (26,197,986)
----------- ------------
Net investment income
(loss).............. 14,116,691 (7,282,872)
----------- ------------
CAPITAL GAINS INCOME..... -- 63,980,079
----------- ------------
NET REALIZED AND
UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Net realized gain
(loss) on security
transactions.......... (17,730) (1,720,391)
Net unrealized
appreciation
(depreciation) of
investments during the
period................ 5,723,478 522,612,064
----------- ------------
Net gain (loss) on
investments......... 5,705,748 520,891,673
----------- ------------
Net increase
(decrease) in net
assets resulting
from operations..... $19,822,439 $577,588,880
----------- ------------
----------- ------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
---------------------------------------------------- 30
----------------------------------------------------
<PAGE>
<TABLE>
<CAPTION>
MONEY CAPITAL MORTGAGE
MARKET FUND ADVISERS FUND APPRECIATION FUND SECURITIES FUND INDEX FUND
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
----------- -------------- ------------------ ---------------- --------------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends.............. $15,550,709 $ 97,214,065 $ 10,528,844 $11,949,822 $ 5,084,024
EXPENSES:
Mortality and expense
undertakings.......... (3,714,561) (53,193,739) (22,767,506) (2,304,989) (6,407,798)
----------- -------------- ------------------ ---------------- --------------
Net investment income
(loss).............. 11,836,148 44,020,326 (12,238,662) 9,644,833 (1,323,774)
----------- -------------- ------------------ ---------------- --------------
CAPITAL GAINS INCOME..... -- 130,914,844 114,733,928 -- 10,662,058
----------- -------------- ------------------ ---------------- --------------
NET REALIZED AND
UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Net realized gain
(loss) on security
transactions.......... -- 1,826,471 (4,786,085) 473,273 (704,518)
Net unrealized
appreciation
(depreciation) of
investments during the
period................ -- 709,363,622 140,386,292 (228,914) 110,953,813
----------- -------------- ------------------ ---------------- --------------
Net gain (loss) on
investments......... -- 711,190,093 135,600,207 244,359 110,249,295
----------- -------------- ------------------ ---------------- --------------
Net increase
(decrease) in net
assets resulting
from operations..... $11,836,148 $ 886,125,263 $238,095,473 $ 9,889,192 $ 119,587,579
----------- -------------- ------------------ ---------------- --------------
----------- -------------- ------------------ ---------------- --------------
<CAPTION>
INTERNATIONAL DIVIDEND AND
OPPORTUNITIES FUND GROWTH FUND
SUB-ACCOUNT SUB-ACCOUNT
------------------- ----------------
<S> <C> <C>
INVESTMENT INCOME:
Dividends.............. $ 5,223,310 $ 15,429,535
EXPENSES:
Mortality and expense
undertakings.......... (5,034,289) (10,513,724)
------------------- ----------------
Net investment income
(loss).............. 189,021 4,915,811
------------------- ----------------
CAPITAL GAINS INCOME..... 25,347,181 25,624,259
------------------- ----------------
NET REALIZED AND
UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Net realized gain
(loss) on security
transactions.......... 1,455,876 (465,941)
Net unrealized
appreciation
(depreciation) of
investments during the
period................ 17,463,831 82,775,505
------------------- ----------------
Net gain (loss) on
investments......... 18,919,707 82,309,564
------------------- ----------------
Net increase
(decrease) in net
assets resulting
from operations..... $44,455,909 $ 112,849,634
------------------- ----------------
------------------- ----------------
</TABLE>
---------------------------------------------------- 31
----------------------------------------------------
<PAGE>
SEPARATE ACCOUNT TWO
- --------------------------------------------------------------------------------
HARTFORD LIFE INSURANCE COMPANY
STATEMENTS OF OPERATIONS -- (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
INTERNATIONAL SMALL MIDCAP SMITH BARNEY
ADVISERS FUND COMPANY FUND FUND CASH PORTFOLIO
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
-------------- ------------- ------------ ---------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends.............. $6,551,901 $ -- $ 330 $24,990
EXPENSES:
Mortality and expense
undertakings.......... (840,602) (1,090,110) (320,350) (5,044)
-------------- ------------- ------------ -------
Net investment income
(loss).............. 5,711,299 (1,090,110) (320,020) 19,946
-------------- ------------- ------------ -------
CAPITAL GAINS INCOME..... 1,559,601 1,255,431 -- --
-------------- ------------- ------------ -------
NET REALIZED AND
UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Net realized gain
(loss) on security
transactions.......... (62,176) 1,445,433 (3,698) --
Net unrealized
appreciation
(depreciation) of
investments during the
period................ (222,372) 9,623,019 6,597,665 --
-------------- ------------- ------------ -------
Net gain (loss) on
investments......... (284,548) 11,068,452 6,593,967 --
-------------- ------------- ------------ -------
Net increase
(decrease) in net
assets resulting
from operations..... $6,986,352 $11,233,773 $ 6,273,947 $19,946
-------------- ------------- ------------ -------
-------------- ------------- ------------ -------
</TABLE>
* From inception, March 2, 1998 to December 31, 1998.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
---------------------------------------------------- 32
----------------------------------------------------
<PAGE>
<TABLE>
<CAPTION>
SMITH BARNEY SMITH BARNEY BB&T GROWTH & AMSOUTH EQUITY MENTOR
APPRECIATION FUND GOVERNMENT PORTFOLIO INCOME FUND INCOME FUND CAPITAL GROWTH
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT*
------------------ --------------------- ----------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends.............. $ 2,368 $1,842 $ 218,179 $ 313,398 $ --
EXPENSES:
Mortality and expense
undertakings.......... (1,842) (377) (189,383) (178,806) (85,499)
------- ------ ----------------- --------------- ---------------
Net investment income
(loss).............. 526 1,465 28,796 134,592 (85,499)
------- ------ ----------------- --------------- ---------------
CAPITAL GAINS INCOME..... 15,116 -- -- -- --
------- ------ ----------------- --------------- ---------------
NET REALIZED AND
UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Net realized gain
(loss) on security
transactions.......... 51 -- 1,013 4,124 (4,500)
Net unrealized
appreciation
(depreciation) of
investments during the
period................ 17,076 -- 1,927,801 971,715 1,696,228
------- ------ ----------------- --------------- ---------------
Net gain (loss) on
investments......... 17,127 -- 1,928,814 975,839 1,691,728
------- ------ ----------------- --------------- ---------------
Net increase
(decrease) in net
assets resulting
from operations..... $32,769 $1,465 $1,957,610 $1,110,431 $1,606,229
------- ------ ----------------- --------------- ---------------
------- ------ ----------------- --------------- ---------------
<CAPTION>
MENTOR PERPETUAL MENTOR
INTERNATIONAL GROWTH
SUB-ACCOUNT* SUB-ACCOUNT*
----------------- -------------
<S> <C> <C>
INVESTMENT INCOME:
Dividends.............. $-- $--
EXPENSES:
Mortality and expense
undertakings.......... (51,799) (44,785)
-------- -------------
Net investment income
(loss).............. (51,799) (44,785)
-------- -------------
CAPITAL GAINS INCOME..... -- --
-------- -------------
NET REALIZED AND
UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Net realized gain
(loss) on security
transactions.......... 1,684 (1,365)
Net unrealized
appreciation
(depreciation) of
investments during the
period................ 601,328 610,042
-------- -------------
Net gain (loss) on
investments......... 603,012 608,677
-------- -------------
Net increase
(decrease) in net
assets resulting
from operations..... $551,213 $563,892
-------- -------------
-------- -------------
</TABLE>
* From inception, March 2, 1998 to December 31, 1998.
---------------------------------------------------- 33
----------------------------------------------------
<PAGE>
SEPARATE ACCOUNT TWO
- --------------------------------------------------------------------------------
HARTFORD LIFE INSURANCE COMPANY
STATEMENTS OF OPERATIONS -- (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
GROWTH AND
INCOME FUND
SUB-ACCOUNT**
--------------
<S> <C>
INVESTMENT INCOME:
Dividends.............. $ 23,830
EXPENSES:
Mortality and expense
undertakings.......... (17,863)
--------------
Net investment income
(loss).............. 5,967
--------------
CAPITAL GAINS INCOME..... --
--------------
NET REALIZED AND
UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Net realized gain
(loss) on security
transactions.......... (2,267)
Net unrealized
appreciation
(depreciation) of
investments during the
period................ 740,175
--------------
Net gain (loss) on
investments......... 737,908
--------------
Net increase
(decrease) in net
assets resulting
from operations..... $743,875
--------------
--------------
</TABLE>
** From inception, June 1, 1998 to December 31, 1998.
*** From inception, September 30, 1998 to December 31, 1998.
**** From inception, December 16, 1998 to December 31, 1998.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
---------------------------------------------------- 34
----------------------------------------------------
<PAGE>
<TABLE>
<CAPTION>
HIGH GLOBAL MITCHELL HUTCHINS GROWTH MITCHELL HUTCHINS STRATEGIC
YIELD FUND LEADERS FUND AND INCOME PORTFOLIO INCOME PORTFOLIO
SUB-ACCOUNT*** SUB-ACCOUNT*** SUB-ACCOUNT**** SUB-ACCOUNT****
--------------- --------------- ------------------------- ----------------------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends.............. $ 34,816 $ 789 $ 44 $ 116
EXPENSES:
Mortality and expense
undertakings.......... (2,794) (317) (6) (5)
--------------- ------- ----- -----
Net investment income
(loss).............. 32,022 472 38 111
--------------- ------- ----- -----
CAPITAL GAINS INCOME..... -- 16,340 702 6
--------------- ------- ----- -----
NET REALIZED AND
UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Net realized gain
(loss) on security
transactions.......... (287) 1,084 -- --
Net unrealized
appreciation
(depreciation) of
investments during the
period................ (9,874) 10,436 (20) (145)
--------------- ------- ----- -----
Net gain (loss) on
investments......... (10,161) 11,520 (20) (145)
--------------- ------- ----- -----
Net increase
(decrease) in net
assets resulting
from operations..... $ 21,861 $28,332 $720 $ (28)
--------------- ------- ----- -----
--------------- ------- ----- -----
<CAPTION>
MITCHELL HUTCHINS TACTICAL
ALLOCATION PORTFOLIO
SUB-ACCOUNT****
---------------------------
<S> <C>
INVESTMENT INCOME:
Dividends.............. $ 13
EXPENSES:
Mortality and expense
undertakings.......... (6)
-----
Net investment income
(loss).............. 7
-----
CAPITAL GAINS INCOME..... 56
-----
NET REALIZED AND
UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Net realized gain
(loss) on security
transactions.......... --
Net unrealized
appreciation
(depreciation) of
investments during the
period................ 507
-----
Net gain (loss) on
investments......... 507
-----
Net increase
(decrease) in net
assets resulting
from operations..... $570
-----
-----
</TABLE>
** From inception, June 1, 1998 to December 31, 1998.
*** From inception, September 30, 1998 to December 31, 1998.
**** From inception, December 16, 1998 to December 31, 1998.
---------------------------------------------------- 35
----------------------------------------------------
<PAGE>
SEPARATE ACCOUNT TWO
- --------------------------------------------------------------------------------
HARTFORD LIFE INSURANCE COMPANY
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
BOND FUND STOCK FUND
SUB-ACCOUNT SUB-ACCOUNT
------------ --------------
<S> <C> <C>
OPERATIONS:
Net investment income
(loss)................ $ 14,116,691 $ (7,282,872)
Capital gains income... -- 63,980,079
Net realized gain
(loss) on security
transactions.......... (17,730) (1,720,391)
Net unrealized
appreciation
(depreciation) of
investments during the
period................ 5,723,478 522,612,064
------------ --------------
Net increase (decrease)
in net assets
resulting from
operations............ 19,822,439 577,588,880
------------ --------------
UNIT TRANSACTIONS:
Purchases.............. 41,906,997 201,628,213
Net transfers.......... 95,280,889 107,789,657
Surrenders for benefit
payments and fees..... (24,892,187) (143,970,482)
Net annuity
transactions.......... 321,142 560,255
------------ --------------
Net increase (decrease)
in net assets
resulting from unit
transactions.......... 112,616,841 166,007,643
------------ --------------
Net increase (decrease)
in net assets......... 132,439,280 743,596,523
NET ASSETS:
Beginning of period.... 245,380,767 1,754,695,317
------------ --------------
End of period.......... $377,820,047 $2,498,291,840
------------ --------------
------------ --------------
</TABLE>
HARTFORD LIFE INSURANCE COMPANY
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
BOND FUND STOCK FUND
SUB-ACCOUNT SUB-ACCOUNT
------------ --------------
<S> <C> <C>
OPERATIONS:
Net investment income
(loss)................ $ 10,349,134 $ (2,890,041)
Capital gains income... -- 64,909,605
Net realized gain
(loss) on security
transactions.......... 17,262 1,176,996
Net unrealized
appreciation
(depreciation) of
investments during the
period................ 10,119,718 315,737,284
------------ --------------
Net increase (decrease)
in net assets
resulting from
operations............ 20,486,114 378,933,844
------------ --------------
UNIT TRANSACTIONS:
Purchases.............. 28,788,526 208,829,884
Net transfers.......... 19,102,654 45,780,800
Surrenders for benefit
payments and fees..... (18,300,042) (92,238,226)
Net annuity
transactions.......... 325,387 633,517
------------ --------------
Net increase (decrease)
in net assets
resulting from unit
transactions.......... 29,916,525 163,005,975
------------ --------------
Net increase (decrease)
in net assets......... 50,402,639 541,939,819
NET ASSETS:
Beginning of period.... 194,978,128 1,212,755,498
------------ --------------
End of period.......... $245,380,767 $1,754,695,317
------------ --------------
------------ --------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
---------------------------------------------------- 36
----------------------------------------------------
<PAGE>
<TABLE>
<CAPTION>
MONEY CAPITAL MORTGAGE
MARKET FUND ADVISERS FUND APPRECIATION FUND SECURITIES FUND INDEX FUND
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
------------ -------------- ------------------ ---------------- --------------
<S> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment income
(loss)................ $ 11,836,148 $ 44,020,326 $ (12,238,662) $ 9,644,833 $ (1,323,774)
Capital gains income... -- 130,914,844 114,733,928 -- 10,662,058
Net realized gain
(loss) on security
transactions.......... -- 1,826,471 (4,786,085) 473,273 (704,518)
Net unrealized
appreciation
(depreciation) of
investments during the
period................ -- 709,363,622 140,386,292 (228,914) 110,953,813
------------ -------------- ------------------ ---------------- --------------
Net increase (decrease)
in net assets
resulting from
operations............ 11,836,148 886,125,263 238,095,473 9,889,192 119,587,579
------------ -------------- ------------------ ---------------- --------------
UNIT TRANSACTIONS:
Purchases.............. 34,983,693 374,759,005 143,597,572 9,146,977 67,409,255
Net transfers.......... 123,126,442 280,406,929 (12,597,119) 8,722,639 58,996,655
Surrenders for benefit
payments and fees..... (94,130,526) (329,416,389) (117,626,736) (28,665,195) (34,320,175)
Net annuity
transactions.......... (32,392) 3,527,169 304,016 39,959 271,456
------------ -------------- ------------------ ---------------- --------------
Net increase (decrease)
in net assets
resulting from unit
transactions.......... 63,947,217 329,276,714 13,677,733 (10,755,620) 92,357,191
------------ -------------- ------------------ ---------------- --------------
Net increase (decrease)
in net assets......... 75,783,365 1,215,401,977 251,773,206 (866,428) 211,944,770
NET ASSETS:
Beginning of period.... 267,038,029 3,701,271,594 1,733,908,168 191,113,651 411,155,816
------------ -------------- ------------------ ---------------- --------------
End of period.......... $342,821,394 $4,916,673,571 $1,985,681,374 $190,247,223 $ 623,100,586
------------ -------------- ------------------ ---------------- --------------
------------ -------------- ------------------ ---------------- --------------
<CAPTION>
INTERNATIONAL DIVIDEND AND
OPPORTUNITIES FUND GROWTH FUND
SUB-ACCOUNT SUB-ACCOUNT
------------------- ---------------
<S> <C> <C>
OPERATIONS:
Net investment income
(loss)................ $ 189,021 $ 4,915,811
Capital gains income... 25,347,181 25,624,259
Net realized gain
(loss) on security
transactions.......... 1,455,876 (465,941)
Net unrealized
appreciation
(depreciation) of
investments during the
period................ 17,463,831 82,775,505
------------------- ---------------
Net increase (decrease)
in net assets
resulting from
operations............ 44,455,909 112,849,634
------------------- ---------------
UNIT TRANSACTIONS:
Purchases.............. 16,804,591 141,279,121
Net transfers.......... (27,399,853) 99,305,048
Surrenders for benefit
payments and fees..... (28,546,428) (49,052,200)
Net annuity
transactions.......... 244,437 835,197
------------------- ---------------
Net increase (decrease)
in net assets
resulting from unit
transactions.......... (38,897,253) 192,367,166
------------------- ---------------
Net increase (decrease)
in net assets......... 5,558,656 305,216,800
NET ASSETS:
Beginning of period.... 393,045,458 669,223,866
------------------- ---------------
End of period.......... $398,604,114 $ 974,440,666
------------------- ---------------
------------------- ---------------
</TABLE>
<TABLE>
<CAPTION>
MONEY CAPITAL MORTGAGE
MARKET FUND ADVISERS FUND APPRECIATION FUND SECURITIES FUND INDEX FUND
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
------------ -------------- ------------------ ---------------- --------------
<S> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment income
(loss)................ $ 10,558,627 $ 36,403,121 $ (10,930,508) $ 9,013,463 $ 492,907
Capital gains income... 792 129,600,221 103,244,397 -- 21,612,566
Net realized gain
(loss) on security
transactions.......... -- 2,159,454 413,746 28,917 243,148
Net unrealized
appreciation
(depreciation) of
investments during the
period................ -- 501,068,905 190,913,008 5,074,541 65,120,869
------------ -------------- ------------------ ---------------- --------------
Net increase (decrease)
in net assets
resulting from
operations............ 10,559,419 669,231,701 283,640,643 14,116,921 87,469,490
------------ -------------- ------------------ ---------------- --------------
UNIT TRANSACTIONS:
Purchases.............. 56,766,167 364,832,050 194,562,087 7,925,304 65,766,703
Net transfers.......... (9,782,834) 27,406,992 (11,521,643) (9,594,437) 26,458,731
Surrenders for benefit
payments and fees..... (68,418,264) (206,501,208) (87,759,430) (17,575,723) (18,692,668)
Net annuity
transactions.......... 12,261 725,608 361,130 (3,307) 190,331
------------ -------------- ------------------ ---------------- --------------
Net increase (decrease)
in net assets
resulting from unit
transactions.......... (21,422,670) 186,463,442 95,642,144 (19,248,163) 73,723,097
------------ -------------- ------------------ ---------------- --------------
Net increase (decrease)
in net assets......... (10,863,251) 855,695,143 379,282,787 (5,131,242) 161,192,587
NET ASSETS:
Beginning of period.... 277,901,280 2,845,576,451 1,354,625,381 196,244,893 249,963,229
------------ -------------- ------------------ ---------------- --------------
End of period.......... $267,038,029 $3,701,271,594 $1,733,908,168 $191,113,651 $ 411,155,816
------------ -------------- ------------------ ---------------- --------------
------------ -------------- ------------------ ---------------- --------------
<CAPTION>
INTERNATIONAL DIVIDEND AND
OPPORTUNITIES FUND GROWTH FUND
SUB-ACCOUNT SUB-ACCOUNT
------------------- ---------------
<S> <C> <C>
OPERATIONS:
Net investment income
(loss)................ $ (1,529,162) $ 3,234,554
Capital gains income... 29,748,890 9,959,170
Net realized gain
(loss) on security
transactions.......... 29,653 (4,003)
Net unrealized
appreciation
(depreciation) of
investments during the
period................ (32,127,237) 111,067,791
------------------- ---------------
Net increase (decrease)
in net assets
resulting from
operations............ (3,877,856) 124,257,512
------------------- ---------------
UNIT TRANSACTIONS:
Purchases.............. 38,595,370 159,109,767
Net transfers.......... (16,075,692) 87,528,713
Surrenders for benefit
payments and fees..... (26,504,799) (20,331,098)
Net annuity
transactions.......... 66,746 349,515
------------------- ---------------
Net increase (decrease)
in net assets
resulting from unit
transactions.......... (3,918,375) 226,656,897
------------------- ---------------
Net increase (decrease)
in net assets......... (7,796,231) 350,914,409
NET ASSETS:
Beginning of period.... 400,841,689 318,309,457
------------------- ---------------
End of period.......... $393,045,458 $ 669,223,866
------------------- ---------------
------------------- ---------------
</TABLE>
---------------------------------------------------- 37
----------------------------------------------------
<PAGE>
SEPARATE ACCOUNT TWO
- --------------------------------------------------------------------------------
HARTFORD LIFE INSURANCE COMPANY
STATEMENTS OF CHANGES IN NET ASSETS -- (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
INTERNATIONAL SMALL MIDCAP SMITH BARNEY
ADVISERS FUND COMPANY FUND FUND CASH PORTFOLIO
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
-------------- ------------- ------------ ---------------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income
(loss)................ $ 5,711,299 $ (1,090,110) $ (320,020) $ 19,946
Capital gains income... 1,559,601 1,255,431 -- --
Net realized gain
(loss) on security
transactions.......... (62,176) 1,445,433 (3,698) --
Net unrealized
appreciation
(depreciation) of
investments during the
period................ (222,372) 9,623,019 6,597,665 --
-------------- ------------- ------------ ---------------
Net increase (decrease)
in net assets
resulting from
operations............ 6,986,352 11,233,773 6,273,947 19,946
-------------- ------------- ------------ ---------------
UNIT TRANSACTIONS:
Purchases.............. 9,244,144 17,606,410 13,468,482 --
Net transfers.......... 5,996,311 27,369,558 18,368,378 --
Surrenders for benefit
payments and fees..... (3,894,672) (4,568,343) (982,314) (42,255)
Net annuity
transactions.......... 83,430 98,040 -- --
-------------- ------------- ------------ ---------------
Net increase (decrease)
in net assets
resulting from unit
transactions.......... 11,429,213 40,505,665 30,854,546 (42,255)
-------------- ------------- ------------ ---------------
Net increase (decrease)
in net assets......... 18,415,565 51,739,438 37,128,493 (22,309)
NET ASSETS:
Beginning of period.... 57,422,373 71,393,635 9,173,890 509,012
-------------- ------------- ------------ ---------------
End of period.......... $75,837,938 $123,133,073 $ 46,302,383 $486,703
-------------- ------------- ------------ ---------------
-------------- ------------- ------------ ---------------
</TABLE>
* From inception, March 2, 1998 to December 31, 1998.
HARTFORD LIFE INSURANCE COMPANY
STATEMENTS OF CHANGES IN NET ASSETS -- (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
INTERNATIONAL SMALL MIDCAP SMITH BARNEY
ADVISERS FUND COMPANY FUND FUND CASH PORTFOLIO
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT* SUB-ACCOUNT
-------------- ------------- ------------- ---------------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income
(loss)................ $ 1,035,994 $ (457,120) $ (12,661) $ 21,390
Capital gains income... 110,732 3,307,195 -- --
Net realized gain
(loss) on security
transactions.......... 13,808 (36,223) (2,185) --
Net unrealized
appreciation
(depreciation) of
investments during the
period................ 118,913 1,332,603 336,895 --
-------------- ------------- ------------- ---------------
Net increase (decrease)
in net assets
resulting from
operations............ 1,279,447 4,146,455 322,049 21,390
-------------- ------------- ------------- ---------------
UNIT TRANSACTIONS:
Purchases.............. 18,887,741 24,742,079 2,088,623 --
Net transfers.......... 9,531,179 30,544,670 6,774,154 --
Surrenders for benefit
payments and fees..... (2,110,213) (1,630,264) (10,936) (93,309)
Net annuity
transactions.......... 25,045 44,603 -- --
-------------- ------------- ------------- ---------------
Net increase (decrease)
in net assets
resulting from unit
transactions.......... 26,333,752 53,701,088 8,851,841 (93,309)
-------------- ------------- ------------- ---------------
Net increase (decrease)
in net assets......... 27,613,199 57,847,543 9,173,890 (71,919)
NET ASSETS:
Beginning of period.... 29,809,174 13,546,092 -- 580,931
-------------- ------------- ------------- ---------------
End of period.......... $57,422,373 $71,393,635 $ 9,173,890 $509,012
-------------- ------------- ------------- ---------------
-------------- ------------- ------------- ---------------
</TABLE>
* From inception, July 15, 1997 to December 31, 1997.
** From inception, June 3, 1997 to December 31, 1997.
*** From inception, October 23, 1997 to December 31, 1997.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
---------------------------------------------------- 38
----------------------------------------------------
<PAGE>
<TABLE>
<CAPTION>
SMITH BARNEY SMITH BARNEY BB&T GROWTH & AMSOUTH EQUITY MENTOR
APPRECIATION FUND GOVERNMENT PORTFOLIO INCOME FUND INCOME FUND CAPITAL GROWTH
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT*
------------------ --------------------- ----------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment income
(loss)................ $ 526 $ 1,465 $ 28,796 $ 134,592 $ (85,499)
Capital gains income... 15,116 -- -- -- --
Net realized gain
(loss) on security
transactions.......... 51 -- 1,013 4,124 (4,500)
Net unrealized
appreciation
(depreciation) of
investments during the
period................ 17,076 -- 1,927,801 971,715 1,696,228
-------- ------- ----------------- --------------- ---------------
Net increase (decrease)
in net assets
resulting from
operations............ 32,769 1,465 1,957,610 1,110,431 1,606,229
-------- ------- ----------------- --------------- ---------------
UNIT TRANSACTIONS:
Purchases.............. -- -- 9,760,778 14,622,450 11,672,774
Net transfers.......... -- -- 6,090,057 5,094,816 5,647,677
Surrenders for benefit
payments and fees..... (3,555) (4,272) (574,799) (733,985) (248,948)
Net annuity
transactions.......... -- -- -- 25,393 --
-------- ------- ----------------- --------------- ---------------
Net increase (decrease)
in net assets
resulting from unit
transactions.......... (3,555) (4,272) 15,276,036 19,008,674 17,071,503
-------- ------- ----------------- --------------- ---------------
Net increase (decrease)
in net assets......... 29,214 (2,807) 17,233,646 20,119,105 18,677,732
NET ASSETS:
Beginning of period.... 170,573 37,164 6,477,420 2,391,916 --
-------- ------- ----------------- --------------- ---------------
End of period.......... $199,787 $34,357 $23,711,066 $22,511,021 $18,677,732
-------- ------- ----------------- --------------- ---------------
-------- ------- ----------------- --------------- ---------------
<CAPTION>
MENTOR PERPETUAL MENTOR
INTERNATIONAL GROWTH
SUB-ACCOUNT* SUB-ACCOUNT*
----------------- -------------
<S> <C> <C>
OPERATIONS:
Net investment income
(loss)................ $ (51,799) $ (44,785)
Capital gains income... -- --
Net realized gain
(loss) on security
transactions.......... 1,684 (1,365)
Net unrealized
appreciation
(depreciation) of
investments during the
period................ 601,328 610,042
----------------- -------------
Net increase (decrease)
in net assets
resulting from
operations............ 551,213 563,892
----------------- -------------
UNIT TRANSACTIONS:
Purchases.............. 6,236,230 6,771,031
Net transfers.......... 4,185,922 3,215,967
Surrenders for benefit
payments and fees..... (161,010) (80,660)
Net annuity
transactions.......... -- --
----------------- -------------
Net increase (decrease)
in net assets
resulting from unit
transactions.......... 10,261,142 9,906,338
----------------- -------------
Net increase (decrease)
in net assets......... 10,812,355 10,470,230
NET ASSETS:
Beginning of period.... -- --
----------------- -------------
End of period.......... $10,812,355 $10,470,230
----------------- -------------
----------------- -------------
</TABLE>
<TABLE>
<CAPTION>
SMITH BARNEY SMITH BARNEY BB&T GROWTH & AMSOUTH EQUITY U.S. GOVERNMENT
APPRECIATION FUND GOVERNMENT PORTFOLIO INCOME FUND INCOME FUND MONEY MARKET FUND
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT** SUB-ACCOUNT*** SUB-ACCOUNT
------------------ --------------------- ----------------- --------------- ------------------
<S> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment income
(loss)................ $ 687 $ 1,594 $ 22,704 $ 1,732 $ 2,019
Capital gains income... 22,341 -- 662 -- --
Net realized gain
(loss) on security
transactions.......... 6,810 -- -- -- --
Net unrealized
appreciation
(depreciation) of
investments during the
period................ 8,816 -- 409,485 32,195 --
-------- ------- ----------------- --------------- ----------
Net increase (decrease)
in net assets
resulting from
operations............ 38,654 1,594 432,851 33,927 2,019
-------- ------- ----------------- --------------- ----------
UNIT TRANSACTIONS:
Purchases.............. -- -- 5,104,417 2,100,608 --
Net transfers.......... -- -- 1,006,220 259,438 (88,379)
Surrenders for benefit
payments and fees..... (40,942) (4,272) (66,068) (2,057) 9,133
Net annuity
transactions.......... -- -- -- -- 21,870
-------- ------- ----------------- --------------- ----------
Net increase (decrease)
in net assets
resulting from unit
transactions.......... (40,942) (4,272) 6,044,569 2,357,989 (119,382)
-------- ------- ----------------- --------------- ----------
Net increase (decrease)
in net assets......... (2,288) (2,678) 6,477,420 2,391,916 (117,363)
NET ASSETS:
Beginning of period.... 172,861 39,842 -- -- 117,363
-------- ------- ----------------- --------------- ----------
End of period.......... $170,573 $37,164 $ 6,477,420 $ 2,391,916 $--
-------- ------- ----------------- --------------- ----------
-------- ------- ----------------- --------------- ----------
</TABLE>
* From inception, July 15, 1997 to December 31, 1997.
** From inception, June 3, 1997 to December 31, 1997.
*** From inception, October 23, 1997 to December 31, 1997.
---------------------------------------------------- 39
----------------------------------------------------
<PAGE>
SEPARATE ACCOUNT TWO
- --------------------------------------------------------------------------------
HARTFORD LIFE INSURANCE COMPANY
STATEMENTS OF CHANGES IN NET ASSETS -- (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
GROWTH AND
INCOME FUND
SUB-ACCOUNT**
--------------
<S> <C>
OPERATIONS:
Net investment income
(loss)................ $ 5,967
Capital gains income... --
Net realized gain
(loss) on security
transactions.......... (2,267)
Net unrealized
appreciation
(depreciation) of
investments during the
period................ 740,175
--------------
Net increase (decrease)
in net assets
resulting from
operations............ 743,875
--------------
UNIT TRANSACTIONS:
Purchases.............. 1,325,581
Net transfers.......... 4,236,085
Surrenders for benefit
payments and fees..... (56,204)
Net annuity
transactions.......... --
--------------
Net increase (decrease)
in net assets
resulting from unit
transactions.......... 5,505,462
--------------
Net increase (decrease)
in net assets......... 6,249,337
NET ASSETS:
Beginning of period.... --
--------------
End of period.......... $6,249,337
--------------
--------------
</TABLE>
** From inception, June 1, 1998 to December 31, 1998.
*** From inception, September 30, 1998 to December 31, 1998.
**** From inception, December 16, 1998 to December 31, 1998.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
---------------------------------------------------- 40
----------------------------------------------------
<PAGE>
<TABLE>
<CAPTION>
HIGH GLOBAL MITCHELL HUTCHINS GROWTH MITCHELL HUTCHINS STRATEGIC
YIELD FUND LEADERS FUND AND INCOME PORTFOLIO INCOME PORTFOLIO
SUB-ACCOUNT*** SUB-ACCOUNT*** SUB-ACCOUNT**** SUB-ACCOUNT****
--------------- --------------- ------------------------- ----------------------------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income
(loss)................ $ 32,022 $ 472 $ 38 $ 111
Capital gains income... -- 16,340 702 6
Net realized gain
(loss) on security
transactions.......... (287) 1,084 -- --
Net unrealized
appreciation
(depreciation) of
investments during the
period................ (9,874) 10,436 (20) (145)
--------------- --------------- ------- ------
Net increase (decrease)
in net assets
resulting from
operations............ 21,861 28,332 720 (28)
--------------- --------------- ------- ------
UNIT TRANSACTIONS:
Purchases.............. 226,463 114,768 10,000 10,000
Net transfers.......... 1,697,571 456,296 -- --
Surrenders for benefit
payments and fees..... (2,348) (286) (1) (1)
Net annuity
transactions.......... -- -- -- --
--------------- --------------- ------- ------
Net increase (decrease)
in net assets
resulting from unit
transactions.......... 1,921,686 570,778 9,999 9,999
--------------- --------------- ------- ------
Net increase (decrease)
in net assets......... 1,943,547 599,110 10,719 9,971
NET ASSETS:
Beginning of period.... -- -- -- --
--------------- --------------- ------- ------
End of period.......... $1,943,547 $599,110 $10,719 $9,971
--------------- --------------- ------- ------
--------------- --------------- ------- ------
<CAPTION>
MITCHELL HUTCHINS TACTICAL
ALLOCATION PORTFOLIO
SUB-ACCOUNT****
---------------------------
<S> <C>
OPERATIONS:
Net investment income
(loss)................ $ 7
Capital gains income... 56
Net realized gain
(loss) on security
transactions.......... --
Net unrealized
appreciation
(depreciation) of
investments during the
period................ 507
-------
Net increase (decrease)
in net assets
resulting from
operations............ 570
-------
UNIT TRANSACTIONS:
Purchases.............. 10,000
Net transfers.......... --
Surrenders for benefit
payments and fees..... 1
Net annuity
transactions.......... --
-------
Net increase (decrease)
in net assets
resulting from unit
transactions.......... 10,001
-------
Net increase (decrease)
in net assets......... 10,571
NET ASSETS:
Beginning of period.... --
-------
End of period.......... $10,571
-------
-------
</TABLE>
** From inception, June 1, 1998 to December 31, 1998.
*** From inception, September 30, 1998 to December 31, 1998.
**** From inception, December 16, 1998 to December 31, 1998.
---------------------------------------------------- 41
----------------------------------------------------
<PAGE>
SEPARATE ACCOUNT TWO
- --------------------------------------------------------------------------------
HARTFORD LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
1. ORGANIZATION:
Separate Account Two (the Account) is a separate investment account within
Hartford Life Insurance Company (the Company) and is registered with the
Securities and Exchange Commission (SEC) as a unit investment trust under
the Investment Company Act of 1940, as amended. Both the Company and the
Account are subject to supervision and regulation by the Department of
Insurance of the State of Connecticut and the SEC. The Account invests
deposits by variable annuity contractholders of the Company in various
mutual funds (the Funds) as directed by the contractholders.
2. SIGNIFICANT ACCOUNTING POLICIES:
The following is a summary of significant accounting policies of the
Account, which are in accordance with generally accepted accounting
principles in the investment company industry:
a) SECURITY TRANSACTIONS--Security transactions are recorded on the trade
date (date the order to buy or sell is executed). Cost of investments
sold is determined on the basis of identified cost. Dividend and capital
gains income are accrued as of the ex-dividend date. Capital gains income
represents those dividends from the Funds which are characterized as
capital gains under tax regulations.
b) SECURITY VALUATION--The investments in shares of the Funds are valued at
the closing net asset value per share as determined by the appropriate
Fund as of December 31, 1998.
c) FEDERAL INCOME TAXES--The operations of the Account form a part of, and
are taxed with, the total operations of the Company, which is taxed as an
insurance company under the Internal Revenue Code. Under current law, no
federal income taxes are payable with respect to the operations of the
Account.
d) USE OF ESTIMATES--The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities as of the date of the financial statements and the reported
amounts of income and expenses during the period. Operating results in
the future could vary from the amounts derived from management's
estimates.
3. ADMINISTRATION OF THE ACCOUNT AND RELATED CHARGES:
Deduction and Charges -- Certain amounts are deducted from the Contracts, as
described below:
a) MORTALITY AND EXPENSE RISK CHARGES--The Company will make deductions at a
maximum annual rate of 1.50% of the Contract's value for the mortality
and expense risks which the Company undertakes.
b) TAX EXPENSE CHARGE--If applicable, the Company will make deductions at a
maximum rate of 4.0% of the Contract's value to meet premium tax
requirements. An additional tax charge based on a percentage of the
Contract's value may be assessed to partial withdrawals or surrenders.
These expenses are reflected in surrenders for benefit payments and fees
on the accompanying statements of changes in net assets.
c) ANNUAL MAINTENANCE FEE--An annual maintenance fee in the amount of $30
may be deducted from the Contract's value each contract year. However,
this fee is not applicable to contracts with values of $50,000 or more,
as determined on the most recent contract anniversary. These expenses are
reflected in surrenders for benefit payments and fees on the accompanying
statements of changes in net assets.
4. HARTFORD U.S. GOVERNMENT MONEY MARKET FUND:
One June 27, 1997, the Hartford U.S. Government Money Market Fund was merged
with the HVA Money Market Fund. Accordingly, all contractholder account
values held in the Hartford U.S. Government Money Market Fund were exchanged
for equivalent account values of HVA Money Market Fund on June 27, 1997.
______________________________________ 42 ______________________________________
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
- --------------------------------------------------------------------------------
TO HARTFORD LIFE INSURANCE COMPANY
SEPARATE ACCOUNT TWO AND TO THE
OWNERS OF UNITS OF INTEREST THEREIN:
We have audited the accompanying statements of assets and liabilities of
Hartford Life Insurance Company Separate Account Two (Bond Fund, Stock Fund,
Money Market Fund, Advisers Fund, Capital Appreciation Fund, Mortgage Securities
Fund, Index Fund, International Opportunities Fund, Dividend and Growth Fund,
International Advisers Fund, Small Company Fund, MidCap Fund, Smith Barney Cash
Portfolio, Smith Barney Appreciation Fund, Smith Barney Government Portfolio,
BB&T Growth & Income Fund, AmSouth Equity Income Fund, Mentor VIP Capital Growth
Fund, Mentor VIP Perpetual International Fund, and Mentor VIP Growth Fund)
(collectively, the Account) as of December 31, 1998, and the related statements
of operations and the statements of changes in net assets for the periods
presented. These financial statements are the responsibility of the Account's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the Account as of December 31,
1998, and the results of their operations and the changes in their net assets
for the periods presented in conformity with generally accepted accounting
principles.
Hartford, Connecticut
February 16, 1999 ARTHUR ANDERSEN LLP
______________________________________ 43 ______________________________________
<PAGE>
SEPARATE ACCOUNT ONE
- --------------------------------------------------------------------------------
HARTFORD LIFE AND ANNUITY INSURANCE COMPANY
STATEMENTS OF ASSETS & LIABILITIES
YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
BOND FUND STOCK FUND
SUB-ACCOUNT SUB-ACCOUNT
------------ --------------
<S> <C> <C>
ASSETS:
Investments:
Hartford Bond HLS
Fund, Inc. - Class
IA
Shares 380,558,700
Cost $399,499,923
Market Value....... $411,256,468 --
Hartford Stock HLS
Fund, Inc. - Class
IA
Shares 513,943,883
Cost $2,170,908,704
Market Value....... -- $3,372,328,102
Hartford Money Market
HLS Fund, Inc. -
Class IA
Shares 345,742,205
Cost $345,742,205
Market Value....... -- --
Hartford Advisers HLS
Fund, Inc. - Class
IA
Shares 1,862,478,644
Cost $4,012,019,599
Market Value....... -- --
Hartford Capital
Appreciation HLS
Fund, Inc. - Class
IA
Shares 602,284,430
Cost $2,212,701,469
Market Value....... -- --
Hartford Mortgage
Securities HLS Fund,
Inc. - Class IA
Shares 100,460,881
Cost $109,029,070
Market Value....... -- --
Hartford Index HLS
Fund, Inc. - Class
IA
Shares 213,539,249
Cost $534,739,672
Market Value....... -- --
Hartford
International
Opportunities HLS
Fund, Inc. - Class
IA
Shares 486,127,383
Cost $617,788,895
Market Value....... -- --
Hartford Dividend and
Growth HLS Fund,
Inc. - Class IA
Shares 844,442,536
Cost $1,419,647,238
Market Value....... -- --
Hartford
International
Advisers HLS Fund,
Inc. - Class IA
Shares 174,208,203
Cost $199,416,162
Market Value....... -- --
Due from Hartford Life
and Annuity Insurance
Company............... 362,859 2,624,788
Receivable from fund
shares sold........... -- --
------------ --------------
Total Assets........... 411,619,327 3,374,952,890
------------ --------------
LIABILITIES:
Due to Hartford Life
and Annuity Insurance
Company............... -- --
Payable for fund shares
purchased............. 362,819 2,622,542
------------ --------------
Total Liabilities...... 362,819 2,622,542
------------ --------------
Net Assets (variable
annuity contract
liabilities).......... $411,256,508 $3,372,330,348
------------ --------------
------------ --------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
---------------------------------------------------- 44
----------------------------------------------------
<PAGE>
<TABLE>
<CAPTION>
MONEY CAPITAL MORTGAGE
MARKET FUND ADVISERS FUND APPRECIATION FUND SECURITIES FUND INDEX FUND
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
------------ -------------- ------------------ ---------------- --------------
<S> <C> <C> <C> <C> <C>
ASSETS:
Investments:
Hartford Bond HLS
Fund, Inc. - Class
IA
Shares 380,558,700
Cost $399,499,923
Market Value....... -- -- -- -- --
Hartford Stock HLS
Fund, Inc. - Class
IA
Shares 513,943,883
Cost $2,170,908,704
Market Value....... -- -- -- -- --
Hartford Money Market
HLS Fund, Inc. -
Class IA
Shares 345,742,205
Cost $345,742,205
Market Value....... $345,742,206 -- -- -- --
Hartford Advisers HLS
Fund, Inc. - Class
IA
Shares 1,862,478,644
Cost $4,012,019,599
Market Value....... -- $5,559,969,961 -- -- --
Hartford Capital
Appreciation HLS
Fund, Inc. - Class
IA
Shares 602,284,430
Cost $2,212,701,469
Market Value....... -- -- $2,866,320,390 -- --
Hartford Mortgage
Securities HLS Fund,
Inc. - Class IA
Shares 100,460,881
Cost $109,029,070
Market Value....... -- -- -- $108,955,151 --
Hartford Index HLS
Fund, Inc. - Class
IA
Shares 213,539,249
Cost $534,739,672
Market Value....... -- -- -- -- $ 762,431,637
Hartford
International
Opportunities HLS
Fund, Inc. - Class
IA
Shares 486,127,383
Cost $617,788,895
Market Value....... -- -- -- -- --
Hartford Dividend and
Growth HLS Fund,
Inc. - Class IA
Shares 844,442,536
Cost $1,419,647,238
Market Value....... -- -- -- -- --
Hartford
International
Advisers HLS Fund,
Inc. - Class IA
Shares 174,208,203
Cost $199,416,162
Market Value....... -- -- -- -- --
Due from Hartford Life
and Annuity Insurance
Company............... 421,944 1,806,477 69,123 88,820 252,179
Receivable from fund
shares sold........... 14,552 -- 133,219 29 --
------------ -------------- ------------------ ---------------- --------------
Total Assets........... 346,178,702 5,561,776,438 2,866,522,732 109,044,000 762,683,816
------------ -------------- ------------------ ---------------- --------------
LIABILITIES:
Due to Hartford Life
and Annuity Insurance
Company............... 14,580 -- -- 32 --
Payable for fund shares
purchased............. 424,367 1,803,197 30,681 89,714 247,739
------------ -------------- ------------------ ---------------- --------------
Total Liabilities...... 438,947 1,803,197 30,681 89,746 247,739
------------ -------------- ------------------ ---------------- --------------
Net Assets (variable
annuity contract
liabilities).......... $345,739,755 $5,559,973,241 $2,866,492,051 $108,954,254 $ 762,436,077
------------ -------------- ------------------ ---------------- --------------
------------ -------------- ------------------ ---------------- --------------
<CAPTION>
INTERNATIONAL DIVIDEND AND INTERNATIONAL
OPPORTUNITIES FUND GROWTH FUND ADVISERS FUND
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
------------------- ----------------- --------------
<S> <C> <C> <C>
ASSETS:
Investments:
Hartford Bond HLS
Fund, Inc. - Class
IA
Shares 380,558,700
Cost $399,499,923
Market Value....... -- -- --
Hartford Stock HLS
Fund, Inc. - Class
IA
Shares 513,943,883
Cost $2,170,908,704
Market Value....... -- -- --
Hartford Money Market
HLS Fund, Inc. -
Class IA
Shares 345,742,205
Cost $345,742,205
Market Value....... -- -- --
Hartford Advisers HLS
Fund, Inc. - Class
IA
Shares 1,862,478,644
Cost $4,012,019,599
Market Value....... -- -- --
Hartford Capital
Appreciation HLS
Fund, Inc. - Class
IA
Shares 602,284,430
Cost $2,212,701,469
Market Value....... -- -- --
Hartford Mortgage
Securities HLS Fund,
Inc. - Class IA
Shares 100,460,881
Cost $109,029,070
Market Value....... -- -- --
Hartford Index HLS
Fund, Inc. - Class
IA
Shares 213,539,249
Cost $534,739,672
Market Value....... -- -- --
Hartford
International
Opportunities HLS
Fund, Inc. - Class
IA
Shares 486,127,383
Cost $617,788,895
Market Value....... $658,633,088 -- --
Hartford Dividend and
Growth HLS Fund,
Inc. - Class IA
Shares 844,442,536
Cost $1,419,647,238
Market Value....... -- $ 1,824,406,277 --
Hartford
International
Advisers HLS Fund,
Inc. - Class IA
Shares 174,208,203
Cost $199,416,162
Market Value....... -- -- $201,156,297
Due from Hartford Life
and Annuity Insurance
Company............... 7,840 39,963 4,583
Receivable from fund
shares sold........... -- 263,090 35,519
------------------- ----------------- --------------
Total Assets........... 658,640,928 1,824,709,330 201,196,399
------------------- ----------------- --------------
LIABILITIES:
Due to Hartford Life
and Annuity Insurance
Company............... 123,419 262,396 35,607
Payable for fund shares
purchased............. 66,757 39,882 4,585
------------------- ----------------- --------------
Total Liabilities...... 190,176 302,278 40,192
------------------- ----------------- --------------
Net Assets (variable
annuity contract
liabilities).......... $658,450,752 $ 1,824,407,052 $201,156,207
------------------- ----------------- --------------
------------------- ----------------- --------------
</TABLE>
---------------------------------------------------- 45
----------------------------------------------------
<PAGE>
SEPARATE ACCOUNT ONE
- --------------------------------------------------------------------------------
HARTFORD LIFE AND ANNUITY INSURANCE COMPANY
STATEMENTS OF ASSETS & LIABILITIES -- (CONTINUED)
DECEMBER 31, 1998
<TABLE>
<CAPTION>
SMALL MIDCAP
COMPANY FUND FUND
SUB-ACCOUNT SUB-ACCOUNT
------------ -----------
<S> <C> <C>
ASSETS:
Investments:
Hartford Small
Company HLS Fund,
Inc. - Class IA
Shares 163,196,148
Cost $195,190,859
Market Value....... $215,600,879 --
Hartford MidCap HLS
Fund, Inc. - Class
IA
Shares 63,119,036
Cost $76,952,597
Market Value....... -- $90,844,451
Mentor VIP Capital
Growth Fund, Inc.
Shares 108,276
Cost $1,352,216
Market Value....... -- --
Mentor VIP Perpetual
International Fund,
Inc.
Shares 72,306
Cost $965,503
Market Value....... -- --
Mentor VIP Growth
Fund, Inc.
Shares 51,628
Cost $535,226
Market Value....... -- --
Hartford Global
Leader HLS Fund -
Class IA
Shares 933,527
Cost $1,147,333
Market Value....... -- --
Hartford High Yield
HLS Fund - Class IA
Shares 2,383,733
Cost $2,409,651
Market Value....... -- --
Hartford Growth and
Income HLS Fund -
Class IA
Shares 12,854,583
Cost $13,338,246
Market Value....... -- --
Due from Hartford Life
and Annuity Insurance
Company............... 82,389 158,156
Receivable from fund
shares sold........... -- 30
------------ -----------
Total Assets........... 215,683,268 91,002,637
------------ -----------
LIABILITIES:
Due to Hartford Life
and Annuity Insurance
Company............... -- 33
Payable for fund shares
purchased............. 81,459 157,877
------------ -----------
Total Liabilities...... 81,459 157,910
------------ -----------
Net Assets (variable
annuity contract
liabilities).......... $215,601,809 $90,844,727
------------ -----------
------------ -----------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
---------------------------------------------------- 46
----------------------------------------------------
<PAGE>
<TABLE>
<CAPTION>
MENTOR VIP CAPITAL MENTOR VIP PERPETUAL MENTOR VIP GLOBAL HIGH GROWTH AND
GROWTH FUND INTERNATIONAL FUND GROWTH FUND LEADERS FUND YIELD FUND INCOME FUND
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
------------------- --------------------- ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
Investments:
Hartford Small
Company HLS Fund,
Inc. - Class IA
Shares 163,196,148
Cost $195,190,859
Market Value....... -- -- -- -- -- --
Hartford MidCap HLS
Fund, Inc. - Class
IA
Shares 63,119,036
Cost $76,952,597
Market Value....... -- -- -- -- -- --
Mentor VIP Capital
Growth Fund, Inc.
Shares 108,276
Cost $1,352,216
Market Value....... $1,470,384 -- -- -- -- --
Mentor VIP Perpetual
International Fund,
Inc.
Shares 72,306
Cost $965,503
Market Value....... -- $1,013,010 -- -- -- --
Mentor VIP Growth
Fund, Inc.
Shares 51,628
Cost $535,226
Market Value....... -- -- $ 591,659 -- -- --
Hartford Global
Leader HLS Fund -
Class IA
Shares 933,527
Cost $1,147,333
Market Value....... -- -- -- $1,199,752 -- --
Hartford High Yield
HLS Fund - Class IA
Shares 2,383,733
Cost $2,409,651
Market Value....... -- -- -- -- $2,423,652 --
Hartford Growth and
Income HLS Fund -
Class IA
Shares 12,854,583
Cost $13,338,246
Market Value....... -- -- -- -- -- $15,245,046
Due from Hartford Life
and Annuity Insurance
Company............... -- -- -- 3,970 17,616 213,335
Receivable from fund
shares sold........... 50 35 20 1 4 52
------------------- ----------- ------------ ------------- ------------ ------------
Total Assets........... 1,470,434 1,013,045 591,679 1,203,723 2,441,272 15,458,433
------------------- ----------- ------------ ------------- ------------ ------------
LIABILITIES:
Due to Hartford Life
and Annuity Insurance
Company............... 66 58 7 -- 3 57
Payable for fund shares
purchased............. -- -- -- 3,960 17,615 213,428
------------------- ----------- ------------ ------------- ------------ ------------
Total Liabilities...... 66 58 7 3,960 17,618 213,485
------------------- ----------- ------------ ------------- ------------ ------------
Net Assets (variable
annuity contract
liabilities).......... $1,470,368 $1,012,987 $ 591,672 $1,199,763 $2,423,654 $15,244,948
------------------- ----------- ------------ ------------- ------------ ------------
------------------- ----------- ------------ ------------- ------------ ------------
</TABLE>
---------------------------------------------------- 47
----------------------------------------------------
<PAGE>
SEPARATE ACCOUNT ONE
- --------------------------------------------------------------------------------
HARTFORD LIFE AND ANNUITY INSURANCE COMPANY
STATEMENTS OF ASSETS & LIABILITIES -- (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
UNITS
OWNED BY UNIT CONTRACT
PARTICIPANTS PRICE LIABILITY
------------- --------- ---------------
<S> <C> <C> <C>
DEFERRED ANNUITY CONTRACTS IN THE
ACCUMULATION PERIOD:
GROUP SUB-ACCOUNTS:
Bond Fund Sub-Account............ 180,119,797 $2.257591 $ 406,636,833
Bond Fund Sub-Account............ 3,237,265 1.030760 3,336,843
High Yield Sub-Account........... 2,254,839 1.034881 2,333,490
High Yield Sub-Account........... 87,179 1.034245 90,164
Stock Fund Sub-Account........... 553,087,499 6.065754 3,354,892,709
Stock Fund Sub-Account........... 7,571,146 1.036705 7,849,045
Money Market Fund Sub-Account.... 195,488,799 1.715714 335,402,871
Money Market Fund Sub-Account.... 9,217,359 1.016497 9,369,418
Advisers Fund Sub-Account........ 1,258,364,667 4.397886 5,534,144,353
Advisers Fund Sub-Account........ 15,480,493 1.035292 16,026,830
Capital Appreciation Fund
Sub-Account..................... 517,384,327 5.525767 2,858,945,241
Capital Appreciation Fund
Sub-Account..................... 3,000,204 0.984021 2,952,264
Mortgage Securities Fund
Sub-Account..................... 48,850,074 2.210954 108,005,267
Mortgage Securities Fund
Sub-Account..................... 695,958 1.022348 711,511
Growth and Income Sub-Account.... 11,822,488 1.181798 13,971,792
Growth and Income Sub-Account.... 1,167,734 1.090279 1,273,156
Index Fund Sub-Account........... 160,585,731 4.712432 756,749,336
Index Fund Sub-Account........... 3,777,102 1.044934 3,946,821
Global Leaders Fund
Sub-Account..................... 898,417 1.314731 1,181,177
Global Leaders Fund
Sub-Account..................... 14,146 1.313892 18,586
International Opportunities Fund
Sub-Account..................... 400,335,712 1.641190 657,026,967
International Opportunities Fund
Sub-Account..................... 657,015 0.924280 607,266
Dividend and Growth Fund
Sub-Account..................... 735,536,976 2.470981 1,817,497,892
Dividend and Growth Fund
Sub-Account..................... 4,239,504 1.008274 4,274,583
International Advisers Fund
Sub-Account..................... 135,919,042 1.476317 200,659,594
International Advisers Fund
Sub-Account..................... 373,140 0.971290 362,427
Small Company Fund Sub-Account... 156,179,000 1.374218 214,623,993
Small Company Fund Sub-Account... 672,638 0.975191 655,950
MidCap Fund Sub-Account.......... 65,617,196 1.371074 89,966,032
MidCap Fund Sub-Account.......... 732,350 1.016840 744,684
Mentor Capital Growth
Sub-Account..................... 1,367,467 1.075249 1,470,368
Mentor Perpetual International
Sub-Account..................... 913,254 1.109206 1,012,987
Mentor Growth Sub-Account........ 652,130 0.907292 591,672
---------------
SUB-TOTAL GROUP SUB-ACCOUNTS..... 16,407,332,122
---------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
---------------------------------------------------- 48
----------------------------------------------------
<PAGE>
<TABLE>
<CAPTION>
UNITS
OWNED BY UNIT CONTRACT
PARTICIPANTS PRICE LIABILITY
------------- --------- ---------------
<S> <C> <C> <C>
ANNUITY CONTRACTS IN THE ANNUITY
PERIOD:
GROUP SUB-ACCOUNTS:
Bond Fund Sub-Account............ 568,230 $2.257591 $ 1,282,832
Stock Fund Sub-Account........... 1,580,775 6.065754 9,588,594
Money Market Fund Sub-Account.... 563,885 1.715714 967,466
Advisers Fund Sub-Account........ 2,228,811 4.397886 9,802,058
Capital Appreciation Fund
Sub-Account..................... 831,477 5.525767 4,594,546
Mortgage Securities Fund
Sub-Account..................... 107,409 2.210954 237,476
Index Fund Sub-Account........... 369,219 4.712432 1,739,920
International Opportunities Fund
Sub-Account..................... 497,516 1.641190 816,519
Dividend and Growth Fund
Sub-Account..................... 1,066,207 2.470981 2,634,577
International Advisers Fund
Sub-Account..................... 90,892 1.476317 134,186
Small Company Fund Sub-Account... 234,218 1.374218 321,866
MidCap Fund Sub-Account.......... 97,742 1.371074 134,011
---------------
SUB-TOTAL GROUP SUB-ACCOUNTS..... 32,254,051
---------------
GRAND TOTAL........................ $16,439,586,173
---------------
---------------
</TABLE>
---------------------------------------------------- 49
----------------------------------------------------
<PAGE>
SEPARATE ACCOUNT ONE
- --------------------------------------------------------------------------------
HARTFORD LIFE AND ANNUITY INSURANCE COMPANY
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
BOND FUND STOCK FUND
SUB-ACCOUNT SUB-ACCOUNT
----------- ------------
<S> <C> <C>
INVESTMENT INCOME:
Dividends.............. $19,422,738 $ 25,422,449
EXPENSES:
Mortality and expense
undertakings.......... (3,957,943) (33,114,279)
----------- ------------
Net investment income
(loss).............. 15,464,795 (7,691,830)
----------- ------------
CAPITAL GAINS INCOME..... -- 76,061,613
----------- ------------
NET REALIZED AND
UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Net realized gain
(loss) on security
transactions.......... (5,587) (1,418,674)
Net unrealized
appreciation
(depreciation) of
investments during the
period................ 5,072,560 663,245,884
----------- ------------
Net gain (loss) on
investments......... 5,066,973 661,827,210
----------- ------------
Net increase
(decrease) in net
assets resulting
from operations..... $20,531,768 $730,196,993
----------- ------------
----------- ------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
---------------------------------------------------- 50
----------------------------------------------------
<PAGE>
<TABLE>
<CAPTION>
MONEY CAPITAL MORTGAGE
MARKET FUND ADVISERS FUND APPRECIATION FUND SECURITIES FUND INDEX FUND
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
----------- -------------- ------------------ ---------------- --------------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends.............. $12,949,636 $ 109,628,714 $ 15,232,567 $ 6,660,262 $ 6,171,446
EXPENSES:
Mortality and expense
undertakings.......... (3,174,374) (56,235,664) (31,598,370) (1,164,598) (7,331,927)
----------- -------------- ------------------ ---------------- --------------
Net investment income
(loss).............. 9,775,262 53,393,050 (16,365,803) 5,495,664 (1,160,481)
----------- -------------- ------------------ ---------------- --------------
CAPITAL GAINS INCOME..... -- 130,454,479 150,932,848 -- 11,566,682
----------- -------------- ------------------ ---------------- --------------
NET REALIZED AND
UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Net realized gain
(loss) on security
transactions.......... -- (287,760) (3,541,507) 1,531 (301,028)
Net unrealized
appreciation
(depreciation) of
investments during the
period................ -- 750,363,179 201,102,863 (691,300) 129,513,479
----------- -------------- ------------------ ---------------- --------------
Net gain (loss) on
investments......... -- 750,075,419 197,561,356 (689,769) 129,212,451
----------- -------------- ------------------ ---------------- --------------
Net increase
(decrease) in net
assets resulting
from operations..... $ 9,775,262 $ 933,922,948 $332,128,401 $ 4,805,895 $ 139,618,652
----------- -------------- ------------------ ---------------- --------------
----------- -------------- ------------------ ---------------- --------------
<CAPTION>
INTERNATIONAL DIVIDEND AND INTERNATIONAL
OPPORTUNITIES FUND GROWTH FUND ADVISERS FUND
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
------------------- ---------------- --------------
<S> <C> <C> <C>
INVESTMENT INCOME:
Dividends.............. $ 8,596,873 $ 28,727,201 $16,822,117
EXPENSES:
Mortality and expense
undertakings.......... (7,928,386) (18,910,940) (2,193,698)
------------------- ---------------- --------------
Net investment income
(loss).............. 668,487 9,816,261 14,628,419
------------------- ---------------- --------------
CAPITAL GAINS INCOME..... 39,050,857 44,842,140 4,004,303
------------------- ---------------- --------------
NET REALIZED AND
UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Net realized gain
(loss) on security
transactions.......... (1,485,356) (541,832) 13,013
Net unrealized
appreciation
(depreciation) of
investments during the
period................ 27,913,220 151,447,604 (335,247)
------------------- ---------------- --------------
Net gain (loss) on
investments......... 26,427,864 150,905,772 (322,234)
------------------- ---------------- --------------
Net increase
(decrease) in net
assets resulting
from operations..... $66,147,208 $ 205,564,173 $18,310,488
------------------- ---------------- --------------
------------------- ---------------- --------------
</TABLE>
---------------------------------------------------- 51
----------------------------------------------------
<PAGE>
SEPARATE ACCOUNT ONE
- --------------------------------------------------------------------------------
HARTFORD LIFE AND ANNUITY INSURANCE COMPANY
STATEMENTS OF OPERATIONS -- (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
SMALL MIDCAP
COMPANY FUND FUND
SUB-ACCOUNT SUB-ACCOUNT
------------- ------------
<S> <C> <C>
INVESTMENT INCOME:
Dividends................ $ -- $ 574
EXPENSES:
Mortality and expense
undertakings.......... (2,126,815) (603,398)
------------- ------------
Net investment income
(loss).............. (2,126,815) (602,824)
------------- ------------
CAPITAL GAINS INCOME..... 2,433,792 --
------------- ------------
NET REALIZED AND
UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Net realized gain
(loss) on security
transactions.......... (74,920) (2,834)
Net unrealized
appreciation
(depreciation) of
investments during the
period................ 17,782,782 13,252,169
------------- ------------
Net gain (loss) on
investments......... 17,707,862 13,249,335
------------- ------------
Net increase
(decrease) in net
assets resulting
from operations..... $18,014,839 $ 12,646,511
------------- ------------
------------- ------------
</TABLE>
* From inception, June 1, 1998 to December 31, 1998.
** From inception, September 30, 1998 to December 31, 1998.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
---------------------------------------------------- 52
----------------------------------------------------
<PAGE>
<TABLE>
<CAPTION>
MENTOR MENTOR PERPETUAL MENTOR GLOBAL HIGH GROWTH AND
CAPITAL GROWTH INTERNATIONAL GROWTH LEADERS FUND YIELD FUND INCOME FUND
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT** SUB-ACCOUNT** SUB-ACCOUNT*
--------------- ----------------- ------------ -------------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends................ $-- $-- $-- $ 1,405 $44,172 $ 56,708
EXPENSES:
Mortality and expense
undertakings.......... (3,951) (3,170) (2,316) (1,277) (4,493) (43,229)
--------------- ------- ------------ ------- ------- -------------
Net investment income
(loss).............. (3,951) (3,170) (2,316) 128 39,679 13,479
--------------- ------- ------------ ------- ------- -------------
CAPITAL GAINS INCOME..... -- -- -- 29,044 -- --
--------------- ------- ------------ ------- ------- -------------
NET REALIZED AND
UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Net realized gain
(loss) on security
transactions.......... 55 38 2 (3,023) (1,553) 140
Net unrealized
appreciation
(depreciation) of
investments during the
period................ 118,168 47,507 56,433 52,419 14,002 1,906,801
--------------- ------- ------------ ------- ------- -------------
Net gain (loss) on
investments......... 118,223 47,545 56,435 49,396 12,449 1,906,941
--------------- ------- ------------ ------- ------- -------------
Net increase
(decrease) in net
assets resulting
from operations..... $114,272 $44,375 $54,119 $78,568 $52,128 $1,920,420
--------------- ------- ------------ ------- ------- -------------
--------------- ------- ------------ ------- ------- -------------
</TABLE>
* From inception, June 1, 1998 to December 31, 1998.
** From inception, September 30, 1998 to December 31, 1998.
---------------------------------------------------- 53
----------------------------------------------------
<PAGE>
SEPARATE ACCOUNT ONE
- --------------------------------------------------------------------------------
HARTFORD LIFE AND ANNUITY INSURANCE COMPANY
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
BOND FUND STOCK FUND
SUB-ACCOUNT SUB-ACCOUNT
------------ --------------
<S> <C> <C>
OPERATIONS:
Net investment income
(loss)................ $ 15,464,795 $ (7,691,830)
Capital gains income... -- 76,061,613
Net realized gain
(loss) on security
transactions.......... (5,587) (1,418,674)
Net unrealized
appreciation
(depreciation) of
investments during the
period................ 5,072,560 663,245,884
------------ --------------
Net increase (decrease)
in net assets
resulting from
operations............ 20,531,768 730,196,993
------------ --------------
UNIT TRANSACTIONS:
Purchases.............. 58,804,116 385,880,357
Net transfers.......... 123,611,549 325,699,308
Surrenders for benefit
payments and fees..... (20,698,247) (105,089,407)
Net annuity
transactions.......... 632,000 6,055,572
------------ --------------
Net increase (decrease)
in net assets
resulting from unit
transactions.......... 162,349,418 612,545,830
------------ --------------
Net increase (decrease)
in net assets......... 182,881,186 1,342,742,823
NET ASSETS:
Beginning of period.... 228,375,322 2,029,587,525
------------ --------------
End of period.......... $411,256,508 $3,372,330,348
------------ --------------
------------ --------------
</TABLE>
HARTFORD LIFE AND ANNUITY INSURANCE COMPANY
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
BOND FUND STOCK FUND
SUB-ACCOUNT SUB-ACCOUNT
------------ --------------
<S> <C> <C>
OPERATIONS:
Net investment income
(loss)................ $ 9,223,325 $ (2,373,240)
Capital gains income... -- 62,602,913
Net realized gain
(loss) on security
transactions.......... 9,814 84,100
Net unrealized
appreciation
(depreciation) of
investments during the
period................ 8,361,624 325,437,100
------------ --------------
Net increase (decrease)
in net assets
resulting from
operations............ 17,594,763 385,750,873
------------ --------------
UNIT TRANSACTIONS:
Purchases.............. 48,533,601 430,730,097
Net transfers.......... 24,454,452 137,640,435
Surrenders for benefit
payments and fees..... (9,332,737) (52,393,369)
Net annuity
transactions.......... 563,032 1,508,388
------------ --------------
Net increase (decrease)
in net assets
resulting from unit
transactions.......... 64,218,348 517,485,551
------------ --------------
Net increase in net
assets................ 81,813,111 903,236,424
NET ASSETS:
Beginning of period.... 146,562,211 1,126,351,101
------------ --------------
End of period.......... $228,375,322 $2,029,587,525
------------ --------------
------------ --------------
</TABLE>
* From inception, December 22, 1997 to December 31, 1997.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
---------------------------------------------------- 54
----------------------------------------------------
<PAGE>
<TABLE>
<CAPTION>
MONEY CAPITAL MORTGAGE
MARKET FUND ADVISERS FUND APPRECIATION FUND SECURITIES FUND INDEX FUND
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
------------ -------------- ------------------ ---------------- --------------
<S> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment income
(loss)................ $ 9,775,262 $ 53,393,050 $ (16,365,803) $ 5,495,664 $ (1,160,481)
Capital gains income... -- 130,454,479 150,932,848 -- 11,566,682
Net realized gain
(loss) on security
transactions.......... -- (287,760) (3,541,507) 1,531 (301,028)
Net unrealized
appreciation
(depreciation) of
investments during the
period................ -- 750,363,179 201,102,863 (691,300) 129,513,479
------------ -------------- ------------------ ---------------- --------------
Net increase (decrease)
in net assets
resulting from
operations............ 9,775,262 933,922,948 332,128,401 4,805,895 139,618,652
------------ -------------- ------------------ ---------------- --------------
UNIT TRANSACTIONS:
Purchases.............. 75,815,780 600,914,213 285,756,586 9,674,424 107,850,968
Net transfers.......... 120,297,377 671,280,081 116,427,127 20,420,247 98,345,205
Surrenders for benefit
payments and fees..... (60,700,173) (226,423,137) (108,713,408) (6,506,845) (22,295,418)
Net annuity
transactions.......... 717,935 4,552,594 2,969,562 225,614 1,399,655
------------ -------------- ------------------ ---------------- --------------
Net increase (decrease)
in net assets
resulting from unit
transactions.......... 136,130,919 1,050,323,751 296,439,867 23,813,440 185,300,410
------------ -------------- ------------------ ---------------- --------------
Net increase (decrease)
in net assets......... 145,906,181 1,984,246,699 628,568,268 28,619,335 324,919,062
NET ASSETS:
Beginning of period.... 199,833,574 3,575,726,542 2,237,923,783 80,334,919 437,517,015
------------ -------------- ------------------ ---------------- --------------
End of period.......... $345,739,755 $5,559,973,241 $2,866,492,051 $108,954,254 $ 762,436,077
------------ -------------- ------------------ ---------------- --------------
------------ -------------- ------------------ ---------------- --------------
<CAPTION>
INTERNATIONAL DIVIDEND AND INTERNATIONAL
OPPORTUNITIES FUND GROWTH FUND ADVISERS FUND
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
------------------- ----------------- --------------
<S> <C> <C> <C>
OPERATIONS:
Net investment income
(loss)................ $ 668,487 $ 9,816,261 $ 14,628,419
Capital gains income... 39,050,857 44,842,140 4,004,303
Net realized gain
(loss) on security
transactions.......... (1,485,356) (541,832) 13,013
Net unrealized
appreciation
(depreciation) of
investments during the
period................ 27,913,220 151,447,604 (335,247)
------------------- ----------------- --------------
Net increase (decrease)
in net assets
resulting from
operations............ 66,147,208 205,564,173 18,310,488
------------------- ----------------- --------------
UNIT TRANSACTIONS:
Purchases.............. 39,589,829 264,852,722 23,124,347
Net transfers.......... (4,225,169) 249,782,849 22,048,417
Surrenders for benefit
payments and fees..... (26,163,417) (61,426,410) (7,181,403)
Net annuity
transactions.......... 434,251 2,178,448 67,952
------------------- ----------------- --------------
Net increase (decrease)
in net assets
resulting from unit
transactions.......... 9,635,494 455,387,609 38,059,313
------------------- ----------------- --------------
Net increase (decrease)
in net assets......... 75,782,702 660,951,782 56,369,801
NET ASSETS:
Beginning of period.... 582,668,050 1,163,455,270 144,786,406
------------------- ----------------- --------------
End of period.......... $658,450,752 $ 1,824,407,052 $201,156,207
------------------- ----------------- --------------
------------------- ----------------- --------------
</TABLE>
<TABLE>
<CAPTION>
MONEY CAPITAL MORTGAGE
MARKET FUND ADVISERS FUND APPRECIATION FUND SECURITIES FUND INDEX FUND
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
------------ -------------- ------------------ ---------------- --------------
<S> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment income
(loss)................ $ 7,922,137 $ 35,054,512 $ (12,623,739) $ 3,680,098 $ 645,552
Capital gains income... -- 107,409,178 112,339,947 -- 19,616,096
Net realized gain
(loss) on security
transactions.......... -- 1,305 (119,550) 58,290 185,916
Net unrealized
appreciation
(depreciation) of
investments during the
period................ -- 440,215,879 223,915,112 1,886,382 62,356,292
------------ -------------- ------------------ ---------------- --------------
Net increase (decrease)
in net assets
resulting from
operations............ 7,922,137 582,680,874 323,511,770 5,624,770 82,803,856
------------ -------------- ------------------ ---------------- --------------
UNIT TRANSACTIONS:
Purchases.............. 154,121,029 650,294,881 444,618,125 11,734,160 106,908,193
Net transfers.......... (105,053,239) 185,059,734 111,621,605 (5,624,261) 38,286,952
Surrenders for benefit
payments and fees..... (32,455,810) (124,493,708) (60,594,326) (6,044,100) (9,935,604)
Net annuity
transactions.......... 110,035 1,689,593 689,458 5,419 151,370
------------ -------------- ------------------ ---------------- --------------
Net increase (decrease)
in net assets
resulting from unit
transactions.......... 16,722,015 712,550,500 496,334,862 71,218 135,410,911
------------ -------------- ------------------ ---------------- --------------
Net increase in net
assets................ 24,644,152 1,295,231,374 819,846,632 5,695,988 218,214,767
NET ASSETS:
Beginning of period.... 175,189,422 2,280,495,168 1,418,077,151 74,638,931 219,302,248
------------ -------------- ------------------ ---------------- --------------
End of period.......... $199,833,574 $3,575,726,542 $2,237,923,783 $80,334,919 $ 437,517,015
------------ -------------- ------------------ ---------------- --------------
------------ -------------- ------------------ ---------------- --------------
<CAPTION>
INTERNATIONAL DIVIDEND AND INTERNATIONAL
OPPORTUNITIES FUND GROWTH FUND ADVISERS FUND
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
------------------- ----------------- --------------
<S> <C> <C> <C>
OPERATIONS:
Net investment income
(loss)................ $ (1,712,982) $ 5,721,921 $ 2,472,525
Capital gains income... 37,513,752 15,828,765 262,472
Net realized gain
(loss) on security
transactions.......... (68,174) (12,819) 3,758
Net unrealized
appreciation
(depreciation) of
investments during the
period................ (45,233,169) 182,031,024 383,378
------------------- ----------------- --------------
Net increase (decrease)
in net assets
resulting from
operations............ (9,500,573) 203,568,891 3,122,133
------------------- ----------------- --------------
UNIT TRANSACTIONS:
Purchases.............. 103,316,180 344,818,126 53,015,752
Net transfers.......... 21,889,359 142,586,883 20,439,056
Surrenders for benefit
payments and fees..... (18,041,766) (25,953,097) (3,671,030)
Net annuity
transactions.......... 39,532 343,961 63,436
------------------- ----------------- --------------
Net increase (decrease)
in net assets
resulting from unit
transactions.......... 107,203,305 461,795,873 69,847,214
------------------- ----------------- --------------
Net increase in net
assets................ 97,702,732 665,364,764 72,969,347
NET ASSETS:
Beginning of period.... 484,965,318 498,090,506 71,817,059
------------------- ----------------- --------------
End of period.......... $582,668,050 $ 1,163,455,270 $144,786,406
------------------- ----------------- --------------
------------------- ----------------- --------------
</TABLE>
* From inception, December 22, 1997 to December 31, 1997.
---------------------------------------------------- 55
----------------------------------------------------
<PAGE>
SEPARATE ACCOUNT ONE
- --------------------------------------------------------------------------------
HARTFORD LIFE AND ANNUITY INSURANCE COMPANY
STATEMENTS OF CHANGES IN NET ASSETS -- (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
SMALL MIDCAP
COMPANY FUND FUND
SUB-ACCOUNT SUB-ACCOUNT
------------ -----------
<S> <C> <C>
OPERATIONS:
Net investment income
(loss)................ $(2,126,815 ) $ (602,824)
Capital gains income... 2,433,792 --
Net realized gain
(loss) on security
transactions.......... (74,920 ) (2,834)
Net unrealized
appreciation
(depreciation) of
investments during the
period................ 17,782,782 13,252,169
------------ -----------
Net increase (decrease)
in net assets
resulting from
operations............ 18,014,839 12,646,511
------------ -----------
UNIT TRANSACTIONS:
Purchases.............. 37,657,549 28,291,639
Net transfers.......... 31,192,792 36,483,561
Surrenders for benefit
payments and fees..... (6,343,764 ) (1,424,845)
Net annuity
transactions.......... 298,211 109,553
------------ -----------
Net increase (decrease)
in net assets
resulting from unit
transactions.......... 62,804,788 63,459,908
------------ -----------
Net increase (decrease)
in net assets......... 80,819,627 76,106,419
NET ASSETS:
Beginning of period.... 134,782,182 14,738,308
------------ -----------
End of period.......... $215,601,809 $90,844,727
------------ -----------
------------ -----------
</TABLE>
* From inception, June 1, 1998 to December 31, 1998.
** From inception, September 30, 1998 to December 31, 1998.
HARTFORD LIFE AND ANNUITY INSURANCE COMPANY
STATEMENTS OF CHANGES IN NET ASSETS -- (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
SMALL MIDCAP
COMPANY FUND FUND
SUB-ACCOUNT SUB-ACCOUNT*
------------ -------------
<S> <C> <C>
OPERATIONS:
Net investment income (loss).......... $ (841,931 ) $ (16,949)
Capital gains income.................. 6,247,370 --
Net realized gain (loss) on security
transactions......................... (1,756 ) 414
Net unrealized appreciation
(depreciation) of investments during
the period........................... 2,416,430 639,685
------------ -------------
Net increase (decrease) in net assets
resulting from operations............ 7,820,113 623,150
------------ -------------
UNIT TRANSACTIONS:
Purchases............................. 59,848,160 7,620,550
Net transfers......................... 42,807,593 6,536,068
Surrenders for benefit payments and
fees................................. (1,723,390 ) (41,460)
Net annuity transactions.............. 14,177 --
------------ -------------
Net increase (decrease) in net assets
resulting from unit transactions..... 100,946,540 14,115,158
------------ -------------
Net increase in net assets............ 108,766,653 14,738,308
NET ASSETS:
Beginning of period................... 26,015,529 --
------------ -------------
End of period......................... $134,782,182 $14,738,308
------------ -------------
------------ -------------
* From inception, December 22, 1997 to
December 31, 1997.
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
---------------------------------------------------- 56
----------------------------------------------------
<PAGE>
<TABLE>
<CAPTION>
MENTOR MENTOR PERPETUAL MENTOR GLOBAL HIGH GROWTH AND
CAPITAL GROWTH INTERNATIONAL GROWTH LEADERS FUND YIELD FUND INCOME FUND
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT** SUB-ACCOUNT** SUB-ACCOUNT*
--------------- ----------------- ------------ -------------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment income
(loss)................ $ (3,951) $ (3,170) $ (2,316) $ 128 $ 39,679 $ 13,479
Capital gains income... -- -- -- 29,044 -- --
Net realized gain
(loss) on security
transactions.......... 55 38 2 (3,023) (1,553) 140
Net unrealized
appreciation
(depreciation) of
investments during the
period................ 118,168 47,507 56,433 52,419 14,002 1,906,801
--------------- ----------------- ------------ -------------- -------------- -------------
Net increase (decrease)
in net assets
resulting from
operations............ 114,272 44,375 54,119 78,568 52,128 1,920,420
--------------- ----------------- ------------ -------------- -------------- -------------
UNIT TRANSACTIONS:
Purchases.............. 92,146 38,705 39,810 463,522 815,158 5,482,553
Net transfers.......... 1,266,689 937,906 497,486 657,728 1,561,354 7,951,308
Surrenders for benefit
payments and fees..... (2,739) (7,999) 257 (55) (4,986) (109,333)
Net annuity
transactions.......... -- -- -- -- -- --
--------------- ----------------- ------------ -------------- -------------- -------------
Net increase (decrease)
in net assets
resulting from unit
transactions.......... 1,356,096 968,612 537,553 1,121,195 2,371,526 13,324,528
--------------- ----------------- ------------ -------------- -------------- -------------
Net increase (decrease)
in net assets......... 1,470,368 1,012,987 591,672 1,199,763 2,423,654 15,244,948
NET ASSETS:
Beginning of period.... -- -- -- -- -- --
--------------- ----------------- ------------ -------------- -------------- -------------
End of period.......... $1,470,368 $1,012,987 $591,672 $1,199,763 $2,423,654 $15,244,948
--------------- ----------------- ------------ -------------- -------------- -------------
--------------- ----------------- ------------ -------------- -------------- -------------
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
OPERATIONS:
Net investment income (loss)
Capital gains income
Net realized gain (loss) on security
transactions
Net unrealized appreciation
(depreciation) of investments during
the period
Net increase (decrease) in net assets
resulting from operations
UNIT TRANSACTIONS:
Purchases
Net transfers
Surrenders for benefit payments and
fees
Net annuity transactions
Net increase (decrease) in net assets
resulting from unit transactions
Net increase in net assets
NET ASSETS:
Beginning of period
End of period
* From inception, December 22, 1997 to
December 31, 1997.
</TABLE>
---------------------------------------------------- 57
----------------------------------------------------
<PAGE>
SEPARATE ACCOUNT ONE
- --------------------------------------------------------------------------------
HARTFORD LIFE AND ANNUITY INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
1. ORGANIZATION:
Separate Account One (the Account) is a separate investment account within
Hartford Life & Annuity Insurance Company (the Company) and is registered
with the Securities and Exchange Commission (SEC) as a unit investment trust
under the Investment Company Act of 1940, as amended. Both the Company and
the Account are subject to supervision and regulation by the Department of
Insurance of the State of Connecticut and the SEC. The Account invests
deposits by variable annuity contractholders of the Company in various
mutual funds (The Funds) as directed by the contractholders.
2. SIGNIFICANT ACCOUNTING POLICIES:
The following is a summary of significant accounting policies of the
Account, which are in accordance with generally accepted accounting
principles in the investment company industry:
a) SECURITY TRANSACTIONS--Security transactions are recorded on the trade
date (date the order to buy or sell is executed). Cost of investments
sold is determined on the basis of identified cost. Dividend and capital
gains income is accrued as of the ex-dividend date. Capital gains income
represents those dividends from the Funds which are characterized as
capital gains under tax regulations.
b) SECURITY VALUATION--The investments in shares of the Funds are valued at
the closing net asset value per share as determined by the appropriate
Fund as of December 31, 1998
c) FEDERAL INCOME TAXES--The operations of the Account form a part of, and
are taxed with, the total operations of the Company, which is taxed as an
insurance company under the Internal Revenue Code. Under current law, no
federal income taxes are payable with respect to the operations of the
Account.
d) USE OF ESTIMATES--The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities as of the date of the financial statements and the reported
amounts of income and expenses during the period. Operating results in
the future could vary from the amounts derived from management's
estimates.
3. ADMINISTRATION OF THE ACCOUNT AND RELATED CHARGES:
Deduction and Charges -- Certain amounts are deducted from the Contracts on
a monthly basis, as described below:
a) MORTALITY AND EXPENSE RISK CHARGES--The Company will make deductions at a
maximum annual rate of 1.50% of the Contract's value for the mortality
and expense risks which the Company undertakes.
b) TAX EXPENSE CHARGE--If applicable, the Company will make deductions at a
maximum rate of 4.0% of the Contract's value to meet premium tax
requirements. An additional tax charge based on a percentage of the
Contract's value may be assessed to partial withdrawals or surrenders.
These expenses are included in surrenders for benefit payments and fees
in the accompanying statements of changes in net assets.
c) ANNUAL MAINTENANCE FEE--An annual maintenance fee in the amount of $30
may be deducted from the Contract's value each contract year. However,
this fee is not applicable to contracts with values of $50,000 or more,
as determined on the most recent contract anniversary. These expenses are
included in surrenders for benefit payments and fees in the accompanying
statements of changes in net assets.
______________________________________ 58 ______________________________________
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
- --------------------------------------------------------------------------------
TO HARTFORD LIFE AND ANNUITY INSURANCE COMPANY
SEPARATE ACCOUNT ONE AND TO THE
OWNERS OF UNITS OF INTEREST THEREIN:
We have audited the accompanying statements of assets and liabilities of
Hartford Life and Annuity Insurance Company Separate Account One (Bond Fund,
Stock Fund, Money Market Fund, Advisers Fund, Capital Appreciation Fund,
Mortgage Securities Fund, Index Fund, International Opportunities Fund, Dividend
and Growth Fund, International Advisers Fund, Small Company Fund, MidCap Fund,
Mentor Capital Growth Fund, Mentor Perpetual International Fund, Mentor Growth
Fund, Global Leaders Fund, and High Yield Fund, and Growth and Income Fund)
(collectively, the Account) as of December 31, 1998, and the related statements
of operations and the statements of changes in net assets for the periods
presented. These financial statements are the responsibility of the Account's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the Account as of December 31,
1998, and the results of their operations and the changes in their net assets
for the periods presented in conformity with generally accepted accounting
principles.
Hartford, Connecticut
February 16, 1999 ARTHUR ANDERSEN LLP
______________________________________ 59 ______________________________________
<PAGE>
SEPARATE ACCOUNT FIVE
- --------------------------------------------------------------------------------
HARTFORD LIFE INSURANCE COMPANY
STATEMENTS OF ASSETS & LIABILITIES
DECEMBER 31, 1998
<TABLE>
<CAPTION>
BOND FUND STOCK FUND
SUB-ACCOUNT SUB-ACCOUNT
------------ ------------
<S> <C> <C>
ASSETS:
Investments:
Hartford Bond HLS
Fund, Inc. - Class
IA
Shares 8,505,428
Cost $8,795,616
Market Value....... $9,191,519 --
Hartford Stock HLS
Fund, Inc. - Class
IA
Shares 7,966,474
Cost $34,553,742
Market Value....... -- $52,273,344
Hartford Money Market
HLS Fund, Inc. -
Class IA
Shares 21,297,796
Cost $21,297,796
Market Value....... -- --
Hartford Advisers HLS
Fund, Inc. - Class
IA
Shares 29,093,382
Cost $64,738,062
Market Value....... -- --
Hartford Capital
Appreciation HLS
Fund, Inc. - Class
IA
Shares 12,257,662
Cost $46,354,537
Market Value....... -- --
Hartford Mortgage
Securities HLS Fund,
Inc. - Class IA
Shares 2,431,870
Cost $2,602,013
Market Value....... -- --
Hartford Index HLS
Fund, Inc. - Class
IA
Shares 6,755,532
Cost $16,118,196
Market Value....... -- --
Due from Hartford Life
Insurance Company..... 1 --
Receivable from fund
shares sold........... -- 48,896
------------ ------------
Total Assets........... 9,191,520 52,322,240
------------ ------------
LIABILITIES:
Due to Hartford Life
Insurance Company..... -- 48,889
Payable for fund shares
purchased............. -- --
------------ ------------
Total Liabilities...... -- 48,889
------------ ------------
Net Assets (variable
life contract
liabilities).......... $9,191,520 $52,273,351
------------ ------------
------------ ------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
---------------------------------------------------- 60
----------------------------------------------------
<PAGE>
<TABLE>
<CAPTION>
MONEY CAPITAL MORTGAGE
MARKET FUND ADVISERS FUND APPRECIATION FUND SECURITIES FUND INDEX FUND
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
------------ -------------- ------------------ ---------------- --------------
<S> <C> <C> <C> <C> <C>
ASSETS:
Investments:
Hartford Bond HLS
Fund, Inc. - Class
IA
Shares 8,505,428
Cost $8,795,616
Market Value....... -- -- -- -- --
Hartford Stock HLS
Fund, Inc. - Class
IA
Shares 7,966,474
Cost $34,553,742
Market Value....... -- -- -- -- --
Hartford Money Market
HLS Fund, Inc. -
Class IA
Shares 21,297,796
Cost $21,297,796
Market Value....... $21,297,796 -- -- -- --
Hartford Advisers HLS
Fund, Inc. - Class
IA
Shares 29,093,382
Cost $64,738,062
Market Value....... -- $86,851,105 -- -- --
Hartford Capital
Appreciation HLS
Fund, Inc. - Class
IA
Shares 12,257,662
Cost $46,354,537
Market Value....... -- -- $58,335,207 -- --
Hartford Mortgage
Securities HLS Fund,
Inc. - Class IA
Shares 2,431,870
Cost $2,602,013
Market Value....... -- -- -- $2,637,492 --
Hartford Index HLS
Fund, Inc. - Class
IA
Shares 6,755,532
Cost $16,118,196
Market Value....... -- -- -- -- $24,120,302
Due from Hartford Life
Insurance Company..... 1,202,965 43,315 76,131 -- 338
Receivable from fund
shares sold........... -- -- -- -- --
------------ -------------- ------------------ ---------------- --------------
Total Assets........... 22,500,761 86,894,420 58,411,338 2,637,492 24,120,640
------------ -------------- ------------------ ---------------- --------------
LIABILITIES:
Due to Hartford Life
Insurance Company..... -- -- -- 1 --
Payable for fund shares
purchased............. 1,199,337 43,300 76,135 -- 334
------------ -------------- ------------------ ---------------- --------------
Total Liabilities...... 1,199,337 43,300 76,135 1 334
------------ -------------- ------------------ ---------------- --------------
Net Assets (variable
life contract
liabilities).......... $21,301,424 $86,851,120 $58,335,203 $2,637,491 $24,120,306
------------ -------------- ------------------ ---------------- --------------
------------ -------------- ------------------ ---------------- --------------
</TABLE>
---------------------------------------------------- 61
----------------------------------------------------
<PAGE>
SEPARATE ACCOUNT FIVE
- --------------------------------------------------------------------------------
HARTFORD LIFE INSURANCE COMPANY
STATEMENTS OF ASSETS & LIABILITIES -- (CONTINUED)
DECEMBER 31, 1998
<TABLE>
<CAPTION>
INTERNATIONAL DIVIDEND AND
OPPORTUNITIES FUND GROWTH FUND
SUB-ACCOUNT SUB-ACCOUNT
------------------- -------------
<S> <C> <C>
ASSETS:
Investments:
Hartford
International
Opportunities HLS
Fund, Inc. - Class
IA
Shares 9,714,529
Cost $12,844,982
Market Value....... $13,161,797 --
Hartford Dividend and
Growth HLS Fund,
Inc. - Class IA
Shares 15,637,757
Cost $25,479,612
Market Value....... -- $33,785,155
Hartford
International
Advisers HLS Fund,
Inc. - Class IA
Shares 2,410,669
Cost $2,758,948
Market Value....... -- --
Hartford Small
Company HLS Fund,
Inc. - Class IA
Shares 2,040,260
Cost $2,527,860
Market Value....... -- --
Hartford MidCap HLS
Fund, Inc. - Class
IA
Shares 626,520
Cost $775,274
Market Value....... -- --
Hartford Growth and
Income HLS Fund -
Class IA
Shares 971
Cost $1,004
Market Value....... -- --
Hartford Global
Leaders HLS Fund -
Class IA
Shares 45,950
Cost $59,831
Market Value....... -- --
Hartford High Yield
HLS Fund - Class IA
Shares 24,475
Cost $25,041
Market Value....... -- --
Due from Hartford Life
Insurance Company..... 124 18,342
Receivable from fund
shares sold........... -- --
------------------- -------------
Total Assets........... 13,161,921 33,803,497
------------------- -------------
LIABILITIES:
Due to Hartford Life
Insurance Company..... -- --
Payable for fund shares
purchased............. 124 18,345
------------------- -------------
Total Liabilities...... 124 18,345
------------------- -------------
Net Assets (variable
life contract
liabilities).......... $13,161,797 $33,785,152
------------------- -------------
------------------- -------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
---------------------------------------------------- 62
----------------------------------------------------
<PAGE>
<TABLE>
<CAPTION>
INTERNATIONAL SMALL MIDCAP GROWTH AND GLOBAL HIGH
ADVISERS FUND COMPANY FUND FUND INCOME FUND LEADERS FUND YIELD FUND
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
-------------- ------------- ------------ ------------ ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
Investments:
Hartford
International
Opportunities HLS
Fund, Inc. - Class
IA
Shares 9,714,529
Cost $12,844,982
Market Value....... -- -- -- -- -- --
Hartford Dividend and
Growth HLS Fund,
Inc. - Class IA
Shares 15,637,757
Cost $25,479,612
Market Value....... -- -- -- -- -- --
Hartford
International
Advisers HLS Fund,
Inc. - Class IA
Shares 2,410,669
Cost $2,758,948
Market Value....... $2,783,573 -- -- -- -- --
Hartford Small
Company HLS Fund,
Inc. - Class IA
Shares 2,040,260
Cost $2,527,860
Market Value....... -- $2,695,419 -- -- -- --
Hartford MidCap HLS
Fund, Inc. - Class
IA
Shares 626,520
Cost $775,274
Market Value....... -- -- $ 901,722 -- -- --
Hartford Growth and
Income HLS Fund -
Class IA
Shares 971
Cost $1,004
Market Value....... -- -- -- $ 1,151 -- --
Hartford Global
Leaders HLS Fund -
Class IA
Shares 45,950
Cost $59,831
Market Value....... -- -- -- -- $ 59,054 --
Hartford High Yield
HLS Fund - Class IA
Shares 24,475
Cost $25,041
Market Value....... -- -- -- -- -- $ 24,885
Due from Hartford Life
Insurance Company..... 17,578 352 9,895 -- -- --
Receivable from fund
shares sold........... -- -- -- -- -- --
-------------- ------------- ------------ ------------ ------------- ------------
Total Assets........... 2,801,151 2,695,771 911,617 1,151 59,054 24,885
-------------- ------------- ------------ ------------ ------------- ------------
LIABILITIES:
Due to Hartford Life
Insurance Company..... -- -- -- -- -- --
Payable for fund shares
purchased............. 17,578 351 9,894 -- -- --
-------------- ------------- ------------ ------------ ------------- ------------
Total Liabilities...... 17,578 351 9,894 -- -- --
-------------- ------------- ------------ ------------ ------------- ------------
Net Assets (variable
life contract
liabilities).......... $2,783,573 $2,695,420 $ 901,723 $ 1,151 $ 59,054 $ 24,885
-------------- ------------- ------------ ------------ ------------- ------------
-------------- ------------- ------------ ------------ ------------- ------------
</TABLE>
---------------------------------------------------- 63
----------------------------------------------------
<PAGE>
SEPARATE ACCOUNT FIVE
- --------------------------------------------------------------------------------
HARTFORD LIFE INSURANCE COMPANY
STATEMENTS OF ASSETS & LIABILITIES -- (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
UNITS
OWNED BY UNIT CONTRACT
PARTICIPANTS PRICE LIABILITY
------------- ---------- ------------
<S> <C> <C> <C>
DEFERRED ANNUITY CONTRACTS IN THE
ACCUMULATION PERIOD:
INDIVIDUAL SUB-ACCOUNTS:
Bond Fund Sub-Account............ 6,227,233 $ 1.47602 $ 9,191,520
Stock Fund Sub-Account........... 18,062,777 2.893982 52,273,351
Money Market Fund Sub-Account.... 17,297,025 1.231508 21,301,424
Advisers Fund Sub-Account........ 37,637,513 2.307568 86,851,120
Capital Appreciation Fund
Sub-Account..................... 26,356,449 2.213318 58,335,203
Mortgage Securities Fund
Sub-Account..................... 1,856,388 1.420765 2,637,491
Index Fund Sub-Account........... 8,553,442 2.819953 24,120,306
International Opportunities Fund
Sub-Account..................... 8,844,158 1.488191 13,161,797
Dividend and Growth Fund
Sub-Account..................... 13,200,264 2.55943 33,785,152
International Advisers Fund
Sub-Account..................... 1,797,269 1.548779 2,783,573
MidCap Fund Sub-Account.......... 685,397 1.31562 901,723
------------
SUB-TOTAL INDIVIDUAL
SUB-ACCOUNTS.................... 305,342,660
------------
GROUP SUB-ACCOUNTS:
High Yield Fund Sub-Account...... 23,972 1.03809 24,885
Growth and Income Fund
Sub-Account..................... 1,000 1.150984 1,151
Global Leaders Fund
Sub-Account..................... 44,780 1.318766 59,054
Small Company Fund Sub-Account... 2,074,750 1.299154 2,695,420
------------
SUB-TOTAL GROUP SUB-ACCOUNTS..... 2,780,510
------------
TOTAL ACCUMULATION PERIOD........ 308,123,170
------------
GRAND TOTAL........................ $308,123,170
------------
------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
---------------------------------------------------- 64
----------------------------------------------------
<PAGE>
[This page intentionally left blank]
<PAGE>
SEPARATE ACCOUNT FIVE
- --------------------------------------------------------------------------------
HARTFORD LIFE INSURANCE COMPANY
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
BOND FUND STOCK FUND
SUB-ACCOUNT SUB-ACCOUNT
------------ -------------
<S> <C> <C>
INVESTMENT INCOME:
Dividends.............. $439,974 $ 394,942
------------ -------------
Net investment income
(loss).............. 439,974 394,942
------------ -------------
CAPITAL GAINS INCOME..... -- 1,202,881
------------ -------------
NET REALIZED AND
UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Net realized gain
(loss) on security
transactions.......... 4,953 (70,871)
Net unrealized
appreciation
(depreciation) of
investments during the
period................ 161,536 10,365,875
------------ -------------
Net gain (loss) on
investments......... 166,489 10,295,004
------------ -------------
Net increase
(decrease) in net
assets resulting
from operations..... $606,463 $ 11,892,827
------------ -------------
------------ -------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
---------------------------------------------------- 66
----------------------------------------------------
<PAGE>
<TABLE>
<CAPTION>
MONEY CAPITAL MORTGAGE
MARKET FUND ADVISERS FUND APPRECIATION FUND SECURITIES FUND INDEX FUND
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
------------ -------------- ------------------ ---------------- ------------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends.............. $907,215 $ 1,713,763 $ 309,876 $161,695 $ 197,134
------------ -------------- ------------------ -------- ------------
Net investment income
(loss).............. 907,215 1,713,763 309,876 161,695 197,134
------------ -------------- ------------------ -------- ------------
CAPITAL GAINS INCOME..... -- 2,134,889 3,157,152 -- 420,305
------------ -------------- ------------------ -------- ------------
NET REALIZED AND
UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Net realized gain
(loss) on security
transactions.......... -- (2,350) (195,604) 1,356 (76,809)
Net unrealized
appreciation
(depreciation) of
investments during the
period................ -- 11,964,481 4,068,045 (8,129) 4,342,765
------------ -------------- ------------------ -------- ------------
Net gain (loss) on
investments......... -- 11,962,131 3,872,441 (6,773) 4,265,956
------------ -------------- ------------------ -------- ------------
Net increase
(decrease) in net
assets resulting
from operations..... $907,215 $15,810,783 $7,339,469 $154,922 $ 4,883,395
------------ -------------- ------------------ -------- ------------
------------ -------------- ------------------ -------- ------------
</TABLE>
---------------------------------------------------- 67
----------------------------------------------------
<PAGE>
SEPARATE ACCOUNT FIVE
- --------------------------------------------------------------------------------
HARTFORD LIFE INSURANCE COMPANY
STATEMENTS OF OPERATIONS -- (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
INTERNATIONAL DIVIDEND AND
OPORTUNITIES FUND GROWTH FUND
SUB-ACCOUNT SUB-ACCOUNT
------------------ -------------
<S> <C> <C>
INVESTMENT INCOME:
Dividends.............. $ 171,752 $ 535,570
------------------ -------------
Net investment income
(loss).............. 171,752 535,570
------------------ -------------
CAPITAL GAINS INCOME..... 773,886 903,529
------------------ -------------
NET REALIZED AND
UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Net realized gain
(loss) on security
transactions.......... (32,807) 3,909
Net unrealized
appreciation
(depreciation) of
investments during the
period................ 549,100 2,931,296
------------------ -------------
Net gain (loss) on
investments......... 516,293 2,935,205
------------------ -------------
Net increase
(decrease) in net
assets resulting
from operations..... $1,461,931 $4,374,304
------------------ -------------
------------------ -------------
</TABLE>
* From inception, June 1, 1998, to December 31, 1998.
** From inception, September 30, 1998, to December 31, 1998.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
---------------------------------------------------- 68
----------------------------------------------------
<PAGE>
<TABLE>
<CAPTION>
INTERNATIONAL SMALL MIDCAP GROWTH AND GLOBAL HIGH
ADVISERS FUND COMPANY FUND FUND INCOME FUND LEADERS FUND YIELD FUND
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT* SUB-ACCOUNT** SUB-ACCOUNT**
-------------- ------------- ------------ ------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends.............. $265,660 $-- $ 7 $ 4 $ 69 $ 457
-------------- ------------- ------------ ----- ------ -----
Net investment income
(loss).............. 265,660 -- 7 4 69 457
-------------- ------------- ------------ ----- ------ -----
CAPITAL GAINS INCOME..... 63,237 33,340 -- -- 1,434 --
-------------- ------------- ------------ ----- ------ -----
NET REALIZED AND
UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Net realized gain
(loss) on security
transactions.......... 1,598 14,371 (28,672) -- -- --
Net unrealized
appreciation
(depreciation) of
investments during the
period................ (22,396) 225,453 123,154 147 (777) (156)
-------------- ------------- ------------ ----- ------ -----
Net gain (loss) on
investments......... (20,798) 239,824 94,482 147 (777) (156)
-------------- ------------- ------------ ----- ------ -----
Net increase
(decrease) in net
assets resulting
from operations..... $308,099 $273,164 $ 94,489 $151 $ 726 $ 301
-------------- ------------- ------------ ----- ------ -----
-------------- ------------- ------------ ----- ------ -----
</TABLE>
* From inception, June 1, 1998, to December 31, 1998.
** From inception, September 30, 1998, to December 31, 1998.
---------------------------------------------------- 69
----------------------------------------------------
<PAGE>
SEPARATE ACCOUNT FIVE
- --------------------------------------------------------------------------------
HARTFORD LIFE INSURANCE COMPANY
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
BOND FUND STOCK FUND
SUB-ACCOUNT SUB-ACCOUNT
------------ ------------
<S> <C> <C>
OPERATIONS:
Net investment income
(loss)................ $ 439,974 $ 394,942
Capital gains income... -- 1,202,881
Net realized gain
(loss) on security
transactions.......... 4,953 (70,871)
Net unrealized
appreciation
(depreciation) of
investments during the
period................ 161,536 10,365,875
------------ ------------
Net increase (decrease)
in net assets
resulting from
operations............ 606,463 11,892,827
------------ ------------
UNIT TRANSACTIONS:
Purchases.............. -- 10,617
Net transfers.......... 3,122,789 9,694,176
Surrenders for benefit
payments and fees..... (282,701) (1,193,061)
Net loan activity...... (48,849) (201,305)
Cost of Insurance...... (53,144) (274,848)
------------ ------------
Net increase (decrease)
in net assets
resulting from unit
transactions.......... 2,738,095 8,035,579
------------ ------------
Net increase (decrease)
in net assets......... 3,344,558 19,928,406
NET ASSETS:
Beginning of period.... 5,846,962 32,344,945
------------ ------------
End of period.......... $9,191,520 $ 52,273,351
------------ ------------
------------ ------------
</TABLE>
HARTFORD LIFE INSURANCE COMPANY
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
BOND FUND STOCK FUND
SUB-ACCOUNT SUB-ACCOUNT
------------ ------------
<S> <C> <C>
OPERATIONS:
Net investment income
(loss)................ $ 289,780 $ 277,126
Capital gains income... -- 933,599
Net realized gain
(loss) on security
transactions.......... 1,747 8,984
Net unrealized
appreciation
(depreciation) of
investments during the
period................ 234,683 5,037,260
------------ ------------
Net increase (decrease)
in net assets
resulting from
operations............ 526,210 6,256,969
------------ ------------
UNIT TRANSACTIONS:
Purchases.............. -- --
Net transfers.......... 2,261,134 10,438,019
Surrenders for benefit
payments and fees..... (72,004) (726,356)
Net loan activity...... (40,246) (220,955)
Cost of Insurance...... (29,688) (165,194)
------------ ------------
Net increase (decrease)
in net assets
resulting from unit
transactions.......... 2,119,196 9,325,514
------------ ------------
Net increase (decrease)
in net assets......... 2,645,406 15,582,483
NET ASSETS:
Beginning of period.... 3,201,556 16,762,462
------------ ------------
End of period.......... $5,846,962 $ 32,344,945
------------ ------------
------------ ------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
---------------------------------------------------- 70
----------------------------------------------------
<PAGE>
<TABLE>
<CAPTION>
MONEY CAPITAL MORTGAGE
MARKET FUND ADVISERS FUND APPRECIATION FUND SECURITIES FUND INDEX FUND
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
------------ -------------- ------------------ ---------------- --------------
<S> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment income
(loss)................ $ 907,215 $ 1,713,763 $ 309,876 $ 161,695 $ 197,134
Capital gains income... -- 2,134,889 3,157,152 -- 420,305
Net realized gain
(loss) on security
transactions.......... -- (2,350) (195,604) 1,356 (76,809)
Net unrealized
appreciation
(depreciation) of
investments during the
period................ -- 11,964,481 4,068,045 (8,129) 4,342,765
------------ -------------- ------------------ ---------------- --------------
Net increase (decrease)
in net assets
resulting from
operations............ 907,215 15,810,783 7,339,469 154,922 4,883,395
------------ -------------- ------------------ ---------------- --------------
UNIT TRANSACTIONS:
Purchases.............. 57,281,893 1,450 10,490 -- 10,734
Net transfers.......... (49,482,802) 16,449,477 6,484,579 404,847 4,207,201
Surrenders for benefit
payments and fees..... (1,218,848) (2,772,483) (1,949,888) (102,327) (659,660)
Net loan activity...... (2,979,256) (610,361) (596,858) (30,755) (394,242)
Cost of Insurance...... (170,157) (485,789) (352,456) (17,902) (134,328)
------------ -------------- ------------------ ---------------- --------------
Net increase (decrease)
in net assets
resulting from unit
transactions.......... 3,430,830 12,582,294 3,595,867 253,863 3,029,705
------------ -------------- ------------------ ---------------- --------------
Net increase (decrease)
in net assets......... 4,338,045 28,393,077 10,935,336 408,785 7,913,100
NET ASSETS:
Beginning of period.... 16,963,379 58,458,043 47,399,867 2,228,706 16,207,206
------------ -------------- ------------------ ---------------- --------------
End of period.......... $21,301,424 $86,851,120 $58,335,203 $2,637,491 $ 24,120,306
------------ -------------- ------------------ ---------------- --------------
------------ -------------- ------------------ ---------------- --------------
</TABLE>
<TABLE>
<CAPTION>
MONEY CAPITAL MORTGAGE
MARKET FUND ADVISERS FUND APPRECIATION FUND SECURITIES FUND INDEX FUND
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
------------ -------------- ------------------ ---------------- --------------
<S> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment income
(loss)................ $ 911,582 $ 1,156,876 $ 221,135 $ 116,672 $ 180,981
Capital gains income... -- 1,663,628 2,382,496 -- 787,478
Net realized gain
(loss) on security
transactions.......... -- 2,740 1,256 296 4,890
Net unrealized
appreciation
(depreciation) of
investments during the
period................ -- 6,960,236 4,674,683 39,086 2,484,980
------------ -------------- ------------------ ---------------- --------------
Net increase (decrease)
in net assets
resulting from
operations............ 911,582 9,783,480 7,279,570 156,054 3,458,329
------------ -------------- ------------------ ---------------- --------------
UNIT TRANSACTIONS:
Purchases.............. 63,950,949 2,129 684 -- --
Net transfers.......... (61,547,449) 16,160,071 12,167,630 699,756 4,486,710
Surrenders for benefit
payments and fees..... (1,485,440) (1,461,109) (1,165,216) (61,537) (569,846)
Net loan activity...... (2,906,735) (120,116) (179,295) (9,709) (170,615)
Cost of Insurance...... (154,854) (322,766) (268,542) (12,046) (85,758)
------------ -------------- ------------------ ---------------- --------------
Net increase (decrease)
in net assets
resulting from unit
transactions.......... (2,143,529) 14,258,209 17,834,831 616,464 3,660,491
------------ -------------- ------------------ ---------------- --------------
Net increase (decrease)
in net assets......... (1,231,947) 24,041,689 17,834,831 772,518 7,118,820
NET ASSETS:
Beginning of period.... 18,195,325 34,416,354 29,565,036 1,456,188 9,088,386
------------ -------------- ------------------ ---------------- --------------
End of period.......... $16,963,379 $58,458,043 $47,399,867 $2,228,706 $ 16,207,206
------------ -------------- ------------------ ---------------- --------------
------------ -------------- ------------------ ---------------- --------------
</TABLE>
---------------------------------------------------- 71
----------------------------------------------------
<PAGE>
SEPARATE ACCOUNT FIVE
- --------------------------------------------------------------------------------
HARTFORD LIFE INSURANCE COMPANY
STATEMENTS OF CHANGES IN NET ASSETS -- (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
INTERNATIONAL DIVIDEND AND
OPPORTUNITIES FUND GROWTH FUND
SUB-ACCOUNT SUB-ACCOUNT
------------------- -------------
<S> <C> <C>
OPERATIONS:
Net investment income
(loss)................ $ 171,752 $ 535,570
Capital gains income... 773,886 903,529
Net realized gain
(loss) on security
transactions.......... (32,807) 3,909
Net unrealized
appreciation
(depreciation) of
investments during the
period................ 549,100 2,931,296
------------------- -------------
Net increase (decrease)
in net assets
resulting from
operations............ 1,461,931 4,374,304
------------------- -------------
UNIT TRANSACTIONS:
Purchases.............. 5,004 886
Net transfers.......... 842,567 6,508,074
Surrenders for benefit
payments and fees..... (297,843) (1,015,921)
Net loan activity...... (174,741) (242,467)
Cost of Insurance...... (84,604) (201,221)
------------------- -------------
Net increase (decrease)
in net assets
resulting from unit
transactions.......... 290,383 5,049,351
------------------- -------------
Net increase (decrease)
in net assets......... 1,752,314 9,423,655
NET ASSETS:
Beginning of
period.............. 11,409,483 24,361,497
------------------- -------------
End of period........ $13,161,797 $33,785,152
------------------- -------------
------------------- -------------
</TABLE>
* From inception, June 1, 1998, to December 31, 1998.
** From inception, September 30, 1998, to December 31, 1998.
HARTFORD LIFE INSURANCE COMPANY
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
INTERNATIONAL DIVIDEND AND
OPPORTUNITIES FUND GROWTH FUND
SUB-ACCOUNT SUB-ACCOUNT
------------------- -------------
<S> <C> <C>
OPERATIONS:
Net investment income
(loss)................ $ 104,356 $ 341,582
Capital gains income... 661,603 364,880
Net realized gain
(loss) on security
transactions.......... 7,059 462
Net unrealized
appreciation
(depreciation) of
investments during the
period................ (783,223) 3,955,206
------------------- -------------
Net increase (decrease)
in net assets
resulting from
operations............ (10,205) 4,662,130
------------------- -------------
UNIT TRANSACTIONS:
Purchases.............. 712 --
Net transfers.......... 3,635,238 8,771,193
Surrenders for benefit
payments and fees..... (325,889) (474,419)
Net loan activity...... (76,025) (141,694)
Cost of Insurance...... (70,065) (120,449)
------------------- -------------
Net increase (decrease)
in net assets
resulting from unit... 3,163,971 8,034,631
------------------- -------------
Net increase (decrease)
in net assets......... 3,153,766 12,696,761
NET ASSETS:
Beginning of period.... 8,255,717 11,664,736
------------------- -------------
End of Period.......... $11,409,483 $24,361,497
------------------- -------------
------------------- -------------
</TABLE>
* From inception, July 15, 1997, to December 31, 1997.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
---------------------------------------------------- 72
----------------------------------------------------
<PAGE>
<TABLE>
<CAPTION>
INTERNATIONAL SMALL MIDCAP GROWTH AND GLOBAL HIGH
ADVISERS FUND COMPANY FUND FUND INCOME FUND LEADERS FUND YIELD FUND
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT* SUB-ACCOUNT** SUB-ACCOUNT**
-------------- ------------- ------------ ------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment income
(loss)................ $ 266,660 $ -- $ 7 $ 4 $ 69 $ 457
Capital gains income... 63,237 33,340 -- -- 1,434 --
Net realized gain
(loss) on security
transactions.......... 1,598 14,371 (28,672) -- -- --
Net unrealized
appreciation
(depreciation) of
investments during the
period................ (22,396) 225,453 123,154 147 (777) (156)
-------------- ------------- ------------ ------ ------- -------
Net increase (decrease)
in net assets
resulting from
operations............ 308,099 273,164 94,489 151 726 301
-------------- ------------- ------------ ------ ------- -------
UNIT TRANSACTIONS:
Purchases.............. -- 7,511 8,500 1,000 2,000 2,000
Net transfers.......... 353,622 695,351 641,260 -- 56,338 22,441
Surrenders for benefit
payments and fees..... (73,340) (37,178) (8,125) -- (7) 115
Net loan activity...... (66,673) (17,491) (4,163) -- -- (1)
Cost of Insurance...... (18,446) (15,048) (3,741) -- (3) 29
-------------- ------------- ------------ ------ ------- -------
Net increase (decrease)
in net assets
resulting from unit
transactions.......... 195,163 633,145 633,731 1,000 58,328 24,584
-------------- ------------- ------------ ------ ------- -------
Net increase (decrease)
in net assets......... 503,262 906,309 728,220 1,151 59,054 24,885
NET ASSETS:
Beginning of
period.............. 2,280,311 1,789,111 173,503 -- -- --
-------------- ------------- ------------ ------ ------- -------
End of period........ $ 2,783,573 $2,695,420 $901,723 $1,151 $59,054 $24,885
-------------- ------------- ------------ ------ ------- -------
-------------- ------------- ------------ ------ ------- -------
</TABLE>
<TABLE>
<CAPTION>
INTERNATIONAL SMALL MIDCAP
ADVISERS FUND COMPANY FUND FUND
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT*
-------------- ------------- -------------
<S> <C> <C> <C>
OPERATIONS:
Net investment income
(loss)................ $ 70,580 $ 811 $ 156
Capital gains income... 4,758 81,211 --
Net realized gain
(loss) on security
transactions.......... 4,567 (11,838) (3)
Net unrealized
appreciation
(depreciation) of
investments during the
period................ 16,688 (57,877) 3,294
-------------- ------------- -------------
Net increase (decrease)
in net assets
resulting from
operations............ 96,593 12,307 3,447
-------------- ------------- -------------
UNIT TRANSACTIONS:
Purchases.............. -- -- 1,000
Net transfers.......... 841,304 1,790,398 170,709
Surrenders for benefit
payments and fees..... (46,000) (10,130) (525)
Net loan activity...... (23,722) (2) --
Cost of Insurance...... (12,736) (4,445) (128)
-------------- ------------- -------------
Net increase (decrease)
in net assets
resulting from unit... 758,846 1,775,821 170,056
-------------- ------------- -------------
Net increase (decrease)
in net assets......... 855,439 1,788,128 173,503
NET ASSETS:
Beginning of period.... 1,424,872 983 --
-------------- ------------- -------------
End of Period.......... $ 2,280,311 $1,789,111 $173,503
-------------- ------------- -------------
-------------- ------------- -------------
</TABLE>
---------------------------------------------------- 73
----------------------------------------------------
<PAGE>
SEPARATE ACCOUNT FIVE
- --------------------------------------------------------------------------------
HARTFORD LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
1. ORGANIZATION:
Separate Account Five (the Account) is a separate investment account within
Hartford Life Insurance Company (the Company) and is registered with the
Securities and Exchange Commission (SEC) as a unit investment trust under
the Investment Company Act of 1940, as amended. Both the Company and the
Account are subject to supervision and regulation by the Department of
Insurance of the State of Connecticut and the SEC. The Account invests
deposits by variable life contractholders of the Company in various mutual
funds (The Funds) as directed by the contractholders.
2. SIGNIFICANT ACCOUNTING POLICIES:
The following is a summary of significant accounting policies of the
Account, which are in accordance with generally accepted accounting
principles in the investment company industry:
a) SECURITY TRANSACTIONS--Security transactions are recorded on the trade
date (date the order to buy or sell is executed). Cost of investments
sold is determined on the basis of identified cost. Dividend and capital
gains income is accrued as of the ex-dividend date. Capital gains income
represents those dividends from the Funds which are characterized as
capital gains under tax regulations.
b) SECURITY VALUATION--The investments in shares of the Funds are valued at
the closing net asset value per share as determined by the appropriate
Fund as of December 31, 1998
c) FEDERAL INCOME TAXES--The operations of the Account form a part of, and
are taxed with, the total operations of the Company, which is taxed as an
insurance company under the Internal Revenue Code. Under current law, no
federal income taxes are payable with respect to the operations of the
Account.
d) USE OF ESTIMATES--The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities as of the date of the financial statements and the reported
amounts of income and expenses during the period. Operating results in
the future could vary from the amounts derived from management's
estimates.
3. ADMINISTRATION OF THE ACCOUNT AND RELATED CHARGES:
Deduction and Charges -- Certain amounts are deducted from the Contracts, as
described below:
a) COST OF INSURANCE CHARGE--In accordance with terms of the contracts, the
Company makes deductions for costs of insurance to cover the Company's
anticipated mortality costs. Because a policy's account value and death
benefit may vary from month to month, the cost of insurance charge may
also vary.
b) MORTALITY AND EXPENSE RISK CHARGES--The Company will make deductions at a
maximum annual rate of 0.90% of the Contract's value for the mortality
and expense risks which the Company undertakes. These expenses are
included in surrenders for benefit payments and fees on the accompanying
statements of changes in net assets.
c) TAX EXPENSE CHARGE--If applicable, the Company will make deductions at a
maximum rate of 4.0% of the Contract's value to meet premium tax
requirements. An additional tax charge based on a percentage of the
Contract's value may be assessed to partial withdrawals or surrenders.
These expenses are included in surrenders for benefit payments and fees
on the accompanying statements of changes in net assets.
d) ADMINISTRATIVE CHARGE--The Company will make deductions to cover
administrative expenses at a maximum annual rate of 0.25% of the
Contract's value. These expenses are included in surrenders for benefit
payments and fees on the accompanying statements of changes in net
assets.
e) ANNUAL MAINTENANCE FEE--An annual maintenance fee in the amount of $30
may be deducted from the Contract's value each contract year. However,
this fee is not applicable to contracts with values of $50,000 or more,
as determined on the most recent contract anniversary. These expenses are
included in surrenders for benefit payments and fees on the accompanying
statements of changes in net assets.
______________________________________ 74 ______________________________________
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
- --------------------------------------------------------------------------------
TO HARTFORD LIFE INSURANCE COMPANY
SEPARATE ACCOUNT FIVE AND TO THE
OWNERS OF UNITS OF INTEREST THEREIN:
We have audited the accompanying statements of assets and liabilities of
Hartford Life Insurance Company Separate Account Five (Bond Fund, Stock Fund,
Money Market Fund, Advisers Fund, Capital Appreciation Fund, Mortgage Securities
Fund, Index Fund, International Opportunities Fund, Dividend and Growth Fund,
International Advisers Fund, Small Company Fund, MidCap Fund, Growth and Income
Fund, Global Leaders Fund, and High Yield Fund) (collectively, the Account) as
of December 31, 1998, and the related statements of operations and the
statements of changes in net assets for the periods presented. These financial
statements are the responsibility of the Account's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the Account as of December 31,
1998, and the results of their operations and the changes in their net assets
for the periods presented in conformity with generally accepted accounting
principles.
Hartford, Connecticut
February 16, 1999 ARTHUR ANDERSEN LLP
______________________________________ 75 ______________________________________
<PAGE>
SEPARATE ACCOUNT FIVE
- --------------------------------------------------------------------------------
HARTFORD LIFE AND ANNUITY INSURANCE COMPANY
STATEMENTS OF ASSETS & LIABILITIES
DECEMBER 31, 1998
<TABLE>
<CAPTION>
BOND FUND STOCK FUND
SUB-ACCOUNT SUB-ACCOUNT
------------ ------------
<S> <C> <C>
ASSETS:
Investments:
Hartford Bond HLS
Fund, Inc. - Class
IA
Shares 6,096,035
Cost $6,396,727
Market Value....... $6,587,772 --
Hartford Stock HLS
Fund, Inc. - Class
IA
Shares 8,610,961
Cost $39,066,028
Market Value....... -- $ 56,502,251
Hartford Money Market
HLS Fund, Inc. -
Class IA
Shares 15,049,987
Cost $15,049,987
Market Value....... -- --
Hartford Advisers HLS
Fund, Inc. - Class
IA
Shares 21,809,777
Cost $50,112,038
Market Value....... -- --
Hartford Capital
Appreciation HLS
Fund, Inc. - Class
IA
Shares 10,602,103
Cost $40,302,366
Market Value....... -- --
Hartford Mortgage
Securities HLS Fund,
Inc. - Class IA
Shares 2,116,100
Cost $2,298,881
Market Value....... -- --
Hartford Index HLS
Fund, Inc. - Class
IA
Shares 4,598,688
Cost $11,430,523
Market Value....... -- --
Due from Hartford Life
and Annuity Insurance
Company............... -- 52,354
Receivable from fund
shares sold........... 10,000 --
------------ ------------
Total Assets........... 6,597,772 56,554,605
------------ ------------
LIABILITIES:
Due to Hartford Life
and Annuity Insurance
Company............... 9,982 --
Payable for fund shares
purchased............. -- 52,225
------------ ------------
Total Liabilities...... 9,982 52,225
------------ ------------
Net Assets (variable
life contract
liabilities).......... $6,587,790 $ 56,502,380
------------ ------------
------------ ------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
---------------------------------------------------- 76
----------------------------------------------------
<PAGE>
<TABLE>
<CAPTION>
MONEY CAPITAL MORTGAGE
MARKET FUND ADVISERS FUND APPRECIATION FUND SECURITIES FUND INDEX FUND
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
------------ -------------- ------------------ ---------------- --------------
<S> <C> <C> <C> <C> <C>
ASSETS:
Investments:
Hartford Bond HLS
Fund, Inc. - Class
IA
Shares 6,096,035
Cost $6,396,727
Market Value....... -- -- -- -- --
Hartford Stock HLS
Fund, Inc. - Class
IA
Shares 8,610,961
Cost $39,066,028
Market Value....... -- -- -- -- --
Hartford Money Market
HLS Fund, Inc. -
Class IA
Shares 15,049,987
Cost $15,049,987
Market Value....... $15,049,987 -- -- -- --
Hartford Advisers HLS
Fund, Inc. - Class
IA
Shares 21,809,777
Cost $50,112,038
Market Value....... -- $65,107,702 -- -- --
Hartford Capital
Appreciation HLS
Fund, Inc. - Class
IA
Shares 10,602,103
Cost $40,302,366
Market Value....... -- -- $50,456,269 -- --
Hartford Mortgage
Securities HLS Fund,
Inc. - Class IA
Shares 2,116,100
Cost $2,298,881
Market Value....... -- -- -- $2,295,023 --
Hartford Index HLS
Fund, Inc. - Class
IA
Shares 4,598,688
Cost $11,430,523
Market Value....... -- -- -- -- $ 16,419,396
Due from Hartford Life
and Annuity Insurance
Company............... 857,405 116,025 13,490 6 123,311
Receivable from fund
shares sold........... -- -- -- -- --
------------ -------------- ------------------ ---------------- --------------
Total Assets........... 15,907,392 65,223,727 50,469,759 2,295,029 16,542,707
------------ -------------- ------------------ ---------------- --------------
LIABILITIES:
Due to Hartford Life
and Annuity Insurance
Company............... -- -- -- -- --
Payable for fund shares
purchased............. 854,472 115,826 14,473 -- 123,521
------------ -------------- ------------------ ---------------- --------------
Total Liabilities...... 854,472 115,826 14,473 -- 123,521
------------ -------------- ------------------ ---------------- --------------
Net Assets (variable
life contract
liabilities).......... $15,052,920 $65,107,901 $50,455,286 $2,295,029 $ 16,419,186
------------ -------------- ------------------ ---------------- --------------
------------ -------------- ------------------ ---------------- --------------
</TABLE>
---------------------------------------------------- 77
----------------------------------------------------
<PAGE>
SEPARATE ACCOUNT FIVE
- --------------------------------------------------------------------------------
HARTFORD LIFE AND ANNUITY INSURANCE COMPANY
STATEMENTS OF ASSETS & LIABILITIES -- (CONTINUED)
DECEMBER 31, 1998
<TABLE>
<CAPTION>
INTERNATIONAL DIVIDEND AND
OPPORTUNITIES FUND GROWTH FUND
SUB-ACCOUNT SUB-ACCOUNT
------------------- -------------
<S> <C> <C>
ASSETS:
Investments:
Hartford
International
Opportunities HLS
Fund, Inc. - Class
IA
Shares 11,266,751
Cost $15,194,582
Market Value....... $15,264,838 --
Hartford Dividend and
Growth HLS Fund,
Inc. - Class IA
Shares 15,990,996
Cost $26,669,300
Market Value....... -- $34,548,323
Hartford
International
Advisers HLS Fund,
Inc. - Class IA
Shares 3,225,562
Cost $3,675,003
Market Value....... -- --
Hartford Small
Company HLS Fund,
Inc. - Class IA
Shares 1,889,370
Cost $2,230,637
Market Value....... -- --
Hartford MidCap HLS
Fund, Inc. - Class
IA
Shares 589,420
Cost $711,553
Market Value....... -- --
Hartford Growth &
Income HLS Fund -
Class IA
Shares 121,170
Cost $137,178
Market Value....... -- --
Hartford Global
Leader HLS Fund -
Class IA
Shares 66,905
Cost $83,010
Market Value....... -- --
Hartford High Yield
HLS Fund - Class IA
Shares 24,179
Cost $24,824
Market Value....... -- --
Due from Hartford Life
and Annuity Insurance
Company............... -- 12,625
Receivable from fund
shares sold........... -- --
------------------- -------------
Total Assets........... 15,264,838 34,560,948
------------------- -------------
LIABILITIES:
Due to Hartford Life
and Annuity Insurance
Company............... 85 --
Payable for fund shares
purchased............. -- 12,341
------------------- -------------
Total Liabilities...... 85 12,341
------------------- -------------
Net Assets (variable
life contract
liabilities).......... $15,264,753 $34,548,607
------------------- -------------
------------------- -------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
---------------------------------------------------- 78
----------------------------------------------------
<PAGE>
<TABLE>
<CAPTION>
INTERNATIONAL SMALL MIDCAP GROWTH AND GLOBAL HIGH
ADVISERS FUND COMPANY FUND FUND INCOME FUND LEADERS FUND YIELD FUND
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
-------------- ------------- ------------ ------------ ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
Investments:
Hartford
International
Opportunities HLS
Fund, Inc. - Class
IA
Shares 11,266,751
Cost $15,194,582
Market Value....... -- -- -- -- -- --
Hartford Dividend and
Growth HLS Fund,
Inc. - Class IA
Shares 15,990,996
Cost $26,669,300
Market Value....... -- -- -- -- -- --
Hartford
International
Advisers HLS Fund,
Inc. - Class IA
Shares 3,225,562
Cost $3,675,003
Market Value....... $3,724,520 -- -- -- -- --
Hartford Small
Company HLS Fund,
Inc. - Class IA
Shares 1,889,370
Cost $2,230,637
Market Value....... -- $2,496,074 -- -- -- --
Hartford MidCap HLS
Fund, Inc. - Class
IA
Shares 589,420
Cost $711,553
Market Value....... -- -- $ 848,326 -- -- --
Hartford Growth &
Income HLS Fund -
Class IA
Shares 121,170
Cost $137,178
Market Value....... -- -- -- $ 143,703 -- --
Hartford Global
Leader HLS Fund -
Class IA
Shares 66,905
Cost $83,010
Market Value....... -- -- -- -- $ 85,985 --
Hartford High Yield
HLS Fund - Class IA
Shares 24,179
Cost $24,824
Market Value....... -- -- -- -- -- $ 24,584
Due from Hartford Life
and Annuity Insurance
Company............... -- -- -- -- -- --
Receivable from fund
shares sold........... -- -- -- -- -- --
-------------- ------------- ------------ ------------ ------------- ------------
Total Assets........... 3,724,520 2,496,074 848,326 143,703 85,985 24,584
-------------- ------------- ------------ ------------ ------------- ------------
LIABILITIES:
Due to Hartford Life
and Annuity Insurance
Company............... 34 28 3 -- -- --
Payable for fund shares
purchased............. -- -- -- -- -- --
-------------- ------------- ------------ ------------ ------------- ------------
Total Liabilities...... 34 28 3 -- -- --
-------------- ------------- ------------ ------------ ------------- ------------
Net Assets (variable
life contract
liabilities).......... $3,724,486 $2,496,046 $ 848,323 $ 143,703 $ 85,985 $ 24,584
-------------- ------------- ------------ ------------ ------------- ------------
-------------- ------------- ------------ ------------ ------------- ------------
</TABLE>
---------------------------------------------------- 79
----------------------------------------------------
<PAGE>
SEPARATE ACCOUNT FIVE
- --------------------------------------------------------------------------------
HARTFORD LIFE AND ANNUITY INSURANCE COMPANY
STATEMENTS OF ASSETS & LIABILITIES -- (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
UNITS
OWNED BY UNIT CONTRACT
PARTICIPANTS PRICE LIABILITY
------------- ----------- ------------
<S> <C> <C> <C>
DEFERRED ANNUITY CONTRACTS IN THE
ACCUMULATION PERIOD:
GROUP SUB-ACCOUNTS:
Bond Fund Sub-Account............ 4,463,212 $ 1.47602 $ 6,587,790
Stock Fund Sub-Account........... 19,524,095 2.893982 56,502,380
Money Market Fund Sub-Account.... 12,223,160 1.231508 15,052,920
Advisers Fund Sub-Account........ 28,214,943 2.307568 65,107,901
Capital Appreciation Fund
Sub-Account..................... 22,796,221 2.213318 50,455,286
Mortgage Securities Fund
Sub-Account..................... 1,615,347 1.420765 2,295,029
Index Fund Sub-Account........... 5,822,503 2.819953 16,419,186
International Opportunities Fund
Sub-Account..................... 10,257,253 1.488191 15,264,753
Dividend and Growth Fund
Sub-Account..................... 13,498,555 2.55943 34,548,607
International Advisers Fund
Sub-Account..................... 2,404,789 1.548779 3,724,486
MidCap Fund Sub-Account.......... 644,809 1.31562 848,323
------------
SUB-TOTAL GROUP SUB-ACCOUNTS..... 266,806,661
------------
GROUP SUB-ACCOUNTS:
High Yield Fund Sub-Account...... 23,682 1.03809 24,584
Growth and Income Fund
Sub-Account..................... 124,853 1.150984 143,703
Global Leaders Fund
Sub-Account..................... 65,201 1.318766 85,985
Small Company Fund Sub-Account... 1,921,287 1.299154 2,496,046
------------
SUB-TOTAL GROUP SUB-ACCOUNTS..... 2,750,318
------------
GRAND TOTAL........................ $269,556,979
------------
------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
---------------------------------------------------- 80
----------------------------------------------------
<PAGE>
[This page intentionally left blank]
<PAGE>
SEPARATE ACCOUNT FIVE
- --------------------------------------------------------------------------------
HARTFORD LIFE AND ANNUITY INSURANCE COMPANY
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
BOND FUND STOCK FUND
SUB-ACCOUNT SUB-ACCOUNT
------------ -------------
<S> <C> <C>
INVESTMENT INCOME:
Dividends.............. $310,867 $ 425,157
------------ -------------
CAPITAL GAINS INCOME..... -- 1,195,486
------------ -------------
NET REALIZED AND
UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Net realized gain
(loss) on security
transactions.......... 337 (29,330)
Net unrealized
appreciation
(depreciation) of
investments during the
period................ 62,577 10,654,625
------------ -------------
Net gain (loss) on
investments........... 62,914 10,625,295
------------ -------------
Net increase (decrease)
in net assets
resulting from
operations............ $373,781 $ 12,245,938
------------ -------------
------------ -------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
---------------------------------------------------- 82
----------------------------------------------------
<PAGE>
<TABLE>
<CAPTION>
MONEY CAPITAL MORTGAGE
MARKET FUND ADVISERS FUND APPRECIATION FUND SECURITIES FUND INDEX FUND
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
------------ -------------- ------------------ ---------------- ------------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends.............. $563,092 $ 1,280,919 $ 268,384 $139,853 $ 132,802
------------ -------------- ------------------ -------- ------------
CAPITAL GAINS INCOME..... 190 1,465,098 2,761,262 -- 272,547
------------ -------------- ------------------ -------- ------------
NET REALIZED AND
UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Net realized gain
(loss) on security
transactions.......... -- (9,456) 28,295 1,924 (21,988)
Net unrealized
appreciation
(depreciation) of
investments during the
period................ -- 8,649,288 3,751,151 (25,693) 2,904,724
------------ -------------- ------------------ -------- ------------
Net gain (loss) on
investments........... -- 8,639,832 3,779,446 (23,769) 2,882,736
------------ -------------- ------------------ -------- ------------
Net increase (decrease)
in net assets
resulting from
operations............ $563,282 $11,385,849 $6,809,092 $116,084 $ 3,288,085
------------ -------------- ------------------ -------- ------------
------------ -------------- ------------------ -------- ------------
<CAPTION>
INTERNATIONAL
OPPORTUNITIES FUND
SUB-ACCOUNT
-------------------
<S> <C>
INVESTMENT INCOME:
Dividends.............. $ 198,529
-------------------
CAPITAL GAINS INCOME..... 823,226
-------------------
NET REALIZED AND
UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Net realized gain
(loss) on security
transactions.......... (4,950)
Net unrealized
appreciation
(depreciation) of
investments during the
period................ 562,948
-------------------
Net gain (loss) on
investments........... 557,998
-------------------
Net increase (decrease)
in net assets
resulting from
operations............ $1,579,753
-------------------
-------------------
</TABLE>
---------------------------------------------------- 83
----------------------------------------------------
<PAGE>
SEPARATE ACCOUNT FIVE
- --------------------------------------------------------------------------------
HARTFORD LIFE AND ANNUITY INSURANCE COMPANY
STATEMENTS OF OPERATIONS -- (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
DIVIDEND AND
GROWTH FUND
SUB-ACCOUNT
-------------
<S> <C>
INVESTMENT INCOME:
Dividends.............. $ 544,970
-------------
CAPITAL GAINS INCOME..... 871,742
-------------
NET REALIZED AND
UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Net realized gain
(loss) on security
transactions.......... 1,267
Net unrealized
appreciation
(depreciation) of
investments during the
period................ 2,960,422
-------------
Net gain (loss) on
investments......... 2,961,689
-------------
Net increase
(decrease) in net
assets resulting
from operations..... $4,378,401
-------------
-------------
</TABLE>
* From inception, June 1, 1998, to December 1998.
** From inception, September 30, 1998, to December 31, 1998.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
---------------------------------------------------- 84
----------------------------------------------------
<PAGE>
<TABLE>
<CAPTION>
INTERNATIONAL SMALL MIDCAP GROWTH AND GLOBAL HIGH
ADVISERS FUND COMPANY FUND FUND INCOME FUND LEADERS FUND YIELD FUND
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT* SUB-ACCOUNT** SUB-ACCOUNT**
-------------- ------------- ------------ ------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends.............. $285,452 $-- $ 4 $ 542 $ 101 $ 451
-------------- ------------- ------------ ------ ------ -----
CAPITAL GAINS INCOME..... 67,948 17,778 -- -- 2,088 --
-------------- ------------- ------------ ------ ------ -----
NET REALIZED AND
UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Net realized gain
(loss) on security
transactions.......... 567 (1,718) (3,505) 16 4 --
Net unrealized
appreciation
(depreciation) of
investments during the
period................ 13,314 272,458 133,792 6,525 2,975 (240)
-------------- ------------- ------------ ------ ------ -----
Net gain (loss) on
investments......... 13,881 270,740 130,287 6,541 2,979 (240)
-------------- ------------- ------------ ------ ------ -----
Net increase
(decrease) in net
assets resulting
from operations..... $367,281 $288,518 $130,291 $7,083 $5,168 $ 211
-------------- ------------- ------------ ------ ------ -----
-------------- ------------- ------------ ------ ------ -----
</TABLE>
* From inception, June 1, 1998, to December 1998.
** From inception, September 30, 1998, to December 31, 1998.
---------------------------------------------------- 85
----------------------------------------------------
<PAGE>
SEPARATE ACCOUNT FIVE
- --------------------------------------------------------------------------------
HARTFORD LIFE AND ANNUITY INSURANCE COMPANY
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
BOND FUND STOCK FUND
SUB-ACCOUNT SUB-ACCOUNT
------------ ------------
<S> <C> <C>
OPERATIONS:
Net investment income
(loss)................ $ 310,867 $ 425,157
Capital gains income... -- 1,195,486
Net realized gain
(loss) on security
transactions.......... 337 (29,330)
Net unrealized
appreciation
(depreciation) of
investments during the
period................ 62,577 10,654,625
------------ ------------
Net increase (decrease)
in net assets
resulting from
operations............ 373,781 12,245,938
------------ ------------
UNIT TRANSACTIONS:
Purchases.............. 46,311 16,926
Net transfers.......... 3,067,527 13,961,989
Surrenders for benefit
payments and fees..... (107,425) (1,506,358)
Net loan activity...... (11,064) (140,475)
Cost of insurance...... (33,445) (260,595)
------------ ------------
Net increase (decrease)
in net assets
resulting from unit
transactions.......... 2,961,904 12,071,487
------------ ------------
Net increase (decrease)
in net assets......... 3,335,685 24,317,425
NET ASSETS:
Beginning of period.... 3,252,105 32,184,955
------------ ------------
End of period.......... $ 6,587,790 $ 56,502,380
------------ ------------
------------ ------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
---------------------------------------------------- 86
----------------------------------------------------
<PAGE>
<TABLE>
<CAPTION>
MONEY CAPITAL MORTGAGE
MARKET FUND ADVISERS FUND APPRECIATION FUND SECURITIES FUND INDEX FUND
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
------------ -------------- ------------------ ---------------- --------------
<S> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment income
(loss)................ $ 563,092 $ 1,280,919 $ 268,384 $ 139,853 $ 132,802
Capital gains income... 190 1,465,098 2,761,262 -- 272,547
Net realized gain
(loss) on security
transactions.......... -- (9,456) 28,295 1,924 (21,988)
Net unrealized
appreciation
(depreciation) of
investments during the
period................ -- 8,649,288 3,751,151 (25,693) 2,904,724
------------ -------------- ------------------ ---------------- --------------
Net increase (decrease)
in net assets
resulting from
operations............ 563,282 11,385,849 6,809,092 116,084 3,288,085
------------ -------------- ------------------ ---------------- --------------
UNIT TRANSACTIONS:
Purchases.............. 62,062,192 32,794 16,742 -- 10,249
Net transfers.......... (54,690,953) 15,334,793 4,545,203 589,382 3,377,452
Surrenders for benefit
payments and fees..... (1,724,767) (1,683,040) (1,471,654) (31,118) (708,786)
Net loan activity...... (2,052,054) (407,150) (324,672) (8,665) (138,230)
Cost of insurance...... (112,624) (328,975) (284,868) (11,916) (86,318)
------------ -------------- ------------------ ---------------- --------------
Net increase (decrease)
in net assets
resulting from unit
transactions.......... 3,481,794 12,948,422 2,480,751 537,683 2,454,367
------------ -------------- ------------------ ---------------- --------------
Net increase (decrease)
in net assets......... 4,045,076 24,334,271 9,289,843 653,767 5,742,452
NET ASSETS:
Beginning of period.... 11,007,844 40,773,630 41,165,443 1,641,262 10,676,734
------------ -------------- ------------------ ---------------- --------------
End of period.......... $ 15,052,920 $65,107,901 $50,455,286 $2,295,029 $ 16,419,186
------------ -------------- ------------------ ---------------- --------------
------------ -------------- ------------------ ---------------- --------------
<CAPTION>
INTERNATIONAL
OPPORTUNITIES FUND
SUB-ACCOUNT
-------------------
<S> <C>
OPERATIONS:
Net investment income
(loss)................ $ 198,529
Capital gains income... 823,226
Net realized gain
(loss) on security
transactions.......... (4,950)
Net unrealized
appreciation
(depreciation) of
investments during the
period................ 562,948
-------------------
Net increase (decrease)
in net assets
resulting from
operations............ 1,579,753
-------------------
UNIT TRANSACTIONS:
Purchases.............. 11
Net transfers.......... 2,336,307
Surrenders for benefit
payments and fees..... (500,386)
Net loan activity...... (71,420)
Cost of insurance...... (89,406)
-------------------
Net increase (decrease)
in net assets
resulting from unit
transactions.......... 1,675,106
-------------------
Net increase (decrease)
in net assets......... 3,254,859
NET ASSETS:
Beginning of period.... 12,009,894
-------------------
End of period.......... $15,264,753
-------------------
-------------------
</TABLE>
---------------------------------------------------- 87
----------------------------------------------------
<PAGE>
SEPARATE ACCOUNT FIVE
- --------------------------------------------------------------------------------
HARTFORD LIFE AND ANNUITY INSURANCE COMPANY
STATEMENTS OF CHANGES IN NET ASSETS -- (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
DIVIDEND AND
GROWTH FUND
SUB-ACCOUNT
-------------
<S> <C>
OPERATIONS:
Net investment income
(loss)................ $ 544,970
Capital gains income... 871,742
Net realized gain
(loss) on security
transactions.......... 1,267
Net unrealized
appreciation
(depreciation) of
investments during the
period................ 2,960,422
-------------
Net increase (decrease)
in net assets
resulting from
operations............ 4,378,401
-------------
UNIT TRANSACTIONS:
Purchases.............. 10,000
Net transfers.......... 8,163,378
Surrenders for benefit
payments and fees..... (866,498)
Net loan activity...... (327,128)
Cost of insurance...... (185,670)
-------------
Net increase (decrease)
in net assets
resulting from unit
transactions.......... 6,794,082
-------------
Net increase (decrease)
in net assets......... 11,172,483
NET ASSETS:
Beginning of period.... 23,376,124
-------------
End of period.......... $ 34,548,607
-------------
-------------
</TABLE>
* From inception, June 1, 1998, to December 31, 1998.
** From inception, September 30, 1998, to December 31, 1998.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
---------------------------------------------------- 88
----------------------------------------------------
<PAGE>
<TABLE>
<CAPTION>
INTERNATIONAL SMALL MIDCAP GROWTH AND GLOBAL HIGH
ADVISERS FUND COMPANY FUND FUND INCOME FUND LEADERS FUND YIELD FUND
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT* SUB-ACCOUNT** SUB-ACCOUNT**
-------------- ------------- ------------ ------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment income
(loss)................ $ 285,452 $ -- $ 4 $ 542 $ 101 $ 451
Capital gains income... 67,948 17,778 -- -- 2,088 --
Net realized gain
(loss) on security
transactions.......... 567 (1,718) (3,505) 16 4 --
Net unrealized
appreciation
(depreciation) of
investments during the
period................ 13,314 272,458 133,792 6,525 2,975 (240)
-------------- ------------- ------------ ------------- ------- -------
Net increase (decrease)
in net assets
resulting from
operations............ 367,281 288,518 130,291 7,083 5,168 211
-------------- ------------- ------------ ------------- ------- -------
UNIT TRANSACTIONS:
Purchases.............. -- -- -- 1,000 2,000 2,000
Net transfers.......... 1,048,999 1,383,287 645,414 135,859 78,949 22,414
Surrenders for benefit
payments and fees..... (98,488) (109,974) (4,632) (172) (105) (29)
Net loan activity...... (36,658) (44,570) (11,492) -- -- --
Cost of insurance...... (20,129) (10,508) (2,955) (67) (27) (12)
-------------- ------------- ------------ ------------- ------- -------
Net increase (decrease)
in net assets
resulting from unit
transactions.......... 893,724 1,218,235 626,335 136,620 80,817 24,373
-------------- ------------- ------------ ------------- ------- -------
Net increase (decrease)
in net assets......... 1,261,005 1,506,753 756,626 143,703 85,985 24,584
NET ASSETS:
Beginning of period.... 2,463,481 989,293 91,697 -- -- --
-------------- ------------- ------------ ------------- ------- -------
End of period.......... $3,724,486 $2,496,046 $848,323 $143,703 $85,985 $24,584
-------------- ------------- ------------ ------------- ------- -------
-------------- ------------- ------------ ------------- ------- -------
</TABLE>
* From inception, June 1, 1998, to December 31, 1998.
** From inception, September 30, 1998, to December 31, 1998.
---------------------------------------------------- 89
----------------------------------------------------
<PAGE>
SEPARATE ACCOUNT FIVE
- --------------------------------------------------------------------------------
HARTFORD LIFE AND ANNUITY INSURANCE COMPANY
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
MONEY
BOND FUND STOCK FUND MARKET FUND ADVISERS FUND
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
------------ ------------ ------------ --------------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income
(loss)................ $ 156,755 $ 274,037 $ 632,382 $ 789,490
Capital gains income... -- 904,272 -- 1,045,984
Net realized gain
(loss) on security
transactions.......... 894 12,939 -- 3,344
Net unrealized
appreciation
(depreciation) of
investments during the
period................ 118,897 4,902,064 -- 4,613,047
------------ ------------ ------------ --------------
Net increase (decrease)
in net assets
resulting from
operations............ 276,546 6,093,312 632,382 6,451,865
------------ ------------ ------------ --------------
UNIT TRANSACTIONS:
Purchases.............. 16 50,244 63,908,110 243,543
Net transfers.......... 1,318,984 12,296,285 (62,169,665) 13,868,301
Surrenders for benefit
payments and fees..... (43,171) (1,275,425) (393,227) (1,057,654)
Net loan activity...... (15,758) (97,878) (2,491,658) (64,323)
Cost of insurance...... (16,113) (151,064) (109,762) (204,969)
------------ ------------ ------------ --------------
Net increase (decrease)
in net assets
resulting from unit
transactions.......... 1,243,958 10,822,162 (1,256,202) 12,784,898
------------ ------------ ------------ --------------
Net increase (decrease)
in net assets......... 1,520,504 16,915,474 (623,820) 19,236,763
NET ASSETS:
Beginning of period.... 1,731,601 15,269,481 11,631,664 21,536,867
------------ ------------ ------------ --------------
End of Period.......... $ 3,252,105 $ 32,184,955 $ 11,007,844 $40,773,630
------------ ------------ ------------ --------------
------------ ------------ ------------ --------------
</TABLE>
* From inception, July 15, 1997, to December 31, 1997.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
---------------------------------------------------- 90
----------------------------------------------------
<PAGE>
<TABLE>
<CAPTION>
CAPITAL MORTGAGE INTERNATIONAL DIVIDEND AND
APPRECIATION FUND SECURITIES FUND INDEX FUND OPPORTUNITIES FUND GROWTH FUND
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
------------------ ---------------- -------------- ------------------- -------------
<S> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment income
(loss)................ $ 190,756 $ 79,693 $ 116,095 $ 108,028 $ 324,234
Capital gains income... 1,971,454 -- 474,812 587,257 328,863
Net realized gain
(loss) on security
transactions.......... 4,174 141 (3,017) (1,502) (3,678)
Net unrealized
appreciation
(depreciation) of
investments during the
period................ 4,126,792 18,347 1,522,964 (918,735) 3,808,104
------------------ ---------------- -------------- ------------------- -------------
Net increase (decrease)
in net assets
resulting from
operations............ 6,293,176 98,181 2,110,854 (224,952) 4,457,523
------------------ ---------------- -------------- ------------------- -------------
UNIT TRANSACTIONS:
Purchases.............. 103,255 -- 27 40,040 156
Net transfers.......... 12,570,924 882,852 3,834,337 6,039,925 9,250,118
Surrenders for benefit
payments and fees..... (1,417,215) (17,802) (430,212) (433,918) (388,933)
Net loan activity...... (35,024) 4,385 (42,196) (14,211) (126,702)
Cost of insurance...... (204,886) (7,440) (51,934) (63,263) (107,665)
------------------ ---------------- -------------- ------------------- -------------
Net increase (decrease)
in net assets
resulting from unit
transactions.......... 11,017,054 861,995 3,310,022 5,568,573 8,626,974
------------------ ---------------- -------------- ------------------- -------------
Net increase (decrease)
in net assets......... 17,310,230 960,176 5,420,876 5,343,621 13,084,497
NET ASSETS:
Beginning of period.... 23,855,213 681,086 5,255,858 6,666,273 10,291,627
------------------ ---------------- -------------- ------------------- -------------
End of Period.......... $41,165,443 $1,641,262 $ 10,676,734 $12,009,894 $ 23,376,124
------------------ ---------------- -------------- ------------------- -------------
------------------ ---------------- -------------- ------------------- -------------
<CAPTION>
INTERNATIONAL SMALL MIDCAP
ADVISERS FUND COMPANY FUND FUND
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
-------------- ------------- ------------
<S> <C> <C> <C>
OPERATIONS:
Net investment income
(loss)................ $ 72,657 $ 449 $ 82
Capital gains income... 4,846 44,954 --
Net realized gain
(loss) on security
transactions.......... 691 (415) (2)
Net unrealized
appreciation
(depreciation) of
investments during the
period................ 9,052 (7,085) 2,981
-------------- ------------- ------------
Net increase (decrease)
in net assets
resulting from
operations............ 87,246 37,903 3,061
-------------- ------------- ------------
UNIT TRANSACTIONS:
Purchases.............. 136 -- 1,000
Net transfers.......... 1,063,784 956,329 87,826
Surrenders for benefit
payments and fees..... (57,314) (12,652) (110)
Net loan activity...... (23,857) (1,427) --
Cost of insurance...... (13,409) (2,262) (80)
-------------- ------------- ------------
Net increase (decrease)
in net assets
resulting from unit
transactions.......... 969,340 939,988 88,636
-------------- ------------- ------------
Net increase (decrease)
in net assets......... 1,056,586 977,891 91,697
NET ASSETS:
Beginning of period.... 1,406,895 11,402 --
-------------- ------------- ------------
End of Period.......... $2,463,481 $989,293 $91,697
-------------- ------------- ------------
-------------- ------------- ------------
</TABLE>
* From inception, July 15, 1997, to December 31, 1997.
---------------------------------------------------- 91
----------------------------------------------------
<PAGE>
SEPARATE ACCOUNT FIVE
- --------------------------------------------------------------------------------
HARTFORD LIFE AND ANNUITY INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
1. ORGANIZATION:
Separate Account Five (the Account) is a separate investment account within
Hartford Life & Annuity Insurance Company (the Company) and is registered
with the Securities and Exchange Commission (SEC) as a unit investment trust
under the Investment Company Act of 1940, as amended. Both the Company and
the Account are subject to supervision and regulation by the Department of
Insurance of the State of Connecticut and the SEC. The Account invests
deposits by variable life contractholders of the Company in various mutual
funds (The Funds) as directed by the contractholders.
2. SIGNIFICANT ACCOUNTING POLICIES:
The following is a summary of significant accounting policies of the
Account, which are in accordance with generally accepted accounting
principles in the investment company industry:
a) SECURITY TRANSACTIONS--Security transactions are recorded on the trade
date (date the order to buy or sell is executed). Cost of investments
sold is determined on the basis of identified cost. Dividend and capital
gains income is accrued as of the ex-dividend date. Capital gains income
represents those dividends from the Funds which are characterized as
capital gains under tax regulations.
b) SECURITY VALUATION--The investments in shares of The Funds are valued at
the closing net asset value per share as determined by the appropriate
Fund as of December 31, 1998.
c) FEDERAL INCOME TAXES--The operations of the Account form a part of, and
are taxed with, the total operations of the Company, which is taxed as an
insurance company under the Internal Revenue Code. Under current law, no
federal income taxes are payable with respect to the operations of the
Account.
d) USE OF ESTIMATES--The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities as of the date of the financial statements and the reported
amounts of income and expenses during the period. Operating results in
the future could vary from the amounts derived from management's
estimates.
3. ADMINISTRATION OF THE ACCOUNT AND RELATED CHARGES:
Deduction and Charges -- Certain amounts are deducted from the Contracts, as
described below:
a) COST OF INSURANCE CHARGE--In accordance with terms of the contracts, the
Company makes deductions for costs of insurance to cover the Company's
anticipated mortality costs. Because a policy's account value and death
benefit may vary from month to month, the cost of insurance charge may
also vary.
b) MORTALITY AND EXPENSE RISK CHARGES--The Company will make deductions at a
maximum annual rate of 0.90% of the Contract's value for the mortality
and expense risks which the Company undertakes. These expenses are
included in surrenders for benefit payments and fees on the accompanying
statements of changes in net assets.
c) TAX EXPENSE CHARGE--If applicable, the Company will make deductions at a
maximum rate of 4.0% of the Contract's value to meet premium tax
requirements. An additional tax charge based on a percentage of the
Contract's value may be assessed to partial withdrawals or surrenders.
These expenses are included in surrenders for benefit payments and fees
on the accompanying statements of changes in net assets.
d) ADMINISTRATIVE CHARGE--The Company will make deductions to cover
administrative expenses at a maximum annual rate of 0.25% of the
Contract's value. These expenses are included in surrenders for benefit
payments and fees on the accompanying statements of changes in net
assets.
e) ANNUAL MAINTENANCE FEE--An annual maintenance fee in the amount of $30
may be deducted from the Contract's value each contract year. However,
this fee is not applicable to contracts with values of $50,000 or more,
as determined on the most recent contract anniversary. These expenses are
included in surrenders for benefit payments and fees on the accompanying
statements of changes in net assets.
______________________________________ 92 ______________________________________
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
- --------------------------------------------------------------------------------
TO HARTFORD LIFE AND ANNUITY INSURANCE COMPANY
SEPARATE ACCOUNT FIVE AND TO THE
OWNERS OF UNITS OF INTEREST THEREIN:
We have audited the accompanying statements of assets and liabilities of
Hartford Life and Annuity Insurance Company Separate Account Five (Bond Fund,
Stock Fund, Money Market Fund, Advisers Fund, Capital Appreciation Fund,
Mortgage Securities Fund, Index Fund, International Opportunities Fund, Dividend
and Growth Fund, International Advisers Fund, Small Company Fund, MidCap Fund,
Growth and Income Fund, Global Leaders Fund, and High Yield Fund) (collectively,
the Account) as of December 31, 1998, and the related statements of operations
and the statements of changes in net assets for the periods presented. These
financial statements are the responsibility of the Account's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the Account as of December 31,
1998, and the results of their operations and the changes in their net assets
for the periods presented in conformity with generally accepted accounting
principles.
Hartford, Connecticut
February 16, 1999 ARTHUR ANDERSEN LLP
______________________________________ 93 ______________________________________
<PAGE>
HARTFORD BOND HLS FUND, INC.
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
DECEMBER 31, 1998
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
- ----------- ------------
<C> <S> <C>
ASSET-BACKED SECURITIES -- 4.8%
$ 3,600,000 California Infrastructure Pacific Gas &
Electric, Series 1997-1 Class A6
6.32% due 09/25/05.................... $ 3,701,988
3,250,000 California Infrastructure Southern
California Edison, Series 1997-1 Class
A3
6.17% due 03/25/03.................... 3,295,597
11,400,000 Chemical Master Credit Card Trust,
Series 1996-1, Class A
5.55% due 09/15/03.................... 11,464,524
15,000,000 Comed Transitional Funding Trust, Series
1998-1 Class A5
5.44% due 03/25/07.................... 15,041,400
5,175,000 DLJ Commercial Mortgage Corp., Series
1998-CF1 Class B2
7.33% due 01/15/10.................... 4,885,924
5,000,000 Premier Auto Trust, Series 1998-5 Class
A2
5.07% due 04/09/01.................... 4,991,550
------------
Total asset-backed securities........... $ 43,380,983
------------
------------
COLLATERALIZED MORTGAGE OBLIGATIONS -- 0.1%
1,112,442 Oakwood Mortgage Investors, Inc., Series
94-A, Class B1
8.40% due 02/15/15.................... $ 1,128,227
------------
------------
COMMERCIAL MORTGAGE-BACKED SECURITIES -- 0.7%
6,341,441 Capital Lease Funding Securitization,
Series 1997-CTL1, Class A1
7.42% due 06/22/24.................... $ 6,541,592
------------
------------
CORPORATE NOTES -- 52.7%
COLLEGES -- 1.2%
5,500,000 Massachusetts Institute of Technology
7.25% due 04/02/2096.................. $ 6,449,432
3,500,000 Yale University
7.375% due 04/15/2096................. 4,101,779
------------
10,551,211
------------
COMMUNICATIONS EQUIPMENT -- 0.1%
400,000 Jones Intercable, Inc.
9.625% due 03/15/02................... 430,000
900,000 Jones Intercable, Inc.
7.625% due 04/15/08................... 927,000
------------
1,357,000
------------
ENERGY & SERVICES -- 4.5%
8,250,000 Amoco Company
6.00% due 06/09/08.................... 8,561,850
2,400,000 Enterprise Oil PLC
6.70% due 09/15/07.................... 2,384,124
6,500,000 Enterprise Oil PLC
6.50% due 05/01/05.................... 6,529,360
1,200,000 Gulf Canada Resources Ltd.
8.375% due 11/15/05................... 1,182,000
1,000,000 Gulf Canada Resources Ltd.
8.25% due 03/15/17.................... 993,810
4,300,000 Occidental Petroleum Corp.
7.375% due 11/15/08................... 4,412,926
2,000,000 R & B Falcon Corp.
7.375% due 04/15/18................... 1,622,644
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
- ----------- ------------
<C> <S> <C>
</TABLE>
CORPORATE NOTES -- (CONTINUED)
ENERGY & SERVICES -- (CONTINUED)
<TABLE>
<C> <S> <C>
$ 1,750,000 R & B Falcon Corp.
9.50% due 12/15/08.................... $ 1,747,812
6,850,000 Tenneco, Inc.
8.20% due 11/15/99.................... 6,982,622
1,000,000 Tesoro Petroleum Corp.
9.00% due 07/01/08.................... 970,000
2,850,000 Tuboscope, Inc.
7.50% due 02/15/08.................... 2,593,500
2,500,000 Union Oil Co. of California
9.375% due 02/15/11................... 3,082,450
------------
41,063,098
------------
FINANCIAL SERVICES -- 16.2%
1,765,000 Allstate Corp.
6.75% due 05/15/18.................... 1,838,342
7,500,000 Amvescap PLC
6.60% due 05/15/05.................... 7,513,597
5,100,000 Associates Corporation of North America
5.75% due 11/01/03.................... 5,136,429
6,500,000 Bank of New York Co., Inc. (The)
7.625% due 07/15/02................... 6,946,550
3,750,000 BankBoston Corp.
7.00% due 09/15/07.................... 3,911,058
7,000,000 Bayerische Landesbank (NY)
6.20% due 02/09/06.................... 7,134,344
3,000,000 Chase Manhattan Corp.
7.75% due 11/01/99.................... 3,059,421
4,450,000 CIT Group, Inc.
5.57% due 12/08/03.................... 4,416,344
4,500,000 Conseco, Inc.
7.875% due 12/15/00................... 4,462,668
3,000,000 Dime Bancorp, Inc.
10.5% due 11/15/05.................... 3,150,000
5,000,000 Duke Realty LP
7.25% due 09/22/02.................... 5,038,125
3,700,000 Equity Residential Properties Trust
7.125% due 10/15/17................... 3,429,504
3,800,000 General Motors Acceptance Corp.
5.507% due 08/18/03................... 3,764,071
4,000,000 General Motors Acceptance Corp.
5.875% due 01/12/99................... 4,000,068
1,000,000 General Motors Acceptance Corp. Medium
Term Note
6.55% due 11/17/03.................... 1,039,806
600,000 HMH Properties
7.875% due 08/01/05................... 585,000
7,900,000 Interamer Development Bank
8.875% due 06/01/09................... 10,089,287
6,000,000 KFW International Finance, Inc.
9.50% due 12/15/00.................... 6,494,589
10,900,000 Landeskreditbank Baden-Wurttemberg
7.625% due 02/01/23................... 12,661,549
3,000,000 Lehman Brothers, Inc.
10.00% due 05/15/99................... 3,042,123
11,750,000 Massachusetts Mutual Life Insurance Co.
7.625% due 11/15/23................... 12,994,395
14,560,000 NationsBank Corp
7.00% due 09/15/01.................... 15,123,122
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THIS FINANCIAL STATEMENT.
MF-1
<PAGE>
HARTFORD BOND HLS FUND, INC.
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS -- (CONTINUED)
DECEMBER 31, 1998
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
- ----------- ------------
<C> <S> <C>
</TABLE>
CORPORATE NOTES -- (CONTINUED)
FINANCIAL SERVICES -- (CONTINUED)
<TABLE>
<C> <S> <C>
$ 2,750,000 Phoenix Home Life Insurance Co.
6.95% due 12/01/06.................... $ 2,827,374
1,000,000 Swiss Bank Corporation (NY)
7.375% due 06/15/17................... 1,060,717
4,300,000 Trenwick Group, Inc.
6.70% due 04/01/03.................... 4,405,943
1,750,000 Wachovia Corp.
5.625% due 12/15/08................... 1,739,528
7,150,000 Wachovia Corp.
6.25% due 08/01/08.................... 7,429,350
3,000,000 Westinghouse Credit Corp.
8.875% due 06/14/14................... 3,306,315
------------
146,599,619
------------
FOOD, BEVERAGE & TOBACCO -- 2.0%
100,000 Keebler Corp.
10.75% due 07/01/06................... 111,500
1,350,000 Nabisco (RJR) Holdings Corp.
8.50% due 07/01/07.................... 1,332,641
7,400,000 Ralcorp Holdings, Inc.
8.75% due 09/15/04.................... 8,592,724
8,325,000 Seagram (J) & Sons, Inc.
6.25% due 12/15/01.................... 8,312,287
------------
18,349,152
------------
FUNERAL/CEMETERY SERVICES -- 0.5%
5,500,000 Loewen Group International, Inc.
7.60% due 06/01/08.................... 4,427,500
------------
HEALTH CARE -- 1.0%
1,675,000 Columbia Healthcare
7.50% due 12/15/23.................... 1,501,325
2,250,000 Columbia/HCA Healthcare Corp.
7.50% due 11/15/95.................... 1,958,514
4,600,000 Tenet Healthcare Corp.
7.625% due 06/01/08................... 4,779,133
------------
8,238,972
------------
HOME BUILDING -- 0.5%
2,800,000 U.S. Home Corp.
8.250% due 08/15/04................... 2,807,000
1,390,000 U.S. Home Corp.
7.95% due 03/01/01.................... 1,431,666
------------
4,238,666
------------
HOTELS & GAMING -- 1.6%
990,000 Circus Circus Enterprises, Inc.
7.625% due 07/15/13................... 888,161
1,000,000 Harrah's Operating Co., Inc.
7.875% due 12/15/05................... 1,011,080
3,100,000 La Quinta Motor Inns
7.25% due 03/15/04.................... 2,857,626
400,000 MGM Grand, Inc.
6.875% due 02/06/08................... 373,637
1,800,000 Park Place Entertainment Corp.
7.875% due 12/15/05................... 1,802,250
8,158,000 Starwood Hotels & Resorts
7.375% due 11/15/15................... 7,225,197
------------
14,157,951
------------
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
- ----------- ------------
<C> <S> <C>
</TABLE>
<TABLE>
<C> <S> <C>
INDUSTRIAL -- 3.2%
$ 800,000 Agriculture Minerals and Chemicals Co.
10.75% due 09/30/03................... $ 812,000
2,250,000 Allied Waste Industries, Inc.
7.625% due 01/01/06................... 2,261,250
1,560,000 Arco Chemical Co.
9.80% due 02/01/20.................... 1,570,202
2,500,000 Bausch & Lomb, Inc.
7.125% due 08/01/28................... 2,484,702
500,000 Borden Chemical, Inc.
9.50% due 05/01/05.................... 415,000
2,550,000 Domtar, Inc.
9.50% due 08/01/16.................... 2,626,500
5,700,000 du Pont (E.I.) de Nemours & Co.
6.75% due 09/01/07.................... 6,237,145
6,200,000 Placer Dome, Inc.
7.125% due 06/15/07................... 5,903,919
1,750,000 Protection One Alarm
8.125% due 01/15/09................... 1,750,000
3,750,000 Raytheon Co.
6.15% due 11/01/08.................... 3,823,511
1,225,000 Terra Industries, Inc.
10.50% due 06/15/05................... 1,261,750
------------
29,145,979
------------
MANFACTURING -- 0.1%
1,250,000 AGCO Corp.
8.50% due 03/15/06.................... 1,212,500
------------
MEDIA & SERVICES -- 3.2%
1,000,000 Continental Cablevision, Inc.
9.50% due 08/01/13.................... 1,190,666
2,000,000 Hollinger International Publishing
8.625% due 03/15/05................... 2,110,000
1,000,000 Lenfest Communications, Inc.
8.375% due 11/01/05................... 1,080,000
6,500,000 News America Holdings
7.70% due 10/30/25.................... 6,983,132
865,000 News America, Inc.
7.30% due 04/30/28.................... 889,385
900,000 Qwest Communications International, Inc.
7.25% due 11/01/08.................... 918,000
3,019,000 Time Warner Enterprises, Inc.
8.875% due 10/01/12................... 3,725,125
6,000,000 Time Warner, Inc.
6.625% due 05/15/29................... 6,098,484
5,900,000 Turner Broadcasting System, Inc.
7.40% due 02/01/04.................... 6,310,398
------------
29,305,190
------------
PACKAGING & CONTAINERS -- 0.1%
1,000,000 Owens-Illinois, Inc.
8.10% due 05/15/07.................... 1,068,886
------------
RETAIL -- 4.1%
6,000,000 Fred Meyer, Inc.
7.375% due 03/01/05................... 6,353,394
750,000 KMart Corp.
7.75% due 10/01/12.................... 769,011
4,000,000 KMart Corp.
12.50% due 03/01/05................... 5,006,380
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THIS FINANCIAL STATEMENT.
MF-2
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
- ----------- ------------
<C> <S> <C>
</TABLE>
CORPORATE NOTES -- (CONTINUED)
RETAIL -- (CONTINUED)
<TABLE>
<C> <S> <C>
$ 5,000,000 KMart Corp.
8.96% due 12/10/19.................... $ 5,222,300
6,500,000 Kroger Co. (The)
7.00% due 05/01/18.................... 6,650,059
1,300,000 Safeway, Inc.
6.50% due 11/15/08.................... 1,347,400
2,250,000 Saks, Inc.
7.25% due 12/01/04.................... 2,267,433
8,585,000 Stop & Shop Companies, Inc.
9.75% due 02/01/02.................... 9,528,869
------------
37,144,846
------------
SHIPBUILDING -- 0.2%
2,000,000 Newport News Shipbuilding
8.625% due 12/01/06................... 2,112,500
------------
TELECOMMUNICATIONS -- 1.3%
400,000 Rogers Cablesystems, Inc.
10.125% due 09/01/12.................. 440,000
115,000 Rogers Cablesystems, Inc.
9.625% due 08/01/02................... 124,200
1,350,000 Rogers Cantel Mobile, Inc.
8.30% due 10/01/07.................... 1,356,750
1,650,000 Rogers Cantel Mobile, Inc.
9.75% due 06/01/16.................... 1,765,500
7,000,000 Tele-Communications, Inc.
6.58% due 02/15/05.................... 7,942,949
------------
11,629,399
------------
TEXTILE -- 0.2%
1,920,000 Westpoint Stevens, Inc.
7.875% due 06/15/08................... 1,951,200
------------
TRANSPORTATION -- 4.9%
400,000 AMR Corp.
10.00% due 03/07/01................... 432,078
4,430,000 Continental Airlines, Inc.
9.50% due 12/15/01.................... 4,629,350
13,820,428 Continental Airlines, Inc.
7.461% due 04/01/13................... 14,442,899
1,800,000 CSC Holdings, Inc.
7.625% due 07/15/18................... 1,765,080
1,750,000 CSC Holdings, Inc.
7.25% due 07/15/08.................... 1,748,775
500,000 CSC Holdings, Inc.
9.875% due 02/15/13................... 560,000
4,000,000 CSX Corp.
7.25% due 05/01/04.................... 4,262,884
1,100,000 Interpool, Inc.
7.35% due 08/01/07.................... 1,047,429
4,644,498 U.S. Air Inc., Series -- Class A
6.76% due 04/15/08.................... 4,770,503
8,900,000 United Air Lines, Inc. -- Class A
9.75% due 08/15/21.................... 10,863,945
------------
44,522,943
------------
UTILITIES -- 7.8%
3,000,000 Bell Telephone Co. of Pennsylvania
8.35% due 12/15/30.................... 3,840,540
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
- ----------- ------------
<C> <S> <C>
</TABLE>
UTILITIES -- (CONTINUED)
<TABLE>
<C> <S> <C>
$ 1,400,000 Calpine Corp.
7.875% due 04/01/08................... $ 1,407,000
1,500,000 Chesapeake & Potomac Telephone Co.
8.30% due 08/01/31.................... 1,920,715
1,750,000 Cleveland Electric Illuminating Co.
7.13% due 07/01/07.................... 1,874,239
1,341,000 El Paso Electric Co.
9.40% due 05/01/11.................... 1,552,207
4,500,000 El Paso Electric Co.
8.90% due 02/01/06.................... 5,118,750
3,787,000 GTE Northwest, Inc.
5.55% due 10/15/08.................... 3,794,642
7,250,000 Illinois Power Co.
6.25% due 07/15/02.................... 7,379,434
6,850,000 Niagara Mohawk Power Corp.
7.25% due 10/01/02.................... 7,017,023
1,100,000 Niagara Mohawk Power Corp.
7.375% due 07/01/03................... 1,130,483
13,150,000 PacifiCorp
6.375% due 05/15/08................... 13,693,292
3,100,000 PacifiCorp
6.12% due 01/15/06.................... 3,178,085
4,000,000 Public Service EI-IBC
7.00% due 09/01/24.................... 4,230,880
7,000,000 Public Service EI-MBIA
6.75% due 01/01/16.................... 7,460,131
1,400,000 Public Service Electric & Gas Co.,
MBIA-Insured
6.75% due 01/01/16.................... 1,492,026
4,500,000 Worldcom, Inc.
6.125% due 08/15/01................... 4,575,415
1,100,000 Worldcom, Inc.
8.875% due 01/15/06................... 1,198,314
------------
70,863,176
------------
Total corporate notes................... $477,939,788
------------
------------
ENHANCED EQUIPMENT TRUST CERTIFICATES -- 0.3%
2,344,001 Norwest Airlines Trust, Series 2
11.30% due 06/21/14................... $ 2,913,968
------------
------------
FOREIGN/YANKEE BONDS & NOTES -- 3.7%
FOREIGN GOVERNMENTS -- 3.7%
12,545,000 Abbey National First Capital (Yankee)
8.20% due 10/15/04.................... $ 14,035,835
3,200,000 Province of Alberta
4.875% due 10/29/03................... 3,161,056
3,563,000 Province of Manitoba
5.50% due 10/01/08.................... 3,566,467
5,600,000 Republic of Argentina
11.00% due 12/04/05................... 5,568,472
1,650,000 Republic of Colombia
7.625% due 02/15/07................... 1,363,626
2,000,000 Republic of Venezuela, discount Series A
6.750% due 03/31/20................... 1,220,000
2,000,000 Russian Federation (The)
10.00% due 06/26/07................... 541,240
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THIS FINANCIAL STATEMENT.
MF-3
<PAGE>
HARTFORD BOND HLS FUND, INC.
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS -- (CONTINUED)
DECEMBER 31, 1998
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
- ----------- ------------
<C> <S> <C>
</TABLE>
FOREIGN/YANKEE BONDS & NOTES -- (CONTINUED)
FOREIGN GOVERNMENTS -- (CONTINUED)
<TABLE>
<C> <S> <C>
$ 5,000,000 United Mexican States Discount Bond
6.6171% due 12/31/19.................. $ 4,050,000
------------
Total foreign/yankee bonds & notes...... $ 33,506,696
------------
------------
U.S. TREASURIES & FEDERAL AGENCIES -- 31.7%
FEDERAL NATIONAL MORTGAGE ASSOCIATION --
7.6%
55,824,867 6.00% due 07/01/12 - 10/01/28........... $ 55,820,825
6,128,510 6.50% due 10/01/12 - 09/01/28........... 6,195,915
4,000,000 5.25% due 01/15/03.................... 4,031,912
2,909,344 FNMA Multifamily DUS
6.480% due 12/01/05................... 3,035,587
------------
69,084,239
------------
U.S. TREASURY BONDS -- 16.9%
2,750,000 5.25% due 11/15/28...................... 2,818,750
4,300,000 5.50% due 08/15/28...................... 4,506,937
1,000,000 6.00% due 02/15/26...................... 1,091,250
6,525,000 6.125% due 11/15/27..................... 7,308,000
9,390,000 6.375% due 08/15/27..................... 10,798,500
8,060,000 6.50% due 11/15/26...................... 9,379,825
13,155,000 6.625% due 02/15/27..................... 15,559,905
692,000 6.75% due 08/15/26...................... 829,319
25,690,000 6.875% due 08/15/25..................... 31,165,181
9,970,000 7.50% due 11/15/16 - 11/15/24........... 12,686,076
10,600,000 7.625% due 02/15/25..................... 13,955,567
26,975,000 8.125% due 08/15/19..................... 36,070,646
5,100,000 8.75% due 05/15/17...................... 7,101,750
------------
153,271,706
------------
U.S. TREASURY INFLATION-INDEXED
SECURITIES -- 4.4%
6,168,641 3.375% due 01/15/07..................... 6,153,816
33,973,223 3.625% due 07/15/02 - 04/15/28.......... 33,750,351
------------
39,904,167
------------
U.S. TREASURY NOTES -- 2.8%
2,600,000 4.75% due 11/15/08...................... 2,620,313
1,470,000 6.50% due 08/15/05 - 10/15/06........... 1,626,412
3,460,000 6.875% due 05/15/06..................... 3,910,882
15,445,000 7.00% due 07/15/06...................... 17,587,993
------------
25,745,600
------------
Total U.S. treasuries & federal
agencies................................ $288,005,712
------------
------------
SHORT-TERM SECURITIES -- 4.5%
COMMERCIAL PAPER -- 4.3%
8,000,000 Airtouch Communications, Inc.
6.05% due 01/04/99.................... $ 7,995,966
7,000,000 CSX Corp.
6.18% due 01/20/99.................... 6,977,168
8,000,000 ICI Wilimington, Inc.
6.15% due 01/04/99.................... 7,995,900
8,000,000 Litton Industries
6.10% due 01/11/99.................... 7,986,444
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
- ----------- ------------
<C> <S> <C>
</TABLE>
SHORT-TERM SECURITIES -- (CONTINUED)
COMMERCIAL PAPER -- (CONTINUED)
<TABLE>
<C> <S> <C>
$ 8,000,000 Norfolk Southern Corp.
6.20% due 01/12/99.................... $ 7,984,844
------------
38,940,322
------------
REPURCHASE AGREEMENT -- 0.2%
1,682,000 Interest in $121,902,000 joint
repurchase agreement dated 12/31/98 with
State Street Bank 4.750% due 01/04/99;
maturity amount $1,682,888
(Collateralized by $121,902,000 U.S.
Treasury Bonds 8.125% due 05/15/21)..... 1,682,000
------------
Total short-term securities............. $ 40,622,322
------------
------------
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
DIVERSIFICATION OF NET ASSETS:
Total asset-backed securities (cost
$42,491,722)........................... 4.8% $ 43,380,983
Total collateralized mortgage
obligations (cost $1,109,834).......... 0.1 1,128,227
Total commercial mortgage-backed
securities (cost $6,465,129)........... 0.7 6,541,592
Total corporate notes (cost
$463,121,576).......................... 52.7 477,939,788
Total enhanced equipment trust
certificates (cost $2,892,045)......... 0.3 2,913,968
Total foreign/yankee bonds & notes (cost
$34,837,531)........................... 3.7 33,506,696
Total U.S. treasuries & federal agencies
(cost $279,401,277).................... 31.7 288,005,712
Total short-term securities (cost
$40,622,322)........................... 4.5 40,622,322
----- ------------
Total investment in securities (total
cost $870,941,436)..................... 98.5 894,039,288
Cash, receivables and other assets...... 1.5 13,740,215
Payable for Fund shares redeemed........ (0.0) (9,710)
Payable for dividends................... (0.0) (16)
Other liabilities....................... (0.0) (4,358)
----- ------------
Net assets.............................. 100.0% $907,765,419
----- ------------
----- ------------
</TABLE>
<TABLE>
<S> <C>
SUMMARY OF SHAREHOLDERS' EQUITY:
Capital stock, par value $0.10 per share;
authorized 1,500,000,000 shares; outstanding
840,360,327 shares............................... $ 84,036,033
Capital surplus................................... 794,273,665
Accumulated undistributed net investment income... 601,032
Accumulated undistributed net realized gain on
investments...................................... 5,756,837
Unrealized appreciation of investments............ 23,097,852
------------
Net assets........................................ $907,765,419
------------
------------
</TABLE>
<TABLE>
<S> <C>
Class IA
Net asset value per share ($902,480,438
DIVIDED BY 835,116,005 shares outstanding)...... $1.08
-----
-----
Class IB
Net asset value per share ($5,284,981 DIVIDED BY
5,244,322 shares outstanding).................... $1.01
-----
-----
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THIS FINANCIAL STATEMENT.
MF-4
<PAGE>
HARTFORD STOCK HLS FUND, INC.
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
DECEMBER 31, 1998
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
- ------------ --------------
<C> <S> <C>
COMMON STOCKS -- 95.6%
AEROSPACE & DEFENSE -- 1.2%
2,000,000 AlliedSignal, Inc....................... $ 88,625,000
--------------
COMMUNICATIONS EQUIPMENT -- 3.2%
*1,612,500 Cisco Systems, Inc...................... 149,660,156
700,000 Lucent Technologies, Inc................ 77,000,000
--------------
226,660,156
--------------
COMPUTERS & OFFICE
EQUIPMENT -- 5.9%
1,600,000 Compaq Computer Corporation............. 67,100,000
*1,018,600 EMC Corporation......................... 86,581,000
800,000 International Business Machines Corp.... 147,800,000
1,050,000 Xerox Corporation....................... 123,900,000
--------------
425,381,000
--------------
CONSUMER NON-DURABLES -- 5.0%
495,000 Colgate-Palmolive Company............... 45,973,125
450,000 Estee Lauder Companies - Class A........ 38,475,000
1,450,000 Gillette Company (The).................. 70,053,125
1,445,000 Kimberly-Clark Corporation.............. 78,752,500
1,400,000 Proctor & Gamble Co..................... 127,837,500
--------------
361,091,250
--------------
CONSUMER SERVICES -- 1.3%
*374,548 Autotote Corporation.................... 702,278
900,000 Eastman Kodak Company................... 64,800,000
*2,020,000 Mirage Resorts, Inc..................... 30,173,750
--------------
95,676,028
--------------
ELECTRONICS -- 5.9%
*550,000 Altera Corporation...................... 33,481,250
*935,000 Analog Devices, Inc..................... 29,335,625
2,200,000 General Electric Company................ 224,537,500
1,120,000 Intel Corporation....................... 132,790,000
--------------
420,144,375
--------------
ENERGY & SERVICES -- 6.1%
800,000 Amoco Corporation....................... 48,300,000
100,000 Anadarko Petroleum Corporation.......... 3,087,500
700,000 Chevron Corporation..................... 58,056,250
1,550,000 Exxon Corporation....................... 113,343,750
2,050,000 Royal Dutch Petroleum................... 98,143,750
556,100 Santa Fe International Corporation...... 8,132,962
1,550,000 Schlumberger Ltd........................ 71,493,750
1,375,000 Unocal Corporation...................... 40,132,812
--------------
440,690,774
--------------
FINANCIAL SERVICES -- 15.4%
720,000 Ace Ltd................................. 24,795,000
1,075,000 American International Group, Inc....... 103,871,875
3,777,000 Associates First Capital Corporation.... 160,050,375
1,393,440 BankAmerica Corp........................ 83,780,580
3,930,000 Citigroup, Inc.......................... 194,535,000
1,000,000 First Union Corporation................. 60,812,500
1,600,000 Franklin Resources, Corp................ 51,200,000
2,150,000 Marsh & McLennon Companies, Inc......... 125,640,625
338,200 Mellon Bank Corporation................. 23,251,250
1,950,000 Merrill Lynch & Co., Inc................ 130,162,500
1,350,000 State Street Corporation................ 93,909,375
<CAPTION>
MARKET
SHARES VALUE
- ------------ --------------
<C> <S> <C>
</TABLE>
FINANCIAL SERVICES -- (CONTINUED)
<TABLE>
<C> <S> <C>
1,500,000 U.S. Bancorp............................ $ 53,250,000
--------------
1,105,259,080
--------------
FOOD, BEVERAGE & TOBACCO -- 2.7%
2,300,000 Philip Morris Co., Inc.................. 123,050,000
850,000 Unilever United States Inc.............. 70,496,875
--------------
193,546,875
--------------
HEALTH CARE -- 15.8%
2,240,000 Abbott Laboratories..................... 109,760,000
2,300,000 American Home Products Corporation...... 129,518,750
1,450,000 Baxter International, Inc............... 93,253,125
*1,232,100 Boston Scientific Corporation........... 33,035,681
3,300,000 Columbia/HCA Healthcare Corporation..... 81,675,000
1,200,000 Johnson & Johnson....................... 100,650,000
870,000 Merck & Co., Inc........................ 128,488,125
750,000 Perkin-Elmer Corporation................ 73,171,875
500,000 Pfizer, Inc............................. 62,718,750
1,800,000 Pharmacia & Upjohn, Inc................. 101,925,000
1,827,600 Service Corporation International....... 69,563,025
1,302,350 ServiceMaster Company (The)............. 28,733,096
750,000 SmithKline Beecham PLC ADR.............. 52,125,000
960,000 Warner-Lambert Company.................. 72,180,000
--------------
1,136,797,427
--------------
INDUSTRIAL MATERIALS -- 2.9%
850,000 Aluminum Company of America............. 63,378,125
550,000 Dow Chemical Company.................... 50,015,625
1,250,000 du Pont (E.I.) de Nemours & Company..... 66,328,125
100,000 Praxair, Inc............................ 3,525,000
*200,000 Sealed Air Corporation.................. 10,212,500
250,000 Weyerhaeuser Company.................... 12,703,125
--------------
206,162,500
--------------
MANUFACTURING -- 0.9%
900,000 Tyco International, Ltd................. 67,893,750
--------------
MEDIA & SERVICES -- 4.8%
*1,100,000 AirTouch Communications, Inc............ 79,337,500
*1,100,000 CBS Corporation......................... 36,025,000
2,388,900 Gannett Co., Inc........................ 158,115,319
2,300,000 Walt Disney Company (The)............... 69,000,000
--------------
342,477,819
--------------
REAL ESTATE -- 0.1%
*6,150 Security Capital Group, Inc............. 4,059,000
--------------
RETAIL -- 10.5%
2,046,000 CVS Corporation......................... 112,530,000
1,575,000 Gap, Inc. (The)......................... 88,593,750
2,505,000 Home Depot, Inc. (The).................. 153,274,688
1,675,000 McDonald's Corporation.................. 128,346,875
790,000 Staples, Inc............................ 34,513,125
2,600,000 Wal-Mart Stores, Inc.................... 211,737,500
450,000 Walgreen Co............................. 26,353,125
--------------
755,349,063
--------------
SOFTWARE & SERVICES -- 5.0%
915,500 Automatic Data Processing, Inc.......... 73,411,656
*900,000 Computer Sciences Corp.................. 57,993,750
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THIS FINANCIAL STATEMENT.
MF-5
<PAGE>
HARTFORD STOCK HLS FUND, INC.
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS -- (CONTINUED)
DECEMBER 31, 1998
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
- ------------ --------------
<C> <S> <C>
</TABLE>
COMMON STOCKS -- (CONTINUED)
SOFTWARE & SERVICES -- (CONTINUED)
<TABLE>
<C> <S> <C>
1,600,000 First Data Corporation.................. $ 50,700,000
*1,300,000 Microsoft Corporation................... 180,293,750
--------------
362,399,156
--------------
TRANSPORTATION -- 2.5%
*1,150,000 AMR Corporation......................... 68,281,250
3,375,000 Southwest Airlines Co................... 75,726,563
750,000 Union Pacific Corporation............... 33,796,875
--------------
177,804,688
--------------
UTILITIES -- 6.4%
2,200,000 Bell Atlantic Corporation............... 124,987,500
2,471,950 MCI WorldCom, Inc....................... 177,362,413
3,000,000 SBC Communications, Inc................. 160,875,000
--------------
463,224,913
--------------
Total common stocks..................... $6,873,242,854
--------------
--------------
PREFERRED STOCKS -- 0.1%
MANUFACTURING -- 0.1%
203,500 Monsanto Company........................ $ 9,971,500
--------------
--------------
<CAPTION>
PRINCIPAL
AMOUNT
- ------------
<C> <S> <C>
SHORT-TERM SECURITIES -- 4.2%
REPURCHASE AGREEMENT
$300,887,000 Interest in $1,162,198,000 joint $ 300,887,000
repurchase agreement dated 12/31/98 with
State Street Bank 4.773% due 01/04/99;
maturity amount $301,046,570
(Collateralized by $469,031,000 U.S.
Treasury Notes 4.00% - 7.775% due
10/31/99 - 02/15/07, $278,664,000 U.S.
Treasury Bonds 7.875% - 12.75% due
11/15/10 - 02/15/21, $414,503,000 U.S.
Treasury Strips (principal) 0.00% due
02/15/19 - 08/15/21)....................
--------------
--------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
VALUE
--------------
<S> <C> <C>
DIVERSIFICATION OF NET ASSETS:
Total common stocks (cost
$4,384,136,128)........................ 95.6% $6,873,242,854
Total preferred stocks (cost
$8,140,000)............................ 0.1 9,971,500
Total short-term securities (cost
$300,887,000).......................... 4.2 300,887,000
----- --------------
Total investment in securities
(total cost $4,693,163,128)............ 99.9 7,184,101,354
Cash, receivables and other assets...... 0.1 9,251,591
Payable for Fund shares redeemed........ (0.0) (108,028)
Other liabilities....................... (0.0) (31,747)
----- --------------
Net assets.............................. 100.0% $7,193,213,170
----- --------------
----- --------------
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
SUMMARY OF SHAREHOLDERS' EQUITY:
Capital stock, par value $0.10 per share;
authorized 2,000,000,000 shares; outstanding
1,103,931,497 shares............................. $ 110,393,150
Capital surplus................................... 3,982,565,368
Accumulated undistributed net investment income... 2,530,584
Accumulated undistributed net realized gain on
investments...................................... 606,785,842
Unrealized appreciation of investments............ 2,490,938,226
--------------
Net assets........................................ $7,193,213,170
--------------
--------------
</TABLE>
<TABLE>
<S> <C>
Class IA
Net asset value per share ($7,183,046,178
DIVIDED BY 1,094,698,597 shares outstanding).... $6.56
-----
-----
Class IB
Net asset value per share ($10,166,992
DIVIDED BY 9,232,900 shares outstanding)........ $1.10
-----
-----
</TABLE>
* Non-income producing during period
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THIS FINANCIAL STATEMENT.
MF-6
<PAGE>
HARTFORD MONEY MARKET HLS FUND, INC.
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
DECEMBER 31, 1998
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ----------- ------------
<C> <S> <C>
COMMERCIAL PAPER -- 64.2%
$20,000,000 Abbey National, North America
4.83% due 03/15/99.................... $ 19,804,137
10,000,000 Abbott Laboratories
5.47% due 01/07/99.................... 9,990,883
10,000,000 Air Products & Chemicals
5.19% due 03/22/99.................... 9,884,666
19,000,000 Bass Finance Ltd.
5.20% due 01/19/99.................... 18,950,600
5,000,000 Bradford & Bingley
5.10% due 01/04/99.................... 4,997,875
20,000,000 Bradford & Bingley
5.21% due 01/04/99.................... 19,991,316
10,000,000 Cafco
5.21% due 01/11/99.................... 9,985,527
10,000,000 Cafco
5.13% due 03/02/99.................... 9,914,500
10,000,000 Caterpillar Financial Services
5.28% due 01/05/99.................... 9,994,133
10,000,000 Caterpillar Financial Services
5.42% due 02/22/99.................... 9,921,711
10,000,000 Ciesco L.P.
5.15% due 01/19/99.................... 9,974,250
10,000,000 Ciesco L.P.
5.28% due 01/25/99.................... 9,964,800
20,000,000 Coca-Cola Co.
4.98% due 03/01/99.................... 19,836,766
9,600,000 Colgate-Palmolive Co.
5.05% due 03/12/99.................... 9,505,733
10,000,000 Colgate-Palmolive Co.
5.00% due 04/06/99.................... 9,868,055
10,000,000 Daimler Benz N.A.
4.98% due 03/17/99.................... 9,896,250
9,250,000 Daimler Benz N.A.
5.42% due 02/25/99.................... 9,173,404
10,000,000 du Pont (E.I.) de Nemours & Company
4.97% due 03/08/99.................... 9,908,883
10,000,000 du Pont (E.I.) de Nemours & Company
4.99% due 03/09/99.................... 9,907,130
10,000,000 Eaton Corp.
5.25% due 05/25/99.................... 9,790,000
10,000,000 Finova Capital Corp.
5.27% due 02/04/99.................... 9,950,227
5,000,000 Finova Capital Corp.
5.27% due 02/17/99.................... 4,965,598
5,750,000 Finova Capital Corp.
5.17% due 02/19/99.................... 5,707,894
10,000,000 Ford Motor Credit Corp.
5.02% due 01/25/99.................... 9,966,533
5,000,000 General Electric Capital Corp.
4.96% due 03/29/99.................... 4,940,066
10,000,000 General Electric Capital Corp.
5.33% due 02/22/99.................... 9,923,011
10,000,000 General Electric Capital Corp.
5.36% due 02/17/99.................... 9,930,022
5,000,000 General Motors Acceptance Corp.
5.18% due 01/27/99.................... 4,981,294
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ----------- ------------
<C> <S> <C>
</TABLE>
<TABLE>
<C> <S> <C>
$ 5,000,000 GTE Corporation
5.25% due 02/03/99.................... $ 4,975,937
9,750,000 GTE Corporation
5.43% due 02/11/99.................... 9,689,704
5,000,000 GTE Corporation
5.55% due 01/22/99.................... 4,983,812
20,000,000 Halifax PLC
5.20% due 03/09/99.................... 19,806,444
10,000,000 IBM Credit Corporation
5.24% due 01/05/99.................... 9,994,177
10,000,000 Market Street Funding, Inc.
5.42% due 02/04/99.................... 9,948,811
10,000,000 Merita Bank Ltd.
5.11% due 01/25/99.................... 9,965,933
10,000,000 Morgan (J.P.) & Co.
5.09% due 02/26/99.................... 9,920,822
15,000,000 Morgan (J.P.) & Co.
4.82% due 03/30/99.................... 14,823,266
10,000,000 Morgan Stanley Group, Inc.
5.35% due 02/02/99.................... 9,952,444
5,000,000 Morgan Stanley Group, Inc.
5.20% due 03/24/99.................... 4,940,777
5,000,000 Motorola, Inc.
5.00% due 03/09/99.................... 4,953,472
10,000,000 Motorola, Inc.
5.04% due 02/25/99.................... 9,923,000
5,000,000 Motorola, Inc.
5.14% due 01/28/99.................... 4,980,725
20,000,000 National Fuel Gas Co.
5.35% due 02/17/99.................... 19,860,305
10,000,000 National Rural Utilities
5.12% due 01/14/99.................... 9,981,511
10,000,000 National Rural Utilities
4.85% due 02/23/99.................... 9,928,597
5,000,000 Penney (J.C.) Co.
5.00% due 04/22/99.................... 4,922,916
10,000,000 Rubbermaid, Inc.
5.10% due 02/08/99.................... 9,946,166
15,000,000 Rubbermaid, Inc.
5.12% due 02/01/99.................... 14,933,866
10,000,000 Salomon Smith Barney Holdings, Inc.
5.39% due 02/22/99.................... 9,922,144
10,000,000 Salomon Smith Barney Holdings, Inc.
5.01% due 04/05/99.................... 9,869,183
10,000,000 Sharp Electronics Corp.
5.55% due 01/12/99.................... 9,983,041
20,000,000 Toyota Motor Credit Corp.
5.15% due 02/05/99.................... 19,899,861
12,000,000 Westpac Capital Corp.
5.20% due 01/11/99.................... 11,982,666
10,000,000 Zeneca, Inc.
5.07% due 01/19/99.................... 9,974,650
------------
Total commercial paper.................. $561,689,494
------------
------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THIS FINANCIAL STATEMENT.
MF-7
<PAGE>
HARTFORD MONEY MARKET HLS FUND, INC.
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS -- (CONTINUED)
DECEMBER 31, 1998
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ----------- ------------
<C> <S> <C>
CORPORATE NOTES -- 24.7%
$10,000,000 Ab Spintab
5.19% due 05/26/99.................... $ 9,997,658
8,000,000 Association Corporation of North America
6.68% due 09/17/99.................... 8,062,652
20,000,000 CITGroup Holdings
6.25% due 03/22/99.................... 20,039,460
10,000,000 Countrywide Home Loans
5.472% due 10/29/99................... 10,000,000
10,000,000 Countrywide Home Loans
5.25% due 08/30/99.................... 10,000,000
4,250,000 Finova Capital Corp.
6.05% due 10/08/99.................... 4,274,216
20,000,000 General Motors Corp.
5.34% due 02/12/99.................... 19,999,734
20,000,000 Goldman Sachs Group L.P. (The)
5.25% due 03/26/99.................... 20,000,000
20,000,000 Honda Motor Corp.
5.27% due 04/08/99.................... 19,998,773
20,000,000 John Deere Capital Corp.
5.25% due 02/09/99.................... 19,998,717
10,000,000 Key Bank N.A.
5.18% due 08/20/99.................... 9,999,880
15,250,000 Lehman Brothers Holdings, Inc.
5.25% due 01/13/99.................... 15,250,000
20,000,000 Merrill Lynch & Co., Inc.
5.32% due 08/13/99.................... 20,000,000
19,250,000 PepsiCo, Inc.
5.21% due 08/19/99.................... 19,236,312
9,250,000 USL Capital Corporation
5.51% due 04/19/99.................... 9,255,874
------------
Total corporate notes................... $216,113,276
------------
------------
REPURCHASE AGREEMENT -- 12.5%
109,187,000 Interest in $121,902,000 joint $109,187,000
repurchase agreement dated 12/31/98
with State Street Bank 4.750% due
01/04/99; maturity amount $109,244,626
(Collateralized by $121,902,000 U.S.
Treasury Bonds 8.125% due 05/15/21)...
------------
------------
</TABLE>
<TABLE>
<CAPTION>
VALUE
------------
<S> <C> <C>
DIVERSIFICATION OF NET ASSETS:
Total commercial paper (cost
$561,689,494).......................... 64.2% $561,689,494
Total corporate notes (cost
$216,113,276).......................... 24.7 216,113,276
Total repurchase agreement (cost
$109,187,000).......................... 12.5 109,187,000
----- ------------
Total investment in securities
(total cost $886,989,770).............. 101.4 886,989,770
Cash, receivables and other assets...... 0.2 2,048,517
Payable for Fund shares redeemed........ (1.6) (14,368,303)
Payable for dividends................... (0.0) (1,091)
Other liabilities....................... (0.0) (3,843)
----- ------------
Net assets.............................. 100.0% $874,665,050
----- ------------
----- ------------
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
SUMMARY OF SHAREHOLDERS' EQUITY:
Capital stock, par value $0.10 per share;
authorized 1,300,000,000 shares; outstanding
874,665,050 shares............................... $ 87,466,505
Capital surplus................................... 787,198,545
------------
Net assets........................................ $874,665,050
------------
------------
Class IA
Shares of beneficial interest outstanding, $0.10
par value (net assets $872,486,007).............. 872,486,007
------------
------------
</TABLE>
<TABLE>
<S> <C>
Net asset value................................... $1.00
-----
-----
</TABLE>
<TABLE>
<S> <C>
Class IB
Shares of beneficial interest outstanding, $0.10
par value (net assets $2,179,043)................ 2,179,043
------------
------------
</TABLE>
<TABLE>
<S> <C>
Net asset value................................... $1.00
-----
-----
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THIS FINANCIAL STATEMENT.
MF-8
<PAGE>
HARTFORD ADVISERS HLS FUND, INC.
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
DECEMBER 31, 1998
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
- -------------- ---------------
<C> <S> <C>
ASSET-BACKED SECURITIES -- 0.3%
$ 30,000,000 Aesop Funding II LLC Series 98-1** Class $ 29,996,100
A
6.14% due 05/20/06....................
---------------
---------------
<CAPTION>
SHARES
- --------------
<C> <S> <C>
COMMON STOCKS -- 60.8%
AEROSPACE & DEFENSE -- 0.7%
1,850,000 AlliedSignal, Inc....................... $ 81,978,139
---------------
COMMUNICATIONS
EQUIPMENT -- 1.8%
*1,500,000 Cisco Systems, Inc...................... 139,218,750
700,000 Lucent Technologies, Inc................ 77,000,000
---------------
216,218,750
---------------
COMPUTERS & OFFICE EQUIPMENT -- 4.0%
1,500,000 Compaq Computer Corporation............. 62,906,250
*1,100,000 EMC Corporation......................... 93,500,000
920,000 International Business Machines 169,970,000
Corporation............................
1,200,000 Xerox Corporation....................... 141,600,000
---------------
467,976,250
---------------
CONSUMER NON-DURABLES -- 2.8%
325,000 Colgate-Palmolive Company............... 30,184,375
450,000 Estee Lauder Companies-Class A.......... 38,475,000
1,300,000 Gillette Company (The).................. 62,806,250
1,450,000 Kimberly-Clark Corporation.............. 79,025,000
1,360,000 Proctor & Gamble Co..................... 124,185,000
---------------
334,675,625
---------------
CONSUMER SERVICES -- 0.9%
*561,821 Autotote Corporation.................... 1,053,414
950,000 Eastman Kodak Company................... 68,400,000
*2,150,000 Mirage Resorts, Inc..................... 32,115,625
---------------
101,569,039
---------------
ELECTRONICS -- 3.9%
475,000 Altera Corporation...................... 28,915,625
*1,100,000 Analog Devices, Inc..................... 34,512,500
2,350,000 General Electric Company................ 239,846,875
1,350,000 Intel Corporation....................... 160,059,375
---------------
463,334,375
---------------
ENERGY & SERVICES -- 3.8%
800,000 Amoco Corporation....................... 48,300,000
100,000 Anadarko Petroleum Corporation.......... 3,087,500
800,000 Chevron Corporation..................... 66,350,000
1,550,000 Exxon Corporation....................... 113,343,750
2,050,000 Royal Dutch Petroleum................... 98,143,750
550,000 Santa Fe International Corporation...... 8,043,750
1,470,000 Schlumberger Ltd........................ 67,803,750
1,375,000 Unocal Corporation...................... 40,132,812
---------------
445,205,312
---------------
FINANCIAL SERVICES -- 10.1%
1,110,000 Ace Ltd................................. 38,225,625
1,158,750 American International Group, Inc....... 111,964,218
3,840,400 Associates First Capital Corporation.... 162,736,950
<CAPTION>
MARKET
SHARES VALUE
- -------------- ---------------
<C> <S> <C>
</TABLE>
COMMON STOCKS -- (CONTINUED)
FINANCIAL SERVICES -- (CONTINUED)
<TABLE>
<C> <S> <C>
1,568,440 BankAmerica Corp........................ $ 94,302,455
4,650,000 Citigroup, Inc.......................... 230,175,000
1,200,000 First Union Corporation................. 72,975,000
1,600,000 Franklin Resources, Corp................ 51,200,000
2,295,000 Marsh & Mclennan Companies, Inc......... 134,114,062
142,800 Mellon Bank Corporation................. 9,817,500
2,000,000 Merrill Lynch & Co., Inc................ 133,500,000
1,450,000 State Street Corporation................ 100,865,625
1,645,000 U.S. Bancorp............................ 58,397,500
---------------
1,198,273,935
---------------
FOOD, BEVERAGE & TOBACCO -- 1.5%
2,300,000 Philip Morris Co., Inc.................. 123,050,000
700,000 Unilever United States, Inc............. 58,056,250
---------------
181,106,250
---------------
HEALTH CARE -- 10.4%
2,600,000 Abbott Laboratories..................... 127,400,000
2,700,000 American Home Products Corporation...... 152,043,750
1,500,000 Baxter International, Inc............... 96,468,750
*1,432,000 Boston Scientific Corporation........... 38,395,500
3,300,000 Columbia/HCA Healthcare Corporation..... 81,675,000
1,370,000 Johnson & Johnson....................... 114,908,750
900,000 Merck & Co., Inc........................ 132,918,750
750,000 Perkin-Elmer Corporation................ 73,171,875
550,000 Pfizer, Inc............................. 68,990,625
2,100,000 Pharmacia & Upjohn, Inc................. 118,912,500
1,780,300 Service Corporation International....... 67,762,668
1,456,050 ServiceMaster Company (The)............. 32,124,103
850,000 SmithKline Beecham PLC ADR.............. 59,075,000
975,000 Warner-Lambert Company.................. 73,307,812
---------------
1,237,155,083
---------------
INDUSTRIAL MATERIALS -- 1.7%
750,000 Aluminum Company of America............. 55,921,875
500,000 Dow Chemical Company.................... 45,468,750
1,350,000 du Pont (E.I.) de Nemours & Company..... 71,634,375
100,000 Praxair, Inc............................ 3,525,000
*200,000 Sealed Air Corporation.................. 10,212,500
250,000 Weyerhaeuser Company.................... 12,703,125
---------------
199,465,625
---------------
MANUFACTURING -- 0.6%
900,000 Tyco International Ltd.................. 67,893,750
---------------
MEDIA & SERVICES -- 3.0%
1,100,000 AirTouch Communications, Inc............ 79,337,500
1,020,000 CBS Corporation......................... 33,405,000
2,729,000 Gannett Co., Inc........................ 180,625,687
2,125,000 Walt Disney Company (The)............... 63,750,000
---------------
357,118,187
---------------
REAL ESTATE -- 0.0%
*6,150 Security Capital Group, Inc............. 4,059,000
---------------
RETAIL -- 6.6%
2,519,600 CVS Corporation......................... 138,578,000
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THIS FINANCIAL STATEMENT.
MF-9
<PAGE>
HARTFORD ADVISERS HLS FUND, INC.
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS -- (CONTINUED)
DECEMBER 31, 1998
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
- -------------- ---------------
<C> <S> <C>
</TABLE>
COMMON STOCKS -- (CONTINUED)
RETAIL -- (CONTINUED)
<TABLE>
<C> <S> <C>
1,387,500 Gap, Inc. (The)......................... $ 78,046,875
2,700,000 Home Depot, Inc. (The).................. 165,206,250
1,835,000 McDonald's Corporation.................. 140,606,875
*890,000 Staples, Inc............................ 38,881,875
2,380,700 Wal-Mart Stores, Inc.................... 193,878,256
500,000 Walgreen Co............................. 29,281,250
---------------
784,479,381
---------------
SOFTWARE & SERVICES -- 3.2%
898,200 Automatic Data Processing, Inc.......... 72,024,412
*1,000,000 Computer Sciences Corp.................. 64,437,500
1,650,000 First Data Corporation.................. 52,284,375
*1,350,000 Microsoft Corporation................... 187,228,125
---------------
375,974,412
---------------
TRANSPORTATION -- 1.8%
*1,250,000 AMR Corporation......................... 74,218,750
4,162,500 Southwest Airlines Co................... 93,396,093
1,030,000 Union Pacific Corporation............... 46,414,375
---------------
214,029,218
---------------
UTILITIES -- 4.0%
1,700,000 Bell Atlantic Corporation............... 96,581,250
*2,471,950 MCI WorldCom, Inc....................... 177,362,412
3,700,000 SBC Communications, Inc................. 198,412,500
---------------
472,356,162
---------------
Total common stocks..................... $ 7,202,868,493
---------------
---------------
CONVERTIBLE PREFERRED STOCKS -- 0.1%
INDUSTRIAL MATERIALS -- 0.1%
204,900 Monsanto Company........................ $ 10,040,100
---------------
---------------
<CAPTION>
PRINCIPAL
AMOUNT
- --------------
<C> <S> <C>
CORPORATE NOTES -- 12.0%
COMPUTERS & OFFICE EQUIPMENT -- 0.2%
$ 13,135,000 Honeywell, Inc. $ 13,536,510
6.60% due 04/15/01....................
11,645,000 International Business Machines Corp. 12,299,099
6.50% due 01/15/28....................
---------------
25,835,609
---------------
CONSUMER DURABLES -- 0.6%
35,000,000 Ford Motor Co. 36,010,835
6.625% due 10/01/28...................
35,000,000 General Motors Corp. 36,528,450
6.75% due 05/01/28....................
---------------
72,539,285
---------------
FINANCIAL SERVICES -- 5.6%
30,000,000 Allmerica Financial Corp. 32,093,610
7.625% due 10/15/25...................
26,485,000 Amerus Life Holdings 26,653,947
6.95% due 06/15/05....................
21,670,000 Amvescap PLC 21,709,287
6.60% due 05/15/05....................
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
- -------------- ---------------
<C> <S> <C>
</TABLE>
CORPORATE NOTES -- (CONTINUED)
FINANCIAL SERVICES -- (CONTINUED)
<TABLE>
<C> <S> <C>
$ 25,000,000 Associates Corp. N.A. $ 25,402,200
6.00% due 07/15/05....................
15,000,000 Associates Corp. N.A. 15,505,905
6.50% due 10/15/02....................
10,000,000 BankBoston Corp. 10,148,360
6.625% due 02/01/04...................
14,825,000 Banponce Corp. 15,044,424
6.75% due 12/15/05....................
15,000,000 Bayerische Landesbank NY 15,074,250
5.625% due 02/26/01...................
10,000,000 Chase Manhattan Corp. 10,795,780
8.50% due 02/15/02....................
15,740,000 CIGNA Corp. 16,747,454
7.40% due 05/15/07....................
30,000,000 Cincinnati Financial Group 29,818,110
6.90% due 05/15/28....................
20,000,000 CIT Group Holdings 20,533,680
6.75% due 05/14/01....................
20,000,000 Citicorp 20,049,720
5.625% due 02/15/01...................
10,000,000 Citigroup, Inc. 10,327,460
6.25% due 12/01/05....................
24,000,000 Credit National Euro 24,480,000
7.00% due 11/14/05....................
10,000,000 Fairfax Financial Holdings 10,548,300
7.75% due 12/15/03....................
18,000,000 Finova Capital Corporation 18,132,030
6.39% due 10/08/02....................
12,000,000 First Interstate Bank 12,364,152
9.00% due 11/15/04....................
25,000,000 First Union National Bank 24,946,800
5.80% due 12/01/08....................
20,000,000 Fleet Financial Group 20,891,380
6.875% due 01/15/28...................
20,000,000 Heller Financial 20,155,040
6.382% due 11/10/00...................
15,000,000 Home Savings America 15,097,125
6.00% due 11/01/00....................
27,000,000 Jackson National Life Insurance Co.** 31,052,376
8.15% due 03/15/27....................
11,400,000 Liberty Mutual Life Insurance Co.** 11,729,551
6.75% due 11/15/08....................
30,000,000 Liberty Mutual Life Insurance Co. 34,062,060
8.20% due 05/04/07....................
10,000,000 Lumbermens Mutual Casualty** 12,070,940
9.15% due 07/01/26....................
20,000,000 NationsBank Corp. 22,932,140
7.80% due 09/15/16....................
30,000,000 New England Mutual Life Insurance Co.** 32,222,940
7.875% due 02/15/24...................
27,600,000 Torchmark Corp. 30,706,883
8.25% due 08/15/09....................
30,000,000 Toyota Motor Credit Corp. 29,775,000
5.50% due 12/15/08....................
25,000,000 Transamerica Financial 25,105,350
6.125% due 11/01/01...................
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THIS FINANCIAL STATEMENT.
MF-10
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
- -------------- ---------------
<C> <S> <C>
</TABLE>
CORPORATE NOTES -- (CONTINUED)
FINANCIAL SERVICES -- (CONTINUED)
<TABLE>
<C> <S> <C>
$ 10,000,000 Travelers/Aetna P&C, Inc. $ 10,235,300
6.75% due 04/15/01....................
---------------
656,411,554
---------------
FOOD, BEVERAGE & TOBACCO -- 0.3%
30,000,000 Coca-Cola Enterprises 31,133,370
6.75% due 09/15/28....................
---------------
HEALTH CARE -- 0.2%
29,000,000 United Healthcare Corp.** 29,198,795
6.60% due 12/01/03....................
---------------
HOME BUILDING -- 0.2%
26,000,000 American Home Products 29,091,140
7.25% due 03/01/23....................
---------------
INDUSTRIAL MATERIALS -- 3.4%
30,000,000 Alcan Aluminum Ltd. 30,031,830
7.25% due 11/01/28....................
22,000,000 Becton Dickinson 23,174,976
6.70% due 08/01/28....................
25,000,000 Boise Cascade Office 24,079,950
7.05% due 05/15/05....................
18,000,000 Colgate-Palmolive 18,117,414
5.58% due 11/06/08....................
25,000,000 Computer Associates International 24,664,250
6.50% due 04/15/08....................
30,000,000 Danaher Corp. 29,898,000
6.00% due 10/15/08....................
30,000,000 Equitable Cos., Inc. 30,844,620
7.00% due 04/01/28....................
15,000,000 Husky Oil Ltd. 15,234,450
6.875% due 11/15/03...................
20,000,000 ICI Wilmington 20,237,860
6.95% due 09/15/04....................
25,000,000 Parker Hannifin Corp. 24,958,750
5.65% due 09/15/03....................
7,255,334 Postal Square LP 9,290,382
8.95% due 06/15/22....................
25,000,000 Praxair Inc 24,833,800
6.15% due 04/15/03....................
30,000,000 Rockwell International Corp. 31,243,740
6.70% due 01/15/28....................
19,420,000 Scripps (E.W.) Company 19,998,211
6.375% due 10/15/02...................
15,710,000 U.S. West Cap Funding, Inc. 16,779,945
6.875% due 07/15/28...................
20,000,000 Williams Cos., Inc. 20,288,300
6.50% due 11/15/02....................
30,000,000 Worldcom, Inc. 31,093,440
6.40% due 08/15/05....................
10,000,000 Zeneca Group PLC 10,339,800
6.30% due 06/15/03....................
---------------
405,109,718
---------------
MEDIA & SERVICES -- 0.1%
10,400,000 Times Mirror Co. 11,705,907
7.50% due 07/01/23....................
---------------
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
- -------------- ---------------
<C> <S> <C>
</TABLE>
<TABLE>
<C> <S> <C>
REAL ESTATE -- 0.2%
$ 20,000,000 Liberty Propert Trust (REIT) $ 19,087,260
7.25% due 08/15/07....................
---------------
RETAIL -- 0.4%
20,200,000 Dayton Hudson Co 20,490,981
5.875% due 11/01/08...................
26,500,000 Penney (J.C.) & Company 29,366,531
7.95% due 04/01/17....................
---------------
49,857,512
---------------
TRANSPORTATION -- 0.4%
23,700,000 Continental Airlines 24,089,154
6.90% due 01/02/18....................
20,000,000 Santiago Air 144A** 19,850,000
6.95% due 07/01/12....................
---------------
43,939,154
---------------
UTILITIES -- 0.4%
10,000,000 Bellsouth Telecommunications 10,474,900
6.375% due 06/01/28...................
15,000,000 Hydro Quebec 15,957,750
7.375% due 02/01/03...................
11,000,000 Pacific Gas & Electric Co. 11,820,963
7.875% due 03/01/02...................
10,000,000 Southern California Gas Co. 10,197,830
5.75% due 11/15/03....................
---------------
48,451,443
---------------
Total corporate notes................... $ 1,422,360,747
---------------
---------------
FOREIGN GOVERNMENT BONDS -- 0.2%
16,000,000 City of Naples, Italy $ 16,954,400
7.52% due 07/15/06....................
---------------
---------------
MORTGAGE-BACKED SECURITIES -- 0.6%
18,000,000 Asset Securitization Corp. Series 97-D4 $ 19,574,100
Class A1D
7.49% due 04/14/29....................
25,000,000 Chase Commercial Mortgage 97-A2 26,961,250
7.370% due 02/19/07...................
28,500,000 Newcourt Receivable Asset Trust Series 28,971,390
97-1 Class A4
6.193% due 05/20/05...................
---------------
Total mortgage-backed securities........ $ 75,506,740
---------------
---------------
MUNICIPAL BONDS -- 0.2%
7,000,000 Miami Beach, Florida $ 8,049,034
8.80% due 12/01/15....................
16,635,000 Mount Sinai School of Medicine NY 17,304,758
6.00% due 07/01/03....................
---------------
Total municipal bonds................... $ 25,353,792
---------------
---------------
U.S. TREASURIES & FEDERAL AGENCIES -- 24.1%
U.S. TREASURY BONDS -- 0.7%
76,750,000 6.25% due 08/15/23.................... $ 85,864,062
---------------
U.S. TREASURY NOTES -- 18.8%
1,023,000,000 5.75% due 10/31/02 - 08/15/03......... 1,066,115,800
280,000,000 5.785% due 11/15/05................... 298,725,000
417,500,000 6.50% due 08/15/05 - 10/15/06......... 461,411,250
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THIS FINANCIAL STATEMENT.
MF-11
<PAGE>
HARTFORD ADVISERS HLS FUND, INC.
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS -- (CONTINUED)
DECEMBER 31, 1998
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
- -------------- ---------------
<C> <S> <C>
</TABLE>
U.S. TREASURIES & FEDERAL AGENCIES -- (CONTINUED)
U.S. TREASURY NOTES -- (CONTINUED)
<TABLE>
<C> <S> <C>
$ 207,000,000 7.25% due 05/15/04 - 08/15/04......... $ 232,404,116
158,000,000 7.50% due 11/15/01.................... 169,800,704
---------------
2,228,456,870
---------------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION
-- 4.1%
250,391,534 6.00% due 06/15/24 - 11/15/28......... 248,100,011
146,116,685 6.50% due 03/15/26 - 06/15/28......... 147,532,556
90,402,350 7.00% due 11/15/23 - 11/15/24......... 92,535,129
1,980,257 9.00% due 06/20/16 - 07/20/16......... 2,117,740
---------------
490,285,436
---------------
U.S. GOVERNMENT
AGENCIES -- 0.5%
Tennesse Valley Authority
50,000,000 6.00% due 03/15/13.................... 52,654,800
---------------
Total U.S. treasuries & federal $ 2,857,261,168
agencies...............................
---------------
---------------
SHORT-TERM SECURITIES -- 1.1%
REPURCHASE AGREEMENT
129,040,000 Interest in $1,162,198,000 joint $ 129,040,000
repurchase agreement dated 12/31/98 with
State Street Bank 4.773% due 01/04/99;
maturity amount $129,108,434
(Collateralized by $469,031,000 U.S.
Treasury Notes 4.00% - 7.775% due
10/31/99 - 02/15/07, $278,664,000 U.S.
Treasury Bonds 7.875% -12.75% due
11/15/10 - 02/15/21, $414,503,000 U.S.
Treasury Strips (principal) 0.00% due
02/15/19 - 08/15/21)....................
---------------
---------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
VALUE
---------------
<S> <C> <C>
DIVERSIFICATION OF NET ASSETS:
Total asset-backed securities (cost
$29,978,508)........................... 0.3% $ 29,996,100
Total common stocks (cost
$4,371,259,187)........................ 60.8 7,202,868,493
Total convertible preferred stocks (cost
$8,196,000)............................ 0.1 10,040,100
Total corporate notes (cost
$1,398,499,775)........................ 12.0 1,422,360,747
Total foreign government bonds (cost
$16,000,000)........................... 0.2 16,954,400
Total mortgage-backed securities (cost
$72,728,353)........................... 0.6 75,506,740
Total municipal bonds (cost
$23,724,759)........................... 0.2 25,353,792
Total U.S. treasuries & federal agencies
(cost $2,755,667,250).................. 24.1 2,857,261,168
Total short-term securities (cost
$129,040,000).......................... 1.1 129,040,000
----- ---------------
Total investment in securities
(total cost $8,805,093,832)............ 99.4 11,769,381,540
Cash, receivables and other assets...... 0.6 70,873,762
Other liabilities....................... (0.0) (130,168)
----- ---------------
Net assets.............................. 100.0% $11,840,125,134
----- ---------------
----- ---------------
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
SUMMARY OF SHAREHOLDERS' EQUITY:
Capital stock, par value $0.10 per share;
authorized 6,000,000,000 shares; outstanding
3,987,285,128 shares............................. $ 398,728,513
Capital surplus................................... 7,474,906,331
Accumulated undistributed net investment income... 8,440,413
Accumulated undistributed net realized gain on
investments...................................... 993,762,169
Unrealized appreciation of investments............ 2,964,287,708
---------------
Net assets........................................ $11,840,125,134
---------------
---------------
</TABLE>
<TABLE>
<S> <C>
Class IA
Net asset value per share ($11,805,411,184
DIVIDED BY 3,954,575,864 shares outstanding).... $2.99
-----
-----
Class IB
Net asset value per share ($34,713,950
DIVIDED BY 32,709,264 shares outstanding)....... $1.06
-----
-----
</TABLE>
* Non-income producing during period.
** Security exempt from registration under Rule 144A of the Securities Act of
1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers. At December 31,
1998, the market value of these securities amounted to $166,120,702 or 1.4%
of net assets.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THIS FINANCIAL STATEMENT.
MF-12
<PAGE>
HARTFORD CAPITAL APPRECIATION HLS FUND, INC.
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
DECEMBER 31, 1998
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
- ------------ --------------
<C> <S> <C>
COMMON STOCKS -- 94.7%
AEROSPACE & DEFENSE -- 4.2%
1,619,800 AlliedSignal, Inc....................... $ 71,777,387
*1,890,000 Loral Space & Communications............ 33,665,625
600,000 Northrop Grumman Corporation............ 43,875,000
1,080,000 Precision Castparts Corporation......... 47,790,000
890,000 Raytheon Co. Class A.................... 46,001,875
*220,200 Wyman-Gordon Company.................... 2,257,050
--------------
245,366,937
--------------
BUSINESS SERVICES -- 2.7%
*1,700,000 Cendant Corporation..................... 32,406,250
1,170,000 Chicago Bridge & Iron Company N.V....... 14,405,625
*467,500 Computer Learning Centers, Inc.......... 3,126,406
*648,650 Ingram Micro, Inc....................... 22,621,668
*934,900 Ionics, Inc............................. 27,988,568
1,339,300 Manpower, Inc........................... 33,733,618
1,000,000 Ogden Corp.............................. 25,062,500
--------------
159,344,635
--------------
COMMUNICATIONS EQUIPMENT -- 5.6%
*897,600 3Com Corporation........................ 40,223,700
*1,700,000 ADC Telecommunications, Inc............. 59,075,000
90,000 Alcatel................................. 11,020,392
*975,000 Cisco Systems, Inc...................... 90,492,187
1,260,000 ECI Telecommunications.................. 44,887,500
750,000 Harris Corporation...................... 27,468,750
250,000 Motorola, Inc........................... 15,265,625
*1,053,200 Oak Industries, Inc..................... 36,862,000
--------------
325,295,154
--------------
COMPUTERS & OFFICE
EQUIPMENT -- 4.5%
*2,000,000 EMC Corporation......................... 170,000,000
*38,700 NCR Corporation......................... 1,615,725
*687,200 Seagate Technology, Inc................. 20,787,800
1,100,000 Symbol Technologies, Inc................ 70,331,250
--------------
262,734,775
--------------
CONSUMER NON-DURABLES -- 1.4%
1,350,000 Kimberly-Clark Corporation.............. 73,575,000
*306,600 Quiksilver, Inc......................... 9,198,000
--------------
82,773,000
--------------
CONSUMER SERVICES -- 2.2%
*749,800 American Skiing Co...................... 5,764,110
*444,000 Anchor Gaming........................... 25,030,500
*1,000,000 Cheesecake Factory Incorporated (The)... 29,656,250
*1,600,000 International Game Technology........... 38,900,000
*1,817,000 Mirage Resorts, Inc..................... 27,141,437
--------------
126,492,297
--------------
ELECTRONICS -- 9.2%
*660,000 Altera Corporation...................... 40,177,500
*1,083,333 Analog Devices, Inc..................... 33,989,572
*850,000 Cognex Corporation...................... 17,000,000
*820,900 Credence Systems Corporation............ 15,186,650
1,449,050 General Cable Corporation............... 29,705,525
*505,000 Micron Technology, Inc.................. 25,534,062
666,500 Molex, Inc.............................. 21,244,687
1,505,800 Phillips N.V. ADR....................... 101,923,837
<CAPTION>
MARKET
SHARES VALUE
- ------------ --------------
<C> <S> <C>
</TABLE>
ELECTRONICS -- (CONTINUED)
<TABLE>
<C> <S> <C>
1,450,000 Siemens AG.............................. $ 95,330,301
1,200,000 Solectron Corporation................... 111,525,000
800,001 Thomas & Betts Corporation.............. 34,650,043
700,000 Vishay Intertechnology, Inc............. 10,150,000
--------------
536,417,177
--------------
ENERGY & SERVICES -- 4.9%
360,600 Ashland, Inc............................ 17,444,025
568,400 British Petroleum PLC ADR............... 50,942,850
*466,900 Cie Gen Geophysique - Sponsored ADR..... 5,077,537
*1,445,000 Corporation Geo Sa de C.V. - Class B.... 4,011,862
1,000,000 Eni Ads................................. 67,750,000
*940,700 Input/Output, Inc....................... 6,878,868
*775,100 McDermott (J. Ray) S.A.................. 18,941,506
700,000 Repsol S.A. ADR......................... 38,237,500
1,631,570 Transocean Offshore, Inc................ 43,746,470
1,110,000 YPF Sociedad Anonima - Sponsored ADR.... 31,010,625
--------------
284,041,243
--------------
FINANCIAL SERVICES -- 13.4%
2,220,000 Ace Ltd................................. 76,451,250
1,349,300 AMBAC Financial Group, Inc.............. 81,210,993
202,700 American Bankers Insurance Group, 9,805,612
Inc....................................
1,200,000 Banc One Corporation.................... 61,275,000
1,100,000 BankBoston Corporation.................. 42,831,250
1,300,000 Citigroup, Inc.......................... 64,350,000
1,000,000 Federal National Mortgage Association... 74,000,000
*633,700 FIRSTPLUS Financial Group, Inc.......... 1,742,675
1,000,000 Fleet Financial Group, Inc.............. 44,687,500
1,000,000 Green Point Financial Corp.............. 35,125,000
1,200,000 Heller Financial, Inc................... 35,250,000
*1,300,000 Imperial Credit......................... 10,887,500
1,522,400 Legg Mason, Inc......................... 48,050,750
1,050,000 Marsh & Mclennan Companies, Inc......... 61,359,375
907,000 Merrill Lynch & Co., Inc................ 60,542,250
793,100 MMI Companies, Inc...................... 13,284,425
800,000 Morgan Stanley, Dean Witter, Discover 56,800,000
and Co.................................
--------------
777,653,580
--------------
FOOD, BEVERAGE & TOBACCO -- 1.0%
1,050,000 Archer-Daniels-Midland Company.......... 18,046,875
700,000 Philip Morris Co., Inc.................. 37,450,000
--------------
55,496,875
--------------
HEALTH CARE -- 13.7%
1,600,000 Abbott Laboratories..................... 78,400,000
*540,200 Boston Scientific Corporation........... 14,484,112
2,200,000 Columbia/HCA Healthcare Corporation..... 54,450,000
1,900,000 Eisai Co., Ltd.......................... 37,057,851
1,743,500 Genzyme Corporation..................... 86,739,125
800,000 HBO & Company........................... 22,950,000
1,900,000 ICN Pharmaceuticals, Inc................ 42,987,500
*1,135,000 Magellan Health Services, Inc........... 9,505,625
870,000 Medpartners, Inc........................ 4,567,500
*30 Perkin-Elmer Corporation................ 217
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THIS FINANCIAL STATEMENT.
MF-13
<PAGE>
HARTFORD CAPITAL APPRECIATION HLS FUND, INC.
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS -- (CONTINUED)
DECEMBER 31, 1998
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
- ------------ --------------
<C> <S> <C>
</TABLE>
COMMON STOCKS -- (CONTINUED)
HEALTH CARE -- (CONTINUED)
<TABLE>
<C> <S> <C>
2,600,000 Pharmacia & Upjohn, Inc................. $ 147,225,000
1,650,000 Rhone-Poulenc S.A....................... 82,912,500
1,575,900 United Healthcare Corporation........... 67,862,193
*1,000,000 Wellpoint Health Networks, Inc.......... 87,000,000
1,475,000 Zeneca Group PLC........................ 64,420,232
--------------
800,561,855
--------------
INDUSTRIAL MATERIALS -- 0.9%
7,000,000 Billiton PLC**.......................... 13,917,681
1,221,300 IMC Global, Inc......................... 26,105,287
1,150,000 Titanium Metals Corporation............. 9,775,000
--------------
49,797,968
--------------
MANUFACTURING -- 0.4%
*1,289,800 Ucar International, Inc................. 22,974,562
--------------
MEDIA & SERVICES -- 7.3%
*1,210,000 America Online, Inc..................... 175,147,500
*1,386,400 American Tower Corporation.............. 40,985,450
*743,100 Capstar Broadcasting Corporation........ 16,998,412
*703,100 Infinity Broadcasting Class A........... 19,247,362
857,000 News Corp. - Preferred Shares ADR 21,157,187
Ltd....................................
*5,407,400 Rogers Communications, Inc.............. 47,990,675
*1,647,200 Univision Communications, Inc........... 59,608,050
*865,500 Valassis Communications, Inc............ 44,681,437
--------------
425,816,073
--------------
REAL ESTATE -- 1.5%
*2,000,000 Beacon Properties Corporation**......... 32,000,000
418,400 Boston Properties, Inc.................. 12,761,200
*1,000,000 Security Capital Group, Inc............. 13,562,500
1,200,000 Starwood Hotels & Resorts............... 27,225,000
--------------
85,548,700
--------------
RETAIL -- 4.5%
*2,355,200 CompUSA, Inc............................ 30,764,800
*918,700 Consolidated Stores, Inc................ 18,546,256
1,800,000 Gap, Inc. (The)......................... 101,250,000
500,000 Home Depot, Inc. (The).................. 30,593,750
1,025,000 Wal-Mart Stores, Inc.................... 83,473,437
--------------
264,628,243
--------------
SOFTWARE & SERVICES -- 7.0%
*1,255,000 Avant! Corporation...................... 20,080,000
*700,000 Ceridan Corporation..................... 48,868,750
*717,800 Cognos, Inc............................. 17,945,000
*900,000 Compuware Corporation................... 70,312,500
1,600,218 First Data Corporation.................. 50,706,907
*1,629,000 Learning Company, Inc. (The)............ 42,252,187
*500,000 Microsoft Corporation................... 69,343,750
*600,000 Policy Management Systems Corporation... 30,300,000
*2,100,000 Rational Software Corporation........... 55,650,000
--------------
405,459,094
--------------
TRANSPORTATION -- 1.6%
*854,200 AMR Corporation......................... 50,718,125
1,000,000 Canadian Pacific Ltd.................... 18,875,000
<CAPTION>
MARKET
SHARES VALUE
- ------------ --------------
<C> <S> <C>
</TABLE>
TRANSPORTATION -- (CONTINUED)
<TABLE>
<C> <S> <C>
1,346,300 Werner Enterprises, Inc................. $ 23,812,681
--------------
93,405,806
--------------
UTILITIES -- 7.0%
*438,500 APT Satellite Holdings ADR.............. 1,781,406
*1,886,500 Calpine Corporation..................... 47,634,125
1,019,200 COMSAT Corporation...................... 36,691,200
500,000 DQE, Inc................................ 21,968,750
817,000 Empresa Nac Elec........................ 9,293,375
822,900 Enron Corp.............................. 46,956,731
*14,040 Intermedia Communications 144A***....... 217,971
*900,000 Intermedia Communications, Inc.......... 15,525,000
*2,400,000 MCI WorldCom, Inc....................... 172,200,000
1,260,430 Swisscom AG - Sponsored ADR............. 53,647,051
--------------
405,915,609
--------------
WASTE MANAGEMENT -- 1.7%
1,200,000 Republic Industries, Inc................ 17,700,000
1,700,000 Waste Management, Inc................... 79,262,500
--------------
96,962,500
--------------
Total common stocks..................... $5,506,686,083
--------------
--------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
- ------------
<C> <S> <C>
CORPORATE NOTES -- 0.3%
INDUSTRIAL MATERIALS -- 0.3%
UNISYS Corp.
$ 15,000,000 12.00% due 04/15/03................... $ 16,800,000
--------------
--------------
PREFERRED STOCKS -- 1.5%
CONSUMER SERVICES -- 0.0%
1,094,544 SGW Holdings Corporation***............. $ 2,736,360
--------------
HEALTH CARE -- 0.2%
*1,173,300 MedPartners, Inc........................ 9,019,743
--------------
TRANSPORTATION -- 1.0%
1,280,000 Union Pacific Capital Trust**........... 59,200,000
--------------
UTILITIES -- 0.3%
1,200,000 Intermedia Communications Inc.**........ 16,800,000
--------------
Total preferred stocks.................. $ 87,756,103
--------------
--------------
SHORT-TERM SECURITIES -- 3.4%
REPURCHASE AGREEMENT
196,379,000 Interest in $1,162,198,000 joint $ 196,379,000
repurchase agreement dated 12/31/98 with
State Street Bank 4.773% due 01/04/99;
maturity amount $196,483,146
(Collateralized by $469,031,000 U.S.
Treasury Notes 4.00% - 7.775% due
10/31/99 - 02/15/07, $278,664,000 U.S.
Treasury Bonds 7.875% - 12.75% due
11/15/10 - 02/15/21, $414,503,000 U.S.
Treasury Strips (principal) 0.00% due
02/15/19 - 08/15/21)....................
--------------
--------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THIS FINANCIAL STATEMENT.
MF-14
<PAGE>
<TABLE>
<CAPTION>
MARKET
VALUE
--------------
<S> <C> <C>
DIVERSIFICATION OF NET ASSETS:
Total common stocks (cost
$4,176,931,447)........................ 94.7% $5,506,686,083
Total corporate notes (cost
$15,293,984)........................... 0.3 16,800,000
Total preferred stocks (cost
$111,349,158).......................... 1.5 87,756,103
Total short-term securities (cost
$196,379,000).......................... 3.4 196,379,000
----- --------------
Total investment in securities
(total cost $4,499,953,589)............ 99.9 5,807,621,186
Cash, receivables and other assets...... 1.1 66,114,577
Payable for securities purchased........ (1.0) (60,288,064)
Other liabilities....................... (0.0) (26,087)
----- --------------
Net assets.............................. 100.0% $5,813,421,612
----- --------------
----- --------------
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
SUMMARY OF SHAREHOLDERS' EQUITY:
Capital stock, par value $0.10 per share;
authorized 2,000,000,000 shares; outstanding
1,226,281,575 shares............................. $ 122,628,158
Capital surplus................................... 4,020,767,755
Accumulated undistributed net investment income... 61,286
Accumulated undistributed net realized gain on
investments...................................... 362,259,435
Unrealized appreciation of investments............ 1,307,667,597
Unrealized appreciation of other assets and
liabilities in foreign currencies................ 27,381
--------------
Net assets........................................ $5,813,421,612
--------------
--------------
</TABLE>
<TABLE>
<S> <C>
Class IA
Net asset value per share ($5,807,479,718
DIVIDED BY 1,220,294,461 shares outstanding).... $4.76
-----
-----
Class IB
Net asset value per share ($5,941,894 DIVIDED BY
5,987,114 shares outstanding).................... $0.99
-----
-----
</TABLE>
* Non-income producing during period
** Security exempt from registration under Rule 144A of the Securities Act of
1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers. At December 31,
1998, the market value of these securities amounted to $121,917,681 or
2.10% of net assets.
*** Restricted Security (see Note 2).
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THIS FINANCIAL STATEMENT.
MF-15
<PAGE>
HARTFORD MORTGAGE SECURITIES HLS FUND, INC.
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
DECEMBER 31, 1998
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
- ----------- ------------
<C> <S> <C>
ASSET-BACKED SECURITIES -- 0.9%
$ 3,000,000 Chase Manhattan RV Owner Trust, Series
97-A Class A9
6.32% due 12/15/08.................... $ 3,040,710
------------
------------
COLLATERALIZED MORTGAGE OBLIGATIONS -- 14.9%
3,069,102 Bear Stearns Mortgage Securities, Inc.,
Series 95-1, Class 1A
6.4713% due 05/25/10.................. 3,088,744
50,752 Chase Mortgage Finance Corp., Series
93-C2, Class 2A-3
8.25% due 01/25/24.................... 50,564
2,251,138 Corestates Home Equity Trust, Series
94-1, Class A
6.65% due 05/15/09.................... 2,282,788
2,635,300 Countrywide Mortgage Backed Securities,
Series 97-2 Class A13
7.50% due 04/25/27.................... 2,654,933
4,391,325 Countrywide Mortgage Backed Securities,
Series 98-6 Class A
6.50% due 06/25/13.................... 4,427,773
465,860 DLJ Mortgage Acceptance Corporation,
Series 96-1, B1
7.25% due 09/25/11.................... 465,277
155,287 DLJ Mortgage Acceptance Corporation,
Series 96-1, B2
7.25% due 09/25/11.................... 152,035
3,000,000 Fannie Mae Series 97-28 Class PD
7.50% due 07/18/23.................... 3,061,687
622,241 Fannie Mae Strip Series D Class 2
11.00% due 04/01/09................... 679,020
5,411,405 GE Capital Mortgage Services, Inc.,
Series 94-21, Class A
6.50% due 08/25/09.................... 5,453,181
5,129,566 GE Capital Mortgage Services, Inc.,
Series 94-26, Class A
6.9439% due 07/25/09.................. 5,195,460
548,409 GE Capital Mortgage Services, Inc.,
Series 96-1, Class B2
6.75% due 02/25/11.................... 541,038
1,643,481 GE Capital Mortgage Services, Inc.,
Series 96-1, Class M
6.75% due 02/25/11.................... 1,665,766
556,227 GE Capital Mortgage Services, Inc.,
Series 96-10, Class B1
6.75% due 06/25/11.................... 547,544
556,227 GE Capital Mortgage Services, Inc.,
Series 96-10, Class B2
6.75% due 06/25/11.................... 547,544
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
- ----------- ------------
<C> <S> <C>
</TABLE>
COLLATERALIZED MORTGAGE OBLIGATIONS -- (CONTINUED)
<TABLE>
<C> <S> <C>
$ 4,193,099 GE Capital Mortgage Services, Inc.,
Series 98-7, Class A
6.50% due 04/25/13.................... $ 4,202,198
2,812,989 Housing Securities, Inc., Series 93-E,
Class E15
10.00% due 09/25/08................... 2,944,018
3,894,327 Norwest Asset Securities Corporation,
Series 98-16 Class A1
6.50% due 06/25/13.................... 3,909,632
552,057 PNC Mortgage Securities Corp., Series
96-2, Class B1
6.60% due 02/25/11.................... 542,136
184,039 PNC Mortgage Securities Corp., Series
96-2, Class B2
6.60% due 02/25/11.................... 180,732
294,430 PNC Mortgage Securities Corp., Series
96-2, Class B3
6.60% due 02/25/11.................... 289,139
4,179,028 Prudential Home Mortgage Securities Co.,
Series 93-H, Class 2B
6.7587% due 09/28/08.................. 4,176,813
1,094,538 Prudential Home Mortgage Securities Co.,
Series 96-3, Class B1
6.75% due 03/25/11.................... 1,078,700
546,830 Prudential Home Mortgage Securities Co.,
Series 96-3, Class B2
6.75% due 03/25/11.................... 538,917
670,168 Residential Funding Mortgage Sec I,
Series 95-S18, Class M3
7.00% due 11/25/10.................... 666,810
255,193 Residential Funding Mortgage Sec I,
Series 96-S11, Class M3
7.00% due 04/25/11.................... 260,053
477,298 Residential Funding Mortgage Sec I,
Series 96-S19, Class M3
7.50% due 09/25/11.................... 483,204
524,077 Residential Funding Mortgage Sec I,
Series 96-S5, Class M3
6.75% due 02/25/11.................... 514,958
2,510,713 Residential Funding Mortgage Sec I,
Series 98-S22 Class A1
6.50% due 09/25/13.................... 2,520,566
------------
Total collateralized mortgage
obligations............................. $ 53,121,230
------------
------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THIS FINANCIAL STATEMENT.
MF-16
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
- ----------- ------------
<C> <S> <C>
COMMERCIAL MORTGAGE-BACKED SECURITIES -- 2.6%
$ 5,000,000 Asset Securitization Corporation, Series
1997-MDVII, Class A1B
7.41% due 01/13/30.................... $ 5,478,250
1,000,000 General Growth Properties Series 1,
Class A1
6.537% due 11/15/04................... 1,040,860
1,000,000 Merrill Lynch Mortgage Investors, Inc.,
Series 96-C2 Class B
6.96% due 11/21/28.................... 1,052,040
745,507 Midland Realty Acceptance Corporation,
Series 96-C2, Class A1
7.02% due 01/25/29.................... 767,850
930,000 Morgan Stanley Capital, Series 97-C1
Class A1C
7.63% due 02/15/20.................... 997,778
------------
Total commercial mortgage-backed
securities.............................. $ 9,336,778
------------
------------
CORPORATE NOTES -- 1.8%
FINANCIAL SERVICES -- 1.8%
1,500,000 Countrywide Funding Corp.
6.28% due 01/15/03.................... $ 1,504,026
5,000,000 ERP Operating Ltd. Partnership
6.63% due 04/13/05.................... 4,929,035
------------
Total corporate notes................... $ 6,433,061
------------
------------
U.S. TREASURIES & FEDERAL AGENCIES -- 70.7%
U.S. TREASURY INFLATION-INDEXED
SECURITIES -- 1.4%
5,048,250 3.625% due 01/15/08................... $ 5,023,790
------------
U.S. TREASURY NOTES -- 0.9%
3,000,000 5.625% due 02/15/06................... 3,164,064
------------
FEDERAL HOME LOAN MORTGAGE
ASSOCIATION -- 11.4%
1,739,930 10.00% due 11/01/20................... 1,879,736
13,826,938 6.50% due 02/01/09 - 06/01/26........ 13,947,623
7,260,038 7.00% due 12/01/10 - 03/01/26........ 7,404,289
5,521,360 7.50% due 02/01/10 - 06/01/25........ 5,677,596
3,228,646 8.00% due 02/01/13 - 11/01/24........ 3,346,218
2,713,404 8.50% due 07/01/01 - 05/01/25........ 2,818,962
2,557,209 9.00% due 10/15/01 - 10/01/06........ 2,649,607
2,906,209 9.50% due 11/01/08................... 3,056,192
------------
40,780,223
------------
FEDERAL NATIONAL MORTGAGE
ASSOCIATION -- 28.2%
10,815,007 6.00% due 05/01/13 - 09/01/28......... 10,711,514
32,028,778 6.50% due 02/01/13 - 12/01/28......... 32,281,760
31,704,181 7.00% due 05/01/09 - 11/01/28......... 32,376,549
19,076,674 7.50% due 08/01/10 - 08/01/28......... 19,594,279
1,540,091 8.00% due 04/01/22.................... 1,599,195
1,430,289 8.50% due 06/01/24 - 07/01/25......... 1,500,047
2,484,506 9.00% due 05/01/21 - 09/01/21......... 2,621,461
------------
100,684,805
------------
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
- ----------- ------------
<C> <S> <C>
</TABLE>
U.S. TREASURIES & FEDERAL AGENCIES -- (CONTINUED)
<TABLE>
<C> <S> <C>
GOVERNMENT NATIONAL MORTGAGE
ASSOCIATION -- 28.8%
$ 1,387,638 10.00% due 11/15/09 - 05/15/13........ $ 1,526,972
406,964 11.00% due 02/15/10 - 09/15/10........ 455,774
21,257 11.25% due 01/15/01................... 22,197
52,317 12.00% due 05/15/15................... 59,104
58,133 12.50% due 06/15/14 - 08/15/15........ 66,594
13,005,230 6.00% due 07/15/28 - 11/15/28........ 12,887,402
9,962,148 6.50% due 03/15/28 - 11/15/28........ 10,060,237
21,686,575 7.00% due 01/15/24 - 09/15/28........ 22,185,584
33,990,481 7.50% due 11/15/09 - 06/15/28........ 35,042,648
14,159,643 8.00% due 02/15/01 - 11/29/27........ 14,721,870
1,767,344 8.50% due 06/15/17 - 02/15/25........ 1,881,005
1,056,654 9.00% due 01/15/25 - 12/15/25........ 1,130,330
2,394,394 9.50% due 10/15/09 - 11/15/09........ 2,590,915
------------
102,630,632
------------
Total U.S. treasuries & federal
agencies................................ $252,283,514
------------
------------
SHORT-TERM SECURITIES -- 8.6%
REPURCHASE AGREEMENT
30,817,000 Interest in $121,902,000 joint $ 30,817,000
repurchase agreement dated 12/31/98 with
State Street Bank 4.750% due 01/04/99;
maturity amount $30,833,264
(Collateralized by $121,902,000 U.S.
Treasury Bonds 8.125% due 05/15/21).....
------------
------------
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
DIVERSIFICATION OF NET ASSETS:
Total asset-backed securities........... 0.9% $ 3,040,710
Total collateralized mortgage
obligations (cost $59,753,451)......... 14.9 53,121,230
Total commercial mortgage-backed
securities (cost $6,070,395)........... 2.6 9,336,778
Total corporate notes (cost
$5,000,000)............................ 1.8 6,433,061
Total U.S. treasuries & Federal agencies
(cost $248,701,956).................... 70.7 252,283,514
Total short-term securities (cost
$30,817,000)........................... 8.6 30,817,000
----- ------------
Total investment in securities
(total cost $350,342,802).............. 99.5 355,032,293
Cash, receivables and other assets...... 0.6 2,274,047
Payable for Fund shares redeemed........ (0.1) (472,007)
----- ------------
Net assets (applicable to $1.084553 per
share based on 329,014,976 shares
outstanding)........................... 100.0% $356,834,333
----- ------------
----- ------------
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
SUMMARY OF SHAREHOLDERS' EQUITY:
Capital stock, par value $0.10 per share;
authorized 800,000,000 shares; outstanding
329,014,976 shares............................... $ 32,901,498
Capital surplus................................... 326,589,275
Distribution in excess of net realized gain on
investments...................................... (7,345,931)
Unrealized appreciation of investments............ 4,689,491
------------
Net assets, applicable to shares outstanding...... $356,834,333
------------
------------
</TABLE>
* Non-income producing during period
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THIS FINANCIAL STATEMENT.
MF-17
<PAGE>
HARTFORD INDEX HLS FUND, INC.
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
DECEMBER 31, 1998
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
- ------------ --------------
<C> <S> <C>
COMMON STOCKS -- 99.7%
AEROSPACE AND DEFENSE -- 1.5%
103,100 AlliedSignal, Inc....................... $ 4,568,618
183,498 Boeing Company (The).................... 5,986,622
23,300 General Dynamics Corporation............ 1,365,962
36,100 Lockheed Martin Corporation............. 3,059,475
12,600 Northrop Grumman Corporation............ 921,375
62,223 Raytheon Company Class B................ 3,313,374
35,100 Rockwell International Corporation...... 1,704,543
29,100 Textron, Inc............................ 2,209,781
41,500 United Technologies Corporation......... 4,513,125
--------------
27,642,875
--------------
BUSINESS SERVICES -- 0.5%
*156,445 Cendant Corporation..................... 2,982,232
14,900 Deluxe Corporation...................... 544,781
25,000 Donnelly (R.R.) & Sons Company.......... 1,095,312
13,900 Fluor Corporation....................... 591,618
7,500 Foster Wheeler Corporation.............. 98,906
17,400 Grainger (W.W.), Inc.................... 724,275
25,000 IKON Office Solutions................... 214,062
16,300 Moore Corporation Ltd................... 179,300
7,800 National Service Industries, Inc........ 296,400
22,100 SuperValu, Inc.......................... 618,800
61,300 Sysco Corporation....................... 1,681,918
--------------
9,027,604
--------------
COMMUNICATIONS EQUIPMENT -- 4.3%
*66,000 3Com Corporation........................ 2,957,625
*15,850 Andrew Corporation...................... 261,525
*39,775 Ascend Communications, Inc.............. 2,615,206
*30,400 Cabletron Systems, Inc.................. 254,600
*290,525 Cisco Systems, Inc...................... 26,964,351
*30,500 General Instrument Corporation.......... 1,035,093
14,800 Harris Corporation...................... 542,050
242,100 Lucent Technologies, Inc................ 26,631,000
110,000 Motorola, Inc........................... 6,716,875
120,140 Northern Telecom Ltd.................... 6,022,017
14,500 Raychem Corporation..................... 468,531
13,800 Scientific-Atlanta, Inc................. 314,812
*76,400 Sprint Corporation (PCS Group).......... 1,766,750
*35,600 Tellabs, Inc............................ 2,440,825
--------------
78,991,260
--------------
COMPUTERS & OFFICE
EQUIPMENT -- 5.7%
*24,900 Apple Computer, Inc..................... 1,019,343
312,297 Compaq Computer Corporation............. 13,096,955
*9,100 Data General Corporation................ 149,581
*234,100 Dell Computer Corporation............... 17,133,193
*91,900 EMC Corporation......................... 7,811,500
*28,700 Gateway 2000, Inc....................... 1,469,081
190,600 Hewlett-Packard Company................. 13,020,362
171,700 International Business Machines Corp.... 31,721,575
*50,300 Pitney Bowes, Inc....................... 3,322,943
*44,800 Seagate Technology, Inc................. 1,355,200
*69,600 Sun Microsystems, Inc................... 5,959,500
*46,800 Unisys Corporation...................... 1,611,675
60,500 Xerox Corporation....................... 7,139,000
--------------
104,809,908
--------------
<CAPTION>
MARKET
SHARES VALUE
- ------------ --------------
<C> <S> <C>
</TABLE>
<TABLE>
<C> <S> <C>
CONSUMER DURABLES -- 1.5%
13,900 Cooper Tire & Rubber Company............ $ 284,081
222,600 Ford Motor Company...................... 13,063,837
120,400 General Motors Corporation.............. 8,616,125
33,050 Genuine Parts Company................... 1,105,109
28,900 Goodyear Tire & Rubber Company (The).... 1,457,643
19,100 ITT Industries, Inc..................... 759,225
29,900 Newell Co............................... 1,233,375
22,000 TRW, Inc................................ 1,236,125
--------------
27,755,520
--------------
CONSUMER NON-DURABLES -- 3.1%
10,500 Alberto-Culver Company Class B.......... 280,218
48,400 Avon Products, Inc...................... 2,141,700
16,500 Black & Decker Corporation.............. 925,031
4,500 Briggs & Stratton Corporation........... 224,437
11,000 Centex Corporation...................... 495,687
19,200 Clorox Company (The).................... 2,242,800
53,800 Colgate-Palmolive Company............... 4,996,675
6,400 Fleetwood Enterprises, Inc.............. 222,400
*13,300 Fruit of the Loom, Inc.................. 183,706
203,800 Gillette Company (The).................. 9,846,087
19,900 International Flavors & Fragrances, 879,331
Inc.....................................
7,300 Kaufman & Broad Home Corporation........ 209,875
99,600 Kimberly-Clark Corporation.............. 5,428,200
62,500 Masco Corporation....................... 1,796,875
16,900 Maytag Corporation...................... 1,052,025
244,100 Proctor & Gamble Co..................... 22,289,381
27,500 Rubbermaid, Inc......................... 864,531
6,700 Russell Corporation..................... 136,093
11,000 Snap-On, Inc............................ 382,937
3,600 Springs Industries, Inc................. 149,175
10,600 Tupperware Corporation.................. 174,237
22,400 VF Corp................................. 1,050,000
13,900 Whirlpool Corporation................... 769,712
--------------
56,741,113
--------------
CONSUMER SERVICES -- 0.8%
18,700 Block (H & R), Inc...................... 841,500
17,700 Brunswick Corporation................... 438,075
110,700 Carnival Corp. Class A.................. 5,313,600
25,600 Darden Restaurants, Inc................. 460,800
59,500 Eastman Kodak Company................... 4,284,000
*23,200 Harrah's Entertainment, Inc............. 363,950
48,000 Hilton Hotels Corporation............... 918,000
46,200 Marriott International.................. 1,339,800
*33,100 Mirage Resorts, Inc..................... 494,431
8,100 Polaroid Corporation.................... 151,368
--------------
14,605,524
--------------
ELECTRONICS -- 6.6%
*26,500 Advanced Micro Devices, Inc............. 766,843
40,400 AMP, Inc................................ 2,103,325
*68,000 Applied Materials, Inc.................. 2,902,750
8,300 EG&G, Inc............................... 230,843
81,000 Emerson Electric Company................ 5,067,562
602,500 General Electric Company................ 61,492,656
306,700 Intel Corporation....................... 36,363,118
15,600 Johnson Controls, Inc................... 920,400
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THIS FINANCIAL STATEMENT.
MF-18
<PAGE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
- ------------ --------------
<C> <S> <C>
</TABLE>
COMMON STOCKS -- (CONTINUED)
ELECTRONICS -- (CONTINUED)
<TABLE>
<C> <S> <C>
*16,000 KLA-Tencor Corporation.................. $ 694,000
*25,900 LSI Logic Corporation................... 417,637
*39,200 Micron Technology, Inc.................. 1,982,050
*30,300 National Semiconductor Corporation...... 409,050
*34,600 Silicon Graphics, Inc................... 445,475
21,600 Solectron Corporation................... 2,007,450
8,700 Tektronix, Inc.......................... 261,543
*71,800 Texas Instruments, Inc.................. 6,143,387
10,200 Thomas & Betts Corporation.............. 441,787
--------------
122,649,876
--------------
ENERGY & SERVICES -- 5.8%
16,900 Amerada Hess Corporation................ 840,775
22,100 Anadarko Petroleum Corporation.......... 682,337
18,200 Apache Corporation...................... 460,687
13,900 Ashland, Inc............................ 672,412
59,100 Atlantic Richfield Company.............. 3,856,275
59,910 Baker Hughes, Inc....................... 1,059,658
32,720 Burlington Resources, Inc............... 1,171,785
120,400 Chevron Corporation..................... 9,985,675
39,100 Coastal Corporation (The)............... 1,366,056
17,700 Consolidated Natural Gas Company........ 955,800
447,300 Exxon Corporation....................... 32,708,812
80,600 Halliburton Company..................... 2,387,775
*9,300 Helmerich & Payne, Inc.................. 180,187
8,900 Kerr-McGee Corporation.................. 340,425
*11,200 McDermott International, Inc............ 276,500
143,700 Mobil Corporation....................... 12,519,862
63,600 Occidental Petroleum Corporation........ 1,073,250
*19,600 Oryx Energy Company..................... 263,375
46,800 Phillips Petroleum Company.............. 1,994,850
*15,300 Rowan Companies, Inc.................... 153,000
394,000 Royal Dutch Petroleum................... 18,862,750
99,999 Schlumberger Ltd........................ 4,612,453
43,953 Sempra Energy........................... 1,115,307
17,300 Sunoco, Inc............................. 623,881
31,300 Tenneco, Inc............................ 1,066,156
98,600 Texaco, Inc............................. 5,213,475
46,300 Union Pacific Resources Group, Inc...... 419,593
44,500 Unocal Corporation...................... 1,298,843
56,300 USX Corporation......................... 1,696,037
--------------
107,857,991
--------------
FINANCIAL SERVICES -- 15.4%
28,200 Aetna Inc............................... 2,217,225
155,700 Allstate Corporation.................... 6,013,912
83,200 American Express Company................ 8,507,200
49,002 American General Corporation............ 3,822,156
199,375 American International Group, Inc....... 19,264,609
32,050 Aon Corporation......................... 1,774,768
132,926 Associates First Capital Corporation.... 5,632,739
215,156 Banc One Corporation.................... 10,986,403
139,700 Bank of New York Company, Inc. (The).... 5,622,925
318,443 BankAmerica Corp........................ 19,146,385
54,000 BankBoston Corporation.................. 2,102,625
17,700 Bankers Trust New York Corp............. 1,512,243
54,100 BB&T Corporation........................ 2,180,906
20,900 Bear Stearns Company, Inc............... 781,137
<CAPTION>
MARKET
SHARES VALUE
- ------------ --------------
<C> <S> <C>
</TABLE>
FINANCIAL SERVICES -- (CONTINUED)
<TABLE>
<C> <S> <C>
12,100 Capital One Financial Corporation....... $ 1,391,500
73,625 Charles Schwab Corporation.............. 4,136,804
155,600 Chase Manhattan Corporation............. 10,590,525
30,900 Chubb Corporation (The)................. 2,004,637
40,200 CIGNA Corporation....................... 3,107,962
31,700 Cincinnati Financial Corporation........ 1,161,012
420,605 Citigroup, Inc.......................... 20,819,947
28,850 Comerica, Inc........................... 1,967,209
61,262 Conseco, Inc............................ 1,872,319
20,400 Countrywide Credit Industries, Inc...... 1,023,825
27,200 Equifax, Inc............................ 929,900
124,900 Federal Home Loan Mortgage 8,048,243
Corporation............................
190,600 Federal National Mortgage Association... 14,104,400
49,275 Fifth Third Bancorp..................... 3,513,923
182,130 First Union Corporation................. 11,075,780
43,300 Firstar Corporation..................... 4,026,900
104,500 Fleet Financial Group, Inc.............. 4,669,843
46,600 Franklin Resources, Corp................ 1,491,200
10,500 Golden West Financial Corp.............. 962,718
88,799 Household International, Inc............ 3,518,660
38,860 Huntington Bancshares, Inc.............. 1,168,228
20,600 Jefferson-Pilot Corporation............. 1,545,000
83,800 KeyCorp................................. 2,681,600
21,300 Lehman Brothers Holdings, Inc........... 938,531
19,500 Lincoln National Corporation............ 1,595,343
47,250 Marsh & McLennan Companies, Inc......... 2,761,171
18,600 MBIA, Inc............................... 1,219,462
138,375 MBNA Corporation........................ 3,450,726
47,900 Mellon Bank Corporation................. 3,293,125
29,000 Mercantile Bancorp, Inc................. 1,337,625
65,200 Merrill Lynch & Co., Inc................ 4,352,100
20,800 MGIC Investment Corp.................... 828,100
32,100 Morgan (J.P.) & Co., Inc................ 3,372,506
106,175 Morgan Stanley, Dean Witter, Discover 7,538,425
and Co.................................
60,500 National City Corporation............... 4,386,250
20,600 Northern Trust Corporation.............. 1,798,637
55,400 PNC Bank Corp........................... 2,998,525
13,900 Progressive Corp. of Ohio............... 2,354,312
25,700 Provident Companies, Inc................ 1,066,550
26,050 Providian Financial Corporation......... 1,953,750
40,700 Regions Financial Corporation........... 1,640,718
19,900 Republic New York Corporation........... 906,693
25,900 SAFECO Corp............................. 1,112,081
30,900 SLM Holding Corporation................. 1,483,200
44,480 St. Paul Companies, Inc................. 1,545,680
29,700 State Street Corporation................ 2,066,006
32,000 Summit Bancorp.......................... 1,398,000
44,800 SunTrust Banks, Inc..................... 3,427,200
49,050 Synovus Financial Corp.................. 1,195,593
27,100 Torchmark Corporation................... 956,968
12,200 Transamerica Corporation................ 1,409,100
133,319 U.S. Bancorp............................ 4,732,824
25,000 Union Planters Corporation.............. 1,132,812
26,300 Unum Corporation........................ 1,535,262
37,300 Wachovia Corporation.................... 3,261,418
108,956 Washington Mutual, Inc.................. 4,160,757
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THIS FINANCIAL STATEMENT.
MF-19
<PAGE>
HARTFORD INDEX HLS FUND, INC.
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS -- (CONTINUED)
DECEMBER 31, 1998
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
- ------------ --------------
<C> <S> <C>
</TABLE>
COMMON STOCKS -- (CONTINUED)
FINANCIAL SERVICES -- (CONTINUED)
<TABLE>
<C> <S> <C>
297,800 Wells Fargo & Co........................ $ 11,893,387
--------------
284,480,205
--------------
FOOD, BEVERAGE & TOBACCO -- 7.1%
87,900 Anheuser-Busch Companies, Inc........... 5,768,437
108,702 Archer-Daniels-Midland Company.......... 1,868,315
52,600 Bestfoods............................... 2,800,950
12,700 Brown-Forman Corporation Class B........ 961,231
82,500 Campbell Soup Company................... 4,537,500
453,300 Coca-Cola Company, (The)................ 30,314,437
72,100 Coca-Cola Enterprises, Inc.............. 2,577,575
89,600 Conagra, Inc............................ 2,822,400
6,700 Coors (Adolph) Company Class B.......... 378,131
31,900 Fortune Brands, Inc..................... 1,008,837
28,500 General Mills, Inc...................... 2,215,875
66,600 Heinz (H.J.) Company.................... 3,771,225
26,500 Hershey Foods Corporation............... 1,647,968
74,400 Kellogg Company......................... 2,538,900
59,900 Nabisco (RJR) Holdings Corp............. 1,778,281
270,000 PepsiCo, Inc............................ 11,053,125
448,000 Philip Morris Co., Inc.................. 23,968,000
25,100 Quaker Oats Company (The)............... 1,493,450
57,400 Ralston Purina Group.................... 1,858,325
89,500 Safeway, Inc............................ 5,453,906
167,800 Sara Lee Corporation.................... 4,729,862
72,500 Seagram Company Ltd. (The).............. 2,755,000
*27,930 Tricon Global Restaurants, Inc.......... 1,399,991
117,800 Unilever United States Inc.............. 9,770,037
34,100 UST, Inc................................ 1,189,237
21,400 Wrigley, (Wm.) Jr. Co................... 1,916,637
--------------
130,577,632
--------------
HEALTH CARE -- 12.7%
278,900 Abbott Laboratories..................... 13,666,100
12,100 Allergan, Inc........................... 783,475
*15,900 ALZA Corporation........................ 830,775
242,200 American Home Products Corporation...... 13,638,887
*46,800 Amgen, Inc.............................. 4,893,525
9,900 Bard (C.R.), Inc........................ 490,050
10,200 Bausch & Lomb, Inc...................... 612,000
52,600 Baxter International, Inc............... 3,382,837
45,300 Becton, Dickinson & Company............. 1,933,743
20,600 Biomet, Inc............................. 829,150
*72,100 Boston Scientific Corporation........... 1,933,181
183,000 Bristol-Myers Squibb Company............ 24,487,687
36,851 Cardinal Health, Inc.................... 2,796,069
118,800 Columbia/HCA Healthcare Corporation..... 2,940,300
202,300 Eli Lilly and Company................... 17,979,412
27,700 Guidant Corporation..................... 3,053,925
85,700 HBO & Company........................... 2,458,518
*20,200 HCR Manor Care, Inc..................... 593,375
*77,500 HealthSouth Corp........................ 1,196,406
*30,700 Humana, Inc............................. 546,843
247,400 Johnson & Johnson....................... 20,750,675
21,800 Loews Corporation....................... 2,141,850
13,500 Mallinckrodt, Inc....................... 415,968
90,200 Medtronic, Inc.......................... 6,697,350
219,200 Merck & Co., Inc........................ 32,373,100
<CAPTION>
MARKET
SHARES VALUE
- ------------ --------------
<C> <S> <C>
</TABLE>
HEALTH CARE -- (CONTINUED)
<TABLE>
<C> <S> <C>
8,000 Millipore Corporation................... $ 227,500
22,900 Pall Corporation........................ 579,656
9,100 Perkin-Elmer Corporation................ 887,818
238,800 Pfizer, Inc............................. 29,954,475
93,400 Pharmacia & Upjohn, Inc................. 5,288,775
44,500 Pioneer Hi-Bred International, Inc...... 1,201,500
270,100 Schering-Plough Corporation............. 14,923,025
47,100 Service Corporation International....... 1,792,743
5,000 Shared Medical Systems Corporation...... 249,375
*15,500 St. Jude Medical, Inc................... 429,156
42,250 SunAmerica, Inc......................... 3,427,531
*56,700 Tenet Healthcare Corporation............ 1,488,375
34,200 United Healthcare Corporation........... 1,472,737
150,800 Warner-Lambert Company.................. 11,338,275
--------------
234,686,142
--------------
INDUSTRIAL MATERIALS -- 3.2%
42,600 Air Products & Chemicals, Inc........... 1,704,000
41,900 Alcan Aluminum Ltd...................... 1,133,918
36,200 Allegheny Teledyne Incorporated......... 739,837
33,700 Aluminum Company of America............. 2,512,756
7,400 Armstrong World Industries, Inc......... 446,312
7,300 ASARCO, Inc............................. 109,956
68,400 Barrick Gold Corp....................... 1,333,800
42,300 Battle Mountain Gold Company............ 174,487
9,900 Bemis Company, Inc...................... 375,581
*23,900 Bethlehem Steel Corporation............. 200,162
10,400 Boise Cascade Corporation............... 322,400
17,700 Champion International Corporation...... 716,850
22,900 Crown Cork & Seal Company, Inc.......... 705,606
16,600 Cyprus Amax Minerals Company............ 166,000
40,700 Dow Chemical Company.................... 3,701,156
207,200 du Pont (E.I.) de Nemours & Company..... 10,994,550
14,500 Eastman Chemical Company................ 648,875
23,700 Ecolab, Inc............................. 857,643
26,700 Engelhard Corporation................... 520,650
*6,400 FMC Corporation......................... 358,400
30,500 Freeport-McMoRan Copper & Gold, Inc..... 318,343
16,200 Georgia-Pacific Corporation............. 948,712
13,400 Goodrich (B.F.) Co...................... 480,725
*13,900 Grace (W.R.) & Co....................... 218,056
11,000 Great Lakes Chemical Corporation........ 440,000
18,500 Hercules, Inc........................... 506,437
44,000 Homestake Mining Company................ 404,250
30,600 Inco Ltd................................ 323,212
56,600 International Paper Company............. 2,536,387
40,700 James River Corporation of Virginia..... 1,628,000
20,300 Louisiana-Pacific Corporation........... 371,743
19,200 Mead Corporation (The).................. 562,800
115,100 Monsanto Company........................ 5,467,250
22,300 Morton International, Inc............... 546,350
12,200 Nalco Chemical Company.................. 378,200
30,793 Newmont Mining Corporation.............. 556,198
16,200 Nucor Corporation....................... 700,650
*9,900 Owens Corning........................... 350,831
*28,400 Owens-Illinois, Inc..................... 869,750
10,900 Phelps Dodge Corporation................ 554,537
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THIS FINANCIAL STATEMENT.
MF-20
<PAGE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
- ------------ --------------
<C> <S> <C>
</TABLE>
COMMON STOCKS -- (CONTINUED)
INDUSTRIAL MATERIALS -- (CONTINUED)
<TABLE>
<C> <S> <C>
46,100 Placer Dome, Inc........................ $ 530,150
5,400 Potlatch Corporation.................... 199,125
32,700 PPG Industries, Inc..................... 1,904,775
29,100 Praxair, Inc............................ 1,025,775
11,900 Reynolds Metals Company................. 626,981
30,600 Rohm & Haas Company..................... 921,825
*15,424 Sealed Air Corporation.................. 787,588
31,900 Sherman-Williams Company................ 937,062
*18,600 Sigma-Aldrich Corporation............... 546,375
10,300 Temple-Inland, Inc...................... 610,918
12,900 Union Camp Corporation.................. 870,750
24,400 Union Carbide Corporation............... 1,037,000
16,000 USX US Steel Group...................... 368,000
18,800 Westvaco Corporation.................... 504,075
36,700 Weyerhaeuser Company.................... 1,864,818
20,500 Willamette Industries, Inc.............. 686,750
17,000 Worthington Industries, Inc............. 212,500
--------------
59,519,837
--------------
MANUFACTURING -- 2.1%
5,300 Aeroquip-Vickers, Inc................... 158,668
21,600 Avery Dennison Corporation.............. 973,350
5,700 Ball Corporation........................ 260,775
13,700 Case Corporation........................ 298,831
66,000 Caterpillar, Inc........................ 3,036,000
19,100 Cooper Industries, Inc.................. 910,831
42,600 Corning, Inc............................ 1,917,000
12,800 Crane Co................................ 386,400
7,700 Cummins Engine Company, Inc............. 273,350
30,436 Dana Corporation........................ 1,244,071
24,800 Danaher Corporation..................... 1,346,950
43,900 Deere & Company......................... 1,454,187
41,000 Dover Corporation....................... 1,501,625
13,300 Eaton Corporation....................... 940,143
8,900 Harnischfeger Industries, Inc........... 90,668
23,300 Honeywell, Inc.......................... 1,754,781
46,100 Illinois Tool Works, Inc................ 2,673,800
30,550 Ingersoll-Rand Company.................. 1,433,940
7,300 Milacron, Inc........................... 140,525
73,800 Minnesota Mining and Manufacturing 5,249,025
Company................................
1,500 NACCO Industries, Inc................... 138,000
*12,400 Navistar International Corporation...... 353,400
14,300 PACCAR, Inc............................. 588,087
20,250 Parker Hannifin Corporation............. 663,187
16,300 Stanley Works (The)..................... 452,325
29,200 Thermo Electron Corporation............. 494,575
11,500 Timken Company (The).................... 217,062
118,544 Tyco International, Ltd................. 8,942,663
--------------
37,894,219
--------------
MEDIA & SERVICES -- 4.9%
*105,200 AirTouch Communications, Inc............ 7,587,550
84,700 America Online, Inc..................... 12,260,325
*129,900 CBS Corporation......................... 4,254,225
*48,400 Clear Channel Communications............ 2,637,800
67,800 Comcast Corporation Class A............. 3,979,012
17,200 Dow Jones & Company, Inc................ 827,750
<CAPTION>
MARKET
SHARES VALUE
- ------------ --------------
<C> <S> <C>
</TABLE>
MEDIA & SERVICES -- (CONTINUED)
<TABLE>
<C> <S> <C>
30,700 Dun & Bradstreet Corporation (The)...... $ 968,968
51,800 Gannett Co., Inc........................ 3,428,512
13,100 Harcourt General, Inc................... 696,756
29,500 IMS Health, Inc......................... 2,225,406
25,150 Interpublic Group of Companies, Inc..... 2,005,712
*13,500 King World Productions, Inc............. 397,406
14,400 Knight-Ridder, Inc...................... 736,200
*18,300 McGraw-Hill Companies, Inc. (The)....... 1,864,312
*112,000 MediaOne Group, Inc..................... 5,264,000
9,700 Meredith Corporation.................... 367,387
*33,600 New York Times Company (The) - Class 1,165,500
A......................................
*31,300 Omnicom Group, Inc...................... 1,815,400
98,900 TCI Communications, Inc................. 5,470,406
225,500 Time Warner, Inc........................ 13,995,093
14,600 Times Mirror Co. - Class A.............. 817,600
*21,800 Tribune Company......................... 1,438,800
*65,700 Viacom, Inc. - Class B.................. 4,861,800
377,000 Walt Disney Company (The)............... 11,310,000
--------------
90,375,920
--------------
REAL ESTATE -- 0.0%
7,900 Pulte Corporation....................... 219,718
--------------
RETAIL -- 7.1%
45,300 Albertson's, Inc........................ 2,885,043
13,100 American Greetings Corporation.......... 537,918
50,200 American Stores Company................. 1,854,262
*28,000 AutoZone, Inc........................... 922,250
18,200 Circuit City Stores, Inc................ 908,862
*20,200 Consolidated Stores, Inc................ 407,787
*39,700 Costco Companies, Inc................... 2,865,843
71,600 CVS Corporation......................... 3,938,000
80,600 Dayton-Hudson Corp...................... 4,372,550
19,700 Dillard's, Inc. - Class A............... 558,987
33,948 Dollar General Corporation.............. 802,021
*37,600 Federated Department Stores, Inc........ 1,637,950
106,475 Gap, Inc. (The)......................... 5,989,218
7,100 Great Atlantic & Pacific Tea Company, 210,337
Inc....................................
24,450 Hasbro, Inc............................. 883,256
287,300 Home Depot, Inc. (The).................. 17,579,168
6,800 Jostens, Inc............................ 178,075
*90,700 KMart Corp.............................. 1,388,843
*29,100 Kohl's Corp............................. 1,787,831
*47,100 Kroger Company (The).................... 2,849,550
41,800 Limited, Inc. (The)..................... 1,217,425
12,200 Liz Claiborne, Inc...................... 385,062
7,100 Longs Drug Store, Inc................... 266,250
64,700 Lowe's Companies, Inc................... 3,311,831
52,900 Mattel, Inc............................. 1,206,781
43,000 May Department Stores Company........... 2,596,125
124,400 McDonald's Corporation.................. 9,532,150
*28,200 Meyer, Fred Inc......................... 1,699,050
52,900 NIKE, Inc. Class B...................... 2,145,756
27,400 Nordstrom, Inc.......................... 950,437
46,600 Penney (J.C.) Company, Inc.............. 2,184,375
11,700 Pep Boys - Manny, Moe & Jack............ 183,543
*10,400 Reebok International Ltd................ 154,700
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THIS FINANCIAL STATEMENT.
MF-21
<PAGE>
HARTFORD INDEX HLS FUND, INC.
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS -- (CONTINUED)
DECEMBER 31, 1998
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
- ------------ --------------
<C> <S> <C>
</TABLE>
COMMON STOCKS -- (CONTINUED)
RETAIL -- (CONTINUED)
<TABLE>
<C> <S> <C>
47,400 Rite Aid Corporation.................... $ 2,349,262
70,400 Sears, Roebuck & Co..................... 2,992,000
*57,600 Staples, Inc............................ 2,516,400
18,600 Tandy Corporation....................... 766,087
59,100 TJX Companies, Inc. (The)............... 1,713,900
*48,200 Toys R Us, Inc.......................... 813,375
414,500 Wal-Mart Stores, Inc.................... 33,755,843
91,400 Walgreen Co............................. 5,352,612
22,900 Wendy's International, Inc.............. 499,506
27,300 Winn-Dixie Stores, Inc.................. 1,225,087
--------------
130,375,308
--------------
SOFTWARE & SERVICES -- 5.4%
12,300 Adobe Systems Incorporated, Inc......... 575,025
8,600 Autodesk, Inc........................... 367,112
55,300 Automatic Data Processing, Inc.......... 4,434,368
*39,700 BMC Software, Inc....................... 1,769,131
*13,500 Ceridan Corporation..................... 942,468
98,850 Computer Associates International, 4,213,481
Inc....................................
*29,100 Computer Sciences Corp.................. 1,875,131
35,400 Compuware Corporation................... 2,765,625
90,500 Electronic Data Systems Corporation..... 4,547,625
81,400 First Data Corporation.................. 2,579,362
*458,800 Microsoft Corporation................... 63,629,825
*64,700 Novell, Inc............................. 1,172,687
*178,550 Oracle Corporation...................... 7,699,968
*49,600 Parametric Technology Corporation....... 812,200
*30,000 Paychex, Inc............................ 1,543,125
*42,700 PeopleSoft, Inc......................... 808,631
--------------
99,735,764
--------------
TRANSPORTATION -- 1.0%
*33,600 AMR Corporation......................... 1,995,000
86,200 Burlington Northern Santa Fe 2,909,250
Corporation............................
40,400 CSX Corporation......................... 1,676,600
26,200 Delta Air Lines, Inc.................... 1,362,400
*27,060 FDX Corporation......................... 2,408,340
60,300 Laidlaw, Inc............................ 606,768
69,700 Norfolk Southern Corporation............ 2,208,618
13,200 Ryder System, Inc....................... 343,200
*61,600 Southwest Airlines Co................... 1,382,150
45,500 Union Pacific Corporation............... 2,050,343
*16,100 US Airways Group, Inc................... 837,200
--------------
17,779,869
--------------
UTILITIES -- 10.7%
*33,100 Aes Corporation (The)................... 1,568,112
50,400 Alltel Corp............................. 3,014,550
25,300 Ameren Corporation...................... 1,079,993
35,000 American Electric Power Co., Inc........ 1,647,187
202,700 Ameritech Corporation................... 12,846,112
332,100 AT&T Corp............................... 24,990,525
27,200 Baltimore Gas & Electric Company........ 839,800
285,262 Bell Atlantic Corporation............... 16,206,447
359,800 BellSouth Corp.......................... 17,945,025
27,800 Carolina Power & Light Company.......... 1,308,337
39,000 Central & South West Corp............... 1,070,062
29,100 CINergy Corp............................ 1,000,312
<CAPTION>
MARKET
SHARES VALUE
- ------------ --------------
<C> <S> <C>
</TABLE>
UTILITIES -- (CONTINUED)
<TABLE>
<C> <S> <C>
*15,400 Columbia Gas System, Inc................ $ 889,350
43,300 Consolidated Edison Company of New York, 2,289,487
Inc....................................
36,100 Dominion Resources, Inc................. 1,687,675
26,800 DTE Energy Company...................... 1,149,050
66,352 Duke Energy Corporation................. 4,250,675
3,800 Eastern Enterprises..................... 166,250
65,000 Edison International.................... 1,811,875
60,900 Enron Corp.............................. 3,475,106
45,400 Entergy Corporation..................... 1,413,075
43,500 FirstEnergy Corp........................ 1,416,468
33,500 FPL Group, Inc.......................... 2,064,437
31,500 Frontier Corporation.................... 1,071,000
23,600 GPU, Inc................................ 1,042,825
*177,400 GTE Corporation......................... 11,963,412
52,392 Houston Industries, Inc................. 1,683,093
*337,399 MCI WorldCom, Inc....................... 24,208,378
21,100 New Century Energies, Inc............... 1,028,625
52,700 Nextel Communications, Inc.............. 1,245,037
*34,500 Niagara Mohawk Power Corporation........ 556,312
8,900 NICOR, Inc.............................. 376,025
27,700 Northern States Power Company........... 768,675
5,900 ONEOK, Inc.............................. 213,137
54,500 PacifiCorp.............................. 1,147,906
40,900 Peco Energy Company..................... 1,702,462
6,600 Peoples Energy Corporation.............. 263,175
70,200 PG&E Corp............................... 2,211,300
27,600 PP&L Resources Inc...................... 769,350
41,900 Public Service Enterprise Group, Inc.... 1,676,000
359,720 SBC Communications, Inc................. 19,289,985
20,300 Sonat, Inc.............................. 549,368
128,100 Southern Company........................ 3,722,906
79,300 Sprint Corporation (FON Group).......... 6,671,112
51,915 Texas Utilities Company................. 2,423,781
92,143 U.S. West, Inc.......................... 5,954,741
40,000 Unicom Corporation...................... 1,542,500
78,700 Williams Companies, Inc................. 2,454,456
--------------
198,665,471
--------------
WASTE MANAGEMENT -- 0.3%
32,000 Browning-Ferris Industries, Inc......... 910,000
105,682 Waste Management, Inc................... 4,927,555
--------------
5,837,555
--------------
Total common stocks..................... $1,840,229,311
--------------
--------------
<CAPTION>
PRINCIPAL
AMOUNT
- ------------
<C> <S> <C>
SHORT-TERM SECURITIES -- 0.8%
U.S. TREASURY BILL -- 0.2%
$ 200,000 3.78% due 01/07/99................... $ 199,874
450,000 3.90% due 01/07/99................... 449,718
300,000 3.99% due 01/21/99................... 299,335
400,000 4.32% due 01/21/99................... 399,040
200,000 4.355% due 01/21/99................... 199,516
500,000 4.41% due 01/21/99................... 498,775
150,000 4.415% due 01/21/99................... 149,632
200,000 4.43% due 01/21/99................... 199,507
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THIS FINANCIAL STATEMENT.
MF-22
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
- ------------ --------------
<C> <S> <C>
</TABLE>
SHORT-TERM SECURITIES -- (CONTINUED)
U.S. TREASURY BILL -- (CONTINUED)
<TABLE>
<C> <S> <C>
$ 1,250,000 4.455% due 01/21/99................... $ 1,246,906
500,000 4.52% due 01/21/99................... 498,744
--------------
4,141,047
--------------
REPURCHASE AGREEMENT -- 0.6%
11,733,000 Interest in $121,902,000 joint $ 11,733,000
repurchase agreement dated 12/31/98 with
State Street Bank 4.750% due 01/04/99;
maturity amount $11,739,192
(Collateralized by $121,902,000 U.S.
Treasury Bonds 8.125% due 05/15/21).....
--------------
Total short-term securities............. $ 15,874,047
--------------
--------------
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
<CAPTION>
MARKET
VALUE
---------------
<S> <C> <C>
DIVERSIFICATION OF NET ASSETS:
Total common stocks (cost
$1,224,734,388)........................ 99.7% $1,840,229,311
Total short-term securities (cost
$15,874,047)........................... 0.8 15,874,047
----- ---------------
Total investment in securities
(total cost $1,240,608,435)............ 100.5 1,856,103,358
Cash, receivables and other assets...... 0.7 12,955,820
Payable for securities purchased........ (1.2) (22,930,827 )
Other liabilities....................... (0.0) (11,131 )
----- ---------------
Net assets (applicable to $3.570452 per
share based on 517,054,136 shares
outstanding)........................... 100.0% $1,846,117,220
----- ---------------
----- ---------------
</TABLE>
<TABLE>
<S> <C>
SUMMARY OF SHAREHOLDERS' EQUITY:
Capital stock, par value $0.10 per share;
authorized 1,000,000,000 shares; outstanding
517,054,136 shares............................... $ 51,705,414
Capital surplus................................... 1,146,503,103
Accumulated undistributed net investment income... 3,697,905
Accumulated undistributed net realized gain on
investments...................................... 28,710,790
Unrealized appreciation of futures contracts**.... 5,085
Unrealized appreciation of investments............ 615,494,923
--------------
Net assets, applicable to share outstanding....... $1,846,117,220
--------------
--------------
</TABLE>
* Non-income producing during period
** The Fund had 29 Standard & Poor's 500 March 1999 Futures contracts open as
of December 31, 1998. These contracts had a value of $9,029,879 as of
December 31, 1998 and were collateralized by various U.S. Treasury
obligations with a market value of $4,150,000.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THIS FINANCIAL STATEMENT.
MF-23
<PAGE>
HARTFORD INTERNATIONAL OPPORTUNITIES HLS FUND, INC.
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
DECEMBER 31, 1998
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
- ------------ --------------
<C> <S> <C>
COMMON STOCKS -- 94.3%
AUSTRALIA -- 4.6%
852,495 AMP Ltd.**.............................. $ 10,810,674
1,814,653 Australia & New Zealand Banking......... 11,887,219
503,808 News Corp. Ltd.......................... 3,331,188
5,664,196 Pasminco Ltd............................ 4,307,996
318,762 Rio Tinto PLC........................... 3,784,209
230,000 Schlumberger Ltd........................ 10,608,750
*833,178 Telstra Corporation Ltd................. 3,899,220
2,103,846 WMC Ltd................................. 6,348,841
--------------
54,978,097
--------------
BRAZIL -- 0.4%
*128,700 Embratel Participacoes S.A.............. 1,793,756
*76,200 Telesp Celular Participacoes S.A........ 1,333,500
72,500,000 Telesp Participacoes S.A................ 1,650,184
--------------
4,777,440
--------------
CANADA -- 0.5%
112,900 Canadian National Railway Company....... 5,856,687
--------------
CHINA -- 1.4%
863,000 Cheung Kong Holdings Ltd................ 6,210,416
*49,700 China Telecom (Hong Kong) Ltd........... 1,727,075
*1,510,100 China Telecom (Hong Kong) Ltd........... 2,612,014
786,000 Sun Hung Kai Properties................. 5,732,394
--------------
16,281,899
--------------
DENMARK -- 1.4%
191,380 Unidanmark AS- A Shares (Reg.).......... 17,290,619
--------------
FINLAND -- 2.1%
451,250 Metsa-Serla Class B Shares.............. 3,698,559
172,340 Nokia AB OYJ Class A Shares............. 21,103,041
--------------
24,801,600
--------------
FRANCE -- 15.0%
55,317 AGF-Assurance Generale de France........ 3,305,547
156,610 Alcatel................................. 19,176,707
118,300 AXA..................................... 17,154,110
291,371 Banque National de Paris................ 24,004,429
73,230 Casino Guichard-Perrachon S.A........... 7,629,752
62,909 Compagnie de Saint-Gobain S.A........... 8,885,630
163,490 Compagnie Financiere de Paribas......... 14,215,356
75,340 Elf Aquitaine........................... 8,712,776
95,470 France Telecom S.A...................... 7,588,367
11,780 Groupe Danone........................... 3,374,144
78,220 Renault S.A............................. 3,514,713
77,868 Rhone-Poulenc - Class A Shares.......... 4,009,095
49,330 Suez Lyonnaise des Eaux................. 10,137,980
164,903 Total S.A. - Class B Shares............. 16,708,729
120,890 Vivendi................................. 31,380,280
--------------
179,797,615
--------------
GERMANY -- 7.2%
14,080 Allianz AG.............................. 5,241,350
242,950 Bayer AG................................ 10,203,600
*89,810 DaimlerChrysler AG...................... 8,924,246
443,360 Hoechst AG.............................. 18,341,066
21,410 Karstadt AG............................. 11,209,390
172,650 Mannesmann AG........................... 19,980,659
<CAPTION>
MARKET
SHARES VALUE
- ------------ --------------
<C> <S> <C>
</TABLE>
GERMANY -- (CONTINUED)
<TABLE>
<C> <S> <C>
193,500 Siemens AG.............................. $ 12,721,664
--------------
86,621,975
--------------
GREECE -- 0.2%
101,500 Panafon S.A.**.......................... 2,718,345
--------------
IRELAND -- 0.0%
2 Smurfit (Jefferson) Group............... 3
--------------
ITALY -- 3.9%
2,068,500 Banca Commerciale Italiana S.p.A........ 14,301,053
2,081,900 ENI S.p.A............................... 13,636,134
2,190,300 Telecom Italia S.p.A.................... 18,729,680
--------------
46,666,867
--------------
JAPAN -- 10.8%
70,700 Advantest Corporation................... 4,487,829
1,619,000 Asahi Bank Ltd.......................... 5,942,253
139,000 Bridgestone Corp........................ 3,160,866
1,103,000 Fuji Bank, Ltd.......................... 4,067,923
142,000 Fuji Machine Manufacturing Co........... 4,494,284
192,000 Fuji Photo Film Co., Ltd................ 7,149,151
159,000 Kao Corporation......................... 3,594,522
54,500 Mabuchi Motor Co., Ltd.................. 4,179,425
182,700 Matsumotokiyoshi........................ 7,078,218
60,000 Matsushita Communication Industrial Co., 2,835,191
Ltd....................................
488,000 NEC Corporation......................... 4,499,426
75,300 Nichiei Co., Ltd........................ 6,008,159
2,120 NTT Mobile Communication Network, 8,739,624
Inc.**.................................
813,000 Olympus Optical Co., Ltd................ 9,362,754
88,000 Rohm Company Ltd........................ 8,027,900
1,968,000 Sakura Bank Ltd......................... 4,518,859
169,100 Sony Corporation........................ 12,338,074
81,000 Takeda Chemical Industries Ltd.......... 3,123,764
46,400 Takefuji Corp........................... 3,393,719
279,000 Tokyo Style Co.......................... 2,829,659
2,145,000 Toshiba Corporation..................... 12,798,123
99,000 Uni-Charm Corp.......................... 4,651,735
76,000 Yamanouchi Pharmaceuticals Co., Ltd..... 2,452,555
--------------
129,734,013
--------------
MEXICO -- 0.3%
64,600 Telefonos de Mexico S.A. ADR............ 3,145,212
--------------
NETHERLANDS -- 7.6%
67,800 Aegon N.V............................... 8,331,084
229,300 Gucci Group N.V......................... 11,149,712
167,857 ING Groep N.V........................... 10,241,356
133,800 Koninklijke Ahold N.V................... 4,947,982
278,300 Philips Electronics N.V................. 18,685,137
114,200 Royal Dutch Petroleum Company........... 5,689,711
*69,000 STMicroelectronics N.V.................. 5,386,312
350,337 TNT Post Group N.V...................... 11,294,159
182,900 Unilever N.V. - CVA..................... 15,642,324
--------------
91,367,777
--------------
SOUTH AFRICA -- 0.0%
27,600 De Beers-Centenary Linked-UT............ 351,943
--------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THIS FINANCIAL STATEMENT.
MF-24
<PAGE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
- ------------ --------------
<C> <S> <C>
</TABLE>
COMMON STOCKS -- (CONTINUED)
<TABLE>
<C> <S> <C>
SPAIN -- 3.3%
121,500 Banco Santander S.A..................... $ 2,418,144
808,700 ENDESA - Empresa Nacional de 21,460,116
Electricidad S.A.......................
69,700 Repsol S.A.............................. 3,723,792
87,589 Telefonica S.A.......................... 11,857,420
--------------
39,459,472
--------------
SWEDEN -- 4.4%
71,120 Hennes & Mauritz AB..................... 5,808,549
1,612,460 Nordbanken Holding AB................... 10,344,517
566,310 Pharmacia & Upjohn...................... 31,719,623
201,160 Telefonaktiebolaget LM Ericsson Class B 4,789,794
Shares.................................
--------------
52,662,483
--------------
SWITZERLAND -- 4.9%
8,170 Holderbank Financiere Glarus AG 9,672,074
(Bearer)...............................
3,129 Nestle S.A.............................. 6,811,672
4,480 Novartis................................ 8,806,813
930 Roche Holdings AG Genusss............... 11,348,383
30,060 Swisscom AG............................. 12,584,438
32,610 UBS AG.................................. 10,019,366
--------------
59,242,746
--------------
TAIWAN -- 0.6%
*428,040 Taiwan Semiconductor ADR................ 6,072,817
--------------
UNITED KINGDOM -- 25.7%
620,200 Allied Domecq PLC....................... 5,639,269
1,198,311 Allied Irish Banks PLC.................. 21,333,115
774,300 Bank of Scotland........................ 9,249,849
2,175,800 Billiton PLC............................ 4,326,013
768,500 BOC Group PLC........................... 11,251,942
1,731,300 British American Tobacco PLC............ 15,367,658
1,266,218 British Petroleum Co., PLC.............. 18,897,392
736,500 British Telecommunications PLC.......... 11,083,636
*474,700 Cable & Wireless PLC.................... 4,339,981
525,300 Cadbury Schweppes PLC................... 8,949,696
1,652,300 Compass Group PLC....................... 18,913,778
812,392 Diageo PLC.............................. 9,130,445
437,200 Glaxo Wellcome PLC...................... 14,991,983
95,079 Granada Group PLC....................... 1,687,121
209,500 Great Universal Stores PLC.............. 2,194,222
210,200 HSBC Holdings PLC....................... 5,725,090
164,700 Imperial Chemical Industries PLC........ 1,422,204
662,400 National Westminster Bank PLC........... 12,762,326
1,527,700 Next PLC................................ 12,403,917
665,600 Orange PLC.............................. 7,724,288
184,800 Powergen PLC............................ 2,435,163
2,132,000 Rentokil Initial PLC.................... 15,944,755
1,102,800 Scottish Power PLC...................... 11,293,427
3,154,400 Siebe PLC............................... 12,385,961
1,982,616 SmithKline Beecham PLC.................. 27,824,326
935,800 Standard Chartered PLC.................. 10,805,465
1,398,400 Vodafone Group PLC...................... 22,661,639
156,900 Zeneca Group PLC........................ 6,852,565
--------------
307,597,226
--------------
Total common stocks..................... $1,129,424,836
--------------
--------------
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
- ------------ --------------
<C> <S> <C>
SHORT-TERM SECURITIES -- 5.6%
U.S. TREASURY BILLS -- 0.3%
$ 2,200,000 3.59% due 01/14/99...................... $ 2,197,147
U.S. TREASURY BILLS
1,000,000 3.800% due 01/14/99..................... 998,627
--------------
3,195,774
--------------
REPURCHASE AGREEMENT -- 5.3%
63,893,000 Interest in $1,162,198,000 joint 63,893,000
repurchase agreement dated 12/31/98 with
State Street Bank 4.773% due 01/04/99;
maturity amount $63,926,885
(Collateralized by $469,031,000 U.S.
Treasury Notes 4.00% - 7.775% due
10/31/99 - 02/15/07, $278,664,000 U.S.
Treasury Bonds 7.875% - 12.75% due
11/15/10 - 02/15/21, $414,503,000 U.S.
Treasury Strips (principal) 0.00% due
02/15/19 - 08/15/21)....................
--------------
Total short-term securities............. $ 67,088,774
--------------
--------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
VALUE
--------------
<S> <C> <C>
DIVERSIFICATION OF NET ASSETS:
Total common stocks (cost
$984,281,196).......................... 94.3% $1,129,424,836
Total short-term securities (cost
$67,088,774)........................... 5.6 67,088,774
----- --------------
Total investment in securities (total
cost $1,051,369,970)................... 99.9 1,196,513,610
Cash, receivables and other assets...... 0.3 3,603,264
Payable for securities purchased........ (0.1) (1,092,350)
Payable for Fund shares redeemed........ (0.0) (493,224)
Other liabilities....................... (0.1) (1,174,718)
----- --------------
Net assets.............................. 100.0% $1,197,356,582
----- --------------
----- --------------
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
SUMMARY OF SHAREHOLDERS' EQUITY:
Capital stock, par value $0.10 per share;
authorized 1,500,000,000 shares; outstanding
883,944,044 shares............................... $ 88,394,404
Capital surplus................................... 993,280,846
Accumulated undistributed net investment income... 958,685
Distribution in excess of net realized gain on
investments...................................... (29,362,842)
Unrealized appreciation of investments............ 145,143,640
Unrealized depreciation of forward foreign
currencies contracts (Note 2)***................. (1,092,350)
Unrealized appreciation of other assets and
liabilities in foreign currencies................ 34,199
--------------
Net assets........................................ $1,197,356,582
--------------
--------------
</TABLE>
<TABLE>
<S> <C>
Class IA
Net asset value per share ($1,196,693,803
DIVIDED BY 883,262,316 shares outstanding)...... $1.35
-----
-----
Class IB
Net asset value per share ($662,779 DIVIDED BY
681,728 shares outstanding)...................... $0.97
-----
-----
</TABLE>
* Non-income producing during period
**Security exempt from registration under Rule 144A of the Securities Act of
1933. These securities may be resold in transactions exempt from registration,
normally to qualified institutional buyers. At December 31, 1998, the market
value of these securities amounted to $22,268,643 or 1.86% of net assets.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THIS FINANCIAL STATEMENT.
MF-25
<PAGE>
HARTFORD INTERNATIONAL OPPORTUNITIES HLS FUND, INC.
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS -- (CONTINUED)
DECEMBER 31, 1998
***FORWARD FOREIGN CURRENCY CONTRACTS OUTSTANDING AT DECEMBER 31, 1998
<TABLE>
<CAPTION>
TOTAL AGGREGATE DELIVERY UNREALIZED
DESCRIPTION MARKET VALUE FACE VALUE DATE (DEPRECIATION)
- ------------------------------ ------------- ------------ --------- ---------------
<S> <C> <C> <C> <C>
Japanese Yen (Sell) $ 5,641,332 $ 5,567,240 01/13/99 $ (74,092)
Japanese Yen (Sell) 16,278,927 15,318,960 01/13/99 (959,967)
Japanese Yen (Sell) 10,312,031 10,253,740 01/13/99 (58,291)
---------------
$(1,092,350)
---------------
---------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THIS FINANCIAL STATEMENT.
MF-26
<PAGE>
HARTFORD DIVIDEND AND GROWTH HLS FUND, INC.
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
DECEMBER 31, 1998
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
- ------------ --------------
<C> <S> <C>
COMMON STOCKS -- 96.5%
AEROSPACE & DEFENSE -- 2.7%
264,600 Northrop Grumman Corporation............ $ 19,348,875
582,600 United Technologies Corporation......... 63,357,750
--------------
82,706,625
--------------
COMPUTERS & OFFICE
EQUIPMENT -- 1.2%
*304,200 Xerox Corporation....................... 35,895,600
--------------
CONSUMER DURABLES -- 3.6%
533,100 Cooper Tire & Rubber Company............ 10,895,231
622,200 Ford Motor Company...................... 36,515,362
395,600 General Motors Corporation.............. 28,310,125
156,900 Genuine Parts Company................... 5,246,343
*229,400 Newell Co............................... 9,462,750
318,400 TRW, Inc................................ 17,890,120
--------------
108,319,931
--------------
CONSUMER NON-DURABLES -- 3.2%
199,200 Clorox Company (The).................... 23,269,050
400,000 Colgate-Palmolive Company............... 37,150,000
693,600 Kimberly-Clark Corporation.............. 37,801,200
--------------
98,220,250
--------------
CONSUMER SERVICES -- 1.9%
814,400 Eastman Kodak Company................... 58,636,800
--------------
ELECTRONICS -- 5.2%
*1,270,360 General Electric Company................ 129,656,117
134,800 Johnson Controls, Inc................... 7,953,200
476,500 Thomas & Betts Corporation.............. 20,638,406
--------------
158,247,723
--------------
ENERGY & SERVICES -- 9.1%
544,400 Amoco Corporation....................... 32,868,150
*521,800 Chevron Corporation..................... 43,276,787
285,900 Eni Ads................................. 19,369,725
563,700 Mobil Corporation....................... 49,112,362
1,124,900 Royal Dutch Petroleum................... 53,854,587
772,306 Sunoco, Inc............................. 27,851,285
1,156,200 USX Corporation......................... 34,830,525
448,400 Wisconsin Energy Corporation............ 14,096,575
--------------
275,259,996
--------------
FINANCIAL SERVICES -- 18.1%
369,300 CIGNA Corporation....................... 28,551,506
2,308,000 Citigroup, Inc.......................... 114,246,000
501,700 Edwards (A.G.) & Sons, Inc.............. 18,688,325
364,700 EXEL Limited............................ 27,352,500
1,176,200 Federal National Mortgage Association... 87,038,800
768,850 Marsh & McLennan Companies, Inc......... 44,929,671
565,700 National City Corporation............... 41,013,250
1,375,700 Pacific Century Financial Corporation... 33,532,687
766,300 Pinnacle West Capital Corporation....... 32,471,962
327,800 Republic New York Corporation........... 14,935,387
*2,602,000 U.S. Bancorp............................ 92,371,000
188,200 Wachovia Corporation.................... 16,455,737
--------------
551,586,825
--------------
FOOD, BEVERAGE & TOBACCO -- 8.5%
477,900 Anheuser-Busch Companies, Inc........... 31,362,187
<CAPTION>
MARKET
SHARES VALUE
- ------------ --------------
<C> <S> <C>
</TABLE>
FOOD, BEVERAGE & TOBACCO -- (CONTINUED)
<TABLE>
<C> <S> <C>
1,258,975 Flowers Industries, Inc................. $ 30,136,714
547,200 Heinz (H.J.) Company.................... 30,985,200
1,140,800 McCormick & Co., Inc.................... 38,573,300
*979,400 Nabisco Holdings Corporation............ 40,645,100
1,625,700 Philip Morris Co., Inc.................. 86,974,950
--------------
258,677,451
--------------
HEALTH CARE -- 12.5%
1,017,800 Abbott Laboratories..................... 49,872,200
830,700 American Home Products Corporation...... 46,778,793
382,200 Baxter International, Inc............... 24,580,237
342,700 Bristol-Myers Squibb Company............ 45,857,543
*246,900 Merck & Co., Inc........................ 36,464,043
1,674,800 Pharmacia & Upjohn, Inc................. 94,835,550
1,081,800 Warner-Lambert Company.................. 81,337,837
--------------
379,726,203
--------------
INDUSTRIAL MATERIALS -- 3.8%
622,700 Abitibi-Consolidated, Inc............... 5,798,893
215,500 Aluminum Company of America............. 16,068,218
304,500 BOC Group PLC-Sponsored ADR............. 8,297,625
167,900 Bowater, Inc............................ 6,957,356
*508,300 du Pont E.I. de Nemours & Company....... 26,971,668
123,000 Imperial Chemical ADR................... 4,297,312
171,900 Morton International, Inc............... 4,211,550
315,300 Temple-Inland, Inc...................... 18,701,231
291,700 Weyerhaeuser Company.................... 14,822,006
96,200 Willamette Industries, Inc.............. 3,222,700
202,100 Witco Corporation....................... 3,220,968
--------------
112,569,527
--------------
MANUFACTURING -- 0.9%
159,300 Dana Corporation........................ 6,511,387
*306,800 Minnesota Mining and Manufacturng 21,821,150
Company.................................
--------------
28,332,537
--------------
MEDIA & SERVICES -- 1.3%
608,800 Gannett Co., Inc........................ 40,294,950
31,066 Nielson Media Research Inc.............. 559,188
--------------
40,854,138
--------------
REAL ESTATE -- 2.3%
496,800 Archstone Communities Trust............. 10,060,200
89,300 Boston Properties, Inc.................. 2,723,650
331,200 Kimco Realty Corp. (REIT)............... 13,144,500
414,000 Liberty Property Trust (SBI)............ 10,194,750
545,600 Spieker Properties, Inc. (REIT)......... 18,891,400
605,548 Starwood Hotels & Resorts............... 13,738,370
--------------
68,752,870
--------------
RETAIL -- 2.4%
1,219,000 May Department Stores Company........... 73,597,125
--------------
UTILITIES -- 19.8%
577,700 Ameritech Corporation................... 36,611,737
*204,900 AT&T Corp............................... 15,418,725
1,181,246 Bell Atlantic Corporation............... 67,109,538
1,599,400 BellSouth Corp.......................... 79,770,075
*222,600 Columbia Gas System, Inc................ 12,855,150
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THIS FINANCIAL STATEMENT.
MF-27
<PAGE>
HARTFORD DIVIDEND AND GROWTH HLS FUND, INC.
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS -- (CONTINUED)
DECEMBER 31, 1998
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
- ------------ --------------
<C> <S> <C>
</TABLE>
COMMON STOCKS -- (CONTINUED)
UTILITIES -- (CONTINUED)
<TABLE>
<C> <S> <C>
696,700 DQE, Inc................................ $ 30,611,256
*263,800 Duke Energy Corporation................. 16,899,687
694,100 El Paso Energy Corporation.............. 24,163,356
1,107,500 Endesa S.A.............................. 29,902,500
445,300 Enron Corp.............................. 25,409,931
728,600 GPU, Inc................................ 32,195,012
*328,781 MCI WorldCom, Inc....................... 23,590,036
205,200 Montana Power Company................... 11,606,625
664,800 Nipsco Industries, Inc.................. 20,234,850
864,200 Peco Energy Company..................... 35,972,325
333,200 Powergen PLC Sponsored ADR.............. 17,826,200
1,091,600 SBC Communications, Inc................. 58,537,050
420,200 Sprint Corporation (FON Group).......... 35,349,325
324,000 Texas Utilities Company................. 15,126,750
317,900 UtiliCorp United, Inc................... 11,662,956
--------------
600,853,084
--------------
Total common stocks..................... $2,932,236,685
--------------
--------------
<CAPTION>
PRINCIPAL
AMOUNT
- ------------
<C> <S> <C>
CONVERTIBLE CORPORATE BONDS -- 0.9%
MEDIA & SERVICES -- 0.9%
CBS Radio, Inc.**
$ 16,830,000 7.00% due 06/30/11.................... $ 26,912,836
--------------
--------------
<CAPTION>
SHARES
- ------------
<C> <S> <C>
CONVERTIBLE PREFERRED STOCKS -- 0.8%
SOFTWARE & SERVICES -- 0.1%
49,500 Microsoft Corporation................... $ 4,838,625
--------------
UTILITIES -- 0.7%
350,000 Qwest Trends Trust**.................... 16,275,000
65,400 Texas Utilities Co...................... 3,686,925
--------------
19,961,925
--------------
Total convertible preferred stocks...... $ 24,800,550
--------------
--------------
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
- ------------ --------------
<C> <S> <C>
SHORT-TERM SECURITIES -- 2.9%
REPURCHASE AGREEMENT
$ 88,513,000 Interest in $1,162,198,000 joint $ 88,513,000
repurchase agreement dated 12/31/98 with
State Street Bank 4.773% due 01/04/99;
maturity amount $88,559,941
(Collateralized by $469,031,000 U.S.
Treasury Notes 4.00% - 7.775% due
10/31/99 - 02/15/07, $278,664,000 U.S.
Treasury Bonds 7.876% - 12.75% due
11/15/10 - 02/15/21, $414,603,000 U.S.
Treasury Strips (principal) 0.00% due
02/15/19 - 08/15/21)....................
--------------
--------------
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
DIVERSIFICATION OF NET ASSETS:
Total common stocks (cost
$2,352,803,505)........................ 96.5% $2,932,236,685
Total convertible corporate bonds (cost
$17,066,825)........................... 0.9 26,912,836
Total convertible preferred stocks (cost
$22,058,536)........................... 0.8 24,800,550
Total short-term securities (cost
$88,513,000)........................... 2.9 88,513,000
----- ---------------
Total investment in securities
(total cost $2,480,441,866)............ 101.1 3,072,463,071
Cash, receivables and other assets...... 0.4 13,306,760
Payable for securities purchased........ (1.5) (44,767,218 )
Payable for Fund shares redeemed........ (0.0) (172,927 )
Other liabilities....................... (0.0) (935,889 )
----- ---------------
Net assets.............................. 100.0% $3,039,893,797
----- ---------------
----- ---------------
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
SUMMARY OF SHAREHOLDERS' EQUITY:
Capital stock, par value $0.001 per share;
authorized 3,000,000,000 shares; outstanding
1,411,611,945 shares............................. $ 141,161,195
Capital surplus................................... 2,192,005,280
Accumulated undistributed net investment income... 2,405,420
Accumulated undistributed net realized gain on
investments...................................... 112,538,201
Unrealized appreciation of investments............ 592,021,205
Unrealized depreciation of option contracts
written (See Note 2)***.......................... (237,504)
--------------
Net assets........................................ $3,039,893,797
--------------
--------------
</TABLE>
<TABLE>
<S> <C>
Class IA
Net asset value per share ($3,031,293,305
DIVIDED BY 1,403,061,074 shares outstanding).... $2.16
-----
-----
Class IB
Net asset value per share ($8,600,492 DIVIDED BY
8,550,871 shares outstanding).................... $1.01
-----
-----
</TABLE>
* Non-income producing during period
** Security exempt from registration under Rule 144A of the Securities Act of
1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers. At December 31,
1998, the market value of these securities amounted to $43,187,836 or 1.4%
of net assets.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THIS FINANCIAL STATEMENT.
MF-28
<PAGE>
***OPTION CONTRACTS WRITTEN -- NOTE 2 -- OUTSTANDING AT DECEMBER 31, 1998
<TABLE>
<CAPTION>
NUMBER OF EXERCISE EXPIRATION MARKET
DESCRIPTION CONTRACTS PRICE DATE VALUE
- ------------------------------ -------------- --------- -------------- -----------
<S> <C> <C> <C> <C>
AT&T Corp. 205 $ 69 January 1999 $ (14,137)
Chevron Corp. 521 94 January 1999 (10,211)
Columbia Gas System Co. (The) 223 61 January 1999 (6,467)
du Pont (E.I.) de Nemours 508 60 January 1999 (22,225)
Duke Energy Corp. 534 67 January 1999 (19,224)
General Electric Corp. 635 110 January 1999 (63,500)
Merck & Co., Inc. 246 162 January 1999 (16,964)
Minnesota Mining &
Manufacturing 306 85 January 1999 (7,650)
Nabisco Holdings Corp. 574 43 January 1999 (84,952)
Newell Co. 2,294 40 January 1999 (516,150)
U.S. Bancorp 1,300 41 January 1999 (24,375)
Xerox 304 120 January 1999 (136,253)
-----------
Total option contracts written
(cost ($684,604)) $ (922,108)
-----------
-----------
</TABLE>
The securities underlying these option contracts are included in the Fund's
Statement of Net Assets.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THIS FINANCIAL STATEMENT.
MF-29
<PAGE>
HARTFORD INTERNATIONAL ADVISERS HLS FUND, INC.
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
DECEMBER 31, 1998
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
- -------------- ------------
<C> <S> <C>
COMMON STOCKS -- 52.9%
AUSTRALIA -- 2.6%
*114,212 AMP Ltd.***............................. $ 1,448,423
242,737 Australia & New Zealand Banking......... 1,590,093
67,392 News Corp. Ltd.......................... 445,597
747,683 Pasminco Ltd............................ 568,662
42,202 Rio Tinto PLC........................... 501,004
30,800 Schlumberger Ltd........................ 1,420,650
*109,981 Telstra Corporation Ltd................. 514,704
277,711 WMC Ltd................................. 838,057
------------
7,327,190
------------
BRAZIL -- 0.2%
*17,200 Embratel Participacoes S.A.............. 239,725
*10,200 Telesp Celular Participacoes S.A........ 178,500
9,400,000 Telesp Participacoes S.A................ 213,955
------------
632,180
------------
CANADA -- 0.3%
14,700 Canadian National Railway Company....... 762,562
------------
CHINA -- 1.1%
128,000 Cheung Kong Holdings Ltd................ 921,127
*6,900 China Telecom (Hong Kong) Ltd........... 239,775
*200,100 China Telecom (Hong Kong) Ltd........... 346,112
32,800 HSBC Holdings PLC....................... 817,139
103,500 Sun Hung Kai Properties................. 754,838
------------
3,078,991
------------
DENMARK -- 0.8%
25,510 Unidanmark AS A Shares (Reg.)........... 2,304,753
------------
FINLAND -- 1.1%
54,280 Metsa-Serla Class B Shares.............. 444,892
22,770 Nokia AB OYJ Class A Shares............. 2,788,187
------------
3,233,079
------------
FRANCE -- 8.3%
5,823 AGF-Assurance Generale de France........ 347,961
20,700 Alcatel................................. 2,534,690
15,540 AXA..................................... 2,253,380
39,040 Banque National de Paris................ 3,216,287
9,530 Casino Guichard-Perrachon S.A........... 992,920
8,287 Compagnie de Saint-Gobain S.A........... 1,170,503
21,900 Compagnie Financiere de Paribas......... 1,904,191
10,090 Elf Aquitaine........................... 1,166,869
12,790 France Telecom S.A...................... 1,016,604
1,550 Groupe Danone........................... 443,966
10,430 Renault S.A............................. 468,658
10,261 Rhone-Poulenc Class A Shares............ 528,295
6,610 Suez Lyonnaise des Eaux................. 1,358,444
21,689 Total S.A. Class B Shares............... 2,197,629
16,200 Vivendi................................. 4,205,149
------------
23,805,546
------------
GERMANY -- 4.0%
1,860 Allianz AG.............................. 692,394
31,800 Bayer AG................................ 1,335,560
*12,030 DaimlerChrysler AG...................... 1,195,397
58,030 Hoechst AG.............................. 2,400,604
2,835 Karstadt AG............................. 1,484,288
23,530 Mannesmann AG........................... 2,723,109
<CAPTION>
MARKET
SHARES VALUE
- -------------- ------------
<C> <S> <C>
</TABLE>
GERMANY -- (CONTINUED)
<TABLE>
<C> <S> <C>
*25,810 Siemens AG.............................. $ 1,696,879
------------
11,528,231
------------
GREECE -- 0.1%
*13,500 Panafon S.A.***......................... 361,553
------------
IRELAND -- 0.0%
3 Smurfit (Jefferson) Group............... 5
------------
ITALY -- 2.2%
274,200 Banca Commerciale Italiana S.p.A........ 1,895,745
270,900 ENI S.p.A............................... 1,774,354
290,244 Telecom Italia S.p.A.................... 2,481,936
------------
6,152,035
------------
JAPAN -- 6.3%
10,900 Advantest Corporation................... 691,900
216,000 Asahi Bank Ltd.......................... 792,789
18,000 Bridgestone Corp........................ 409,320
147,000 Fuji Bank, Ltd.......................... 542,143
19,000 Fuji Machine Manufacturing Co........... 601,347
26,000 Fuji Photo Film Co., Ltd................ 968,114
21,000 Kao Corporation......................... 474,748
7,400 Mabuchi Motor Co., Ltd.................. 567,481
37,600 Matsumotokiyoshi........................ 1,456,710
8,000 Matsushita Communication Industrial Co., 378,025
Ltd....................................
65,000 NEC Corporation......................... 599,308
8,800 Nichiei Co., Ltd........................ 702,148
290 NTT Mobile Communication Network, 1,195,514
Inc.***.................................
107,000 Olympus Optical Co., Ltd................ 1,232,244
12,000 Rohm Company Ltd........................ 1,094,713
262,000 Sakura Bank Ltd......................... 601,596
23,400 Sony Corporation........................ 1,707,338
11,000 Takeda Chemical Industries Ltd.......... 424,214
6,200 Takefuji Corp........................... 453,471
37,000 Tokyo Style Co.......................... 375,259
287,000 Toshiba Corporation..................... 1,712,383
12,400 Uni-Charm Corp.......................... 582,641
10,000 Yamanouchi Pharmaceuticals Co., Ltd..... 322,704
------------
17,886,110
------------
MEXICO -- 0.1%
8,600 Telefonos de Mexico S.A. ADR............ 418,712
------------
NETHERLANDS -- 4.2%
8,900 Aegon N.V............................... 1,093,608
30,300 Gucci Group N.V......................... 1,473,337
22,491 ING Groep N.V........................... 1,372,229
17,700 Koninklijke Ahold N.V................... 654,553
36,900 Philips Electronics N.V................. 2,477,476
14,900 Royal Dutch Petroleum Company ADR....... 742,352
*9,200 STMicroelectronics N.V.................. 718,175
43,747 TNT Post Group N.V...................... 1,410,315
24,000 Unilever N.V.-CVA....................... 2,052,574
------------
11,994,619
------------
SOUTH AFRICA -- 0.0%
3,500 De Beers-Centenary Linked-UT............ 44,622
------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THIS FINANCIAL STATEMENT.
MF-30
<PAGE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
- -------------- ------------
<C> <S> <C>
</TABLE>
COMMON STOCKS -- (CONTINUED)
<TABLE>
<C> <S> <C>
SPAIN -- 2.0%
16,300 Banco Santander S.A..................... $ 324,409
107,100 ENDESA - Empresa Nacional de 2,842,065
Electricidad S.A.......................
9,200 Repsol S.A.............................. 491,519
10,000 Telef De Espana......................... 8,892
10,000 Telefonica S.A.......................... 445,334
*11,452 Telefonica S.A.......................... 1,550,252
------------
5,662,471
------------
SWEDEN -- 2.4%
9,420 Hennes & Mauritz AB..................... 769,355
212,620 Nordbanken Holding AB................... 1,364,034
75,480 Pharmacia & Upjohn...................... 4,227,714
26,930 Telefonakietebolaget LM Ericsson Class B 641,226
Shares.................................
------------
7,002,329
------------
SWITZERLAND -- 2.7%
1,090 Holderbank Financiere Glarus AG 1,290,399
(Bearer)...............................
415 Nestle S.A.............................. 903,433
600 Novartis................................ 1,179,483
120 Roche Holdings AG Genusss............... 1,464,307
3,650 Swisscom AG............................. 1,528,050
4,310 UBS AG.................................. 1,324,240
------------
7,689,912
------------
TAIWAN -- 0.3%
*58,145 Taiwan Semiconductor ADR................ 824,932
------------
UNITED KINGDOM -- 14.2%
83,100 Allied Domecq PLC....................... 755,600
155,972 Allied Irish Banks PLC.................. 2,776,715
103,355 Bank of Scotland........................ 1,234,687
286,600 Billiton PLC............................ 569,829
102,500 BOC Group PLC........................... 1,500,747
212,300 British American Tobacco PLC............ 1,884,453
169,625 British Petroleum Co., PLC.............. 2,531,531
90,900 British Telecommunications PLC.......... 1,367,960
*63,300 Cable & Wireless PLC.................... 578,725
70,400 Cadbury Schweppes PLC................... 1,199,426
217,300 Compass Group PLC....................... 2,487,420
107,194 Diageo PLC.............................. 1,204,749
54,600 Glaxo Wellcome PLC...................... 1,872,283
12,700 Granada Group PLC....................... 225,354
27,833 Great Universal Stores PLC.............. 291,512
27,800 HSBC Holdings PLC....................... 757,171
22,100 Imperial Chemical Industries PLC........ 190,836
88,700 National Westminster Bank PLC........... 1,708,964
201,200 Next PLC................................ 1,633,611
89,200 Orange PLC.............................. 1,035,166
24,000 Powergen PLC............................ 316,254
285,600 Rentokil Initial PLC.................... 2,135,939
147,700 Scottish Power PLC...................... 1,512,549
422,600 Siebe PLC............................... 1,659,367
265,606 SmithKline Beecham PLC.................. 3,727,553
123,100 Standard Chartered PLC.................. 1,421,407
187,300 Vodafone Group PLC...................... 3,035,272
<CAPTION>
MARKET
SHARES VALUE
- -------------- ------------
<C> <S> <C>
</TABLE>
UNITED KINGDOM -- (CONTINUED)
<TABLE>
<C> <S> <C>
21,600 Zeneca Group PLC........................ $ 943,374
------------
40,558,454
------------
Total common stocks..................... $151,268,286
------------
------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
- --------------
<C> <S> <C>
CORPORATE BONDS -- 0.9%
COMPUTERS & EQUIPMENT -- 0.6%
$ 1,500,000 Xerox $ 1,577,469
9.75% due 03/15/00....................
--------------
FINANCIAL SERVICES -- 0.3%
925,000 Ford Motor Credit 948,345
7.5% due 04/03/00....................
--------------
Total corporate bonds................... $ 2,525,814
--------------
--------------
ENHANCED EQUIPMENT TRUST CERTIFICATES -- 0.2%
620,000 Daimler-Benz Vehicle Trust Series 1998-A $ 618,934
Class A4
5.23% due 12/20/01....................
--------------
--------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
(IN LOCAL CURRENCY)
- --------------------
<C> <S> <C>
FOREIGN CORPORATE BONDS -- 1.8%
GERMANY -- 0.8%
1,500,000 Deutsche Hypobank Frankfurt $ 929,616
4.5% due 08/23/02....................
2,000,000 Kredit Fuer Wiederaufbau 1,281,878
5.00% due 01/04/09....................
-----------------
2,211,494
-----------------
JAPAN -- 0.3%
108,000,000 Nippon Telephone and Telegraph 976,026
2.50% due 07/25/07....................
-----------------
UNITED KINGDOM -- 0.7%
700,000 Caisse D'amort Dette 1,259,288
7.625% due 09/08/06...................
450,000 Hyder PLC 867,562
8.75% due 07/17/06...................
-----------------
2,126,850
-----------------
Total foreign corporate bonds........... $ 5,314,370
-----------------
-----------------
FOREIGN GOVERNMENT BONDS -- 24.6%
CANADA -- 4.6%
4,400,000 Canada Government $ 3,178,174
8.50% due 04/01/02...................
1,600,000 Canada Government 1,141,824
7.25% due 06/01/03...................
12,480,000 Canada Government 8,564,073
7.50% due 03/01/01...................
1,660,000 Province de Quebec 336,174
6.875% due 04/22/04...................
-----------------
13,220,245
-----------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THIS FINANCIAL STATEMENT.
MF-31
<PAGE>
HARTFORD INTERNATIONAL ADVISERS HLS FUND, INC.
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS -- (CONTINUED)
DECEMBER 31, 1998
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT MARKET
(IN LOCAL CURRENCY) VALUE
- -------------------- -----------------
<C> <S> <C>
</TABLE>
FOREIGN GOVERNMENT BONDS -- (CONTINUED)
<TABLE>
<C> <S> <C>
DENMARK -- 4.5%
3,000,000 Denmark Kingdom $ 543,449
7.00% due 12/15/04....................
9,000,000 Denmark Kingdom 1,810,083
7.00% due 11/10/24....................
62,000,000 Denmark Kingdom 10,608,786
9.00% due 11/15/00....................
-----------------
12,962,318
-----------------
FRANCE -- 0.8%
10,000,000 France O.A.T. 2,129,427
6.00% due 10/25/25....................
-----------------
GERMANY -- 6.2%
700,000 Deutschland Republic 527,251
6.50% due 07/04/27...................
9,350,000 Deutschland Republic 6,818,015
6.25% due 01/04/24...................
2,200,000 Deutschland Republic 1,509,530
6.00% due 01/04/07...................
1,200,000 Deutschland Republic 820,570
6.875% due 06/11/03...................
11,300,000 Deutschland Republic 7,996,385
6.875% due 05/12/05...................
-----------------
17,671,751
-----------------
ITALY -- 3.5%
4,600,000,000 Italy BTPS 3,184,501
6.00% due 11/01/07....................
1,100,000,000 Italy BTPS 833,559
6.50% due 11/01/27....................
8,500,000,000 Italy BTPS 5,580,260
6.25% due 03/01/02....................
-----------------
9,598,320
-----------------
JAPAN -- 1.7%
290,000,000 Japan Government #164 2,907,800
4.10% due 12/22/03....................
230,000,000 Japan Government #39 1,985,236
2.60% due 03/20/18....................
-----------------
4,893,036
-----------------
SLOVENIA -- 0.3%
1,500,000 Republic of Slovenia 979,420
5.75% due 06/16/04...................
-----------------
SWEDEN -- 0.4%
7,000,000 Sweden Kingdom 1,206,866
9.00% due 04/20/09....................
-----------------
UNITED KINGDOM -- 2.6%
1,100,000 European Investment Bank 2,154,798
7.625% due 12/07/06..................
575,692 FFRESH MB 1-A2*** 1,424,331
11.126% due 10/05/58..................
381,000 Iceland Republic 709,184
8.75% due 05/12/03..................
590,000 Japan Fin Muni 1,150,974
8.375% due 12/07/06..................
<CAPTION>
PRINCIPAL
AMOUNT MARKET
(IN LOCAL CURRENCY) VALUE
- -------------------- -----------------
<C> <S> <C>
</TABLE>
UNITED KINGDOM -- (CONTINUED)
<TABLE>
<C> <S> <C>
850,000 United Kingdom Treasury Gilt $ 1,710,369
7.75% due 09/08/06..................
200,000 United Kingdom Treasury Gilt 373,190
6.75% due 11/26/04..................
-----------------
7,522,846
-----------------
Total foreign government bonds.......... $ 70,184,229
-----------------
-----------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
- --------------
<C> <S> <C>
U.S. TREASURIES & FEDERAL AGENCIES -- 1.2%
U.S. TREASURY NOTE -- 0.5%
$ 1,300,000 5.875% due 07/31/99..................... $ 1,308,937
--------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION --
0.2%
1,020,000 FNMA-Global Medium Term Note 659,645
6.375% due 08/15/07...................
--------------
FEDERAL HOME LOAN MORTGAGE ASSOCIATION
-- 0.5%
1,420,000 5.125% due 10/15/08..................... 1,392,559
--------------
Total U.S. treasuries & federal $ 3,361,141
agencies................................
--------------
--------------
SHORT-TERM SECURITIES -- 19.8%
CERTIFICATES OF DEPOSIT -- 2.2%
1,500,000 Canadian Imperial Bank of Commerce $ 1,499,805
5.55% due 02/10/99....................
1,700,000 Canadian Imperial Bank (NY) 1,699,761
5.74% due 03/31/99....................
1,500,000 Credit Agricole (USA) 1,499,905
5.70% due 03/02/99....................
1,500,000 Deutsche Bank (NY) 1,499,812
5.70% due 04/06/99....................
--------------
6,199,283
--------------
COMMERCIAL PAPER -- 3.8%
2,000,000 Corporate Asset Funding Co. 1,985,408
5.36% due 02/19/99....................
1,000,000 Ford Motor Credit Europe 984,630
5.03% due 04/21/99....................
2,000,000 National Rural Utilities 1,976,386
5.02% due 03/26/99....................
2,000,000 Peacock Funding Group 1,990,177
5.20% due 02/04/99....................
2,000,000 Rose Funding 1,982,920
5.49% due 02/26/99....................
2,000,000 Variable Funding Capital 1,984,423
5.29% due 02/23/99....................
--------------
10,903,944
--------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THIS FINANCIAL STATEMENT.
MF-32
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
- -------------- --------------
<C> <S> <C>
</TABLE>
SHORT-TERM SECURITIES -- (CONTINUED)
<TABLE>
<C> <S> <C>
REPURCHASE AGREEMENT -- 13.8%
$ 39,347,000 Interest in $1,162,198,000 joint $ 39,347,000
repurchase agreement dated 12/31/98 with
State Street Bank 4.773% due 01/04/99;
maturity amount $39,367,867
(Collateralized by $468,031,000 U.S.
Treasury Notes 4.00% - 7.775% due
10/31/99 - 02/16/07, $278,664,000 U.S.
Treasury Bonds 7.875% - 12.75% due
11/16/10 - 02/16/21, $414,603,000 U.S.
Treasury Strips (principal) 0.00% due
02/15/19 - 08/15/21)....................
--------------
Total short-term securities............. $ 56,450,227
--------------
--------------
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
DIVERSIFICATION OF NET ASSETS:
Total common stocks (cost
$134,347,542).......................... 52.9% $151,268,286
Total corporate bonds (cost
$2,520,114)............................ 0.9 2,525,814
Total enhanced equipment trust
certificates (cost $619,943)........... 0.2 618,934
Total foreign corporate bonds (cost
$4,998,485)............................ 1.8 5,314,370
Total foreign government bonds (cost
$66,016,648)........................... 24.6 70,184,229
Total U.S. treasuries & federal agencies
(cost $3,307,214)...................... 1.2 3,361,141
Total short-term securities (cost
$56,450,227)........................... 19.8 56,450,227
----- ------------
Total investment in securities
(total cost $268,260,173).............. 101.4 289,723,001
Cash, receivables and other assets...... 1.3 3,809,109
Payable for securities purchased........ (2.4) (6,810,385)
Payable for Fund Shares redeemed........ (0.0) (4,291)
Other liabilities....................... (0.3) (864,905)
----- ------------
Net assets (applicable to $1.154689 per
share based on 247,558,004 shares
outstanding)........................... 100.0% $285,852,529
----- ------------
----- ------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
VALUE
------------
<S> <C>
SUMMARY OF SHAREHOLDERS' EQUITY:
Capital stock, par value 0.10 per share;
authorized 750,000,000 shares; outstanding
247,558,004 shares............................... $ 24,755,800
Capital surplus................................... 241,092,418
Accumulated undistributed net investment income... 763,703
Distribution in excess of net realized gain on
investments...................................... (1,405,044)
Unrealized appreciation of futures contracts**.... 218,919
Unrealized appreciation of investments............ 21,462,828
Unrealized depreciation of forward foreign
currenies contracts (Note 2)****................. (807,877)
Unrealized depreciation of other assets and
liabilities in foreign currencies................ (228,218)
------------
Net assets, applicable to shares outstanding...... $285,852,529
------------
------------
</TABLE>
* Non-income producing during period
** The fund had 36 March NEW FTSE 100 Index future contracts, 2 March TSE 35
Index futures contracts, 93 March MATIF CAC 40 Index futures contracts, 19
March ASX ALL ORDS Index futures contracts, 3 January IBEX 35 PLUS Index
futures contracts, 6 March TSE 10 year JGB Index futures contracts, 19
March TSE TOPIX Index futures contracts, 108 January OMX Index futures
contracts, 7 March MIB 30 Index futures contracts, 5 DTB DAX Index futures
contracts open as of December 31, 1998. These contracts had a market value
of $20,651,362 as of December 31, 1998 and are collateralized by various
U.S. Treasury obligations having a market value of $1,308,937.
*** Security exempt from registration under Rule 144A of the Securities Act of
1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers. At December 31,
1998, the market value of these securities amounted to $4,429,821 or 1.55%
of net assets.
****FORWARD FOREIGN CURRENCY CONTRACTS OUTSTANDING AT DECEMBER 31, 1998
<TABLE>
<CAPTION>
UNREALIZED
TOTAL AGGREGATE DELIVERY APPRECIATION
DESCRIPTION MARKET VALUE FACE VALUE DATE (DEPRECIATION)
- ------------------------------ ------------- ------------ --------- ---------------
<S> <C> <C> <C> <C>
Australian Dollars (Buy) $ 805,406 $ 820,860 01/29/99 $ (15,454)
Australian Dollars (Buy) 333,762 340,564 03/31/99 (6,802)
Australian Dollars (Buy) 459,825 462,506 03/31/99 (2,681)
Australian Dollars (Sell) 1,445,695 1,525,537 01/29/99 79,842
Canadian Dollars (Buy) 111,406 111,182 03/18/99 224
Canadian Dollars (Buy) 1,782,996 1,779,870 01/29/99 3,126
Canadian Dollars (Buy) 111,588 111,393 03/18/99 195
Canadian Dollars (Sell) 11,555,975 11,494,216 01/29/99 (61,759)
Canadian Dollars (Sell) 3,167,892 3,152,104 01/29/99 (15,788)
Danish Kroner (Buy) 1,915,460 1,917,135 02/08/99 (1,675)
Danish Kroner (Buy) 965,050 970,910 02/08/99 (5,860)
Danish Kroner (Sell) 4,020,853 4,061,765 01/29/99 40,912
Danish Kroner (Sell) 4,991,250 4,998,330 01/29/99 7,080
Danish Kroner (Sell) 178,313 178,552 01/29/99 239
Danish Kroner (Sell) 2,444,130 2,437,991 01/29/99 (6,139)
Danish Kroner (Sell) 1,375,039 1,384,189 01/29/99 9,150
French Francs (Buy) 1,290,217 1,300,458 03/31/99 (10,241)
French Francs (Buy) 1,859,347 1,855,984 03/31/99 3,363
French Francs (Sell) 2,326,746 2,359,021 01/29/99 32,275
German Deutschemarks (Buy) 923,317 960,699 01/13/99 (37,382)
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THIS FINANCIAL STATEMENT.
MF-33
<PAGE>
HARTFORD INTERNATIONAL ADVISERS HLS FUND, INC.
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS -- (CONTINUED)
DECEMBER 31, 1998
<TABLE>
<CAPTION>
UNREALIZED
TOTAL AGGREGATE DELIVERY APPRECIATION
DESCRIPTION MARKET VALUE FACE VALUE DATE (DEPRECIATION)
- ------------------------------ ------------- ------------ --------- ---------------
<S> <C> <C> <C> <C>
German Deutschemarks (Buy) $ 989,268 $ 1,001,274 01/13/99 $ (12,006)
German Deutschemarks (Buy) 960,489 952,268 01/13/99 8,221
German Deutschemarks (Buy) 784,184 775,207 01/29/99 8,977
German Deutschemarks (Buy) 993,875 973,243 02/18/99 20,632
German Deutschemarks (Buy) 2,339,813 2,294,118 01/28/99 45,695
German Deutschemarks (Buy) 820,184 819,938 01/29/99 246
German Deutschemarks (Buy) 3,068,796 3,067,194 02/10/99 1,602
German Deutschemarks (Buy) 720,374 730,371 02/10/99 (9,997)
German Deutschemarks (Buy) 831,058 842,150 03/18/99 (11,092)
German Deutschemarks (Buy) 555,542 559,818 03/18/99 (4,276)
German Deutschemarks (Buy) 1,982,360 1,980,530 01/29/99 1,830
German Deutschemarks (Buy) 239,995 239,363 01/29/99 632
German Deutschemarks (Sell) 2,237,284 2,302,611 01/22/99 65,327
German Deutschemarks (Sell) 16,820,664 16,946,028 01/29/99 125,364
German Deutschemarks (Sell) 1,522,770 1,535,985 01/29/99 13,215
German Deutschemarks (Sell) 2,061,559 2,048,897 01/29/99 (12,662)
German Deutschemarks (Sell) 1,419,572 1,402,881 01/29/99 (16,691)
German Deutschemarks (Sell) 758,985 743,069 01/29/99 (15,916)
German Deutschemarks (Sell) 1,892,362 1,856,386 01/29/99 (35,976)
German Deutschemarks (Sell) 1,920,768 1,918,925 02/08/99 (1,843)
German Deutschemarks (Sell) 966,387 972,164 02/08/99 5,777
German Deutschemarks (Sell) 900,468 897,129 02/10/99 (3,339)
Italian Lira (Sell) 625,605 584,511 01/19/99 (41,094)
Italian Lira (Sell) 2,083,333 1,937,679 01/07/99 (145,654)
Italian Lira (Sell) 6,606,797 6,136,778 01/07/99 (470,019)
Italian Lira (Buy) 777,744 784,359 03/19/99 (6,615)
Italian Lira (Buy) 584,764 589,835 03/19/99 (5,071)
Italian Lira (Sell) 191,703 191,616 01/07/99 (87)
Italian Lira (Sell) 133,769 135,682 01/29/99 1,913
Japanese Yen (Buy) 18,871 17,860 01/29/99 1,011
Japanese Yen (Buy) 1,116,211 1,058,120 03/11/99 58,091
Japanese Yen (Buy) 719,860 708,847 03/11/99 11,013
Japanese Yen (Sell) 1,004,407 969,048 01/13/99 (35,359)
Japanese Yen (Sell) 743,912 734,142 01/13/99 (9,770)
Japanese Yen (Sell) 2,124,934 1,999,627 01/13/99 (125,307)
Japanese Yen (Sell) 1,358,470 1,350,791 01/13/99 (7,679)
Japanese Yen (Sell) 1,052,738 1,018,036 01/29/99 (34,702)
Japanese Yen (Sell) 1,009,166 1,009,433 01/13/99 267
Japanese Yen (Sell) 1,032,224 963,637 02/18/99 (68,587)
Japanese Yen (Sell) 1,004,883 957,176 01/13/99 (47,707)
Spanish Pesetas (Buy) 194,839 196,513 01/15/99 (1,674)
Swedish Krona (Buy) 2,207,274 2,299,308 01/22/99 (92,034)
Swedish Krona (Buy) 1,548,756 1,604,450 01/29/99 (55,694)
Swedish Krona (Buy) 1,923,186 1,999,383 01/29/99 (76,197)
Swedish Krona (Buy) 269,068 271,934 01/22/99 (2,866)
Swedish Krona (Buy) 611,287 619,600 01/22/99 (8,313)
Swedish Krona (Sell) 4,666,050 4,866,267 10/29/99 200,217
Swiss Francs (Buy) 900,058 899,186 02/10/99 872
Swiss Francs (Sell) 3,050,117 3,077,036 02/10/99 26,919
Swiss Francs (Sell) 705,728 732,373 02/10/99 26,645
British Pounds (Buy) 2,003,117 2,002,864 01/29/99 253
British Pounds (Buy) 923,623 921,278 01/29/99 2,345
British Pounds (Buy) 371,439 372,512 01/29/99 (1,073)
British Pounds (Buy) 1,926,478 1,964,983 03/19/99 (38,505)
British Pounds (Buy) 1,386,985 1,408,341 03/19/99 (21,356)
British Pounds (Sell) 12,660,432 12,630,581 01/29/99 (29,851)
British Pounds (Sell) 2,285,088 2,282,988 01/28/99 (2,100)
British Pounds (Sell) 182,403 185,949 01/29/99 3,546
---------------
$ (807,877)
---------------
---------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THIS FINANCIAL STATEMENT.
MF-34
<PAGE>
HARTFORD SMALL COMPANY HLS FUND, INC.
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
DECEMBER 31, 1998
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
- ----------- ------------
<C> <S> <C>
COMMON STOCKS -- 93.3%
AEROSPACE & DEFENSE -- 1.0%
80,000 Primex Technologies, Inc................ $ 3,400,000
------------
BUSINESS SERVICES -- 3.4%
*106,300 Iron Mountain, Inc...................... 3,833,443
*182,500 Pierce Leahy Corp....................... 4,653,750
*102,900 Young & Rubicam, Inc.................... 3,331,387
------------
11,818,580
------------
COMMUNICATIONS EQUIPMENT -- 7.1%
*186,500 ADC Telecommunications, Inc............. 6,480,875
*591,600 Advanced Fibre Communications, Inc...... 6,470,625
*128,000 Com21, Inc.............................. 2,688,000
*170,000 Crown Castle International Corp......... 3,995,000
*38,200 E-Tek Dynamics, Inc..................... 1,021,850
73,100 VeriSign, Inc........................... 4,322,049
------------
24,978,399
------------
COMPUTERS & OFFICE EQUIPMENT -- 2.7%
*180,000 Data General Corporation................ 2,958,750
100,950 Symbol Technologies, Inc................ 6,454,490
------------
9,413,240
------------
CONSUMER NON-DURABLES -- 2.3%
*340,500 Ivex Packaging Corp..................... 7,916,625
------------
CONSUMER SERVICES -- 0.4%
*48,800 Cheesecake Factory Incorporated (The)... 1,447,225
------------
ELECTRONICS -- 13.2%
*360,000 Analog Devices, Inc..................... 11,295,000
*173,700 Cognex Corporation...................... 3,474,000
*238,800 Conexant Systems, Inc................... 3,999,900
172,900 General Cable Corporation............... 3,544,450
93,000 Kuhlman Corporation..................... 3,522,375
*75,000 Maxim Integrated Products, Inc.......... 3,276,562
*117,000 Quanta Services, Inc.................... 2,581,312
*171,400 SCI Systems, Inc........................ 9,898,350
*110,000 Teradyne, Inc........................... 4,661,250
------------
46,253,199
------------
ENERGY & SERVICES -- 1.3%
*78,000 J Ray Mcdermott S.A..................... 1,906,125
*210,000 Marine Drilling Companies, Inc.......... 1,614,375
93,000 Pogo Producing Company.................. 1,209,000
------------
4,729,500
------------
FINANCIAL SERVICES -- 7.7%
*94,200 Annuity And Life Re (Holdings), Ltd..... 2,543,400
126,700 Capital Re Corporation.................. 2,541,918
153,900 Heller Financial, Inc................... 4,520,812
33,000 Jefferies Group, Inc.................... 1,637,625
*77,100 Metzler Group, Inc. (The)............... 3,753,806
69,000 NAC Re Corp............................. 3,238,687
74,350 Reinsurance Group of America, Inc....... 5,204,500
*275,100 Scottish Annuity & Life Holdings, 3,782,625
Ltd.....................................
------------
27,223,373
------------
<CAPTION>
MARKET
SHARES VALUE
- ----------- ------------
<C> <S> <C>
</TABLE>
<TABLE>
<C> <S> <C>
FOOD, BEVERAGE & TOBACCO -- 2.7%
*211,300 Smithfield Foods, Inc................... $ 7,157,787
*101,400 United Natural Foods, Inc............... 2,446,275
------------
9,604,062
------------
HEALTH CARE -- 9.0%
*118,000 Agouron Pharmaceuticals, Inc............ 6,932,500
83,000 Allergan, Inc........................... 5,374,250
*142,000 Genzyme Corporation..................... 7,064,500
*220,000 Haemonetics Corporation................. 5,005,000
*97,500 IDX Systems Corporation................. 4,290,000
*77,800 Trigon Healthcare, Inc.................. 2,902,912
------------
31,569,162
------------
MANUFACTURING -- 0.7%
*82,900 Covance, Inc............................ 2,414,462
------------
MEDIA AND SERVICES -- 11.0%
*199,300 American Tower Corporation.............. 5,891,806
*202,200 Capstar Broadcasting Corporation........ 4,625,325
*675,000 Rogers Communications, Inc.............. 5,990,625
199,000 Stewart Enterprises, Inc................ 4,427,750
*148,600 U.S. Satellite Broadcasting............. 2,043,250
*105,600 United Video Satellite Group, Inc....... 2,494,800
*218,500 Univision Communications, Inc........... 7,906,968
*105,000 Valasis Communications, Inc............. 5,420,625
------------
38,801,149
------------
RETAIL -- 6.5%
*108,900 Abercrombie & Fitch Co.................. 7,704,675
*141,000 Borders Group, Inc...................... 3,516,187
220,000 CompUSA, Inc............................ 2,873,750
35,900 Ethan Allen Interiors, Inc.............. 1,471,900
*14,700 Gadzooks, Inc........................... 113,925
*170,000 Stage Stores, Inc....................... 1,593,750
*117,000 Whole Foods Market, Inc................. 5,659,875
------------
22,934,062
------------
SOFTWARE & SERVICES -- 18.2%
*180,000 Aspen Technology, Inc................... 2,610,000
*104,000 Bisys Group, Inc. (The)................. 5,369,000
*77,200 Brio Technolgy, Inc..................... 1,365,475
*220,600 Cognos Corporation...................... 5,515,000
*11,000 Cyberian Outpost, Inc................... 302,500
*605,400 Learning Company, Inc. (The)............ 15,702,562
*30,000 Lycos, Inc.............................. 1,666,875
111,200 National Computer Systems, Inc.......... 4,114,400
*208,000 Peerless Systems Corporation............ 1,768,000
*122,400 Policy Management Systems Corporation... 6,181,200
*265,500 Rational Software Corporation........... 7,035,750
*130,000 Safeguard Scientifics Corporation....... 3,566,875
*245,000 Sequent Computer Systems, Inc........... 2,955,312
*118,000 Sterling Software, Inc.................. 3,193,375
*42,000 VERITAS Software Corporation............ 2,517,375
------------
63,863,699
------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THIS FINANCIAL STATEMENT.
MF-35
<PAGE>
HARTFORD SMALL COMPANY HLS FUND, INC.
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS -- (CONTINUED)
DECEMBER 31, 1998
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
- ----------- ------------
<C> <S> <C>
</TABLE>
COMMON STOCKS -- (CONTINUED)
<TABLE>
<C> <S> <C>
TRANSPORTATION -- 4.9%
*139,000 Atlas Air, Inc.......................... $ 6,802,312
110,000 C.H. Robinson Worldwide, Inc............ 2,853,125
*153,100 Mesaba Holdings, Inc.................... 3,157,687
*159,800 Swift Transportation Co., Inc........... 4,479,393
------------
17,292,517
------------
UTILITIES -- 1.2%
*151,700 Access Worldwide Communication, Inc..... 1,270,487
*164,500 Intermedia Communications, Inc.......... 2,837,625
------------
4,108,112
------------
Total common stocks..................... $327,767,366
------------
------------
PREFERRED STOCKS -- 0.0%
CONSUMER SERVICES -- 0.0%
*58,060 SGW Holdings Corporation**.............. $ 145,150
------------
------------
<CAPTION>
PRINCIPAL
AMOUNT
- -----------
<C> <S> <C>
SHORT-TERM SECURITIES -- 5.5%
REPURCHASE AGREEMENT
$19,147,000 Interest in $1,162,198,000 joint $ 19,147,000
repurchase agreement dated 12/31/98 with
State Street Bank 4.773% due 01/04/99;
maturity amount $19,157,154
(Collateralized by $469,031,000 U.S.
Treasury Notes 4.00% - 7.775% due
10/31/99 - 02/15/07, $278,664,000 U.S.
Treasury Bonds 7.875% - 12.75% due
11/15/10 - 02/15/21, $414,503,000 U.S.
Treasury Strips (principal) 0.00% due
02/15/19 - 08/15/21)....................
------------
------------
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
<CAPTION>
MARKET
VALUE
------------
<S> <C> <C>
DIVERSIFICATION OF NET ASSETS:
Total common stocks (cost
$267,631,939).......................... 93.3% $327,767,366
Total preferred stocks (cost
$599,992).............................. 0.0 145,150
Total short-term securities (cost
$19,147,000)........................... 5.5 19,147,000
----- ------------
Total investment in securities
(total cost $287,378,931).............. 98.8 347,059,516
Cash, receivables and other assets...... 3.4 12,063,100
Payable for securities purchased........ (2.2) (7,691,145)
Payable for Fund shares redeemed........ (0.0) (23)
Other liabilities....................... (0.0) (1,536)
----- ------------
Net assets.............................. 100.0% $351,429,912
----- ------------
----- ------------
</TABLE>
<TABLE>
<S> <C>
SUMMARY OF SHAREHOLDERS' EQUITY:
Capital stock, par value $0.10 per share;
750,000,000 shares authorized; 266,188,457 shares
outstanding...................................... $ 26,618,846
Capital surplus................................... 289,787,210
Distribution in excess of net realized gain on
investments...................................... (24,656,886)
Unrealized appreciation of investments............ 59,680,585
Unrealized appreciation of other assets and
liabilities in foreign currencies................ 157
------------
Net assets........................................ $351,429,912
------------
------------
</TABLE>
<TABLE>
<S> <C>
Class IA
Net asset value per share ($350,733,943
DIVIDED BY 265,483,291
shares outstanding).............................. $1.32
-----
-----
Class IB
Net asset value per share ($695,969 DIVIDED BY
705,166
shares outstanding).............................. $0.99
-----
-----
</TABLE>
* Non-income producing during period
** Restricted Security (see Note 2)
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THIS FINANCIAL STATEMENT.
MF-36
<PAGE>
HARTFORD MIDCAP HLS FUND, INC.
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
DECEMBER 31, 1998
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
- ---------- ------------
<C> <S> <C>
COMMON STOCKS -- 98.0%
AEROSPACE & DEFENSE -- 0.8%
*64,455 Loral Space & Communications Ltd........ $ 1,148,123
------------
BUSINESS SERVICES -- 8.0%
*57,100 Ingram Micro, Inc....................... 1,991,362
*97,850 Iron Mountain, Inc...................... 3,528,715
*77,200 Pierce Leahy Corp....................... 1,968,600
*20,000 Robert Half International Inc........... 890,000
64,800 Viad Corp............................... 1,968,300
*33,900 Young & Rubicam, Inc.................... 1,097,512
------------
11,444,489
------------
COMMUNICATIONS EQUIPMENT -- 1.3%
*37,300 ADC Telecommunications, Inc............. 1,296,175
*13,300 Network Appliance, Inc.................. 598,500
------------
1,894,675
------------
COMPUTERS & OFFICE EQUIPMENT -- 3.5%
43,200 Affiliated Computer Services, Inc....... 1,944,000
*46,700 NCR Corporation......................... 1,949,725
*33,300 Unisys Corporation...................... 1,146,768
------------
5,040,493
------------
CONSUMER DURABLES -- 1.3%
40,230 Hertz Corporation (The)................. 1,835,493
------------
CONSUMER NON-DURABLES -- 2.1%
18,100 Black & Decker Corporation (The)........ 1,014,731
74,500 Miller (Herman) Inc..................... 2,002,187
------------
3,016,918
------------
CONSUMER SERVICES -- 3.6%
*30,400 DeVry, Inc.............................. 931,000
35,600 Galileo International, Inc.............. 1,548,600
64,400 Sodexho Marriott Services, Inc.......... 1,783,075
17,200 Starbucks Corporation................... 965,350
------------
5,228,025
------------
ELECTRONICS -- 6.8%
*63,160 Analog Devices, Inc..................... 1,981,645
38,600 Linear Technology Corporation........... 3,457,112
*58,700 Maxim Integrated Products, Inc.......... 2,564,456
*29,100 Sanmina Corporation..................... 1,818,750
------------
9,821,963
------------
FINANCIAL SERVICES -- 15.5%
61,300 Ace Ltd................................. 2,111,018
42,800 City National Corporation............... 1,781,550
59,905 Equifax, Inc............................ 2,048,002
57,100 Franklin Resources, Inc................. 1,827,200
64,500 Heller Financial, Inc................... 1,894,687
40,096 Legg Mason, Inc......................... 1,265,530
33,530 Old Kent Financial Corporation.......... 1,559,145
*64,000 Sabre Group Holdings.................... 2,848,000
41,705 State Street Corporation................ 2,901,104
62,530 T. Rowe Price Associates, Inc........... 2,141,652
31,400 Unum Corporation........................ 1,832,975
------------
22,210,863
------------
<CAPTION>
MARKET
SHARES VALUE
- ---------- ------------
<C> <S> <C>
</TABLE>
<TABLE>
<C> <S> <C>
FOOD, BEVERAGE & TOBACCO -- 1.6%
*61,400 Keebler Foods Company................... $ 2,310,175
------------
HEALTH CARE -- 12.2%
44,135 Biomet, Inc............................. 1,776,433
*19,700 Forest Laboratories, Inc................ 1,047,793
*9,700 Genentech, Inc.......................... 772,968
*68,800 Health Management Associates, Inc....... 1,487,800
*32,500 Human Genome Sciences, Inc.............. 1,155,781
*25,100 Immunex Corporation..................... 3,157,893
14,975 Perkin-Elmer Corporation (The).......... 1,460,998
106,750 ServiceMaster Company (The)............. 2,355,171
43,000 Stryker Corporation..................... 2,367,687
*38,200 Sunrise Assisted Living, Inc............ 1,981,625
------------
17,564,149
------------
INDUSTRIAL MATERIALS -- 3.7%
138,400 Abitibi-Consolidated, Inc............... 1,288,850
19,000 Phelps Dodge Corporation................ 966,625
60,400 Sealed Air Corporation.................. 3,084,175
------------
5,339,650
------------
MANUFACTURING -- 3.0%
*85,310 Covance, Inc............................ 2,484,653
32,620 Danaher Corporation..................... 1,771,673
------------
4,256,326
------------
MEDIA & SERVICES -- 11.9%
*124,600 American Tower Corporation.............. 3,683,487
*38,900 Lamar Advertising Company............... 1,449,025
*53,712 Outdoor Systems, Inc.................... 1,611,360
20,500 Scripps E.W. Co......................... 1,019,875
82,730 Stewart Enterprises, Inc................ 1,840,742
*70,300 Tele-Communications, Inc................ 3,238,193
*115,900 Univision Communications, Inc........... 4,194,131
------------
17,036,813
------------
RETAIL -- 9.7%
*5,000 Amazon.com, Inc......................... 1,606,250
25,110 CVS Corporation......................... 1,381,050
150,800 Dollar General Corporation.............. 3,562,650
38,100 Gucci Group............................. 1,852,612
*44,600 Papa John's International, Inc.......... 1,967,975
*36,550 Staples, Inc............................ 1,596,778
*40,300 Whole Foods Market, Inc................. 1,949,512
------------
13,916,827
------------
SOFTWARE & SERVICES -- 9.8%
*46,700 Bisys Group, Inc. (The)................. 2,410,887
*96,900 CBT Group Public Ltd. Company........... 1,441,387
*30,755 Ceridan Corporation..................... 2,147,083
*3,100 eBay, Inc............................... 747,875
75,900 First Data Corporation.................. 2,405,081
*45,800 Policy Management Systems Corporation... 2,312,900
*97,300 Rational Software Corporation........... 2,578,450
------------
14,043,663
------------
TRANSPORTATION -- 1.4%
88,218 Southwest Airlines Co................... 1,979,391
------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THIS FINANCIAL STATEMENT.
MF-37
<PAGE>
HARTFORD MIDCAP HLS FUND, INC.
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS -- (CONTINUED)
DECEMBER 31, 1998
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
- ---------- ------------
<C> <S> <C>
</TABLE>
COMMON STOCKS -- (CONTINUED)
<TABLE>
<C> <S> <C>
UTILITIES -- 1.8%
*53,700 Intermedia Communications, Inc.......... $ 926,325
*53,300 McLeodUSA Incorporated.................. 1,665,625
------------
2,591,950
------------
Total common stocks..................... $140,679,986
------------
------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
- -----------
<C> <S> <C>
SHORT-TERM SECURITIES -- 1.2%
REPURCHASE AGREEMENT
Interest in $1,162,198,000 joint
repurchase agreement dated 12/31/98 with
State Street Bank 4.773% due 01/04/99;
maturity amount $1,667,884
(Collateralized by $469,031,000 U.S.
Treasury Notes 4.00% - 7.775% due
10/31/99 - 02/15/07, $278,664,000 U.S.
Treasury Bonds 7.875% - 12.75% due
11/15/10 - 02/15/21, $414,603,000 U.S.
Treasury Strips (principal) 0.00% due
02/15/19 - 08/15/21).................... $ 1,667,000
$ 1,667,000
------------
------------
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
SUMMARY OF SHAREHOLDERS' EQUITY:
Capital stock, par value $0.10 per share;
authorized 750,000,000 shares; outstanding
99,699,854 shares................................ $ 9,969,985
Capital surplus................................... 111,118,741
Accumulated undistributed net realized gain on
investments...................................... 3,329,966
Unrealized appreciation of investments............ 19,074,951
------------
Net assets, applicable to shares outstanding...... $143,493,643
------------
------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
VALUE
------------
<S> <C>
STATEMENT OF ASSETS AND LIABILITIES
ASSETS
Investment in securities, at value (total cost
$123,272,035) - see accompanying portfolio....... $142,346,986
Receivable for investment securities sold......... 16,319,887
Receivable for Fund shares sold................... 362,861
Receivable dividend and interest.................. 52,873
Cash and other assets............................. 436
------------
Total assets...................................... $159,083,043
------------
------------
LIABILITIES
Investment securities purchased................... $ 15,588,467
Dividend payable.................................. 84
Other accrued expenses............................ 849
------------
Total liabilities................................. 15,589,400
------------
Net assets (applicable to $1.439256 per share
based on 99,699,854 shares outstanding).......... $143,493,643
------------
------------
</TABLE>
* Non-income producing during period
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THIS FINANCIAL STATEMENT.
MF-38
<PAGE>
HARTFORD GROWTH AND INCOME HLS FUND
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
DECEMBER 31, 1998
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
- ---------- -----------
<C> <S> <C>
COMMON STOCKS -- 97.3%
AEROSPACE & DEFENSE -- 3.3%
4,200 AlliedSignal, Inc....................... $ 186,112
2,800 Lockheed Martin Corporation............. 237,300
3,800 United Technologies Corporation......... 413,250
-----------
836,662
-----------
BUSINESS SERVICES -- 1.1%
2,100 Fluor Corporation....................... 89,381
5,700 Snyder Communications, Inc.............. 192,375
-----------
281,756
-----------
COMMUNICATIONS EQUIPMENT -- 3.0%
*4,600 Cisco Systems, Inc...................... 426,937
2,700 Lucent Technologies, Inc................ 297,000
*1,050 Sprint Corporation (PCS Group).......... 24,281
-----------
748,218
-----------
COMPUTERS & OFFICE EQUIPMENT -- 6.7%
8,100 Compaq Computer Corporation............. 339,693
*1,700 Dell Computer Corporation............... 124,418
*2,300 EMC Corporation......................... 195,500
*1,400 Gateway 2000, Inc....................... 71,662
2,700 Hewlett-Packard Company................. 184,443
3,200 International Business Machines Corp.... 591,231
2,200 Sun Microsystems, Inc................... 188,375
-----------
1,695,322
-----------
CONSUMER DURABLES -- 2.0%
5,300 Ford Motor Company...................... 311,043
2,900 General Motors Corporation.............. 207,531
-----------
518,574
-----------
CONSUMER NON-DURABLES -- 2.1%
1,800 Leggett & Platt, Inc.................... 39,600
5,300 Proctor & Gamble Co..................... 483,956
-----------
523,556
-----------
CONSUMER SERVICES -- 1.7%
7,900 Darden Restaurants, Inc................. 142,200
3,900 Eastman Kodak Company................... 280,800
-----------
423,000
-----------
ELECTRONICS -- 6.3%
*4,100 Analog Devices, Inc..................... 128,637
4,300 General Electric Company................ 438,868
5,400 Intel Corporation....................... 640,237
1,800 Texas Instruments, Inc.................. 154,012
5,500 York International Corp................. 224,468
-----------
1,586,222
-----------
ENERGY & SERVICES -- 4.4%
*1,800 Conoco, Inc............................. 37,575
900 Exxon Corporation....................... 65,812
*3,100 Friede Goldman International, Inc....... 35,262
7,500 Noble Affiliates, Inc................... 184,687
5,300 Royal Dutch Petroleum................... 253,737
2,600 Sunoco, Inc............................. 93,762
21,200 Union Pacific Resources Group, Inc...... 192,125
<CAPTION>
MARKET
SHARES VALUE
- ---------- -----------
<C> <S> <C>
</TABLE>
ENERGY & SERVICES -- (CONTINUED)
<TABLE>
<C> <S> <C>
8,200 USX Corporation......................... $ 247,025
-----------
1,109,985
-----------
FINANCIAL SERVICES -- 15.8%
600 American Express Company................ 61,350
2,700 American International Group, Inc....... 260,887
5,000 Associates First Capital Corporation.... 211,875
3,900 CIGNA Corporation....................... 301,518
11,500 Citigroup, Inc.......................... 569,250
2,700 City National Corporation............... 112,387
4,600 Cullen/Frost Bankers, Inc............... 252,425
3,300 Edwards (A.G.) & Sons, Inc.............. 122,925
4,200 Federal Home Loan Mortgage Corporation.. 270,637
7,600 Federal National Mortgage Association... 562,400
3,400 FINOVA Group, Inc....................... 183,387
3,200 Marsh & McLennan Cos., Inc.............. 187,000
3,700 Mercantile Bankshares Corporation....... 142,450
2,600 NAC Re Corp............................. 122,037
4,600 National City Corporation............... 333,500
9,100 Pacific Century Financial Corporation... 221,812
1,100 Reinsurance Group of America, Inc....... 77,000
-----------
3,992,840
-----------
FOOD, BEVERAGE & TOBACCO -- 6.4%
7,800 Anheuser-Busch Companies, Inc........... 511,875
1,100 Coca-Cola Company, (The)................ 73,562
1,900 Heinz (H.J.) Company.................... 107,587
6,300 Interstate Bakeries Corp................ 166,556
9,300 Philip Morris Co.,Inc................... 497,550
3,100 Unilever United States, Inc............. 257,106
-----------
1,614,236
-----------
HEALTH CARE -- 12.3%
12,000 Abbott Laboratories..................... 588,000
8,700 American Home Products Corporation...... 489,918
*2,200 Amgen, Inc.............................. 230,037
1,100 Baxter International, Inc............... 70,743
5,000 Bergen Brunswig Corporation............. 174,375
*5,900 Boston Scientific Corporation........... 158,193
1,000 Bristol-Myers Squibb Company............ 133,812
7,500 Columbia/HCA Healthcare Corporation..... 185,625
*6,300 Genzyme Corporation..................... 313,425
*399 Genzyme Molecular Oncology.............. 1,296
4,800 HBO & Company........................... 137,700
600 Merck & Co., Inc........................ 88,612
1,900 Pharmacia & Upjohn, Inc................. 107,587
5,900 Warner-Lambert Company.................. 443,606
-----------
3,122,929
-----------
INDUSTRIAL MATERIALS -- 3.2%
5,100 Air Products & Chemicals, Inc........... 204,000
2,300 Aluminum Company of America............. 171,493
7,800 Engelhard Corporation................... 152,100
1,700 Georgia-Pacific Corporation............. 99,556
2,500 Minerals Technologies, Inc.............. 102,343
*1,700 Sealed Air Corporation.................. 86,806
-----------
816,298
-----------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THIS FINANCIAL STATEMENT.
MF-39
<PAGE>
HARTFORD GROWTH AND INCOME HLS FUND
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS -- (CONTINUED)
DECEMBER 31, 1998
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
- ---------- -----------
<C> <S> <C>
</TABLE>
COMMON STOCKS -- (CONTINUED)
<TABLE>
<C> <S> <C>
MEDIA & SERVICES -- 2.4%
*3,500 AirTouch Communications, Inc............ $ 252,437
*800 America Online, Inc..................... 115,800
3,800 Gannett Co., Inc........................ 251,512
-----------
619,749
-----------
REAL ESTATE -- 0.5%
5,400 Starwood Hotels & Resorts............... 122,512
-----------
RETAIL -- 7.1%
4,300 Dayton-Hudson Corp...................... 233,275
5,500 Dollar General Corporation.............. 129,937
5,750 Gap, Inc. (The)......................... 323,437
1,600 Home Depot, Inc. (The).................. 97,900
2,800 May Department Stores Company........... 169,050
2,500 McDonald's Corporation.................. 191,562
8,100 Wal-Mart Stores, Inc.................... 659,643
-----------
1,804,804
-----------
SOFTWARE & SERVICES -- 6.0%
*2,700 Bisys Group, Inc. (The)................. 139,387
*1,700 BMC Software, Inc....................... 75,756
6,000 First Data Corporation.................. 190,125
*7,300 Microsoft Corporation................... 1,012,418
*4,100 Sterling Software, Inc.................. 110,956
-----------
1,528,642
-----------
UTILITIES -- 13.0%
2,700 ALLTEL Corp............................. 161,493
4,600 Ameritech Corporation................... 291,525
4,900 AT&T Corp............................... 368,725
6,000 Bell Atlantic Corporation............... 340,875
12,000 BellSouth Corp.......................... 598,500
8,000 Central & South West Corp............... 219,500
5,600 DQE, Inc................................ 246,050
3,500 El Paso Energy Corporation.............. 121,843
6,000 GPU, Inc................................ 265,125
9,400 SBC Communications, Inc................. 504,075
2,200 Sprint Corporation (FON Group).......... 185,075
-----------
3,302,786
-----------
Total common stocks..................... $24,648,091
-----------
-----------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
- -----------
<C> <S> <C>
SHORT-TERM SECURITIES -- 3.8%
REPURCHASE AGREEMENT
Interest in $1,162,198,000 joint
repurchase agreement dated 12/31/98 with
State Street Bank 4.773% due 01/04/99;
maturity amount $954,506 (Collateralized
by $469,031,000 U.S. Treasury Notes
4.00% - 7.775% due 10/31/99 - 02/15/07,
$278,664,000 U.S. Treasury Bonds 7.875%
-12.75% due 11/15/10 - 02/15/21,
$414,603,000 U.S. Treasury Strips
(principal) 0.00% due 02/15/19 -
08/15/21)............................... $ 954,000
$ 954,000
-----------
-----------
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
<CAPTION>
MARKET
VALUE
-----------
<S> <C> <C>
DIVERSIFICATION OF NET ASSETS:
Total common stocks (cost
$21,360,397)........................... 97.3% $24,648,091
Total short-term securities (cost
$954,000).............................. 3.8 954,000
------ -----------
Total investment in securities (total
cost $22,314,397)...................... 101.1 25,602,091
Cash, receivables and other assets...... 1.0 243,302
Payable for securities purchased........ (2.0) (507,047)
Payable for dividends................... (0.1) (13,463)
Other liabilities....................... (0.0) (1,758)
------ -----------
Net assets.............................. 100.0% $25,323,125
------ -----------
------ -----------
</TABLE>
<TABLE>
<S> <C>
SUMMARY OF SHAREHOLDERS' EQUITY:
Capital stock, par value $0.001 per share;
authorized 1,000,000,000 shares; outstanding
21,353,159 shares................................ $ 21,353
Capital surplus................................... 22,081,669
Accumulated undistributed net investment income... 278
Distribution in excess of net realized gain on
investments...................................... (81,434)
Unrealized appreciation of futures contracts...... 13,565
Unrealized appreciation of investments............ 3,287,694
-----------
Net assets........................................ $25,323,125
-----------
-----------
</TABLE>
<TABLE>
<S> <C>
Class IA
Net asset value per share ($25,312,182
DIVIDED BY 21,343,159
shares outstanding).............................. $1.19
-----
-----
Class IB
Net asset value per share ($10,943 DIVIDED BY
10,000
shares outstanding).............................. $1.09
-----
-----
</TABLE>
* Non-income producing during period
** The Fund had 1 Standard & Poor's 500 March 1999 futures contract open as of
December 31, 1998. This contract had a value of $311,375 as of December 31,
1998 and was collateralized by $13,500 of cash.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THIS FINANCIAL STATEMENT.
MF-40
<PAGE>
HARTFORD HIGH YIELD HLS FUND
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
DECEMBER 31, 1998
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
- ---------- ------------
<C> <S> <C>
COLLATERALIZED MORTGAGE OBLIGATIONS -- 1.0%
DLJ Commercial Mortgage Corp., Series
1998-CF1 Class B2
$150,000 7.33% due 01/15/10.................... $ 141,621
------------
------------
<CAPTION>
SHARES
- ----------
<C> <S> <C>
CONVERTIBLE PREFERRED STOCK -- 1.4%
UTILITIES -- 1.4%
8,000 Coastal Finance Corp.................... $ 197,000
------------
------------
<CAPTION>
PRINCIPAL
AMOUNT
- ----------
<C> <S> <C>
CORPORATE NOTES -- 89.2%
COMMUNICATION EQUIPMENT -- 1.1%
Metromedia Fiber Network
$160,000 10.00% due 11/15/08................... $ 164,400
------------
CONSUMER NON-DURABLES -- 0.3%
Revlon Consumer Products Corp.
50,000 8.625% due 02/01/08................... 45,500
------------
CONSUMER SERVICES -- 2.1%
Regal Cinemas, Inc.
100,000 9.50% due 06/01/08.................... 104,000
Six Flags Entertainment Corp.
200,000 8.875% due 04/01/06................... 205,250
------------
309,250
------------
ELECTRONICS -- 2.6%
Advanced Micro Devices
100,000 11.00% due 08/01/03................... 106,500
UNISYS Corp.
150,000 12.00% due 04/15/03................... 168,000
UNISYS Corp.
100,000 7.87% due 04/01/08.................... 108,500
------------
383,000
------------
ENERGY & SERVICES -- 8.6%
AES Corp. Senior Subordinated Note
100,000 10.25% due 07/15/06................... 108,000
AES Corp. Senior Subordinated Note
150,000 8.00% due 12/31/08.................... 148,520
Clark Refining & Marketing, Inc.
125,000 8.375% due 11/15/07................... 117,500
Cogentrix Energy, Inc.
125,000 8.75% due 10/15/08.................... 133,750
Gulf Canada Resources Ltd.
50,000 8.375% due 11/15/05................... 49,250
Gulf Canada Resources Ltd.
100,000 9.625% due 07/01/05................... 99,750
Nuevo Energy Co.
103,000 9.50% due 04/15/06.................... 99,910
Ocean Energy, Inc.
100,000 10.375% due 10/15/05.................. 104,000
R & B Falcon Corp.
150,000 10.25% due 05/15/03................... 158,250
Tesoro Petroleum Corp.
100,000 9.00% due 07/01/08.................... 97,000
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
- ---------- ------------
<C> <S> <C>
</TABLE>
CORPORATE NOTES -- (CONTINUED)
ENERGY & SERVICES -- (CONTINUED)
<TABLE>
<C> <S> <C>
Tuboscope, Inc.
$150,000 7.50% due 02/15/08.................... $ 136,500
------------
1,252,430
------------
FINANCIAL SERVICES -- 1.1%
Conseco, Inc.
50,000 7.875% due 12/15/00................... 49,585
Trizec Finance Ltd.
100,000 10.875% due 10/15/05.................. 106,250
------------
155,835
------------
FOOD, BEVERAGE & TOBACCO -- 5.3%
Agrilink Foods, Inc.
250,000 11.875% due 11/01/08.................. 254,375
Carr-Gottstein Foods Co.
125,000 12.00% due 11/15/05................... 143,437
Chiquita Brands International, Inc.
200,000 10.25% due 11/01/06................... 207,500
Keebler Corp.
100,000 10.75% due 07/01/06................... 111,500
Nabisco (RJR) Holdings Corp.
50,000 8.75% due 07/15/07.................... 50,488
------------
767,300
------------
FUNERAL/CEMETERY SERVICES -- 0.8%
Loewen Group International, Inc.
150,000 7.60% due 06/01/08.................... 120,750
------------
HEALTH CARE -- 3.6%
Columbia/HCA Healthcare Corp.
150,000 9.00% due 12/15/14.................... 156,062
Owens & Minor, Inc.
250,000 10.875% due 06/01/06.................. 268,750
Tenet Healthcare Corp.
100,000 8.625% due 12/01/03................... 105,515
------------
530,327
------------
HOME BUILDING -- 2.6%
DEL Webb Corp.
50,000 9.375% due 05/01/09................... 49,000
MDC Holdings, Inc.
100,000 8.375% due 02/01/08................... 98,000
Toll Brothers, Inc.
125,000 7.75% due 09/15/07.................... 124,687
Toll Corp.
100,000 8.75% due 11/15/06.................... 102,500
------------
374,187
------------
HOTELS & GAMING -- 7.9%
Circus Circus Enterprises, Inc.
150,000 7.625% due 07/15/13................... 134,569
Circus Circus Enterprises, Inc.
200,000 9.25% due 12/01/05.................... 202,000
Harrah's Operating Co., Inc.
50,000 7.87% due 12/15/05.................... 50,554
Host Marriott Travel Plaza
50,000 9.50% due 05/15/05.................... 51,125
La Quinta Motor Inns
200,000 7.25% due 03/15/04.................... 184,363
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THIS FINANCIAL STATEMENT.
MF-41
<PAGE>
HARTFORD HIGH YIELD HLS FUND
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS -- (CONTINUED)
DECEMBER 31, 1998
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
- ---------- ------------
<C> <S> <C>
</TABLE>
CORPORATE NOTES -- (CONTINUED)
HOTELS & GAMING -- (CONTINUED)
<TABLE>
<C> <S> <C>
MGM Grand, Inc.
$200,000 6.875% due 02/06/08................... $ 186,818
Park Place Entertainment Corp.
100,000 7.875% due 12/15/05................... 100,125
Starwood Hotels & Resorts
272,000 7.375% due 11/15/15................... 240,898
------------
1,150,452
------------
INDUSTRIAL -- 14.0%
Agriculture Minerals and Chemicals Co.
150,000 10.75% due 09/30/03................... 152,250
Allied Waste Industries, Inc.
75,000 7.625% due 01/01/06................... 75,375
American Standard, Inc.
12,000 10.875% due 05/15/99.................. 12,030
Arco Chemical Co.
300,000 9.80% due 02/01/20.................... 301,962
Big Flower Press Holdings, Inc.
125,000 8.625% due 12/01/08................... 126,250
Borden Chemical, Inc.
100,000 9.50% due 05/01/05.................... 83,000
Fisher Scientific International, Inc.
300,000 9.00% due 02/01/08.................... 300,000
Huntsman Corp.
300,000 9.50% due 07/01/07.................... 298,500
ISP Holdings, Inc.
125,000 9.00% due 10/15/03.................... 131,562
R & B Falcon Corp.
50,000 9.50% due 12/15/08.................... 49,937
R & B Falcon Corp.
100,000 7.375% due 04/15/18................... 81,132
RCN Corp.
113,000 10.00% due 10/15/07................... 107,915
Stone Container Corp.
125,000 12.58% due 08/01/16................... 133,750
Terra Industries, Inc.
105,000 10.50% due 06/15/05................... 108,150
WMX Corp.
80,000 10.50% due 04/15/05................... 74,400
------------
2,036,213
------------
MANUFACTURING -- 2.0%
AGCO Corp.
225,000 8.50% due 03/15/06.................... 218,250
Hayes Lemmerz International, Inc.
75,000 8.25% due 12/15/08.................... 74,261
------------
292,511
------------
MEDIA & SERVICES -- 8.7%
Adelphia Communications Corp.
148,000 9.25% due 10/01/02.................... 156,140
Chancellor Media Corp. of Los Angeles
200,000 8.75% due 06/15/07.................... 205,000
Fox Family Worldwide, Inc.
200,000 9.25% due 11/01/07.................... 198,000
Fox/Liberty Networks LLC
150,000 8.875% due 08/15/07................... 153,000
Hollinger International Publishing, Inc.
100,000 9.25% due 02/01/06.................... 105,500
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
- ---------- ------------
<C> <S> <C>
</TABLE>
MEDIA & SERVICES -- (CONTINUED)
<TABLE>
<C> <S> <C>
Primedia, Inc.
$250,000 10.25% due 06/01/04................... $ 262,500
TCI Satellite Entertainment, Inc.
270,000 10.87% due 02/15/07................... 89,100
Time Warner Telecom LLC
100,000 9.75% due 07/15/08.................... 105,000
------------
1,274,240
------------
PACKAGING & CONTAINERS -- 2.8%
Ball Corp.
115,000 8.25% due 08/01/08.................... 119,600
Container Corp. of America
175,000 11.25% due 05/01/04................... 182,000
Domtar, Inc.
100,000 8.75% due 08/01/06.................... 103,000
------------
404,600
------------
RETAIL -- 0.7%
Jitney-Jungle Stores of America, Inc.
42,000 12.00% due 03/01/06................... 46,830
KMart Corp.
47,000 12.50% due 03/01/05................... 58,824
------------
105,654
------------
SHIPBUILDING -- 0.7%
Newport News Shipbuilding
100,000 9.25% due 12/01/06.................... 105,750
------------
TELECOMMUNICATIONS -- 13.4%
Call-Net Enterprises, Inc.
100,000 8.00% due 08/15/08.................... 96,500
Centennial Cellular Corp.
100,000 10.75% due 12/15/08................... 100,015
Charter Communication International
225,000 11.25% due 03/15/06................... 253,125
Comcast Cellular Holdings Corp. 144A
100,000 9.50% due 05/01/07.................... 106,000
Flag Limited
100,000 8.25% due 01/30/08.................... 98,250
Lenfest Communications
125,000 10.50% due 06/15/06................... 146,250
Level 3 Communications
200,000 9.125% due 05/01/08................... 197,500
McLeodUSA, Inc.
100,000 9.25% due 07/15/07.................... 104,500
McLeodUSA, Inc. 144A
100,000 9.50% due 11/08/08.................... 106,000
Nextlink Communications
150,000 12.50% due 04/15/06................... 162,000
Rogers Cablesystems, Inc.
193,000 10.125% due 09/01/12.................. 212,300
Rogers Cantel Mobile, Inc.
150,000 9.375% due 06/01/08................... 158,250
Rogers Cantel Mobile, Inc.
50,000 9.75% due 06/01/16.................... 53,500
Telewest Communications PLC
100,000 11.25% due 11/01/08................... 112,000
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THIS FINANCIAL STATEMENT.
MF-42
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
- ---------- ------------
<C> <S> <C>
</TABLE>
CORPORATE NOTES -- (CONTINUED)
TELECOMMUNICATIONS -- (CONTINUED)
<TABLE>
<C> <S> <C>
Telewest Communications PLC
$ 50,000 9.625% due 10/01/06................... $ 51,500
------------
1,957,690
------------
TEXTILE -- 0.7%
Westpoint Stevens, Inc.
100,000 7.875% due 06/15/05................... 101,625
------------
TRANSPORTATION -- 5.8%
AMR Corp.
150,000 10.00% due 03/07/01................... 162,029
CSC Holdings, Inc.
200,000 9.875% due 02/15/13................... 224,000
Enterprises Shipholding, Inc.
125,000 8.875% due 05/01/08................... 102,500
Teekay Shipping Corp.
250,000 8.32% due 02/01/08.................... 242,812
United Air Lines, Inc.
100,000 9.125% due 01/15/12................... 115,373
------------
846,714
------------
UTILITIES -- 4.4%
Calpine Corp.
50,000 10.50% due 05/15/06................... 55,125
Calpine Corp.
200,000 9.25% due 02/01/04.................... 210,000
Connecticut Light & Power Co.
125,000 7.875% due 10/01/24................... 130,815
El Paso Electric Co.
125,000 9.40% due 05/01/11.................... 144,687
Public Service Company of New Mexico
100,000 7.10% due 08/01/05.................... 100,716
------------
641,343
------------
Total corporate notes................... $ 13,019,771
------------
------------
FOREIGN/YANKEE BONDS & NOTES -- 5.4%
FOREIGN GOVERNMENTS -- 5.4%
Republic of Argentina
250,000 11.00% due 12/04/05................... $ 248,592
Republic of Colombia
100,000 8.375% due 02/15/27................... 74,042
Republic of Panama
100,000 8.875% due 09/30/27................... 93,500
Republic of Venezuela
250,000 6.75% due 03/31/20.................... 173,906
United Mexican States Discount Bond
250,000 6.097% due 12/31/19................... 202,500
------------
Total foreign/yankee bonds & notes...... $ 792,540
------------
------------
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
- ---------- ------------
<C> <S> <C>
SHORT-TERM SECURITIES -- 1.8%
REPURCHASE AGREEMENT
$260,000 Interest in $121,902,000 joint $ 260,000
repurchase agreement dated 12/31/98 with
State Street Bank 4.750% due 01/04/99;
maturity amount $260,137 (Collateralized
by $121,902,000 U.S. Treasury Bonds
8.126% due 05/15/21)....................
------------
------------
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
DIVERSIFICATION OF NET ASSETS:
Total collaterilzed mortgage obligations
(cost $140,126)........................ 1.0% $ 141,621
Total convertible preferred stock (cost
$196,000).............................. 1.4 197,000
Total corporate notes (cost
$12,886,200)........................... 89.2 13,019,771
Total foreign/yankee bonds & notes (cost
$764,610).............................. 5.4 792,540
Total short-term securities (cost
$260,000).............................. 1.8 260,000
----- -----------
Total investment in securities (total
cost $14,246,936)...................... 98.8 14,410,932
Cash, receivables and other assets...... 2.5 364,138
Payable for dividends................... (1.3) (190,103)
Other liabilities....................... (0.0) (834)
----- -----------
Net assets.............................. 100.0% $14,584,133
----- -----------
----- -----------
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
SUMMARY OF SHAREHOLDERS' EQUITY:
Capital stock, par value $0.10 per share;
authorized 1,000,000,000 shares; outstanding
14,343,923 shares................................ $ 1,434,392
Capital surplus................................... 12,980,385
Accumulated undistributed net realized gain on
investments...................................... 5,360
Unrealized appreciation of investments............ 163,996
-----------
Net assets........................................ $14,584,133
-----------
-----------
</TABLE>
<TABLE>
<S> <C>
Class IA
Net asset value per share ($14,482,460
DIVIDED BY 14,243,923
shares outstanding).............................. $1.02
-----
-----
Class IB
Net asset value per share ($101,673 DIVIDED BY
100,000
shares outstanding).............................. $1.02
-----
-----
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THIS FINANCIAL STATEMENT.
MF-43
<PAGE>
HARTFORD GLOBAL LEADERS HLS FUND
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
DECEMBER 31, 1998
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
- ---------- ----------
<C> <S> <C>
COMMON STOCKS -- 88.3%
DOMESTIC COMMON STOCKS -- 55.7%
COMMUNICATIONS EQUIPMENT -- 3.8%
*1,370 Cisco Systems, Inc...................... $ 127,153
860 Lucent Technologies, Inc................ 94,600
----------
221,753
----------
COMPUTERS & OFFICE EQUIPMENT -- 5.4%
1,170 EMC Corporation......................... 99,450
750 International Business Machines Corp.... 138,562
640 Xerox Corporation....................... 75,548
----------
313,560
----------
CONSUMER NON-DURABLES -- 0.8%
530 Proctor & Gamble Co..................... 48,395
----------
ELECTRONICS -- 4.6%
1,500 General Electric Company................ 153,093
790 Intel Corporation....................... 93,664
210 Texas Instruments, Inc.................. 17,968
----------
264,725
----------
ENERGY & SERVICES -- 2.3%
870 Exxon Corporation....................... 63,618
1,530 Schlumberger Ltd........................ 70,571
----------
134,189
----------
FINANCIAL SERVICES -- 9.1%
710 American Express Company................ 72,597
880 American International Group, Inc....... 85,030
1,640 Associates First Capital Corporation.... 69,495
1,990 Citigroup, Inc.......................... 98,505
990 Marsh & McLennan Companies, Inc......... 57,853
960 Merrill Lynch & Co., Inc................ 64,080
1,110 State Street Corporation................ 77,214
----------
524,774
----------
FOOD, BEVERAGE & TOBACCO -- 1.3%
1,380 Philip Morris Co., Inc.................. 73,830
----------
HEALTH CARE -- 8.2%
1,110 American Home Products Corporation...... 62,506
*550 Amgen, Inc.............................. 57,509
550 Johnson & Johnson....................... 46,131
840 Medtronic, Inc.......................... 62,370
770 Pfizer, Inc............................. 96,586
1,750 Service Corporation International....... 66,609
1,110 Warner-Lambert Company.................. 83,458
----------
475,169
----------
MANUFACTURING -- 1.1%
860 Tyco International, Ltd................. 64,876
----------
MEDIA & SERVICES -- 2.9%
220 America Online, Inc..................... 31,845
1,300 Gannett Co., Inc........................ 86,043
1,590 Walt Disney Company (The)............... 47,700
----------
165,588
----------
RETAIL -- 9.9%
1,300 CVS Corporation......................... 71,500
1,685 Gap, Inc. (The)......................... 94,781
1,180 Gucci Group NV.......................... 57,377
<CAPTION>
MARKET
SHARES VALUE
- ---------- ----------
<C> <S> <C>
</TABLE>
RETAIL -- (CONTINUED)
<TABLE>
<C> <S> <C>
1,860 Home Depot, Inc. (The).................. $ 113,808
830 McDonald's Corporation.................. 63,598
*1,920 Staples, Inc............................ 83,880
1,110 Wal-Mart Stores, Inc.................... 90,395
----------
575,339
----------
SOFTWARE & SERVICES -- 1.8%
*770 Microsoft Corporation................... 106,789
----------
TRANSPORTATION -- 0.8%
*740 AMR Corporation......................... 43,937
----------
UTILITIES -- 3.7%
350 AT&T Corp............................... 26,337
*1,590 MCI WorldCom, Inc....................... 114,082
1,400 SBC Communications, Inc................. 75,075
----------
215,494
----------
Total domestic common stocks............ $3,228,418
----------
FOREIGN COMMON STOCKS -- 32.6%
FINLAND -- 2.0%
930 Nokia AB Oy............................. $ 113,878
----------
FRANCE -- 4.2%
420 Alcatel................................. 51,428
270 AXA..................................... 39,151
60 L'Oreal................................. 43,394
430 Vivendi................................. 111,618
----------
245,591
----------
GERMANY -- 3.3%
*770 DaimlerChrysler AG...................... 76,513
1,580 Hoechst AG.............................. 65,361
740 Siemens AG.............................. 48,651
----------
190,525
----------
ITALY -- 1.6%
10,600 Telecom Italia S.p.A.................... 90,642
----------
JAPAN -- 3.6%
1,090 Fuji Photo Film Co., Ltd................ 40,586
290 Mabuchi Motor Co., Ltd.................. 22,239
4,380 Olympus Optical Co., Ltd................ 50,441
620 Sony Corporation........................ 45,237
8,630 Toshiba Corporation..................... 51,490
----------
209,993
----------
NETHERLANDS -- 4.3%
480 Aegon Nv................................ 58,981
800 Heineken NV............................. 48,170
670 ING Groep N.V........................... 40,878
540 Philips Electronics NV.................. 36,255
760 Unilever NV CVA......................... 64,998
----------
249,282
----------
SPAIN -- 0.5%
670 Telef De Espana......................... 595
*670 Telefonica S.A.......................... 29,837
----------
30,432
----------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THIS FINANCIAL STATEMENT.
MF-44
<PAGE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
- ---------- ----------
<C> <S> <C>
</TABLE>
FOREIGN COMMON STOCKS -- (CONTINUED)
<TABLE>
<C> <S> <C>
SWEDEN -- 2.9%
1,030 Hennes & Mauritz AB..................... $ 84,122
1,520 Pharmacia & Upjohn...................... 85,136
----------
169,258
----------
UNITED KINGDOM -- 10.2%
6,390 British Petroleum Co., PLC.............. 95,366
*3,460 COLT Telecom Group PLC.................. 50,659
5,020 Compass Group PLC....................... 57,463
2,540 Glaxo Wellcome PLC...................... 87,098
3,670 National Westminster Bank PLC........... 70,709
10,750 Rentokil Initial PLC.................... 80,396
3,930 SmithKline Beecham PLC.................. 55,154
5,850 Vodafone Group PLC...................... 94,801
----------
591,646
----------
Total foreign common stocks............. $1,891,247
----------
Total common stocks..................... $5,119,665
----------
----------
<CAPTION>
PRINCIPAL
AMOUNT
- ----------
<C> <S> <C>
SHORT-TERM SECURITIES -- 17.6%
Repurchase Agreement
$1,020,000 Interest in $1,162,198,000 joint $1,020,000
repurchase agreement dated 12/31/98
with State Street Bank 4.773% due
01/04/99; maturity amount $1,020,541
(Collateralized by $469,031,000 U.S.
Treasury Notes 4.00% - 7.775% due
10/31/99 - 02/15/07, $278,664,000 U.S.
Treasury Bonds 7.875% - 12.75% due
11/15/10 - 02/15/21, $414,603,000 U.S.
Treasury Strips (principal) 0.00% due
02/15/19 - 08/15/21)..................
----------
----------
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
<CAPTION>
MARKET
VALUE
----------
<S> <C> <C>
DIVERSIFICATION OF NET ASSETS:
Total common stocks (cost $4,249,568)... 88.3% $5,119,665
Total short-term securities (cost
$1,020,000)............................ 17.6 1,020,000
----- ----------
Total investment in securities (total
cost $5,269,568)....................... 105.9 6,139,665
Cash, receivables and other assets...... 0.5 29,995
Payable for securities purchased........ (3.4) (194,817)
Payable for Fund shares redeemed........ (1.2) (69,651)
Payable for dividends................... (1.7) (100,727)
Other liabilities....................... (0.1) (5,020)
----- ----------
Net assets.............................. 100.0% $5,799,445
----- ----------
----- ----------
</TABLE>
<TABLE>
<S> <C>
SUMMARY OF SHAREHOLDERS' EQUITY:
Capital stock, par value 0.10 per share;
authorized 1,000,000,000 shares; outstanding
4,512,549 shares................................. $ 451,255
Capital surplus................................... 4,429,528
Accumulated undistributed net investment income... 585
Accumulated undistributed net realized gain on
investments...................................... 47,973
Unrealized appreciation of investments............ 870,097
Unrealized appreciation of other assets and
liabilities in foriegn currencies................ 7
----------
Net assets........................................ $5,799,445
----------
----------
</TABLE>
<TABLE>
<S> <C>
Class IA
Net asset value per share ($5,760,892 DIVIDED BY
4,482,549
shares outstanding).............................. $1.29
-----
-----
Class IB
Net asset value per share ($38,553 DIVIDED BY
30,000
shares outstanding).............................. $1.29
-----
-----
</TABLE>
* Non-income producing during period
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THIS FINANCIAL STATEMENT.
MF-45
<PAGE>
HARTFORD MUTUAL FUNDS
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
FOR THE PERIOD ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
HARTFORD HARTFORD
BOND STOCK
HLS FUND, INC. HLS FUND, INC.
--------------- ----------------
<S> <C> <C>
INVESTMENT INCOME:
Dividends.............. $ 63,796 $ 66,038,085
Interest............... 45,802,968 17,131,997
Less foreign tax
withheld.............. -- (620,113)
--------------- ----------------
Total investment
income, net......... 45,866,764 82,549,969
--------------- ----------------
EXPENSES:
Investment advisory
fees.................. 2,165,188 15,103,808
Administrative services
fees.................. 1,314,094 10,675,568
Accounting services.... 49,193 338,710
Custodian fees gross... 16,903 25,129
Custodian fee expense
offset................ (13,232) (6,446)
Board of Directors
fees.................. 2,266 18,649
Distribution fees --
Class IB.............. 3,149 5,242
Other expenses......... 77,289 673,470
--------------- ----------------
Total expenses,
net................. 3,614,850 26,834,130
Less advisory fees
waived by HL
Advisors.............. -- --
--------------- ----------------
Net expenses......... 3,614,850 26,834,130
--------------- ----------------
Net investment income
(loss)................ 42,251,914 55,715,839
--------------- ----------------
NET REALIZED AND
UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Net realized gain
(loss) on security
transactions.......... 6,858,115 606,814,711
Net realized gain
(loss) on futures
contracts............. -- --
Net realized gain
(loss) on forward
foreign currency
contracts............. -- (73)
Net realized loss on
option contracts...... -- --
Net realized gain
(loss) on foreign
currency
transactions.......... (147) 50
Net unrealized
appreciation
(depreciation) of
investments........... 6,537,524 1,025,008,611
Net unrealized
appreciation
(depreciation) of
futures contracts..... -- --
Net unrealized
appreciation
(depreciation) of
forward foreign
currency contracts.... -- --
Net unrealized
(depreciation)
appreciation on
translation of other
assets and liabilities
in foreign
currencies............ -- 6,067
Net unrealized
appreciation of option
contracts............. -- --
--------------- ----------------
Net realized and
unrealized gain (loss)
on investments........ 13,395,492 1,631,829,366
--------------- ----------------
Net increase in net
assets resulting from
operations............ $55,647,406 $1,687,545,205
--------------- ----------------
--------------- ----------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THIS FINANCIAL STATEMENT.
MF-46
<PAGE>
<TABLE>
<CAPTION>
HARTFORD HARTFORD
HARTFORD HARTFORD CAPITAL MORTGAGE HARTFORD
MONEY MARKET ADVISERS APPRECIATION SECURITIES INDEX
HLS FUND, INC. HLS FUND, INC. HLS FUND, INC. HLS FUND, INC. HLS FUND, INC.
--------------- ---------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends.............. $ -- $ 72,075,207 $ 49,463,854 $ -- $ 21,216,435
Interest............... 39,247,531 230,292,716 16,250,813 22,304,944 2,512,046
Less foreign tax
withheld.............. -- (601,648) (1,432,247) -- (122,001)
--------------- ---------------- --------------- --------------- ---------------
Total investment
income, net......... 39,247,531 301,766,275 64,282,420 22,304,944 23,606,480
--------------- ---------------- --------------- --------------- ---------------
EXPENSES:
Investment advisory
fees.................. 1,756,465 43,114,112 23,148,831 838,841 2,931,531
Administrative services
fees.................. 1,284,777 18,087,300 9,497,866 609,614 2,669,517
Accounting services.... 37,291 593,833 309,882 43,753 84,477
Custodian fees gross... 7,404 49,003 130,384 14,508 24,416
Custodian fee expense
offset................ (3,289) (15,270) (112,989) (950) (1,563)
Board of Directors
fees.................. 2,247 31,961 17,367 1,118 4,622
Distribution fees --
Class IB.............. 1,113 18,206 3,564 -- --
Other expenses......... 63,438 1,137,354 639,763 43,766 172,673
--------------- ---------------- --------------- --------------- ---------------
Total expenses,
net................. 3,149,446 63,016,499 33,634,668 1,550,650 5,885,673
Less advisory fees
waived by HL
Advisors.............. -- -- -- -- --
--------------- ---------------- --------------- --------------- ---------------
Net expenses......... 3,149,446 63,016,499 33,634,668 1,550,650 5,885,673
--------------- ---------------- --------------- --------------- ---------------
Net investment income
(loss)................ 36,098,085 238,749,776 30,647,752 20,754,294 17,720,807
--------------- ---------------- --------------- --------------- ---------------
NET REALIZED AND
UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Net realized gain
(loss) on security
transactions.......... 11,475 996,514,466 358,809,472 1,956,549 25,573,037
Net realized gain
(loss) on futures
contracts............. -- -- 4,069,525 241,511 4,352,316
Net realized gain
(loss) on forward
foreign currency
contracts............. -- (53) 2,844,827 -- (10)
Net realized loss on
option contracts...... -- -- -- -- --
Net realized gain
(loss) on foreign
currency
transactions.......... -- 74 (1,712,932) -- --
Net unrealized
appreciation
(depreciation) of
investments........... -- 952,173,946 357,758,158 (1,235,881) 316,713,105
Net unrealized
appreciation
(depreciation) of
futures contracts..... -- -- -- -- (46,801)
Net unrealized
appreciation
(depreciation) of
forward foreign
currency contracts.... -- -- 35,449 -- --
Net unrealized
(depreciation)
appreciation on
translation of other
assets and liabilities
in foreign
currencies............ -- 33,617 80,691 -- --
Net unrealized
appreciation of option
contracts............. -- -- -- (25,947) --
--------------- ---------------- --------------- --------------- ---------------
Net realized and
unrealized gain (loss)
on investments........ 11,475 1,948,722,050 721,885,190 936,232 346,591,647
--------------- ---------------- --------------- --------------- ---------------
Net increase in net
assets resulting from
operations............ $36,109,560 $2,187,471,826 $752,532,942 $21,690,526 $364,312,454
--------------- ---------------- --------------- --------------- ---------------
--------------- ---------------- --------------- --------------- ---------------
<CAPTION>
HARTFORD
INTERNATIONAL
OPPORTUNITIES
HLS FUND, INC.
---------------
<S> <C>
INVESTMENT INCOME:
Dividends.............. $ 23,432,286
Interest............... 5,508,136
Less foreign tax
withheld.............. (2,356,446)
---------------
Total investment
income, net......... 26,583,976
---------------
EXPENSES:
Investment advisory
fees.................. 5,838,942
Administrative services
fees.................. 2,115,423
Accounting services.... 82,214
Custodian fees gross... 782,236
Custodian fee expense
offset................ (8,863)
Board of Directors
fees.................. 3,868
Distribution fees --
Class IB.............. 454
Other expenses......... 193,914
---------------
Total expenses,
net................. 9,008,188
Less advisory fees
waived by HL
Advisors.............. --
---------------
Net expenses......... 9,008,188
---------------
Net investment income
(loss)................ 17,575,788
---------------
NET REALIZED AND
UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Net realized gain
(loss) on security
transactions.......... 4,385,904
Net realized gain
(loss) on futures
contracts............. 10,045,308
Net realized gain
(loss) on forward
foreign currency
contracts............. (4,349,030)
Net realized loss on
option contracts...... (459,970)
Net realized gain
(loss) on foreign
currency
transactions.......... 3,044,637
Net unrealized
appreciation
(depreciation) of
investments........... 110,073,545
Net unrealized
appreciation
(depreciation) of
futures contracts..... (420,229)
Net unrealized
appreciation
(depreciation) of
forward foreign
currency contracts.... (753,309)
Net unrealized
(depreciation)
appreciation on
translation of other
assets and liabilities
in foreign
currencies............ 261,051
Net unrealized
appreciation of option
contracts............. --
---------------
Net realized and
unrealized gain (loss)
on investments........ 121,827,907
---------------
Net increase in net
assets resulting from
operations............ $139,403,695
---------------
---------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THIS FINANCIAL STATEMENT.
MF-47
<PAGE>
HARTFORD MUTUAL FUNDS
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS -- (CONTINUED)
FOR THE PERIOD ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
HARTFORD HARTFORD
DIVIDEND AND INTERNATIONAL
GROWTH ADVISERS
HLS FUND, INC. HLS FUND, INC.
--------------- ----------------
<S> <C> <C>
INVESTMENT INCOME:
Dividends.............. $ 59,811,128 $ 3,075,922
Interest............... 4,107,427 6,333,858
Less foreign tax
withheld.............. (609,590) (341,731)
--------------- ----------------
Total investment
income, net......... 63,308,965 9,068,049
--------------- ----------------
EXPENSES:
Investment advisory
fees.................. 11,746,871 1,429,470
Administrative services
fees.................. 4,656,224 453,310
Accounting services.... 147,474 17,980
Custodian fees gross... 20,952 240,573
Custodian fee expense
offset................ (10,205) (3,106)
Board of Directors
fees.................. 8,158 801
Distribution fees --
Class IB.............. 5,749 --
Other expenses......... 288,887 12,909
--------------- ----------------
Total expenses,
net................. 16,864,110 2,151,937
Less advisory fees
waived by HL
Advisors.............. -- --
--------------- ----------------
Net expenses......... 16,864,110 2,151,937
--------------- ----------------
Net investment income
(loss)................ 46,444,855 6,916,112
--------------- ----------------
NET REALIZED AND
UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Net realized gain
(loss) on security
transactions.......... 112,250,668 (827,584)
Net realized gain
(loss) on futures
contracts............. -- 4,192,582
Net realized gain
(loss) on forward
foreign currency
contracts............. 5,694 (234,783)
Net realized loss on
option contracts...... 313,315 (53,142)
Net realized gain
(loss) on foreign
currency
transactions.......... 105,334 79,061
Net unrealized
appreciation
(depreciation) of
investments........... 219,643,687 22,114,123
Net unrealized
appreciation
(depreciation) of
futures contracts..... -- (25,037)
Net unrealized
appreciation
(depreciation) of
forward foreign
currency contracts.... -- (2,747,964)
Net unrealized
(depreciation)
appreciation on
translation of other
assets and liabilities
in foreign
currencies............ -- (300,681)
Net unrealized
appreciation of option
contracts............. (237,504) --
--------------- ----------------
Net realized and
unrealized gain (loss)
on investments........ 332,081,194 22,196,575
--------------- ----------------
Net increase in net
assets resulting from
operations............ $378,526,049 $29,112,687
--------------- ----------------
--------------- ----------------
</TABLE>
* From inception, April 30, 1998, to December 31, 1998.
** From inception, September 21, 1998, to December 31, 1998.
*** From inception, September 30, 1998, to December 31, 1998.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THIS FINANCIAL STATEMENT.
MF-48
<PAGE>
<TABLE>
<CAPTION>
HARTFORD HARTFORD
SMALL HARTFORD GROWTH AND HARTFORD HARTFORD
COMPANY MIDCAP INCOME HIGH YIELD GLOBAL LEADERS
HLS FUND, INC. HLS FUND, INC. HLS FUND* HLS FUND** HLS FUND***
--------------- --------------- ------------ ----------- ---------------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends.............. $ 781,032 $ 321,869 $ 86,018 $ 4,188 $ 6,113
Interest............... 641,062 181,823 29,226 279,022 9,553
Less foreign tax
withheld.............. (15,197) (3,338) (915) -- (219)
--------------- --------------- ------------ ----------- ---------------
Total investment
income, net......... 1,406,897 500,354 114,329 283,210 15,447
--------------- --------------- ------------ ----------- ---------------
EXPENSES:
Investment advisory
fees.................. 1,511,160 449,736 38,069 19,214 5,826
Administrative services
fees.................. 481,386 144,116 12,712 6,684 2,027
Accounting services.... 14,870 5,195 347 976 309
Custodian fees gross... 12,921 13,055 4,183 3,011 6,251
Custodian fee expense
offset................ (7,901) (7,308) (81) (99) (10)
Board of Directors
fees.................. 848 213 12 -- --
Distribution fees --
Class IB.............. 427 -- 10 50 16
Other expenses......... 28,411 15,619 1,868 1,124 460
--------------- --------------- ------------ ----------- ---------------
Total expenses,
net................. 2,042,122 620,626 57,120 30,960 14,879
Less advisory fees
waived by HL
Advisors.............. -- -- (38,069) (19,214) (5,826)
--------------- --------------- ------------ ----------- ---------------
Net expenses......... 2,042,122 620,626 19,051 11,746 9,053
--------------- --------------- ------------ ----------- ---------------
Net investment income
(loss)................ (635,225) (120,272) 95,278 271,464 6,394
--------------- --------------- ------------ ----------- ---------------
NET REALIZED AND
UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Net realized gain
(loss) on security
transactions.......... (23,736,198) 3,572,474 (84,884) 3,917 193,107
Net realized gain
(loss) on futures
contracts............. -- -- 3,450 -- --
Net realized gain
(loss) on forward
foreign currency
contracts............. (397) 2,884 -- -- (1,475)
Net realized loss on
option contracts...... -- -- -- -- --
Net realized gain
(loss) on foreign
currency
transactions.......... 272 (2,167) -- (21) 2,532
Net unrealized
appreciation
(depreciation) of
investments........... 58,188,093 17,561,240 3,287,694 163,996 870,097
Net unrealized
appreciation
(depreciation) of
futures contracts..... -- -- 13,565 -- --
Net unrealized
appreciation
(depreciation) of
forward foreign
currency contracts.... -- -- -- -- --
Net unrealized
(depreciation)
appreciation on
translation of other
assets and liabilities
in foreign
currencies............ 157 -- -- -- 7
Net unrealized
appreciation of option
contracts............. -- -- -- -- --
--------------- --------------- ------------ ----------- ---------------
Net realized and
unrealized gain (loss)
on investments........ 34,451,927 21,134,431 3,219,825 167,892 1,064,268
--------------- --------------- ------------ ----------- ---------------
Net increase in net
assets resulting from
operations............ $33,816,702 $21,014,159 $3,315,103 $439,356 $1,070,662
--------------- --------------- ------------ ----------- ---------------
--------------- --------------- ------------ ----------- ---------------
</TABLE>
* From inception, April 30, 1998, to December 31, 1998.
** From inception, September 21, 1998, to December 31, 1998.
*** From inception, September 30, 1998, to December 31, 1998.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THIS FINANCIAL STATEMENT.
MF-49
<PAGE>
HARTFORD MUTUAL FUNDS
- --------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
FOR THE PERIOD ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
HARTFORD HARTFORD
BOND STOCK
HLS FUND, INC. HLS FUND, INC.
--------------- ---------------
<S> <C> <C>
OPERATIONS:
Net investment
income................ $ 42,251,914 $ 55,715,839
Net realized gain
(loss)................ 6,857,968 606,814,688
Net unrealized
appreciation
(depreciation) of
investments........... 6,537,524 1,025,014,678
--------------- ---------------
Net increase (decrease)
in net assets
resulting from
operations............ 55,647,406 1,687,545,205
--------------- ---------------
DISTRIBUTIONS TO
SHAREHOLDERS:
From net investment
income
Class IA............. (42,744,233) (54,276,510)
Class IB............. (255,767) (423,490)
In excess of net
investment income
Class IA............. -- --
Class IB............. -- --
From realized gain on
investments
Class IA............. -- (173,700,001)
Class IB............. -- --
From Capital
Class IA............. -- --
Class IB............. -- --
--------------- ---------------
Total
distributions....... (43,000,000) (228,400,001)
--------------- ---------------
CAPITAL SHARE
TRANSACTIONS:
Class IA............. 336,835,852 1,011,129,116
Class IB............. 5,412,364 9,617,289
--------------- ---------------
Net increase
(decrease) from
capital share
transactions...... 342,248,216 1,020,746,405
--------------- ---------------
Net increase in
net assets........ 354,895,622 2,479,891,609
NET ASSETS:
Beginning of period.... 552,869,797 4,713,321,561
--------------- ---------------
End of period.......... $907,765,419 $7,193,213,170
--------------- ---------------
--------------- ---------------
Accumulated
undistributed
(distribution in
excess of) net
investment income..... $ 601,032 $ 2,530,584
--------------- ---------------
--------------- ---------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THIS FINANCIAL STATEMENT.
MF-50
<PAGE>
<TABLE>
<CAPTION>
HARTFORD HARTFORD
HARTFORD HARTFORD CAPITAL MORTGAGE HARTFORD
MONEY MARKET ADVISERS APPRECIATION SECURITIES INDEX
HLS FUND, INC. HLS FUND, INC. HLS FUND, INC. HLS FUND, INC. HLS FUND, INC.
--------------- ---------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment
income................ $ 36,098,085 $ 238,749,776 $ 30,647,752 $ 20,754,294 $ 17,720,807
Net realized gain
(loss)................ 11,475 996,514,487 364,010,892 2,198,060 29,925,343
Net unrealized
appreciation
(depreciation) of
investments........... -- 952,207,563 357,874,298 (1,261,828) 316,666,304
--------------- ---------------- --------------- --------------- ---------------
Net increase (decrease)
in net assets
resulting from
operations............ 36,109,560 2,187,471,826 752,532,942 21,690,526 364,312,454
--------------- ---------------- --------------- --------------- ---------------
DISTRIBUTIONS TO
SHAREHOLDERS:
From net investment
income
Class IA............. (36,067,869) (233,135,052) (30,859,661) (20,754,294) (15,000,000)
Class IB............. (30,216) (1,804,946) (140,339) -- --
In excess of net
investment income
Class IA............. -- -- -- (963,871) --
Class IB............. -- -- -- -- --
From realized gain on
investments
Class IA............. (11,470) (297,100,001) (320,000,000) -- (29,600,000)
Class IB............. (5) -- -- -- --
From Capital
Class IA............. -- -- -- (481,835) --
Class IB............. -- -- -- -- --
--------------- ---------------- --------------- --------------- ---------------
Total
distributions....... (36,109,560) (532,039,999) (351,000,000) (22,200,000) (44,600,000)
--------------- ---------------- --------------- --------------- ---------------
CAPITAL SHARE
TRANSACTIONS:
Class IA............. 260,005,789 1,866,824,047 603,278,396 31,642,127 402,949,764
Class IB............. 2,179,043 33,957,359 5,618,272 -- --
--------------- ---------------- --------------- --------------- ---------------
Net increase
(decrease) from
capital share
transactions...... 262,184,832 1,900,781,406 608,896,668 31,642,127 402,949,764
--------------- ---------------- --------------- --------------- ---------------
Net increase in
net assets........ 262,184,832 3,556,213,233 1,010,429,610 31,132,653 722,662,218
NET ASSETS:
Beginning of period.... 612,480,218 8,283,911,901 4,802,992,002 325,701,680 1,123,455,002
--------------- ---------------- --------------- --------------- ---------------
End of period.......... $874,665,050 $11,840,125,134 $5,813,421,612 $356,834,333 $1,846,117,220
--------------- ---------------- --------------- --------------- ---------------
--------------- ---------------- --------------- --------------- ---------------
Accumulated
undistributed
(distribution in
excess of) net
investment income..... $ -- $ 8,440,413 $ 61,286 $ -- $ 3,697,905
--------------- ---------------- --------------- --------------- ---------------
--------------- ---------------- --------------- --------------- ---------------
<CAPTION>
HARTFORD
INTERNATIONAL
OPPORTUNITIES
HLS FUND, INC.
---------------
<S> <C>
OPERATIONS:
Net investment
income................ $ 17,575,788
Net realized gain
(loss)................ 12,666,849
Net unrealized
appreciation
(depreciation) of
investments........... 109,161,058
---------------
Net increase (decrease)
in net assets
resulting from
operations............ 139,403,695
---------------
DISTRIBUTIONS TO
SHAREHOLDERS:
From net investment
income
Class IA............. (15,638,936)
Class IB............. (11,063)
In excess of net
investment income
Class IA............. --
Class IB............. --
From realized gain on
investments
Class IA............. (72,215,058)
Class IB............. --
From Capital
Class IA............. --
Class IB............. --
---------------
Total
distributions....... (87,865,057)
---------------
CAPITAL SHARE
TRANSACTIONS:
Class IA............. 52,208,761
Class IB............. 663,583
---------------
Net increase
(decrease) from
capital share
transactions...... 52,872,344
---------------
Net increase in
net assets........ 104,410,982
NET ASSETS:
Beginning of period.... 1,092,945,600
---------------
End of period.......... $1,197,356,582
---------------
---------------
Accumulated
undistributed
(distribution in
excess of) net
investment income..... $ 958,685
---------------
---------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THIS FINANCIAL STATEMENT.
MF-51
<PAGE>
HARTFORD MUTUAL FUNDS
- --------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS -- (CONTINUED)
FOR THE PERIOD ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
HARTFORD HARTFORD
DIVIDEND AND INTERNATIONAL
GROWTH ADVISERS
HLS FUND, INC. HLS FUND, INC.
-------------- ----------------
<S> <C> <C>
OPERATIONS:
Net investment
income................ $ 46,444,855 $ 6,916,112
Net realized gain
(loss)................ 112,675,011 3,156,134
Net unrealized
appreciation
(depreciation) of
investments........... 219,406,183 19,040,441
-------------- ----------------
Net increase (decrease)
in net assets
resulting from
operations............ 378,526,049 29,112,687
-------------- ----------------
DISTRIBUTIONS TO
SHAREHOLDERS:
From net investment
income
Class IA............. (47,843,520 ) (6,916,112)
Class IB............. (256,480 ) --
In excess of net
investment income
Class IA............. -- (1,129,081)
Class IB............. -- --
From realized gain on
investments
Class IA............. (76,700,000 ) (5,712,912)
Class IB............. -- --
From Capital
Class IA............. -- (15,954,807)
Class IB............. -- --
-------------- ----------------
Total
distributions....... (124,800,000 ) (29,712,912)
-------------- ----------------
CAPITAL SHARE
TRANSACTIONS:
Class IA............. 783,146,614 78,871,230
Class IB............. 8,367,912 --
-------------- ----------------
Net increase
(decrease) from
capital share
transactions........ 791,514,526 78,871,230
-------------- ----------------
Net increase in net
assets.............. 1,045,240,575 78,271,005
NET ASSETS:
Beginning of period.... 1,994,653,222 207,581,524
-------------- ----------------
End of period.......... $3,039,893,797 $285,852,529
-------------- ----------------
-------------- ----------------
Accumulated
undistributed
(distribution in
excess of) net
investment income..... $ 2,405,420 $ 763,703
-------------- ----------------
-------------- ----------------
</TABLE>
* From inception, April 30, 1998, to December 31, 1998.
** From inception, September 21, 1998, to December 31, 1998.
*** From inception, September 30, 1998, to December 31, 1998.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THIS FINANCIAL STATEMENT.
MF-52
<PAGE>
<TABLE>
<CAPTION>
HARTFORD HARTFORD
SMALL HARTFORD GROWTH AND HARTFORD HARTFORD
COMPANY MIDCAP INCOME HIGH YIELD GLOBAL LEADERS
HLS FUND, INC. HLS FUND, INC. HLS FUND* HLS FUND** HLS FUND***
--------------- --------------- ------------ ------------ ---------------
<S> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment
income................ $ (635,225) $ (120,272) $ 95,278 $ 271,464 $ 6,394
Net realized gain
(loss)................ (23,736,323) 3,573,191 (81,434) 3,896 194,164
Net unrealized
appreciation
(depreciation) of
investments........... 58,188,250 17,561,240 3,301,259 163,996 870,104
--------------- --------------- ------------ ------------ ---------------
Net increase (decrease)
in net assets
resulting from
operations............ 33,816,702 21,014,159 3,315,103 439,356 1,070,662
--------------- --------------- ------------ ------------ ---------------
DISTRIBUTIONS TO
SHAREHOLDERS:
From net investment
income
Class IA............. -- (1,000) (94,966) (268,149) (6,969)
Class IB............. -- -- (34) (1,851) (31)
In excess of net
investment income
Class IA............. -- -- -- -- --
Class IB............. -- -- -- -- --
From realized gain on
investments
Class IA............. (3,776,000) -- -- -- (144,039)
Class IB............. -- -- -- -- (961)
From Capital
Class IA............. -- -- -- -- --
Class IB............. -- -- -- -- --
--------------- --------------- ------------ ------------ ---------------
Total
distributions....... (3,776,000) (1,000) (95,000) (270,000) (152,000)
--------------- --------------- ------------ ------------ ---------------
CAPITAL SHARE
TRANSACTIONS:
Class IA............. 109,974,909 94,891,577 22,093,022 14,314,777 4,850,783
Class IB............. 644,867 -- 10,000 100,000 30,000
--------------- --------------- ------------ ------------ ---------------
Net increase
(decrease) from
capital share
transactions........ 110,619,776 94,891,577 22,103,022 14,414,777 4,880,783
--------------- --------------- ------------ ------------ ---------------
Net increase in net
assets.............. 140,660,478 115,904,736 25,323,125 14,584,133 5,799,445
NET ASSETS:
Beginning of period.... 210,769,434 27,588,907 -- -- --
--------------- --------------- ------------ ------------ ---------------
End of period.......... $351,429,912 $143,493,643 $25,323,125 $14,584,133 $5,799,445
--------------- --------------- ------------ ------------ ---------------
--------------- --------------- ------------ ------------ ---------------
Accumulated
undistributed
(distribution in
excess of) net
investment income..... $ -- $ -- $ 278 $ -- $ 585
--------------- --------------- ------------ ------------ ---------------
--------------- --------------- ------------ ------------ ---------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THIS FINANCIAL STATEMENT.
MF-53
<PAGE>
HARTFORD MUTUAL FUNDS
- --------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
HARTFORD HARTFORD HVA HARTFORD
BOND STOCK MONEY MARKET ADVISERS
FUND, INC. FUND, INC. FUND, INC. FUND, INC.
------------ -------------- --------------- --------------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment
income................ $ 29,895,329 $ 43,535,296 $ 29,943,455 $ 174,306,949
Net realized gain
(loss) on
investments........... 7,061,914 173,861,274 6,689 297,333,336
Net unrealized
appreciation
(depreciation) of
investments........... 13,239,598 796,616,926 -- 1,046,771,063
------------ -------------- --------------- --------------
Net increase (decrease)
in net assets
resulting from
operations............ 50,196,841 1,014,013,496 29,950,144 1,518,411,348
------------ -------------- --------------- --------------
DISTRIBUTIONS TO
SHAREHOLDERS (CLASS IA):
From net investment
income................ (28,506,187) (42,197,246) (29,943,455) (170,527,116)
From net realized gain
on investments........ -- (161,851,967) (6,689) (270,771,078)
------------ -------------- --------------- --------------
Total distributions.... (28,506,187) (204,049,213) (29,950,144) (441,298,194)
CAPITAL SHARE
TRANSACTIONS:
Proceeds from sale of
shares................ 150,801,506 1,228,638,401 2,014,842,442 1,017,109,674
Reinvested
distributions......... 28,506,187 204,049,153 29,947,294 441,298,194
Cost of shares
repurchased........... (50,676,350) (523,538,867) (1,974,895,094) (131,138,289)
------------ -------------- --------------- --------------
Net increase (decrease)
in net assets
resulting from capital
share transactions.... 128,631,343 909,148,687 69,894,642 1,327,269,579
------------ -------------- --------------- --------------
Net increase in net
assets................ 150,321,997 1,719,112,970 69,894,642 2,404,382,733
NET ASSETS:
Beginning of year...... 402,547,800 2,994,208,591 542,585,576 5,879,529,168
------------ -------------- --------------- --------------
End of year............ $552,869,797 $4,713,321,561 $ 612,480,218 $8,283,911,901
------------ -------------- --------------- --------------
------------ -------------- --------------- --------------
Accumulated
undistributed
(distribution in
excess of) net
investment income..... $ 1,354,301 $ 1,514,768 $ -- $ 4,725,219
------------ -------------- --------------- --------------
------------ -------------- --------------- --------------
CHANGE IN CAPITAL SHARES
OUTSTANDING:
Shares sold.............. 145,350,512 261,136,064 2,014,842,442 427,999,289
Reinvested
distributions........... 27,684,476 47,265,691 29,947,294 195,721,711
Shares repurchased....... (49,276,444) (111,192,689) (1,974,895,094) (55,281,602)
------------ -------------- --------------- --------------
Net increase (decrease)
in capital shares
outstanding............. $123,758,544 $ 197,209,066 $ 69,894,642 $ 568,439,398
------------ -------------- --------------- --------------
------------ -------------- --------------- --------------
</TABLE>
* From inception, July 15, 1997, to December 31, 1997.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THIS FINANCIAL STATEMENT.
MF-54
<PAGE>
<TABLE>
<CAPTION>
HARTFORD HARTFORD HARTFORD HARTFORD
CAPITAL MORTGAGE HARTFORD INTERNATIONAL HARTFORD INTERNATIONAL
APPRECIATION SECURITIES INDEX OPPORTUNITIES DIVIDEND AND GROWTH ADVISERS
FUND, INC. FUND, INC. FUND, INC. FUND, INC. FUND, INC. FUND, INC.
-------------- ------------ -------------- -------------- -------------------- --------------
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment
income................ $ 18,401,175 $ 21,179,064 $ 13,477,109 $ 16,284,965 $ 31,471,557 $ 4,979,715
Net realized gain
(loss) on
investments........... 325,012,733 1,887,304 27,891,406 22,987,627 76,546,072 3,812,903
Net unrealized
appreciation
(depreciation) of
investments........... 446,257,178 4,663,003 194,778,278 (39,765,725) 265,339,837 (2,236,289)
-------------- ------------ -------------- -------------- -------------------- --------------
Net increase (decrease)
in net assets
resulting from
operations............ 789,671,086 27,729,371 236,146,793 (493,133) 373,357,466 6,556,329
-------------- ------------ -------------- -------------- -------------------- --------------
DISTRIBUTIONS TO
SHAREHOLDERS (CLASS IA):
From net investment
income................ (23,026,942) (19,179,286) (12,572,622) (10,088,484) (27,536,907) (5,624,995)
From net realized gain
on investments........ (262,285,067) -- (54,414,034) (75,709,860) (27,905,705) (383,508)
-------------- ------------ -------------- -------------- -------------------- --------------
Total distributions.... (285,312,009) (19,179,286) (66,986,656) (85,798,344) (55,442,612) (6,008,503)
CAPITAL SHARE
TRANSACTIONS:
Proceeds from sale of
shares................ 1,567,700,149 40,002,581 832,154,018 175,623,844 759,068,188 101,220,653
Reinvested
distributions......... 285,312,010 19,179,286 66,986,656 85,798,344 55,442,612 6,008,503
Cost of shares
repurchased........... (941,049,022) (67,525,455) (565,910,370) (78,728,142) (17,752,873) (4,681,200)
-------------- ------------ -------------- -------------- -------------------- --------------
Net increase (decrease)
in net assets
resulting from capital
share transactions.... 911,963,137 (8,343,588) 333,230,304 182,694,046 796,757,927 102,547,956
-------------- ------------ -------------- -------------- -------------------- --------------
Net increase in net
assets................ 1,416,322,214 206,497 502,390,441 96,402,569 1,114,672,781 103,095,782
NET ASSETS:
Beginning of year...... 3,386,669,788 325,495,183 621,064,561 996,543,031 879,980,441 104,485,742
-------------- ------------ -------------- -------------- -------------------- --------------
End of year............ $4,802,992,002 $325,701,680 $1,123,455,002 $1,092,945,600 $1,994,653,222 $207,581,524
-------------- ------------ -------------- -------------- -------------------- --------------
-------------- ------------ -------------- -------------- -------------------- --------------
Accumulated
undistributed
(distribution in
excess of) net
investment income..... $ 990,092 $ 1,762,527 $ 977,108 $ (527,438) $ 3,949,537 $ 547,755
-------------- ------------ -------------- -------------- -------------------- --------------
-------------- ------------ -------------- -------------- -------------------- --------------
CHANGE IN CAPITAL SHARES
OUTSTANDING:
Shares sold.............. 373,368,266 36,817,301 319,711,524 127,140,923 430,488,870 85,766,460
Reinvested
distributions........... 76,688,687 17,908,502 27,848,903 66,285,199 32,437,147 5,312,136
Shares repurchased....... (226,071,746) (62,504,975) (217,918,590) (57,436,791) (9,921,919) (3,947,987)
-------------- ------------ -------------- -------------- -------------------- --------------
Net increase (decrease)
in capital shares
outstanding............. $ 223,985,207 $ (7,779,172) $ 129,641,837 $ 135,989,331 $ 453,004,098 $ 87,130,609
-------------- ------------ -------------- -------------- -------------------- --------------
-------------- ------------ -------------- -------------- -------------------- --------------
<CAPTION>
HARTFORD HARTFORD
SMALL COMPANY MIDCAP
FUND, INC. FUND, INC.*
-------------- ------------
<S> <C> <C>
OPERATIONS:
Net investment
income................ $ 88,783 $ 24,960
Net realized gain
(loss) on
investments........... 12,450,126 (122,413)
Net unrealized
appreciation
(depreciation) of
investments........... 1,186,607 1,513,711
-------------- ------------
Net increase (decrease)
in net assets
resulting from
operations............ 13,725,516 1,416,258
-------------- ------------
DISTRIBUTIONS TO
SHAREHOLDERS (CLASS IA):
From net investment
income................ (95,955) (24,500)
From net realized gain
on investments........ (9,778,063) --
-------------- ------------
Total distributions.... (9,874,018) (24,500)
CAPITAL SHARE
TRANSACTIONS:
Proceeds from sale of
shares................ 161,029,937 26,374,232
Reinvested
distributions......... 9,859,112 21,452
Cost of shares
repurchased........... (6,783,034) (198,535)
-------------- ------------
Net increase (decrease)
in net assets
resulting from capital
share transactions.... 164,106,015 26,197,149
-------------- ------------
Net increase in net
assets................ 167,957,513 27,588,907
NET ASSETS:
Beginning of year...... 42,811,921 --
-------------- ------------
End of year............ $210,769,434 $ 27,588,907
-------------- ------------
-------------- ------------
Accumulated
undistributed
(distribution in
excess of) net
investment income..... $ 46 $ 460
-------------- ------------
-------------- ------------
CHANGE IN CAPITAL SHARES
OUTSTANDING:
Shares sold.............. 132,781,679 24,427,494
Reinvested
distributions........... 8,233,190 18,866
Shares repurchased....... (5,739,202) (183,467)
-------------- ------------
Net increase (decrease)
in capital shares
outstanding............. $135,275,667 $ 24,262,893
-------------- ------------
-------------- ------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THIS FINANCIAL STATEMENT.
MF-55
<PAGE>
HARTFORD MUTUAL FUNDS
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
1. ORGANIZATION:
Hartford Bond HLS Fund, Inc., Hartford Stock HLS Fund, Inc., Hartford Money
Market HLS Fund, Inc., Hartford Advisers HLS Fund, Inc., Hartford Capital
Appreciation HLS Fund, Inc., Hartford Mortgage Securities HLS Fund, Inc.,
Hartford Index HLS Fund, Inc., Hartford International Opportunities HLS
Fund, Inc., Hartford Dividend and Growth HLS Fund, Inc., Hartford
International Advisers HLS Fund, Inc., Hartford Small Company HLS Fund,
Inc., Hartford MidCap HLS Fund, Inc. and Hartford Series Fund, Inc.
(comprised of Hartford Growth and Income HLS Fund, Hartford High Yield HLS
Fund and Hartford Global Leaders HLS Fund) (each a "Fund" or together the
"Funds") are organized under the laws of the State of Maryland and are
registered with the Securities and Exchange Commission (SEC) under the
Investment Company Act of 1940, as amended, as diversified open-end
management investment companies.
The Funds serve as the underlying investment vehicles for certain variable
annuity and variable life insurance separate accounts and group pension
contracts of Hartford Life Insurance Company and Hartford Life and Annuity
Insurance Company (collectively, The Hartford Life Insurance Companies). The
Hartford Life Insurance Companies are affiliates of the Funds. The Funds,
which have different investment objectives and policies, are described
below.
<TABLE>
<S> <C>
Hartford Bond HLS Fund, Inc. Seeks maximum current income consistent with
(formerly Hartford Bond Fund, Inc.) preservation of capital through investing
primarily in high-grade government and corporate
bonds and other debt securities.
Hartford Stock HLS Fund, Inc. Seeks long-term capital growth through investment
(formerly Hartford Stock Fund, Inc.) in a diversified portfolio of equity securities.
Hartford Money Market HLS Fund, Inc. Seeks a high level of current income consistent
(formerly HVA Money Market Fund, Inc.) with liquidity and the need for preservation of
capital through investment in high-quality
money-market securities.
Hartford Advisers HLS Fund, Inc. Seeks maximum long-term total rate of return
(formerly Hartford Advisers Fund, Inc.) (capital growth and current income) through
investment in a varying mix of stocks, bonds and
money market instruments.
Hartford Capital Appreciation HLS Fund, Inc. Seeks growth of capital through investment in
(formerly Hartford Capital Appreciation Fund, equity securities of companies with high growth
Inc.) potential, including small, medium and large
companies.
Hartford Mortgage Securities HLS Fund, Inc. Seeks a high level of current income by investing
(formerly Hartford Mortgage Securities Fund, primarily in mortgage-backed securities, including
Inc.) securities issued by Government National Mortgage
Association.
Hartford Index HLS Fund, Inc. Seeks to approximate the price and yield
(formerly Hartford Index Fund, Inc.) performance represented by the Standard & Poor's
500 Composite Stock Price Index through
investments in common stocks.
Hartford International Opportunities HLS Fund, Seeks growth of capital through investing
Inc. primarily in foreign equity securities issues.
(formerly Hartford International Opportunity
Fund, Inc.)
Hartford Dividend and Growth HLS Fund, Inc. Seeks a high level of current income consistent
(formerly Hartford Dividend and Growth Fund, with growth of capital and moderate investment
Inc.) risk. Primary investments are equity securities
and securities convertible into equity securities
that typically have above average yield.
</TABLE>
MF-56
<PAGE>
<TABLE>
<S> <C>
Hartford International Advisers HLS Fund, Inc. Seeks a long-term total rate of return consistent
(formerly Hartford International Advisors Fund, with moderate risk. Investments include a mix of
Inc.) debt, equity and money market instruments
primarily with foreign issuers.
Hartford Small Company HLS Fund, Inc. Seeks growth of capital by investing primarily in
(formerly Hartford Small Company Fund, Inc.) equity securities selected on the basis of
potential for capital appreciation.
Hartford MidCap HLS Fund, Inc. Seeks long term capital growth through capital
(formerly Hartford MidCap Fund, Inc.) appreciation by investing primarily in equity
securities.
Hartford Growth and Income HLS Fund Seeks growth of capital and current income by
investing primarily in equity securities with
earnings growth potential and steady or rising
dividends.
Hartford High Yield Bond HLS Fund Seeks high current income, growth of capital is a
secondary objective.
Hartford Global Leaders HLS Fund Seeks growth of capital by investing primarily in
equity securities selected on the basis of
potential for capital appreciation.
</TABLE>
Each Fund, with the exception of Hartford Mortgage Securities HLS, Hartford
Index HLS, Hartford International Advisers HLS and Hartford MidCap HLS Funds
are divided into Class IA and IB shares. Each class is offered at net asset
value without a sales charge and is subject to the same expenses except that
the Class IB shares are subject to distribution fees charged pusuant to a
Rule 12b-1 plan. Distribution and Service Plans have been adopted in
accordance with rule 12b-1 of the Investment Company Act of 1940, as
amended.
2. SIGNIFICANT ACCOUNTING POLICIES:
The following is a summary of significant accounting policies of the Funds,
which are in accordance with generally accepted accounting principles in the
investment company industry:
a) SECURITY TRANSACTIONS--Security transactions are recorded on the trade
date (the day the order to buy or sell is executed). Security gains and losses
are determined on the basis of identified cost.
b) SECURITY VALUATION--Debt securities (other than short-term obligations
are valued on the basis of valuations furnished by an unaffiliated pricing
service which determines valuations for normal institutional size trading
units of debt securities. Mortgage securities are valued at the bid price.
Short-term securities held in Hartford Money Market HLS Fund, Inc. are
valued at amortized cost or original cost plus accrued interest
receivable, both of which approximate market value. In the remaining
Funds, short-term investments purchased with a maturity of 60 days or less
are valued at amortized cost, which approximates market value. Short-term
investments purchased with a maturity of more than 60 days are valued
based on market quotations until the remaining days to maturity become
less than 61 days. From such time until maturity, the investments are
valued at amortized cost.
Equity securities are valued at the last sales price reported on principal
securities exchanges on which such securities are traded (domestic or
foreign) or on the principal over-the-counter market on which such
securities are traded as of the close of business on the day the
securities are being valued. If no sale occurred on a particular day and
in the case of certain equity securities traded over-the-counter, then
such securities are valued at the mean between the bid and asked prices.
Securities quoted in foreign currencies are translated into U.S. dollars
at the prevailing exchange rates at the end of each business day. Options
are valued at the last sales price; if no sale took place on such day,
then options are valued at the mean between the bid and asked prices.
Securities for which market quotations are not readily available and all
other assets are valued in good faith at their fair values under the
direction of, the Funds' Board of Directors.
c) FOREIGN CURRENCY TRANSACTIONS--The accounting records of the Funds are
maintained in U.S. dollars. All assets and liabilities initially expressed in
foreign currencies are converted into U.S. dollars at the prevailing
exchange rates.
MF-57
<PAGE>
HARTFORD MUTUAL FUNDS
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1998
Purchases and sales of investment securities, dividend and interest income
and certain expenses are translated at the rates of exchange prevailing on
the respective dates of such transactions.
The Funds do not isolate that portion of the results of operations
resulting from changes in the foreign exchange rates on investments from
the fluctuations arising from changes in the market prices of securities
held. Such fluctuations are included with the net realized and unrealized
gain or loss on investments in the accompanying financial statements.
Net realized foreign exchange gains or losses arise from sales of foreign
currencies and the difference between asset and liability amounts
initially stated in foreign currencies and the U.S. dollar value of the
amounts actually received or paid. Net unrealized foreign exchange gains
or losses arise from changes in the value of other assets and liabilities
at the end of the reporting period, resulting from changes in the exchange
rates.
d) 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. At the time the Funds enter into a repurchase
agreement, the value of the underlying collateral security(ies), including
accrued interest, will be equal to or exceed the value of the repurchase
agreement and, in the case of repurchase agreements exceeding one day, the
value of the underlying security(ies), including accrued interest, is
required during the term of the agreement to be equal to or exceed the
value of the repurchase agreement. Securities which serve to collateralize
the repurchase agreement are held by each Fund's custodian in book entry
or physical form in the custodial account of the Fund. Repurchase
agreements are valued at cost plus accrued interest receivable.
e) JOINT TRADING ACCOUNT--Pursuant to an exemptive order issued by the SEC,
the Funds may transfer uninvested cash balances into a joint trading account
managed by The Hartford Investment Management Company (HIMCO) or
Wellington Management Company, LLP (Wellington). These balances may be
invested in one or more repurchase agreements and/or short-term money
market instruments.
f) FUTURES, OPTIONS ON FUTURES AND OPTIONS TRANSACTIONS--The Funds enter
into futures contracts to retain their cash balance and yet be exposed to the
market, thereby providing the liquidity necessary to accommodate
redemptions while at the same time providing shareholders with the
investment return of a fully invested portfolio. A futures contract is an
agreement between two parties to buy and sell a security at a set price on
a future date. When the Funds enter into such contracts, they are required
to deposit with their custodian an amount of "initial margin" of cash or
U.S. Treasury bills. Subsequent payments, called maintenance margin, to
and from the broker-dealer, are made on a daily basis as the price of the
underlying debt security fluctuates, making the long and short positions
in the futures contract more or less valuable (i.e., mark-to-market),
which results in an unrealized gain or loss to the Funds. The market value
of a traded futures contract is the last sale price. In the absence of a
last sale price, the last offering price is used. In the absence of either
of these prices, fair value is determined according to procedures
established by the Funds' Board of Directors. The variation margin on
futures contracts is included in excess of cash, receivables and other
assets over liabilities, or excess of liabilities over cash, receivables
and other assets, as applicable, in each Funds' Statement of Net Assets.
At any time prior to the expiration of the futures contract, the Funds may
close the position by taking an opposite position which would operate to
terminate the position in the futures contract. A final determination of
maintenance margin is then made, additional cash is required to be paid by
or released to the Funds and the Funds realize a gain or loss.
The premium paid by the Fund for the purchase of a call or put option is
included in the Fund's Statement of Net Assets as excess of cash,
receivables and other assets over liabilities or excess of liabilities
over cash, receivables and other assets and subsequently
"marked-to-market" to reflect the current market value of the option
purchased as of the end of the reporting period. If an option which the
Fund has purchased expires on its stipulated expiration date, the Fund
realizes a loss in the amount of the cost of the option. If the Fund
enters into a closing transaction, it realizes a gain or loss, depending
on whether the proceeds from the sale are greater or less than the cost of
the option. If the Fund exercises a put option, it realizes a gain or loss
from the sale of the underlying security and the proceeds from such sale
will be decreased by the premium originally paid. If the Fund exercises a
call option, the cost of the security which the Fund purchases upon
exercise will be increased by the premium originally paid to buy the call.
MF-58
<PAGE>
The funds may write covered options. "Covered" means that so long as the
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 of the
covered option at 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 or other liquid securities having a value equal to the fluctuating
market value of the option securities or currencies. The 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.
The Funds' option activity was as follows during 1998:
HLS DIVIDEND AND GROWTH FUND
<TABLE>
<CAPTION>
OPTIONS CONTRACTS
WRITTEN DURING THE
PERIOD
------------------------
NUMBER OF DOLLAR
CALL WRITES CONTRACTS AMOUNTS
- ---------------------------------------- --------- ------------
<S> <C> <C>
Beginning of Period..................... 0 $ 0
During the Period....................... 44,254 3,733,685
Expired during the period............... (1,146) (90,855)
Closed during the period................ (33,790) (2,752,267)
Exercised during the period............. (1,668) (205,958)
--------- ------------
Balance at the end of period............ 7,650 $ 684,605
--------- ------------
--------- ------------
</TABLE>
<TABLE>
<CAPTION>
OPTIONS CONTRACTS
WRITTEN DURING THE
PERIOD
------------------------
NUMBER OF DOLLAR
PUT PURCHASES CONTRACTS AMOUNTS
- ---------------------------------------- --------- ------------
<S> <C> <C>
Beginning of Period..................... 0 $ 0
During the Period....................... 11,249 1,109,195
Expired during the period............... 0 0
Closed during the period................ (11,249) (1,109,195)
Exercised during the period............. 0 0
--------- ------------
Balance at the end of period............ 0 $ 0
--------- ------------
--------- ------------
</TABLE>
g) FORWARD FOREIGN CURRENCY CONTRACTS--As of December 31, 1998, Hartford
International Opportunities HLS Fund, Inc. and Hartford International Advisers
HLS Fund, Inc., had entered into forward foreign currency exchange
contracts that obligate the Funds to repurchase/replace or sell currencies
at specified future dates. The Funds enter into forward foreign currency
contracts to hedge against adverse fluctuations in exchange rates between
currencies. The forward foreign currency contracts' costs are included in
excess of cash, receivables and other assets over liabilities or excess of
liabilities over cash, receivables and other assets, as applicable, in the
Funds' Statement of Net Assets.
Forward foreign currency contracts involve elements of market risk in
excess of the amount reflected in the Statement of Net Assets. In
addition, risks may arise upon entering into these contracts from the
potential inability of the counterparties to meet the terms of the
contracts and from unanticipated movements in the value of the foreign
currencies relative to the U.S. dollar.
h) FEDERAL INCOME TAXES--For federal income tax purposes, the Funds intend
to continue to qualify as regulated investment companies under Subchapter M of
the Internal Revenue Code by distributing substantially all of their
taxable net investment income and net realized capital gains to their
shareholders or otherwise complying with the requirements of regulated
investment companies. Accordingly, no provision for federal income taxes
has been made in the accompanying financial statements.
i) FUND SHARE VALUATION AND DISTRIBUTIONS TO SHAREHOLDERS--Orders for the
Funds' shares are executed in accordance with the investment instructions of the
contract holders. Dividend income is accrued as of the ex-dividend date,
except that certain dividends for foreign securities where the ex-dividend
date may have passed, are recorded as soon as the fund is informed of the
ex-dividend data in the exercise of due diligence. Interest income and
expenses are accrued on a daily basis. The net asset value of each Fund's
shares is determined as of the close of each business day
MF-59
<PAGE>
HARTFORD MUTUAL FUNDS
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1998
of the New York Stock Exchange (the Exchange). Orders for the purchase of
a Fund's shares received prior to the close of the Exchange on any day on
which the Fund is open for business are priced at the per-share net asset
value determined as of the close of the Exchange. Orders received after
the close of the Exchange, or on a day on which the Exchange and/or the
Fund is not open for business, are priced at the next determined per-share
net asset value.
Dividends are declared by the Funds' Board of Directors based upon the
investment performance of the respective Funds. The policy of all funds
except the Hartford Money Market HLS Fund, Inc. is to pay dividends from
net investment income and distribute realized capital gains, if any,
annually.
Hartford Money Market HLS Fund, Inc. seeks to maintain a stable net asset
value per share of $1.00 by declaring a daily dividend from net investment
income, including net short-term capital gains and losses, and by valuing
its investments using the amortized cost method. Dividends are distributed
monthly.
Distributions from net investment income, realized capital gains and
capital are determined in accordance with federal income tax regulations
which may differ from generally accepted accounting principles. These
differences include the treatment of non-taxable dividends, expiring
capital loss carryforwards, foreign currency gains and losses,
partnerships, losses deferred due to wash sales and excise tax
regulations. Permanent book and tax basis differences relating to
shareholder distributions result in reclassifications to capital accounts
(see Note 7).
j) USE OF ESTIMATES--The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities as of the date of the financial statements and the reported
amounts of income and expenses during the period. Operating results in the
future could vary from the amounts derived from management's estimates.
k) RESTRICTED SECURITIES--Each Fund is permitted to invest up to 15% of its
net assets in illiquid securities, except for Money Market HLS Fund, Inc., which
may invest up to 10% in such securities. "Illiquid Securities" are those
that may not be sold or disposed of in the ordinary course of business, at
approximately the price used to determine a Fund's net asset value per
share. Each Fund may also 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
established by the Funds' Board of Directors.
At December 31, 1998, the Funds held the following restricted securities
(excluding 144A issues):
<TABLE>
<CAPTION>
ACQUISITION MARKET % OF
FUND SECURITY DATE COST VALUE NET ASSETS
- ------------------------- ------------------------- ----------- ------------ ----------- ----------
<S> <C> <C> <C> <C> <C>
Capital Appreciation HLS
Fund, Inc............... Intermedia Communications 10/15/98 $ 342,225 $ 217,971 0.004%
Capital Appreciation HLS
Fund, Inc............... SGW Holding Corporation 8/15/97 $ 11,311,018 $ 2,736,360 0.047%
Small Company HLS Fund,
Inc..................... SGW Holding Corporation 8/15/97 $ 599,992 $ 145,150 0.041%
</TABLE>
3. EXPENSES:
a) INVESTMENT MANAGEMENT AND ADVISORY AGREEMENTS--HL Investment Advisors,
Inc. (HL Advisors) an indirect majority-owned subsidiary of The Hartford
Financial Services Group, Inc. (The Hartford), serves as investment
manager to the Funds pursuant to Investment Management Agreements approved
by each Funds' Board of Directors and shareholders.
MF-60
<PAGE>
The schedule below reflects the rates of compensation paid to HL Advisors
for services rendered:
HARTFORD INDEX HLS FUND, INC.
<TABLE>
<CAPTION>
AVERAGE DAILY NET ASSETS ANNUAL RATE
- -------------------------------------------------- -----------
<S> <C>
All Assets 0.200%
</TABLE>
HARTFORD MORTGAGE SECURITIES HLS FUND, INC.
AND HARTFORD MONEY MARKET HLS FUND, INC.
<TABLE>
<CAPTION>
AVERAGE DAILY NET ASSETS ANNUAL RATE
- -------------------------------------------------- -----------
<S> <C>
All Assets 0.250%
</TABLE>
HARTFORD BOND HLS FUND, INC.
AND HARTFORD STOCK HLS FUND, INC.
<TABLE>
<CAPTION>
AVERAGE DAILY NET ASSETS ANNUAL RATE
- -------------------------------------------------- -----------
<S> <C>
On first $250 million .325%
On next $250 million .300
On next $500 million .275
Over $1 billion .250
</TABLE>
HARTFORD ADVISERS HLS FUND, INC.,
HARTFORD CAPITAL APPRECIATION HLS FUND, INC.,
HARTFORD INTERNATIONAL OPPORTUNITIES HLS FUND, INC.,
HARTFORD DIVIDEND AND GROWTH HLS FUND, INC.,
HARTFORD INTERNATIONAL ADVISERS HLS FUND, INC.,
HARTFORD SMALL COMPANY HLS FUND, INC.,
HARTFORD MIDCAP HLS FUND, INC.,
HARTFORD GROWTH AND INCOME HLS FUND,
HARTFORD HIGH YIELD HLS FUND AND
HARTFORD GLOBAL LEADERS HLS FUND
<TABLE>
<CAPTION>
AVERAGE DAILY NET ASSETS ANNUAL RATE
- -------------------------------------------------- -----------
<S> <C>
On first $250 million .575%
On next $250 million .525
On next $500 million .475
Over $1 billion .425
</TABLE>
HL Advisors has agreed to waive its fees for the Hartford Growth and
Income HLS Fund, Inc., Hartford High Yield HLS Fund, Inc. and Hartford
Global Leaders HLS Fund, Inc. and until the net assets of these Funds,
excluding assets contributed by companies affiliated with HL Advisors,
reaches $20 million. Total fees waived during 1998 amounted to $38,069,
$19,214 and $5,826 on Hartford Growth and Income HLS Fund, Hartford High
Yield HLS Fund and Hartford Global Leaders HLS Fund, respectively.
Pursuant to investment services agreements between HL Advisors and HIMCO,
HIMCO provides the day-to-day investment management services to the
Hartford Bond HLS Fund, Inc., Hartford Money Market HLS Fund, Inc.,
Hartford Mortgage Securities HLS Fund, Inc., Hartford Index HLS Fund, Inc.
and Hartford High Yield HLS Fund. HIMCO is a wholly-owned subsidiary of
The Hartford.
Pursuant to sub-advisory agreements between HL Advisors and Wellington,
Wellington provides the day-to-day investment management services to the
Hartford Stock HLS Fund, Inc., Hartford Advisers HLS Fund, Inc., Hartford
Capital Appreciation HLS Fund, Inc., Hartford International Opportunities
HLS Fund, Inc., Hartford Dividend and Growth HLS Fund, Inc., Hartford
International Advisers HLS Fund, Inc., Hartford Small Company HLS Fund,
Inc., Hartford MidCap HLS Fund, Inc., Hartford Growth and Income HLS Fund
and Hartford Global Leaders HLS Fund.
Wellington and HIMCO determine the purchase and sale of portfolio
securities and place such orders for execution in the name of the
respective Fund. In conjunction with their investment activity, Wellington
and HIMCO regularly
MF-61
<PAGE>
HARTFORD MUTUAL FUNDS
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1998
furnish reports to the Funds' Board of Directors concerning economic
forecasts, investment strategy, portfolio activity and performance of the
Funds.
b) ADMINISTRATIVE SERVICES AGREEMENT--Under the Administrative Services
Agreement between Hartford Life Insurance Company (HL and each of the Funds, HL
provides administrative services to the Funds and receives monthly
compensation at the annual rate of .175% of each Fund's average daily net
assets. The Funds assume and pay certain other expenses (including, but
not limited to, shareholder accounting, state taxes and directors' fees).
Directors' fees represent remuneration paid or accrued to directors not
affiliated with HL or any other related company.
c) OPERATING EXPENSES--Allocable expenses of the Funds are charged to each
Fund based on the ratio of the net assets of each fund to the combined net
assets of the Funds. Nonallocable expenses are charged to each fund based
on specific identification.
d) EXPENSE OFFSET--The Funds have entered into certain expense offset
arrangements with the Custodian Bank. The amount of the Funds' expense
reductions is shown on the accompanying statements of operations as
Custodian expense offset.
e) DISTRIBUTION PLAN FOR CLASS IB SHARES--Each Fund has adopted a
Distribution Plan pursuant to Rule 12b-1 under the 1940 Act for the Class IB
shares. 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.
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.
4. TAX COST AND UNREALIZED APPRECIATION (DEPRECIATION) ON INVESTMENTS:
As of December 31, 1998, the aggregate gross unrealized appreciation and
depreciation of all investments, based on cost for federal income tax
purposes, was as follows:
<TABLE>
<CAPTION>
AGGREGATE GROSS AGGREGATE GROSS NET UNREALIZED
UNREALIZED UNREALIZED APPRECIATION/
FUND TAX COST APPRECIATION DEPRECIATION DEPRECIATION
- ------------------------------ --------------- ---------------- ---------------- ---------------
<S> <C> <C> <C> <C>
Hartford Bond HLS Fund,
Inc.......................... $ 871,497,170 $ 27,479,821 $ (4,937,702) $ 22,542,119
Hartford Stock HLS Fund,
Inc.......................... 4,693,215,246 2,635,787,778 (144,901,670) 2,490,886,108
Hartford Advisers HLS Fund,
Inc.......................... 8,805,451,830 3,107,491,802 (143,562,091) 2,963,929,711
Hartford Capital Appreciation
HLS Fund, Inc................ 4,501,200,224 1,791,961,279 (485,540,317) 1,306,420,962
Hartford Mortgage Securities
HLS Fund, Inc................ 350,385,543 5,191,077 (544,327) 4,646,750
Hartford Index HLS Fund,
Inc.......................... 1,242,025,166 663,685,253 (49,607,059) 614,078,194
Hartford International
Opportunities HLS Fund,
Inc.......................... 1,061,010,574 169,270,545 (33,767,509) 135,503,036
Hartford Dividend & Growth HLS
Fund, Inc.................... 4,960,802,783 1,330,813,019 (146,689,660) 1,184,123,359
Hartford International
Advisers HLS Fund, Inc....... 269,337,618.59 25,313,809 (4,928,644) 20,385,165
Hartford Small Company HLS
Fund, Inc.................... 289,476,601 72,775,395 (15,192,480) 57,582,915
Hartford MidCap Fund HLS Fund,
Inc.......................... 123,705,221 22,481,115 (3,839,351) 18,641,764
Hartford Growth and Income HLS
Fund......................... 44,652,602 7,190,515 (638,937) 6,551,578
Hartford High Yield HLS
Fund......................... 14,249,054 313,256 (151,378) 161,878
Hartford Global Leaders HLS
Fund......................... 5,276,887 877,516 (14,740) 862,776
</TABLE>
MF-62
<PAGE>
5. AFFILIATE HOLDINGS:
a) As of December 31, 1998, HL Investment Advisers, Inc. held direct
interests in shares as follows:
<TABLE>
<CAPTION>
PERCENT OF
FUND SHARES TOTAL SHARES
- ---------------------------------------- --------- ------------
<S> <C> <C>
Hartford MidCap HLS Fund, Inc........... 3,000,000 3.01%
Hartford Growth and Income HLS Fund..... 2,990,000 14.01
Hartford High Yield HLS Fund............ 9,900,000 69.50
Hartford Global Leaders HLS Fund........ 2,970,000 66.25
</TABLE>
b) As of December 31, 1998, certain HL group pension contracts held direct
interests in shares as follows:
<TABLE>
<CAPTION>
PERCENT OF
FUND SHARES TOTAL SHARES
- ---------------------------------------- ---------- ------------
<S> <C> <C>
Hartford Bond HLS Fund, Inc............. 8,824,895 1.06%
Hartford Stock HLS Fund, Inc............ 5,383,104 0.46
Hartford Money Market HLS Fund Inc...... 30,104,713 3.45
Hartford Advisers HLS Fund, Inc......... 35,408,305 0.89
Hartford Capital Appreciation HLS Fund,
Inc.................................... 24,653,150 2.02
Hartford Mortgage Securities HLS Fund,
Inc.................................... 16,876,477 5.13
Hartford Index HLS Fund, Inc............ 33,164,714 6.41
Hartford International Opportunities HLS
Fund, Inc.............................. 11,572,560 1.31
Hartford Dividend and Growth HLS Fund,
Inc.................................... 8,684,808 0.62
Hartford International Advisers HLS
Fund, Inc.............................. 1,940,981 0.78
Hartford Small Company HLS Fund, Inc.... 4,821,686 1.82
Hartford MidCap HLS Fund, Inc........... 43,464 0.04
</TABLE>
6. INVESTMENT TRANSACTIONS:
For the year ended December 31, 1998, aggregate purchases and sales of
investment securities (excludes short-term investments) were as follows:
<TABLE>
<CAPTION>
PROCEEDS FROM
FUND COST OF PURCHASES SALES
- ---------------------------------------- ------------------ ------------------
<S> <C> <C>
Hartford Bond HLS Fund, Inc............. $1,133,799,470 $ 820,763,031
Hartford Stock HLS Fund, Inc............ 2,452,300,800 1,499,218,395
Hartford Advisers HLS Fund, Inc......... 5,094,408,319 3,567,912,122
Hartford Capital Appreciation HLS Fund,
Inc.................................... 2,945,768,461 2,547,813,230
Hartford Mortgage Securities HLS Fund,
Inc.................................... 732,595,334 646,628,954
Hartford Index HLS Fund, Inc............ 446,989,710 63,849,733
Hartford International Opportunities HLS
Fund, Inc.............................. 1,722,340,014 1,689,451,513
Hartford Dividend and Growth HLS Fund,
Inc.................................... 1,882,004,424 1,196,771,032
Hartford International Advisers HLS
Fund, Inc.............................. 380,030,754 335,952,711
Hartford Small Company HLS Fund, Inc.... 687,530,998 598,406,783
Hartford MidCap HLS Fund, Inc........... 194,415,148 102,047,032
Hartford Growth and Income HLS Fund..... 25,116,565 3,671,285
Hartford High Yield HLS Fund............ 15,651,886 1,693,300
Hartford Global Leaders HLS Fund........ 6,061,213 2,004,751
</TABLE>
7. RECLASSIFICATION OF CAPITAL ACCOUNTS:
In accordance with AICPA statement of position 93-2, DETERMINATION,
DISCLOSURE, AND FINANCIAL STATEMENT PRESENTATION OF INCOME, CAPITAL GAIN,
AND RETURN OF CAPITAL DISTRIBUTIONS BY INVESTMENT COMPANIES, the Funds have
recorded several reclassifications in their capital accounts. These
reclassifications had no impact on the net asset value per shares of the
Funds and are designed generally to present undistributed income and
realized gains on a tax basis which is considered to be more informative to
the shareholder. The reclassifications are a result of temporary and
permanent differences between GAAP and tax accounting as a result of losses
on wash sale transactions, paydown gains and losses on mortgage-backed
securities, foreign currency gains and losses, post October loss deferrals
and realized and unrealized gains and losses on passive foreign investment
companies. Therefore, the source of the Funds' distributions may be shown in
the accompanying statement of changes in net assets as from, or in excess of
net investment income, from, or in excess of net
MF-63
<PAGE>
HARTFORD MUTUAL FUNDS
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1998
realized gain on investments or from capital depending on the type of book
and tax debt that may exist. As of December 31, 1998 the Funds recorded the
following reclassifications to increase (decrease) the accounts listed
below.
<TABLE>
<CAPTION>
ACCUMULATED
ACCUMULATED UNDISTRIBUTED
UNDISTRIBUTED (DISTRIBUTION
(DISTRIBUTION IN EXCESS OF)
IN EXCESS OF) NET REALIZED
NET INVESTMENT GAIN ON PAID-IN
FUND INCOME INVESTMENTS SURPLUS
- ----------------------------------- --------------- -------------- -------------
<S> <C> <C> <C>
Hartford Bond HLS Fund, Inc........ $ (5,182) $ 5,182 $ 0
Hartford Stock HLS Fund, Inc....... (23) 23 0
Hartford Advisers HLS Fund, Inc.... (94,584) 94,584 0
Hartford Capital Appreciation HLS
Fund, Inc......................... (576,558) 575,361 1,197
Hartford Mortgage Securities HLS
Fund, Inc......................... (316,821) 798,656 (481,835)
Hartford Index HLS Fund, Inc....... (10) 602,969 (602,959)
Hartford International
Opportunities HLS Fund, Inc....... (439,666) 439,624 42
Hartford Dividend and Growth HLS
Fund, Inc......................... 111,028 (111,028) 0
Hartford International Advisers HLS
Fund, Inc......................... 17,299,836 (1,345,031) (15,954,805)
Hartford Small Company HLS Fund,
Inc............................... 635,179 1,111 (636,290)
Hartford Midcap HLS Fund, Inc...... 120,812 (120,812) 0
Hartford Growth & Income HLS
Fund.............................. 0 0 0
Hartford High Yield HLS Fund....... (1,464) 1,464 0
Hartford Global Leaders HLS Fund... 1,191 (1,191) 0
</TABLE>
8. CAPITAL LOSS CARRY FORWARD:
At December 31, 1998, (tax year-end) the following Funds had capital loss
carry forwards for U.S. Federal Tax purposes of approximately:
<TABLE>
<CAPTION>
FUND AMOUNT YEAR OF EXPIRATION
- ---------------------------------------- ----------- ------------------
<S> <C> <C>
Hartford International Opportunities HLS
Fund, Inc.............................. $17,680,925 2006
Hartford Small Company HLS Fund, Inc.... 15,134,644 2006
Hartford Mortgage Securities HLS Fund,
Inc.................................... 7,251,161 2002
Hartford Growth & Income HLS Fund....... 44,062 2006
</TABLE>
9. TAX INFORMATION NOTICE (UNAUDITED):
For the year ended December 31, 1998, the following Funds distributed
long-term capital gains dividends as follows:
<TABLE>
<S> <C>
Hartford International Advisers HLS Fund, Inc..... $ 466,833
Hartford Index HLS Fund, Inc...................... 28,098,262
Hartford Capital Appreciation HLS Fund, Inc....... 364,341,473
Hartford Advisers HLS Fund, Inc................... 968,417,253
Hartford Stock HLS Fund, Inc...................... 587,225,084
Hartford Bond HLS Fund, Inc....................... 1,415,804
Hartford MidCap HLS Fund, Inc..................... 200,476
</TABLE>
MF-64
<PAGE>
10. CAPITAL SHARE TRANSACTIONS:
The following information is for the period ending December 31, 1998:
<TABLE>
<CAPTION>
HARTFORD STOCK HLS FUND, HARTFORD MONEY MARKET
HARTFORD BOND HLS FUND, INC. INC. HLS FUND, INC.
---------------------------- --------------------------- ------------------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
------------ -------------- ----------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
CLASS IA
Shares sold.............. 334,981,284 $ 366,472,552 226,124,652 $1,307,750,395 2,279,384,552 $2,279,385,544
Shares issued on
reinvestment of
distributions........... 39,579,874 42,744,216 40,523,153 227,976,510 36,079,243 36,079,243
Shares Redeemed.......... (66,010,394) (72,380,915) (91,923,857) (524,597,789) (2,055,458,998) (2,055,458,998)
------------ -------------- ----------- -------------- -------------- --------------
Net Increase............. 308,550,764 $ 336,835,853 174,723,948 $1,011,129,116 260,004,797 $ 260,005,789
------------ -------------- ----------- -------------- -------------- --------------
------------ -------------- ----------- -------------- -------------- --------------
</TABLE>
<TABLE>
<CAPTION>
HARTFORD CAPITAL
HARTFORD ADVISERS HLS FUND, APPRECIATION HARTFORD MORTGAGE SECURITIES
INC. HLS FUND, INC. HLS FUND, INC.
---------------------------- ---------------------------- ------------------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
------------ -------------- ------------ -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
CLASS IA
Shares sold.............. 567,555,489 $1,567,924,884 281,342,857 $1,257,555,081 57,937,610 $ 64,363,026
Shares issued on
reinvestment of
distributions........... 192,639,731 530,235,045 77,711,309 350,859,661 20,461,506 22,200,000
Shares Redeemed.......... (84,108,984) (231,335,882) (227,943,459) (1,005,136,346) (49,367,564) (54,920,899)
------------ -------------- ------------ -------------- -------------- --------------
Net Increase............. 676,086,236 $1,866,824,047 131,110,707 $ 603,278,396 29,031,552 $ 31,642,127
------------ -------------- ------------ -------------- -------------- --------------
------------ -------------- ------------ -------------- -------------- --------------
</TABLE>
<TABLE>
<CAPTION>
HARTFORD INDEX HLS FUND, HARTFORD INTERNATIONAL HARTFORD DIVIDEND AND GROWTH
INC. OPPORTUNITIES HLS FUND, INC. HLS FUND, INC.
---------------------------- ---------------------------- ------------------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
------------ -------------- ------------ -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
CLASS IA
Shares sold.............. 216,433,464 $ 689,009,410 313,574,429 $ 398,422,898 372,555,830 $ 763,971,073
Shares issued on
reinvestment of
distributions........... 13,976,294 44,600,001 66,706,915 87,853,994 60,744,430 124,543,520
Shares Redeemed.......... (103,754,732) (330,659,647) (341,346,342) (434,068,131) (51,918,413) (105,367,979)
------------ -------------- ------------ -------------- -------------- --------------
Net Increase............. 126,655,026 $ 402,949,764 38,935,002 $ 52,208,761 381,381,847 $ 783,146,614
------------ -------------- ------------ -------------- -------------- --------------
------------ -------------- ------------ -------------- -------------- --------------
</TABLE>
<TABLE>
<CAPTION>
HARTFORD INTERNATIONAL HARTFORD SMALL COMPANY
ADVISERS HLS FUND, INC. HLS FUND, INC. HARTFORD MIDCAP HLS FUND, INC.
---------------------------- ---------------------------- ------------------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
------------ -------------- ------------ -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
CLASS IA
Shares sold.............. 56,027,943 $ 63,375,108 221,875,243 $ 257,442,860 79,802,187 $ 100,347,290
Shares issued on
reinvestment of
distributions........... 27,522,863 29,712,912 2,958,223 3,776,000 747 916
Shares Redeemed.......... (12,689,383) (14,216,790) (134,668,328) (151,243,951) (4,365,974) (5,456,629)
------------ -------------- ------------ -------------- -------------- --------------
Net Increase............. 70,861,423 $ 78,871,230 90,165,138 $ 109,974,909 75,436,960 $ 94,891,577
------------ -------------- ------------ -------------- -------------- --------------
------------ -------------- ------------ -------------- -------------- --------------
</TABLE>
MF-65
<PAGE>
HARTFORD MUTUAL FUNDS
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1998
<TABLE>
<CAPTION>
HARTFORD GROWTH AND INCOME HARTFORD HIGH YIELD HLS HARTFORD GLOBAL LEADERS HLS
HLS FUND FUND FUND
---------------------------- --------------------------- ------------------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
------------ -------------- ----------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
CLASS IA
Shares sold.............. 22,409,375 $ 23,210,363 15,548,498 $ 15,659,286 5,396,366 $ 5,971,006
Shares issued on
reinvestment of
distributions........... 68,752 81,537 78,581 79,897 39,896 51,273
Shares Redeemed.......... (1,134,968) (1,198,878) (1,383,155) (1,424,406) (953,712) (1,171,496)
------------ -------------- ----------- -------------- -------------- --------------
Net Increase............. 21,343,159 $ 22,093,022 14,243,924 $ 14,314,777 4,482,550 $ 4,850,783
------------ -------------- ----------- -------------- -------------- --------------
------------ -------------- ----------- -------------- -------------- --------------
</TABLE>
<TABLE>
<CAPTION>
HARTFORD STOCK HLS FUND, HARTFORD MONEY MARKET
HARTFORD BOND HLS FUND, INC. INC. HLS FUND, INC.
---------------------------- --------------------------- ------------------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
------------ -------------- ----------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
CLASS IB
Shares sold.............. 5,125,307 $ 5,297,213 8,894,358 $ 9,242,551 2,658,059 $ 2,658,060
Shares issued on
reinvestment of
distributions........... 253,800 255,767 384,582 423,490 30,221 30,221
Shares Redeemed.......... (134,784) (140,616) (46,040) (48,752) (509,238) (509,238)
------------ -------------- ----------- -------------- -------------- --------------
Net Increase............. 5,244,323 $ 5,412,364 9,232,900 $ 9,617,289 2,179,042 $ 2,179,043
------------ -------------- ----------- -------------- -------------- --------------
------------ -------------- ----------- -------------- -------------- --------------
</TABLE>
<TABLE>
<CAPTION>
HARTFORD INTERNATIONAL
HARTFORD ADVISERS HLS FUND, HARTFORD CAPITAL OPPORTUNITIES
INC. APPRECIATION HLS FUND, INC. HLS FUND, INC.
---------------------------- --------------------------- ------------------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
------------ -------------- ----------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
CLASS IB
Shares sold.............. 31,357,674 $ 32,503,646 5,950,525 $ 5,572,551 680,037 $ 661,681
Shares issued on
reinvestment of
distributions........... 1,700,713 1,804,946 141,407 140,339 11,380 11,063
Shares Redeemed.......... (349,123) (351,233) (104,818) (94,618) (9,688) (9,161)
------------ -------------- ----------- -------------- -------------- --------------
Net Increase............. 32,709,264 $ 33,957,359 5,987,114 $ 5,618,272 681,729 $ 663,583
------------ -------------- ----------- -------------- -------------- --------------
------------ -------------- ----------- -------------- -------------- --------------
</TABLE>
<TABLE>
<CAPTION>
HARTFORD DIVIDEND AND GROWTH HARTFORD SMALL COMPANY HARTFORD GROWTH AND INCOME
HLS FUND, INC. HLS FUND, INC. HLS FUND
---------------------------- --------------------------- ------------------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
------------ -------------- ----------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
CLASS IB
Shares sold.............. 8,473,373 $ 8,276,226 708,407 $ 647,615 10,000 $ 10,000
Shares issued on
reinvestment of
distributions........... 255,001 256,481 -- -- -- --
Shares Redeemed.......... (177,503) (164,795) (3,241) (2,748) -- --
------------ -------------- ----------- -------------- -------------- --------------
Net Increase............. 8,550,871 $ 8,367,912 705,166 $ 644,867 10,000 $ 10,000
------------ -------------- ----------- -------------- -------------- --------------
------------ -------------- ----------- -------------- -------------- --------------
</TABLE>
MF-66
<PAGE>
<TABLE>
<CAPTION>
HARTFORD GLOBAL LEADERS
HARTFORD HIGH YIELD HLS FUND HLS FUND
---------------------------- ---------------------------
SHARES AMOUNT SHARES AMOUNT
------------ -------------- ----------- --------------
<S> <C> <C> <C> <C>
CLASS IB
Shares sold................... 100,000 $ 100,000 30,000 $ 30,000
Shares issued on reinvestment
of distributions............. -- -- -- --
Shares Redeemed............... -- -- -- --
------------ -------------- ----------- --------------
Net Increase.................. 100,000 $ 100,000 30,000 $ 30,000
------------ -------------- ----------- --------------
------------ -------------- ----------- --------------
</TABLE>
11. EUROPEAN MONETARY UNION:
On January 1, 1999, the European Monetary Union "EMU" introduced a new
single currency, the euro, which will replace the national currencies of the
participating members countries. Until 2002, the national currencies will
continue to exist, but exchange rates will be tied to the euro. The
introduction of the euro is likely to affect all stages of the investment
process, including trading, foreign exchange and accounting. Because this
change to a single currency is new, the introduction of the euro may result
in market volatility and may affect the business or financial conditions of
European issuers or of a Portfolio investing in European issuers. In
addition, while the conversion will eliminate currency risk among the
participating nations, currency risk between the euro and the U.S. dollar
remains a factor.
12. LINE OF CREDIT:
The Funds participate in a $500,000,000 committed revolving line of credit
facility. The facility is to be used for temporary or emergency purposes.
Under the arrangement, the Funds are required to own securities having a
market value in excess of 300% of the total bank borrowings. The interest
rate on borrowings varies depending on the nature of the loan. The facility
also requires a fee to be paid based on the amount of the commitment which
has not been utilized. During the year ended December 31, 1998, the Funds
did not have any borrowings under these facilities.
MF-67
<PAGE>
HARTFORD MUTUAL FUNDS
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
-- SELECTED PER-SHARE DATA(4) --
--------------------------------------------------------------------
NET REALIZED
AND
NET ASSET UNREALIZED DIVIDENDS
VALUE AT NET GAIN TOTAL FROM FROM NET
BEGINNING INVESTMENT (LOSS) ON INVESTMENT INVESTMENT
OF PERIOD INCOME INVESTMENTS OPERATIONS INCOME
---------- ----------- ------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
HARTFORD BOND HLS FUND,
INC.
For the Year Ended
December 31, 1998
Class 1A............... $1.050 $0.053 $ 0.032 $ 0.085 $(0.054)
For the Year Ended
December 31
1997................... 1.000 0.063 0.047 0.110 (0.060)
1996................... 1.028 0.064 (0.029) 0.035 (0.063)
1995................... 0.926 0.064 0.102 0.166 (0.064)
1994................... 1.044 0.060 (0.100) (0.040) (0.060)
From inception April 1,
1998, through December
31, 1998
Class 1B............... 1.000 0.021 0.038 0.059 (0.051)
HARTFORD STOCK HLS FUND,
INC.
For the Year Ended
December 31, 1998
Class 1A............... 5.123 0.051 1.622 1.673 (0.050)
For the Year Ended
December 31
1997................... 4.143 0.050 1.196 1.246 (0.049)
1996................... 3.527 0.060 0.763 0.823 (0.059)
1995................... 2.801 0.070 0.840 0.910 (0.070)
1994................... 3.099 0.061 (0.111) (0.050) (0.061)
From inception April 1,
1998, through December
31, 1998
Class 1B............... 1.000 0.004 0.145 0.149 (0.048)
HARTFORD MONEY MARKET HLS
FUND, INC.
For the Year Ended
December 31, 1998
Class 1A............... 1.000 0.051 (0.000) 0.051 (0.051)
For the Year Ended
December 31
1997................... 1.000 0.049 0.000 0.049 (0.049)
1996................... 1.000 0.050 0.000 0.050 (0.050)
1995................... 1.000 0.056 0.000 0.056 (0.056)
1994................... 1.000 0.039 0.000 0.039 (0.039)
From inception April 1,
1998, through December
31, 1998
Class 1B............... 1.000 0.037 0.000 0.037 (0.037)
HARTFORD ADVISERS HLS
FUND, INC.
For the Year Ended
December 31, 1998
Class 1A............... 2.527 0.061 0.546 0.607 (0.060)
For the Year Ended
December 31
1997................... 2.169 0.056 0.455 0.511 (0.055)
1996................... 1.958 0.059 0.255 0.314 (0.059)
1995................... 1.600 0.064 0.377 0.441 (0.064)
1994................... 1.752 0.054 (0.100) (0.046) (0.054)
From inception April 1,
1998, through December
31, 1998
Class 1B............... 1.000 0.010 0.109 0.119 (0.058)
HARTFORD CAPITAL
APPRECIATION HLS FUND,
INC.
For the Year Ended
December 31, 1998
Class 1A............... 4.410 0.025 0.525 0.550 (0.026)
For the Year Ended
December 31
1997................... 3.914 0.020 0.794 0.814 (0.022)
1996................... 3.490 0.022 0.655 0.677 (0.025)
1995................... 2.860 0.030 0.785 0.815 (0.030)
1994................... 3.052 0.011 0.070 0.081 (0.011)
From inception April 1,
1998, through December
31, 1998
Class 1B............... 1.000 0.002 (0.034) (0.032) (0.024)
HARTFORD MORTGAGE
SECURITIES HLS FUND,
INC.
For the Year Ended
December 31
1998................... 1.084 0.067 0.006 0.073 (0.067)
1997................... 1.056 0.071 0.022 0.093 (0.065)
1996................... 1.071 0.069 (0.018) 0.051 (0.066)
1995................... 0.984 0.068 0.087 0.155 (0.068)
1994................... 1.075 0.068 (0.086) (0.018) (0.068)
</TABLE>
(1) Annualized.
(2) Not annualized.
(4) Information presented relates to a share of capital stock outstanding for
the indicated period.
(5) Excluding mortgage dollar rolls.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THIS FINANCIAL STATEMENT.
MF-68
<PAGE>
<TABLE>
<CAPTION>
-- SELECTED PER-SHARE DATA --
-------------------------------------------------------------------------------------------------------
DISTRIBUTIONS DISTRIBUTIONS NET ASSET
IN EXCESS OF FROM NET REALIZED NET INCREASE VALUE AT
NET INVESTMENT GAINS ON DISTRIBUTIONS TOTAL (DECREASE) IN END
INCOME INVESTMENTS FROM CAPITAL DISTRIBUTIONS NET ASSETS VALUE OF PERIOD
--------------- ------------------ -------------- -------------- ----------------- ----------
<S> <C> <C> <C> <C> <C> <C>
HARTFORD BOND HLS FUND,
INC.
For the Year Ended
December 31, 1998
Class 1A............... $-- -$- $-- $(0.054) $0.031 $1.081
For the Year Ended
December 31
1997................... -- 0.000 -- (0.060) 0.050 1.050
1996................... -- 0.000 -- (0.063) (0.028) 1.000
1995................... -- 0.000 -- (0.064) 0.102 1.028
1994................... -- (0.018) -- (0.078) (0.118) 0.926
From inception April 1,
1998, through December
31, 1998
Class 1B............... -- -- -- (0.051) 0.008 1.008
HARTFORD STOCK HLS FUND,
INC.
For the Year Ended
December 31, 1998
Class 1A............... -- (0.184) -- (0.234) 1.439 6.562
For the Year Ended
December 31
1997................... -- (0.217) -- (0.266) 0.980 5.123
1996................... -- (0.148) -- (0.207) 0.616 4.143
1995................... -- (0.114) -- (0.184) 0.726 3.527
1994................... -- (0.187) -- (0.248) (0.298) 2.801
From inception April 1,
1998, through December
31, 1998
Class 1B............... -- -- -- (0.048) 0.101 1.101
HARTFORD MONEY MARKET HLS
FUND, INC.
For the Year Ended
December 31, 1998
Class 1A............... -- 0.000 -- (0.051) (0.000) 1.000
For the Year Ended
December 31
1997................... -- 0.000 -- (0.049) -- 1.000
1996................... -- 0.000 -- (0.050) -- 1.000
1995................... -- 0.000 -- (0.056) -- 1.000
1994................... -- 0.000 -- (0.039) -- 1.000
From inception April 1,
1998, through December
31, 1998
Class 1B............... -- -- -- (0.037) 0.000 1.000
HARTFORD ADVISERS HLS
FUND, INC.
For the Year Ended
December 31, 1998
Class 1A............... -- (0.089) -- (0.149) 0.458 2.985
For the Year Ended
December 31
1997................... -- (0.098) -- (0.153) 0.358 2.527
1996................... -- (0.044) -- (0.103) 0.211 2.169
1995................... -- (0.019) -- (0.083) 0.358 1.958
1994................... -- (0.052) -- (0.106) (0.152) 1.600
From inception April 1,
1998, through December
31, 1998
Class 1B............... -- -- -- (0.058) 0.061 1.061
HARTFORD CAPITAL
APPRECIATION HLS FUND,
INC.
For the Year Ended
December 31, 1998
Class 1A............... -- (0.175) -- (0.201) 0.349 4.759
For the Year Ended
December 31
1997................... -- (0.296) -- (0.318) 0.496 4.410
1996................... -- (0.228) -- (0.253) 0.424 3.914
1995................... -- (0.155) -- (0.185) 0.630 3.490
1994................... -- (0.262) -- (0.273) (0.192) 2.860
From inception April 1,
1998, through December
31, 1998
Class 1B............... -- -- -- (0.024) (0.008) 0.992
HARTFORD MORTGAGE
SECURITIES HLS FUND,
INC.
For the Year Ended
December 31
1998................... (0.003) -- (0.002) (0.072) 0.001 1.085
1997................... -- -- -- (0.065) 0.028 1.084
1996................... -- -- -- (0.066) (0.015) 1.056
1995................... -- -- -- (0.068) 0.087 1.071
1994................... -- (0.005) -- (0.073) (0.091) 0.984
<CAPTION>
-- RATIOS AND SUPPLEMEMENTAL DATA --
-------------------------------------------------------------------
RATIO OF
RATIO OF NET
NET ASSETS OPERATING INVESTMENT
AT END OF EXPENSES INCOME PORTFOLIO
PERIOD TO AVERAGE TO AVERAGE TURNOVER
TOTAL RETURN (IN THOUSANDS) NET ASSETS NET ASSETS RATE
------------ --------------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C>
HARTFORD BOND HLS FUND,
INC.
For the Year Ended
December 31, 1998
Class 1A............... 8.15%(2) $ 902,480 0.50% 5.86% 122.3%
For the Year Ended
December 31
1997................... 11.35 552,870 0.51 6.58 112.9(5)
1996................... 3.54 402,548 0.52 6.37 212.0
1995................... 18.49 342,495 0.53 6.51 215.0
1994................... (3.95) 247,458 0.55 6.23 328.8
From inception April 1,
1998, through December
31, 1998
Class 1B............... 5.89(2) 5,285 0.69(1) 5.54(1) --
HARTFORD STOCK HLS FUND,
INC.
For the Year Ended
December 31, 1998
Class 1A............... 33.47(2) 7,183,046 0.46 0.95 27.1
For the Year Ended
December 31
1997................... 31.38 4,713,322 0.45 1.11 31.6
1996................... 24.33 2,994,209 0.46 1.59 42.3
1995................... 34.10 1,876,884 0.48 2.23 52.9
1994................... (1.89) 1,163,158 0.50 2.17 63.8
From inception April 1,
1998, through December
31, 1998
Class 1B............... 14.91(2) 10,167 0.65(1) 0.73(1) --
HARTFORD MONEY MARKET HLS
FUND, INC.
For the Year Ended
December 31, 1998
Class 1A............... 5.25(2) 872,486 0.45 5.12 --
For the Year Ended
December 31
1997................... 5.31 612,480 0.44 5.21 --
1996................... 5.09 542,586 0.44 5.04 --
1995................... 5.74 339,709 0.45 5.57 --
1994................... 3.95 321,465 0.47 3.99 --
From inception April 1,
1998, through December
31, 1998
Class 1B............... 3.76(2) 2,179 0.64(1) 4.81(1) --
HARTFORD ADVISERS HLS
FUND, INC.
For the Year Ended
December 31, 1998
Class 1A............... 24.66(2) 11,805,411 0.63 2.40 36.7
For the Year Ended
December 31
1997................... 24.51 8,283,912 0.63 2.44 36.1
1996................... 16.62 5,879,529 0.63 2.92 53.8
1995................... 28.34 4,262,769 0.65 3.57 63.5
1994................... (2.74) 3,034,034 0.65 3.34 60.0
From inception April 1,
1998, through December
31, 1998
Class 1B............... 11.96(2) 34,714 0.83(1) 2.22(1) --
HARTFORD CAPITAL
APPRECIATION HLS FUND,
INC.
For the Year Ended
December 31, 1998
Class 1A............... 15.48(2) 5,807,480 0.64 0.59 51.2
For the Year Ended
December 31
1997................... 22.34 4,802,992 0.64 0.44 57.6
1996................... 20.70 3,386,670 0.65 0.60 85.4
1995................... 30.25 2,157,892 0.68 0.95 78.6
1994................... 2.50 1,158,644 0.72 0.40 73.3
From inception April 1,
1998, through December
31, 1998
Class 1B............... 1.65(2) 5,942 0.82(1) 0.30(1) --
HARTFORD MORTGAGE
SECURITIES HLS FUND,
INC.
For the Year Ended
December 31
1998................... 6.72 356,834 0.46 6.18 207.8
1997................... 9.01 325,702 0.45 6.60 46.5(5)
1996................... 4.99 325,495 0.45 6.67 201.0
1995................... 16.17 327,565 0.47 6.50 489.4
1994................... (1.61) 304,147 0.48 6.65 365.7
</TABLE>
(1) Annualized.
(2) Not annualized.
(4) Information presented relates to a share of capital stock outstanding for
the indicated period.
(5) Excluding mortgage dollar rolls.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THIS FINANCIAL STATEMENT.
MF-69
<PAGE>
HARTFORD MUTUAL FUNDS
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
<TABLE>
<CAPTION>
-- SELECTED PER-SHARE DATA (4) --
--------------------------------------------------------------------------------------
NET REALIZED
AND
NET ASSET UNREALIZED DIVIDENDS DISTRIBUTIONS
VALUE AT NET GAIN TOTAL FROM FROM NET IN EXCESS OF
BEGINNING INVESTMENT (LOSS) ON INVESTMENT INVESTMENT NET INVESTMENT
OF PERIOD INCOME INVESTMENTS OPERATIONS INCOME INCOME
---------- ----------- ------------- ----------- ----------- ---------------
<S> <C> <C> <C> <C> <C> <C>
HARTFORD INDEX HLS FUND,
INC.
For the Year Ended
December 31
1998................... $2.878 $0.032 $ 0.759 $ 0.791 $(0.027) $--
1997................... 2.382 0.035 0.692 0.727 (0.035) --
1996................... 2.028 0.044 0.393 0.437 (0.044) --
1995................... 1.522 0.044 0.507 0.551 (0.044) --
1994................... 1.546 0.038 (0.024) 0.014 (0.038) --
HARTFORD INTERNATIONAL
OPPORTUNITIES HLS FUND,
INC.
For the Year Ended
December 31, 1998
Class 1A............... 1.294 0.021 0.147 0.168 (0.019) --
For the Year Ended
December 31
1997................... 1.407 0.022 (0.019) 0.003 (0.012) --
1996................... 1.306 0.023 0.140 0.163 (0.025) --
1995................... 1.176 0.020 0.141 0.161 (0.020) --
1994................... 1.215 0.016 (0.039) (0.023) (0.016) --
From inception April 1,
1998, through December
31, 1998
Class 1B............... 1.000 0.003 (0.015) (0.012) (0.016) --
HARTFORD DIVIDEND AND
GROWTH HLS FUND, INC.
For the Year Ended
December 31, 1998
Class 1A............... 1.952 0.033 0.280 0.313 (0.035) --
For the Year Ended
December 31
1997................... 1.547 0.035 0.445 0.480 (0.031) --
1996................... 1.317 0.034 0.258 0.292 (0.034) --
1995................... 0.994 0.033 0.323 0.356 (0.033) --
From inception, March
8, 1994, through
December 31, 1994..... 1.000 0.024 (0.005) 0.019 (0.024) --
From inception April 1,
1998, through December
31, 1998
Class 1B............... 1.000 0.007 0.030 0.037 (0.031) --
HARTFORD INTERNATIONAL
ADVISERS HLS FUND, INC.
For the Year Ended
December 31
1998................... 1.175 0.064 0.082 0.146 (0.039) (0.006)
1997................... 1.167 0.056 0.006 0.062 (0.050) --
1996................... 1.109 0.040 0.093 0.133 (0.051) --
From inception, March
1, 1995, through
December 31, 1995..... 1.000 0.030 0.126 0.156 (0.030) --
HARTFORD SMALL COMPANY
HLS FUND, INC.
For the Year Ended
December 31, 1998
Class 1A............... 1.202 (0.002) 0.141 0.139 -- --
For the Year Ended
December 31
1997................... 1.069 0.001 0.195 0.196 (0.001) --
From inception, August
9, 1996 through
December 31, 1996..... 1.000 0.002 0.069 0.071 (0.002) --
From inception April 1,
1998, through December
31, 1998
Class 1B............... 1.000 (0.002) (0.011) (0.013) -- --
HARTFORD MIDCAP HLS FUND,
INC.
For the Year Ended
December 31
1998................... 1.137 (0.001) 0.303 0.302 (0.000) --
From inception, July
15, 1997 through
December 31........... 1.000 0.001 0.137 0.138 (0.001) --
HARTFORD GROWTH AND
INCOME HLS FUND
From inception, May 31,
1998 through December
31, 1998
Class 1A............... 1.000 0.005 0.185 0.190 (0.004) --
From inception, May 31,
1998 through December
31, 1998
Class 1B............... 1.000 0.009 0.088 0.097 (0.003) --
HARTFORD HIGH YIELD HLS
FUND
From inception,
September 21, 1998
through December 31,
1998
Class 1A............... 1.000 0.019 0.017 0.036 (0.019) --
From inception,
September 21, 1998
through December 31,
1998
Class 1B............... 1.000 0.022 0.014 0.036 (0.019) --
HARTFORD GLOBAL LEADERS
HLS FUND
From inception,
September 30, 1998
through December 31,
1998
Class 1A............... 1.000 0.001 0.318 0.319 (0.002) --
From inception,
September 30, 1998
through December 31,
1998
Class 1B............... 1.000 0.002 0.316 0.318 (0.001) --
</TABLE>
(1) Annualized.
(2) Not annualized.
(3) Management fees were waived until assets (excluding assets contributed by
companies affiliated with The Hartford Investment Management Company)
reached $20 million. The ratio of net investment income to average net
assets would have been lower if management fees were not waived.
(4) Information presented relates to a share of capital stock outstanding for
the indicated period.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THIS FINANCIAL STATEMENT.
MF-70
<PAGE>
<TABLE>
<CAPTION>
-- RATIOS
AND
SUPPLEMEMENTAL
DATA --
------------
-- SELECTED PER-SHARE DATA (4) --
-------------------------------------------------------------------------------------
DISTRIBUTIONS NET ASSET
FROM NET REALIZED NET INCREASE VALUE AT
GAINS ON DISTRIBUTIONS TOTAL (DECREASE) IN END TOTAL
INVESTMENTS FROM CAPITAL DISTRIBUTIONS NET ASSETS VALUE OF PERIOD RETURN
------------------ -------------- -------------- ----------------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
HARTFORD INDEX HLS FUND,
INC.
For the Year Ended
December 31
1998................... $(0.072) $-- $(0.099) $0.692 $3.570 28.06%
1997................... (0.196) -- (0.231) 0.496 2.878 32.61
1996................... (0.039) -- (0.083) 0.354 2.382 22.09
1995................... (0.001) -- (0.045) 0.506 2.028 36.55
1994................... 0.000 -- (0.038) (0.024) 1.522 0.94
HARTFORD INTERNATIONAL
OPPORTUNITIES HLS FUND,
INC.
For the Year Ended
December 31, 1998
Class 1A............... (0.088) -- (0.107) 0.061 1.355 13.16
For the Year Ended
December 31
1997................... (0.104) -- (0.116) (0.113) 1.294 0.34
1996................... (0.037) -- (0.062) 0.101 1.407 12.91
1995................... (0.011) -- (0.031) 0.130 1.306 13.93
1994................... 0.000 -- (0.016) (0.039) 1.176 (1.94)
From inception April 1,
1998, through December
31, 1998
Class 1B............... -- -- (0.016) (0.028) 0.972 (1.13)(2)
HARTFORD DIVIDEND AND
GROWTH HLS FUND, INC.
For the Year Ended
December 31, 1998
Class 1A............... (0.070) -- (0.105) 0.208 2.160 16.42
For the Year Ended
December 31
1997................... (0.044) -- (0.075) 0.405 1.952 31.89
1996................... (0.028) -- (0.062) 0.230 1.547 22.91
1995................... 0.000 -- (0.033) 0.323 1.317 36.37
From inception, March
8, 1994, through
December 31, 1994..... (0.001) -- (0.025) (0.006) 0.994 1.60(2)
From inception April 1,
1998, through December
31, 1998
Class 1B............... -- -- (0.031) 0.006 1.006 3.67(2)
HARTFORD INTERNATIONAL
ADVISERS HLS FUND, INC.
For the Year Ended
December 31
1998................... (0.032) (0.089) (0.166) (0.020) 1.155 13.35
1997................... (0.004) -- (0.054) 0.008 1.175 5.52
1996................... (0.024) -- (0.075) 0.058 1.167 12.25
From inception, March
1, 1995, through
December 31, 1995..... (0.017) -- (0.047) 0.109 1.109 13.24(2)
HARTFORD SMALL COMPANY
HLS FUND, INC.
For the Year Ended
December 31, 1998
Class 1A............... (0.020) -- (0.020) 0.119 1.321 11.62(2)
For the Year Ended
December 31
1997................... (0.062) -- (0.063) 0.133 1.202 18.38
From inception, August
9, 1996 through
December 31, 1996..... -- -- (0.002) 0.069 1.069 7.15(2)
From inception April 1,
1998, through December
31, 1998
Class 1B............... -- -- -- (0.013) 0.987 (1.30)(2)
HARTFORD MIDCAP HLS FUND,
INC.
For the Year Ended
December 31
1998................... -- -- (0.000) 0.302 1.439 26.57
From inception, July
15, 1997 through
December 31........... -- -- (0.001) 0.137 1.137 13.81(2)
HARTFORD GROWTH AND
INCOME HLS FUND
From inception, May 31,
1998 through December
31, 1998
Class 1A............... -- -- (0.004) 0.186 1.186 19.05(2)
From inception, May 31,
1998 through December
31, 1998
Class 1B............... -- -- (0.003) 0.094 1.094 9.78(2)
HARTFORD HIGH YIELD HLS
FUND
From inception,
September 21, 1998
through December 31,
1998
Class 1A............... -- -- (0.019) 0.017 1.017 3.59(2)
From inception,
September 21, 1998
through December 31,
1998
Class 1B............... -- -- (0.019) 0.017 1.017 3.53(2)
HARTFORD GLOBAL LEADERS
HLS FUND
From inception,
September 30, 1998
through December 31,
1998
Class 1A............... (0.032) -- (0.034) 0.285 1.285 31.88(2)
From inception,
September 30, 1998
through December 31,
1998
Class 1B............... (0.032) -- (0.033) 0.285 1.285 31.82(2)
<CAPTION>
RATIO OF RATIO OF RATIO OF
EXPENSES EXPENSES NET
NET ASSETS TO AVERAGE TO AVERAGE INVESTMENT
AT END OF NET ASSETS NET ASSETS INCOME PORTFOLIO
PERIOD AFTER BEFORE TO AVERAGE TURNOVER
(IN THOUSANDS) WAIVERS WAIVERS NET ASSETS RATE
--------------- ---------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C>
HARTFORD INDEX HLS FUND,
INC.
For the Year Ended
December 31
1998................... $1,846,117 0.40% -- 1.21% 4.5%
1997................... 1,123,455 0.39 -- 1.52 5.7
1996................... 621,065 0.39 -- 2.07 19.3
1995................... 318,253 0.39 -- 2.46 1.5
1994................... 157,660 0.45 -- 2.50 1.8
HARTFORD INTERNATIONAL
OPPORTUNITIES HLS FUND,
INC.
For the Year Ended
December 31, 1998
Class 1A............... 1,196,694 0.77 -- 1.51 157.4
For the Year Ended
December 31
1997................... 1,092,946 0.77 -- 1.48 72.7
1996................... 996,543 0.79 -- 1.74 70.0
1995................... 686,475 0.86 -- 1.60 55.6
1994................... 563,765 0.85 -- 1.42 46.4
From inception April 1,
1998, through December
31, 1998
Class 1B............... 663 0.94(1) -- 0.71(1) --
HARTFORD DIVIDEND AND
GROWTH HLS FUND, INC.
For the Year Ended
December 31, 1998
Class 1A............... 3,031,293 0.66 -- 1.81 48.2
For the Year Ended
December 31
1997................... 1,994,653 0.68 -- 2.21 34.2
1996................... 879,980 0.73 -- 2.52 56.9
1995................... 265,070 0.77 -- 2.91 41.4
From inception, March
8, 1994, through
December 31, 1994..... 55,066 0.83(1) 1.64(1) 3.52(1)(3) 27.8
From inception April 1,
1998, through December
31, 1998
Class 1B............... 8,600 0.85(1) -- 1.57(1) --
HARTFORD INTERNATIONAL
ADVISERS HLS FUND, INC.
For the Year Ended
December 31
1998................... 285,853 0.86 -- 2.77 161.1
1997................... 207,582 0.87 -- 3.08 162.5
1996................... 104,486 0.96 -- 3.24 95.2
From inception, March
1, 1995, through
December 31, 1995..... 31,264 0.65(1) 1.23(1) 3.36(1)(3) 47.2
HARTFORD SMALL COMPANY
HLS FUND, INC.
For the Year Ended
December 31, 1998
Class 1A............... 350,734 0.77 -- (0.24) 235.7
For the Year Ended
December 31
1997................... 210,769 0.77 -- 0.08 222.2
From inception, August
9, 1996 through
December 31, 1996..... 42,812 0.72(1) 0.88(1) 0.31(1)(3) 31.8
From inception April 1,
1998, through December
31, 1998
Class 1B............... 696 0.95(1) -- (0.46)(1) --
HARTFORD MIDCAP HLS FUND,
INC.
For the Year Ended
December 31
1998................... 143,494 0.79 -- (0.15) 134.1
From inception, July
15, 1997 through
December 31........... 27,589 0.46(1) 0.86(1) 0.45(1)(3) 46.1
HARTFORD GROWTH AND
INCOME HLS FUND
From inception, May 31,
1998 through December
31, 1998
Class 1A............... 25,312 0.28(1) 0.84(1) 1.42(1)(3) 29.6
From inception, May 31,
1998 through December
31, 1998
Class 1B............... 11 0.44(1) 1.00(1) 1.34(1)(3) --
HARTFORD HIGH YIELD HLS
FUND
From inception,
September 21, 1998
through December 31,
1998
Class 1A............... 14,482 0.35(1) 0.92(1) 8.04(1)(3) 15.4
From inception,
September 21, 1998
through December 31,
1998
Class 1B............... 102 0.53(1) 1.10(1) 7.77(1)(3) --
HARTFORD GLOBAL LEADERS
HLS FUND
From inception,
September 30, 1998
through December 31,
1998
Class 1A............... 5,761 0.89(1) 1.46(1) 0.63(1)(3) 47.9
From inception,
September 30, 1998
through December 31,
1998
Class 1B............... 39 0.98(1) 1.55(1) 0.59(1)(3) --
</TABLE>
(1) Annualized.
(2) Not annualized.
(3) Management fees were waived until assets (excluding assets contributed by
companies affiliated with The Hartford Investment Management Company)
reached $20 million. The ratio of net investment income to average net
assets would have been lower if management fees were not waived.
(4) Information presented relates to a share of capital stock outstanding for
the indicated period.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THIS FINANCIAL STATEMENT.
MF-71
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
- --------------------------------------------------------------------------------
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF HARTFORD BOND HLS FUND, INC.,
HARTFORD STOCK HLS FUND, INC.,
HARTFORD MONEY MARKET HLS FUND, INC., HARTFORD ADVISERS HLS FUND, INC.,
HARTFORD CAPITAL APPRECIATION HLS FUND, INC.,
HARTFORD MORTGAGE SECURITIES HLS FUND, INC., HARTFORD INDEX HLS FUND, INC.,
HARTFORD INTERNATIONAL OPPORTUNITIES HLS FUND, INC., HARTFORD DIVIDEND AND
GROWTH HLS FUND, INC.,
HARTFORD INTERNATIONAL ADVISERS HLS FUND, INC., HARTFORD SMALL COMPANY HLS
FUND, INC.,
HARTFORD MIDCAP HLS FUND, INC. AND HARTFORD SERIES FUND, INC.:
We have audited the accompanying statements of net assets of Hartford Bond HLS
Fund, Inc., Hartford Stock HLS Fund, Inc., Hartford Money Market HLS Fund, Inc.,
Hartford Advisers HLS Fund, Inc., Hartford Capital Appreciation HLS Fund, Inc.,
Hartford Mortgage Securities HLS Fund, Inc., Hartford Index HLS Fund, Inc.,
Hartford International Opportunities HLS Fund, Inc., Hartford Dividend and
Growth HLS Fund, Inc., Hartford International Advisers HLS Fund, Inc., Hartford
Small Company HLS Fund, Inc., Hartford MidCap HLS Fund, Inc. and Hartford Series
Fund, Inc. (consisting of Hartford Global Leaders HLS Fund, Hartford Growth and
Income HLS Fund and Hartford High Yield HLS Fund) (all Maryland corporations)
(the Funds) as of December 31, 1998, and the related statements of operations,
statements of changes in net assets and financial highlights for the periods
then ended. These financial statements and financial highlights are the
responsibility of the Funds' management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our procedures included
confirmation of securities owned as of December 31, 1998, by correspondence with
the custodian. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statement and financial highlights referred to
above present fairly, in all material respects, the financial position of
Hartford Bond HLS Fund, Inc., Hartford Stock HLS Fund, Inc., Hartford Money
Market HLS Fund, Inc., Hartford Advisers HLS Fund, Inc., Hartford Capital
Appreciation HLS Fund, Inc., Hartford Mortgage Securities HLS Fund, Inc.,
Hartford Index HLS Fund, Inc., Hartford International Opportunities HLS Fund,
Inc., Hartford Dividend and Growth HLS Fund, Inc., Hartford International
Advisers HLS Fund, Inc., Hartford Small Company HLS Fund, Inc., Hartford MidCap
HLS Fund, Inc. and Hartford Series Fund, Inc. (consisting of Hartford Global
Leaders HLS Fund, Hartford Growth and Income HLS Fund and Hartford High Yield
HLS Fund) as of December 31, 1998 and the results of their operations, the
changes in their net assets and the financial highlights for the periods then
ended in conformity with generally accepted accounting principles.
Hartford, Connecticut
February 16, 1999 ARTHUR ANDERSEN LLP
------------------------------------------------- MF-72
--------------------------------------------------
<PAGE>
VARIABLE INSURANCE FUNDS
- --------------------------------------------------------------------------------
BB&T GROWTH & INCOME FUND
SCHEDULE OF PORTFOLIO INVESTMENTS
DECEMBER 31, 1998
<TABLE>
<CAPTION>
SHARES MARKET VALUE
- --------- ------------
<C> <S> <C>
COMMON STOCKS (97.0%):
AEROSPACE/DEFENSE -- (3.5%):
8,700 Lockheed Martin Corp................... $ 737,325
19,000 Raytheon Co.-Class A................... 982,063
------------
1,719,388
------------
APPAREL -- (0.9%):
9,600 VF Corp................................ 450,000
------------
BANKING -- (7.8%):
11,000 Banc One Corp.......................... 561,688
18,600 Central Carolina Bank Financial Corp... 1,060,199
5,700 J.P. Morgan & Co....................... 598,856
11,340 Old Kent Financial Corp................ 527,310
17,000 Pacific Century Financial Corp......... 414,375
7,200 Wachovia Corp.......................... 629,550
------------
3,791,978
------------
BEVERAGES -- (2.6%):
19,400 Anheuser-Busch Cos., Inc............... 1,273,125
------------
BUSINESS EQUIPMENT & SERVICES -- (0.9%):
7,000 Pitney Bowes, Inc...................... 462,438
------------
CAPITAL EQUIPMENT -- (1.1%):
16,900 Parker-Hannifin Corp................... 553,475
------------
CHEMICALS -- (2.2%):
6,000 Air Products & Chemicals, Inc.......... 240,000
7,900 Great Lakes Chemical Corp.............. 316,000
3,800 Vulcan Materials Co.................... 499,938
------------
1,055,938
------------
COMMUNICATIONS EQUIPMENT -- (1.9%):
25,200 Harris Corp............................ 922,950
------------
COMPUTER - PERIPHERALS -- (1.5%):
16,000 Adobe Systems, Inc..................... 748,000
------------
COMPUTERS - MAIN & MINI -- (4.0%):
15,600 Hewlett-Packard Co..................... 1,065,674
4,900 International Business Machines Corp... 905,275
------------
1,970,949
------------
CONTAINERS -- (1.0%):
16,800 Sonoco Products Co..................... 497,700
------------
COSMETICS/PERSONAL CARE -- (1.8%):
16,000 Kimberly-Clark Corp.................... 872,000
------------
ELECTRICAL EQUIPMENT -- (1.8%):
14,500 Emerson Electric Co.................... 877,250
------------
ELECTRONIC COMPONENTS -- (1.7%):
14,100 Avnet, Inc............................. 844,238
------------
ELECTRONIC INSTRUMENTS -- (1.3%):
21,150 Tektronix, Inc......................... 635,822
------------
ENGINEERING -- (1.0%):
11,400 Fluor Corp............................. 485,213
------------
<CAPTION>
SHARES MARKET VALUE
- --------- ------------
<C> <S> <C>
FINANCIAL SERVICES -- (1.2%):
15,800 Deluxe Corp............................ $ 577,688
------------
FOOD & RELATED -- (5.9%):
21,000 Bob Evans Farms........................ 547,313
6,200 Dean Foods Co.......................... 253,038
5,000 Dole Food Co., Inc..................... 150,000
44,800 SUPERVALU, Inc......................... 1,254,399
26,000 Universal Foods Corp................... 713,374
------------
2,918,124
------------
FOREST & PAPER PRODUCTS -- (0.9%):
9,000 Weyerhaeuser Co........................ 457,313
------------
HEALTH CARE - DRUGS -- (2.2%):
22,200 Abbott Laboratories.................... 1,087,800
------------
HEALTH CARE - GENERAL -- (1.7%):
26,600 Mallinckrodt, Inc...................... 819,613
------------
HOUSEHOLD - GENERAL PRODUCTS -- (3.5%):
16,000 American Greetings Corp................ 657,000
10,000 Corning, Inc........................... 450,000
7,600 Unilever............................... 630,325
------------
1,737,325
------------
HOUSEHOLD - MAJOR APPLIANCES -- (1.3%):
11,100 Whirlpool Corp......................... 614,663
------------
INSURANCE - LIFE & HEALTH -- (1.3%):
8,000 Aetna, Inc............................. 629,000
------------
INSURANCE - PROPERTY & CASUAL -- (5.2%):
8,100 Lincoln National Corp.................. 662,681
17,800 SAFECO Corp............................ 764,287
17,600 Saint Paul Companies, Inc.............. 611,600
6,500 Transatlantic Holdings, Inc............ 491,156
------------
2,529,724
------------
LEISURE TIME INDUSTRY -- (1.2%):
16,200 Hasbro, Inc............................ 585,225
------------
MEDIA -- (2.9%):
22,000 Banta Corp............................. 602,250
15,100 Media General, Inc. Class A............ 800,300
------------
1,402,550
------------
MEDICAL EQUIPMENT & SUPPLIES -- (4.6%):
18,500 Bausch & Lomb, Inc..................... 1,110,000
13,700 Johnson & Johnson...................... 1,149,087
------------
2,259,087
------------
METAL FABRICATION -- (1.1%):
14,100 Trinity Industries, Inc................ 542,850
------------
OIL & GAS -- (1.2%):
13,100 National Fuel Gas...................... 591,956
------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
-------------------------------------------------- MF-73
--------------------------------------------------
<PAGE>
VARIABLE INSURANCE FUNDS
- --------------------------------------------------------------------------------
BB&T GROWTH & INCOME FUND
SCHEDULE OF PORTFOLIO INVESTMENTS -- (CONTINUED)
DECEMBER 31, 1998
<TABLE>
<CAPTION>
SHARES MARKET VALUE
- --------- ------------
PETROLEUM - DOMESTIC -- (3.6%):
<C> <S> <C>
19,100 Ashland, Inc........................... $ 923,962
19,700 Phillips Petroleum Co.................. 839,712
------------
1,763,674
------------
PETROLEUM - INTERNATIONAL -- (2.8%):
6,900 Chevron Corp........................... 572,269
7,300 Mobil Corp............................. 636,012
3,500 Royal Dutch Petroleum Co............... 167,563
------------
1,375,844
------------
PHARMACEUTICALS -- (3.4%):
4,800 Bristol-Myers Squibb Co................ 642,300
7,000 Merck & Co., Inc....................... 1,033,813
------------
1,676,113
------------
PUBLISHING -- (0.3%):
3,000 Houghton Mifflan Co.................... 141,750
------------
RAILROAD -- (0.9%):
13,200 Norfolk Southern Corp.................. 418,275
------------
RETAIL - FOOD STORES -- (2.0%):
15,400 Albertson's, Inc....................... 980,788
------------
RETAIL - GENERAL MERCHANDISE -- (1.4%):
11,600 May Department Stores Co............... 700,350
------------
SECURITY & COMMISSION BROKERS -- (0.8%):
10,650 A.G. Edwards, Inc...................... 396,713
------------
TOBACCO -- (2.3%):
10,000 Philip Morris Co., Inc................. 535,000
17,200 UST, Inc............................... 599,850
------------
1,134,850
------------
TRANSPORTATION - MARINE -- (0.4%):
8,000 Alexander & Baldwin, Inc............... 186,000
------------
UTILITIES - ELECTRIC -- (1.8%):
7,200 New Century Energies, Inc.............. 351,000
16,100 Western Resources, Inc................. 535,325
------------
886,325
------------
<CAPTION>
SHARES MARKET VALUE
- --------- ------------
<C> <S> <C>
UTILITIES - GAS & PIPELINE -- (0.7%):
7,900 Nicor, Inc............................. $ 333,775
------------
UTILITIES - TELEPHONE -- (7.4%):
18,100 AT&T Corp.............................. 1,362,024
20,800 BellSouth Corp......................... 1,037,400
23,400 SBC Communications, Inc................ 1,254,825
------------
3,654,249
------------
Total Common Stocks.................... 47,562,088
------------
U.S. GOVERNMENT AGENCY MORTGAGES -- (1.4%):
700,000 Federal Home Loan Banks, 5.02%,
1/8/99............................... 699,657
------------
Total U.S. Government Agency
Mortgages............................ 699,657
------------
INVESTMENT COMPANIES -- (1.9%):
930,375 Provident Federal Fund................. 930,375
------------
Total Investment Companies............. 930,375
------------
TOTAL INVESTMENTS (COST $42,521,088) (A) -- 100.3% 49,192,120
------------
LIABILITIES IN EXCESS OF OTHER ASSETS -- (0.3)%... (130,513)
------------
TOTAL NET ASSETS -- 100.0%........................ $ 49,061,607
------------
------------
</TABLE>
- --------------------------
(a) Represents cost for federal income tax purposes and differs from value by
net unrealized appreciation (depreciation) of securities as follows:
<TABLE>
<S> <C>
Unrealized appreciation.................... $8,306,940
Unrealized depreciation.................... (1,635,908)
----------
Net unrealized appreciation................ $6,671,032
----------
----------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
-------------------------------------------------- MF-74
--------------------------------------------------
<PAGE>
VARIABLE INSURANCE FUNDS
- --------------------------------------------------------------------------------
BB&T GROWTH & INCOME FUND
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1998
<TABLE>
<S> <C>
ASSETS:
Investments, at value (cost $42,521,088)...................................................... $49,192,120
Interest and dividends receivable............................................................. 77,778
Unamortized organizational costs.............................................................. 2,734
Prepaid expenses and other assets............................................................. 3,510
----------
Total assets.............................................................................. 49,276,142
----------
LIABILITIES:
Dividends payable............................................................................. 143,470
Accrued expenses and other payables:
Investment advisory fees.................................................................... 44,315
Administration fees......................................................................... 3,015
Accounting fees............................................................................. 329
Other accrued liabilities................................................................... 23,406
----------
Total liabilities......................................................................... 214,535
----------
NET ASSETS:
Capital....................................................................................... 42,451,526
Undistributed (distributions in excess of) net investment income.............................. (1,048)
Net unrealized appreciation (depreciation) from investments................................... 6,671,032
Accumulated undistributed net realized gains (losses) from investment transactions............ (59,903)
----------
Net assets................................................................................ $49,061,607
----------
----------
Outstanding units of beneficial interest (shares)............................................... 3,688,258
----------
----------
Net asset value -- offering and redemption price per share...................................... $ 13.30
----------
----------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
-------------------------------------------------- MF-75
--------------------------------------------------
<PAGE>
VARIABLE INSURANCE FUNDS
- --------------------------------------------------------------------------------
BB&T GROWTH & INCOME FUND
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest income................................................................................ $ 81,175
Dividend income................................................................................ 800,985
---------
Total income................................................................................. 882,160
---------
EXPENSES:
Investment advisory fees....................................................................... 285,972
Accounting fees................................................................................ 34,158
Administration fees............................................................................ 77,290
Audit fees..................................................................................... 14,000
Custodian fees................................................................................. 13,113
Legal fees..................................................................................... 22,616
Organizational fees............................................................................ 6,562
Printing fees.................................................................................. 5,010
Registration and filing fees................................................................... 5,013
Transfer agent fees............................................................................ 10,610
Trustee fees and expenses...................................................................... 5,977
Other.......................................................................................... 157
---------
Total expenses before voluntary reductions..................................................... 480,478
---------
Expenses voluntarily reduced................................................................... (128,962)
---------
Net expenses................................................................................. 351,516
---------
Net investment income.......................................................................... 530,644
---------
REALIZED/UNREALIZED GAINS (LOSSES) FROM INVESTMENTS:
Net realized gains (losses) from investment transactions....................................... (36,048)
Net change in unrealized appreciation (depreciation) from investments.......................... 4,670,681
---------
Net realized/unrealized gains (losses) from investments...................................... 4,634,633
---------
Change in net assets resulting from operations............................................... $5,165,277
---------
---------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
-------------------------------------------------- MF-76
--------------------------------------------------
<PAGE>
VARIABLE INSURANCE FUNDS
- --------------------------------------------------------------------------------
BB&T GROWTH & INCOME FUND
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE YEAR
ENDED
DECEMBER 31, 1998
-----------------
<S> <C> <C>
FROM INVESTMENT ACTIVITIES:
OPERATIONS:
Net investment income....................................................................... $ 530,644
Net realized gains (losses) from investment transactions.................................... (36,048)
Net change in unrealized appreciation (depreciation) from investments....................... 4,670,681
-----------------
Change in net assets resulting from operations.............................................. 5,165,277
-----------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income.................................................................. (514,713)
In excess of net investment income.......................................................... --
In excess of net realized gains from investment transactions................................ --
-----------------
Change in net assets from shareholder distributions......................................... (514,713)
-----------------
CAPITAL TRANSACTIONS:
Proceeds from shares issued................................................................. 15,172,449
Dividends reinvested........................................................................ 513,105
Cost of shares redeemed..................................................................... (103,445)
-----------------
Change in net assets from capital transactions.............................................. 15,582,109
-----------------
Change in net assets........................................................................ 20,232,673
NET ASSETS:
Beginning of period......................................................................... 28,828,934
-----------------
End of period............................................................................... $ 49,061,607
-----------------
-----------------
SHARE TRANSACTIONS:
Issued...................................................................................... 1,227,333
Reinvested.................................................................................. 42,578
Redeemed.................................................................................... (8,596)
-----------------
Change in shares............................................................................ 1,261,315
-----------------
-----------------
<CAPTION>
FOR THE PERIOD
FROM JUNE 3, 1997
THROUGH
DECEMBER 31, 1997(A)
--------------------
<S> <C>
FROM INVESTMENT ACTIVITIES:
OPERATIONS:
Net investment income....................................................................... $ 148,011
Net realized gains (losses) from investment transactions.................................... (20,598)
Net change in unrealized appreciation (depreciation) from investments....................... 2,000,351
--------------------
Change in net assets resulting from operations.............................................. 2,127,764
--------------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income.................................................................. (148,011)
In excess of net investment income.......................................................... (32,999)
In excess of net realized gains from investment transactions................................ (3,257)
--------------------
Change in net assets from shareholder distributions......................................... (184,267)
--------------------
CAPITAL TRANSACTIONS:
Proceeds from shares issued................................................................. 26,843,035
Dividends reinvested........................................................................ 42,402
Cost of shares redeemed..................................................................... --
--------------------
Change in net assets from capital transactions.............................................. 26,885,437
--------------------
Change in net assets........................................................................ 28,828,934
NET ASSETS:
Beginning of period......................................................................... --
--------------------
End of period............................................................................... $ 28,828,934
--------------------
--------------------
SHARE TRANSACTIONS:
Issued...................................................................................... 2,423,169
Reinvested.................................................................................. 3,774
Redeemed.................................................................................... --
--------------------
Change in shares............................................................................ 2,426,943
--------------------
--------------------
</TABLE>
(a) Period from commencement of operations.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
-------------------------------------------------- MF-77
--------------------------------------------------
<PAGE>
VARIABLE INSURANCE FUNDS
- --------------------------------------------------------------------------------
BB&T GROWTH & INCOME FUND
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
1. ORGANIZATION:
The BB&T Variable Insurance Funds (the "Trust") was organized on July 20,
1994, and is registered under the Investment Company Act of 1940, as amended
(the "Act"), as an open-end investment company established as a
Massachusetts business trust. Between the date of organization and the dates
of commencement of operations (June 3, 1997), the Trust had no operations
other than incurring organizational expenses and the sale of initial units
of beneficial interest ("shares").
The Trust is authorized to issue an unlimited number of shares of beneficial
interest without par value. The Trust presently offers shares of the BB&T
Growth & Income Fund (The "Fund"). Shares of the Fund are offered to a
separate account of Hartford Life Insurance Company, as well as other
eligible purchasers.
The investment objective of the Fund is to seek to provide capital growth,
current income or both. Under normal market conditions, it seeks this
objective by investing at least 65% of its total assets in stocks, which for
this purpose may include common stock, preferred stock, warrants, or debt
instruments that are, convertible into common stock.
2. SIGNIFICANT ACCOUNTING POLICIES:
The following is a summary of significant accounting policies followed by
the Trust in the preparation of its financial statements. The policies are
in conformity with generally accepted accounting principles. The preparation
of financial statements requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at
the date of the financial statements and the reported amounts of income and
expenses for the period. Actual results could differ from those estimates.
SECURITIES VALUATION--Exchange listed securities are valued at the closing
sales price on the exchange on the day of computation, or, if there have
been no sales during such day, at the latest bid quotation. Unlisted
securities are valued at their latest bid quotation in their principal
market. If no such bid price is available, then such securities are valued
in good faith at their respective fair market values using methods
determined by or under the supervision of the Board of Trustees. Portfolio
securities with a remaining maturity of 60 days or less are valued either at
amortized cost or original cost plus accrued interest, which approximates
current value.
All other assets and securities, including securities for which market
quotations are not readily available, are valued at their fair market value
as determined in good faith under the general supervision of the Board of
Trustees.
SECURITIES TRANSACTIONS AND RELATED INCOME--Securities transactions are
accounted for on the date the security is purchased or sold (trade date).
Interest income is recognized on the accrual basis and includes, where
applicable, the pro rata amortization of premium or discount. Dividend
income is recorded on the ex-dividend date. Gains or losses realized on
sales of securities are determined by comparing the identified cost of the
security lot sold with the net sales proceeds.
DIVIDENDS AND DISTRIBUTIONS--Dividends from net investment income are
declared and paid quarterly for the Fund. Distributable net realized gains,
if any are declared and distributed at least annually.
The amounts of dividends from net investment income and of distributions
from net realized gains are determined in accordance with federal income tax
regulations, which may differ from generally accepted accounting principles.
These "book/tax" differences are either considered temporary or permanent in
nature. To the extent these differences are permanent in nature, such
amounts are reclassified within the composition of net assets based on their
federal tax-basis treatment; temporary differences do not require
reclassification.
Dividends and distributions to shareholders which exceed net investment
income and net realized capital gains for financial reporting purposes but
not for tax purposes are reported as dividends in excess of net investment
income or distributions in excess of net realized gains. To the extent they
exceed net investment income and net realized gains for tax purposes, they
are reported as distributions of capital.
FEDERAL INCOME TAXES--It is the policy of each Fund to qualify or continue
to qualify as a regulated investment company by complying with the
provisions available to certain investment companies, as defined in
applicable sections of the Internal Revenue Code, and to make distributions
of net investment income and net realized capital gains sufficient to
relieve it from all, or substantially all, federal income taxes.
ORGANIZATION COSTS--Costs incurred by the Fund in connection with its
organization and registration of shares
-------------------------------------------------- MF-78
--------------------------------------------------
<PAGE>
VARIABLE INSURANCE FUNDS
- --------------------------------------------------------------------------------
BB&T GROWTH & INCOME FUND
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1998
have been deferred and are amortized using the straight-line method over a
period of two years from June 3, 1997, the commencement of the public
offering of shares of the Fund. In the event that any of the initial shares
of the Fund are redeemed during the amortization period by any holder
thereof, the redemption proceeds may be reduced by any unamortized
organizational expenses of the Fund in the same proportion as the number of
said shares the Fund being redeemed bears to the number of initial shares of
the Fund of that fund that are outstanding at the time of redemption.
OTHER--Expenses that are directly related to the Fund are charged directly
to the Fund.
3. PURCHASES AND SALES OF SECURITIES:
Cost of purchases and proceeds from sales of portfolio securities, excluding
short-term securities, were $15,915,127 and $1,024,098, respectively, for
the year ended December 31, 1998.
4. RELATED PARTY TRANSACTIONS:
Investment advisory services are provided to the Fund by BB&T. Under the
terms of the investment advisory agreement, BB&T is entitled to receive fees
based on a percentage of the average daily net assets of the Fund.
BISYS Fund Services Limited Partnership d/b/a BISYS Fund Services ("BISYS"),
with whom certain officers and trustees of the Trust are affiliated, serves
the Trust as Administrator. Such officers and trustees are paid no fees
directly by the Trust for serving as officers and trustees of the Trust.
Under the terms of the Management and Administration Agreement between BISYS
and the Trust, BISYS's fees are computed daily as a percentage of the
average net assets of the Fund. BISYS also serves, without compensation, as
Distributor of the Fund. BISYS Fund Services Ohio, Inc. ("BISYS Ohio")
serves the Fund as Transfer agent and Mutual fund accountant. BISYS, an Ohio
limited partnership, and BISYS Ohio are subsidiaries of The BISYS Group,
Inc.
Shares of the Trust are subject to a Variable Contract Owner Servicing Plan
(the "Servicing Plan") permitting payment of the compensation to financial
institutions that agree to provide certain administrative support services
for their customers or account holders. The Fund has entered into a specific
arrangement with BISYS for the provision of such services and reimburses
BISYS for its cost of providing these services, subject to a maximum annual
rate equal to 0.25% of the average daily net assets of the Fund.
Fees may be voluntarily reduced or reimbursed to assist the Fund in
maintaining competitive expense ratios. Information regarding these
transactions is as follows for the year ended December 31, 1998:
<TABLE>
<S> <C>
INVESTMENT ADVISORY FEES:
Annual fee before voluntary fee
reductions (percentage of average
net assets)........................ 0.74%
Voluntary fee reductions............. $ 73,716
ADMINISTRATION FEES:
Annual fee before voluntary fee
reductions (percentage of average
net assets)........................ 0.20%
Voluntary fee reductions............. $ 55,246
TRANSFER AGENT AND FUND ACCOUNTANT
FEES: $ 44,768
</TABLE>
5. FEDERAL INCOME TAX INFORMATION (UNAUDITED):
CAPITAL LOSS CARRYFORWARD-- At December 31, 1998 the Fund had net capital
loss carryforwards in the amount of $53,728 which will be available through
fiscal year end 2006 to offset future net capital gains, if any, to the
extent provided by the Treasury regulations. To the extent that these
carryforwards are used to offset future capital gains, it is probable that
the gains so offset will not be distributed to shareholders.
DIVIDEND RECEIVED DEDUCTION--For corporate shareholders 93.60% of the total
ordinary income distributions paid during the fiscal year ended December 31,
1998 qualify for the corporate dividends received deduction.
POST OCTOBER LOSS DEFERRAL--Capital losses incurred after October 31, within
the Fund's fiscal year are deemed to arise on the first business day of the
following fiscal year for tax purposes. The Fund has incurred and will elect
to defer such capital losses of $6,175.
-------------------------------------------------- MF-79
--------------------------------------------------
<PAGE>
VARIABLE INSURANCE FUNDS
- --------------------------------------------------------------------------------
BB&T GROWTH & INCOME FUND
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
FOR THE YEAR
ENDED
DECEMBER 31, 1998
-----------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD.......................................................... $ 11.88
-------
INVESTMENT ACTIVITIES:
Net investment income....................................................................... 0.16
Net realized and unrealized gains........................................................... 1.42
-------
Total investment activities................................................................. 1.58
-------
DISTRIBUTIONS:
Net investment income....................................................................... (0.16)
In excess of net investment income.......................................................... --
-------
Total distributions......................................................................... (0.16)
-------
NET ASSET VALUE, END OF PERIOD.............................................................. $ 13.30
-------
-------
Total return................................................................................ 13.36%
RATIOS/SUPPLEMENTAL DATA:
Net assets, at end of period (000).......................................................... $ 49,062
Ratio of expenses to average net assets..................................................... 0.91%
Ratio of net investment income to average net assets........................................ 1.37%
Ratio of expenses to average net assets*.................................................... 1.24%
Ratio of net investment income to average net assets*....................................... 1.04%
Portfolio turnover rate..................................................................... 2.77%
<CAPTION>
JUNE 3, 1997
THROUGH
DECEMBER 31, 1997(A)
--------------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD.......................................................... $ 10.00
-------
INVESTMENT ACTIVITIES:
Net investment income....................................................................... 0.10
Net realized and unrealized gains........................................................... 1.89
-------
Total investment activities................................................................. 1.99
-------
DISTRIBUTIONS:
Net investment income....................................................................... (0.10)
In excess of net investment income.......................................................... (0.01)
-------
Total distributions......................................................................... (0.11)
-------
NET ASSET VALUE, END OF PERIOD.............................................................. $ 11.88
-------
-------
Total return................................................................................ 19.96%(b)
RATIOS/SUPPLEMENTAL DATA:
Net assets, at end of period (000).......................................................... $ 28,829
Ratio of expenses to average net assets..................................................... 0.91%(c)
Ratio of net investment income to average net assets........................................ 1.68%(c)
Ratio of expenses to average net assets*.................................................... 2.31%(c)
Ratio of net investment income to average net assets*....................................... 0.28%(c)
Portfolio turnover rate..................................................................... 7.75%
</TABLE>
- ------------------------
(a) Period from commencement of operations.
(b) Not annualized.
(c) Annualized.
* During the period certain fees were reimbursed and voluntarily reduced. If
such reimbursements and voluntary fee reductions had not occurred, the
ratios would have been as indicated.
-------------------------------------------------- MF-80
--------------------------------------------------
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholder and Trustees of
The BB&T Growth and Income Fund:
In our opinion, the accompanying statements of assets and liabilities, including
the schedules of portfolio investments, and the related statements of operations
and changes in net assets, and the financial highlights present fairly, in all
material respects, the financial position of the BB&T Growth and Income Fund,
(hereafter referred to as the "the Fund") at December 31, 1998, the results of
their operations, the changes in their net assets, and the financial highlights
for each of the periods presented, in conformity with generally accepted
accounting principles. These financial statements and financial highlights
(hereafter referred to as "financial statements") are the responsibility of the
Funds' management; our responsibility is to express an opinion on these
financial statements based on our audit. We conducted our audit of these
financial statements in accordance with generally accepted auditing standards
which require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audit, which included
confirmation of securities at December 31, 1998 by correspondence with the
custodian and brokers, provide a reasonable basis for the opinion expressed
above.
PricewaterhouseCoopers LLP
Columbus, Ohio
February 11, 1999
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
-------------------------------------------------- MF-81
--------------------------------------------------
<PAGE>
AMSOUTH EQUITY INCOME FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1998
<TABLE>
<CAPTION>
SHARES
OR
PRINCIPAL MARKET
AMOUNT VALUE
- ---------- -----------
<C> <S> <C>
COMMON STOCKS -- 72.1%
AEROSPACE -- 1.5%
4,100 Lockheed Martin Corp.................... $ 347,475
-----------
AUTOMOTIVE -- 1.5%
5,850 Ford Motor Co........................... 343,322
-----------
BANKS -- 3.7%
3,750 J.P. Morgan & Co........................ 393,984
7,250 Wilmington Trust Corp................... 446,782
-----------
840,766
-----------
BUSINESS EQUIPMENT & SERVICES -- 4.9%
8,350 Pitney Bowes, Inc....................... 551,622
4,600 Xerox Corp.............................. 542,800
-----------
1,094,422
-----------
CHEMICALS -- 1.3%
5,500 E.I. du Pont de Nemours................. 291,844
-----------
COMPUTERS -- 1.8%
8,100 Electronic Data Services................ 407,025
-----------
COMPUTERS & PERIPHERALS -- 5.3%
8,000 Computer Associates International, 341,000
Inc.....................................
6,450 Hewlett-Packard Co...................... 440,615
3,500 Intel Corp.............................. 414,969
-----------
1,196,584
-----------
DIVERSIFIED MANUFACTURING -- 2.2%
4,950 General Electric Co..................... 505,209
-----------
ELECTRICAL & ELECTRONIC -- 2.2%
8,000 Motorola, Inc........................... 488,500
-----------
ELECTRICAL EQUIPMENT -- 2.3%
8,350 Emerson Electric Co..................... 522,397
-----------
ENTERTAINMENT -- 1.6%
11,700 The Walt Disney Co...................... 351,000
-----------
FINANCIAL SERVICES -- 4.3%
5,900 Fannie Mae.............................. 436,600
22,700 Waddell Reed Financial, Class B......... 527,775
-----------
964,375
-----------
FOOD DISTRIBUTORS & WHOLESALERS -- 1.9%
15,500 Sysco Corp.............................. 425,281
-----------
FOOD PROCESSING & PACKAGING -- 2.2%
8,600 H.J. Heinz Co........................... 486,975
-----------
FOOD PRODUCTS & SERVICES -- 4.7%
14,000 Conagra, Inc............................ 441,000
3,700 Hershey Foods Corp...................... 230,094
11,300 Mc Cormick & Co., Inc................... 382,081
-----------
1,053,175
-----------
HEALTH CARE -- 3.9%
6,800 Bausch & Lomb, Inc...................... 408,000
5,550 Johnson & Johnson....................... 465,506
-----------
873,506
-----------
INSTRUMENTATION -- 1.8%
4,050 Perkin Elmer............................ 395,128
-----------
<CAPTION>
SHARES
OR
PRINCIPAL MARKET
AMOUNT VALUE
- ---------- -----------
<C> <S> <C>
</TABLE>
<TABLE>
<C> <S> <C>
MEDICAL SUPPLIES -- 1.8%
6,200 Baxter International, Inc............... $ 398,738
-----------
OIL & GAS EXPLORATION, PRODUCTION &
SERVICES -- 6.5%
6,600 Amoco Corp.............................. 389,399
4,700 Mobil Corp.............................. 409,487
10,250 Shell Transport & Trading PLC (ADR)..... 381,172
10,100 Williams Companies, Inc................. 314,994
-----------
1,495,052
-----------
PHARMACEUTICALS -- 5.1%
7,300 American Home Products Corp............. 411,081
5,500 Bristol-Myers Squibb Co................. 735,969
-----------
1,147,050
-----------
RAILROAD -- 0.9%
4,400 Union Pacific........................... 199,650
-----------
RESTAURANTS -- 1.8%
5,250 McDonald's Corp......................... 402,281
-----------
TELECOMMUNICATIONS -- 4.4%
7,200 Ameritech Corp.......................... 456,300
14,200 Bce Inc................................. 538,713
-----------
995,013
-----------
TOBACCO -- 2.1%
8,700 Philip Morris Cos., Inc................. 465,450
-----------
UTILITIES - NATURAL GAS -- 0.0%
1 Sempra Energy........................... 25
-----------
UTILITIES - TELECOMMUNICATIONS -- 2.4%
8,350 US West Inc............................. 539,619
-----------
Total Common Stocks..................... 16,229,862
-----------
CONVERTIBLE PREFERRED STOCKS -- 14.9%
BANKS -- 4.8%
$ 5,550 Jefferson Pilot/ NationsBank (ACES)..... 579,975
18,100 National Australia Bank................. 504,538
-----------
1,084,513
-----------
CONSUMER GOODS & SERVICES -- 1.6%
6,900 Newell.................................. 360,525
-----------
ENVIRONMENTAL SERVICES 1.9%
8,750 Monsanto (ACES)......................... 428,750
-----------
FINANCIAL & INSURANCE -- 2.2%
21,140 Lincoln National Corp................... 498,111
-----------
MANUFACTURING -- 1.5%
14,100 Ingersoll-Rand Co....................... 334,875
-----------
UTILITIES - ELECTRIC & GAS -- 2.9%
11,750 Texas Utlities.......................... 662,406
-----------
Total Convertible Preferred Stocks...... 3,369,180
-----------
CONVERTIBLE BONDS -- 11.4%
COMPUTERS -- 2.5%
$ 150,000 EMC Corp., 3.25%, 3/15/02............... $ 559,875
-----------
RETAIL - GENERAL MERCHANDISE -- 3.8%
11,300 Dollar General STRYPES Trust............ 402,563
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THIS FINANCIAL STATEMENT.
MF-82
<PAGE>
<TABLE>
<CAPTION>
SHARES
OR
PRINCIPAL MARKET
AMOUNT VALUE
- ---------- -----------
<C> <S> <C>
</TABLE>
CONVERTIBLE BONDS -- (CONTINUED)
RETAIL - GENERAL MERCHANDISE -- (CONTINUED)
<TABLE>
<C> <S> <C>
$ 310,000 Rite Aid Corp., 5.25%, 9/15/02.......... $ 449,888
-----------
852,451
-----------
TELECOMMUNICATIONS -- 2.6%
8,900 Airtouch/Mediaone, 6.25%, 8/15/01....... 591,850
-----------
WHOLESALE DISTRIBUTION -- 2.5%
675,000 Costco Companies, 0.00%, 8/19/17........ 574,594
-----------
Total Convertible Bonds................. 2,578,770
-----------
INVESTMENT COMPANIES -- 3.1%
707,840 Star Teasury Fund....................... 707,840
-----------
Total Investment Companies.............. 707,840
-----------
TOTAL (Cost $20,586,912) -- 101.5%...... $22,885,652
-----------
-----------
- ------------------------------
</TABLE>
Percentages indicated are based on net assets of $22,542,736.
(a) Represents cost for financial reporting purposes and differs from cost for
federal income tax purposes by the amount of losses recognized for
financial reporting purposes in excess of federal income tax reporting of
approximately $100,078. Cost for federal income tax purposes differs from
value by net unrealized appreciation of securities as follows:
<TABLE>
<S> <C>
Unrealized appreciation.............. $2,548,421
Unrealized depreciation.............. (364,812)
---------
Net unrealized appreciation.......... $2,183,609
---------
---------
</TABLE>
ACES -- Adjustable Conversion-Rate Equity Securities
ADR -- American Depository Receipt
STRYPES -- Structured Yield Product Exchangeable for Stock
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THIS FINANCIAL STATEMENT.
MF-83
<PAGE>
AMSOUTH EQUITY INCOME FUND
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1998
<TABLE>
<S> <C>
ASSETS:
Investments, at value (cost $20,586,912)........ $22,885,652
Interest and dividends receivable............... 41,617
Receivable for investment securities sold....... 561,248
Unamortized organizational costs................ 4,933
Prepaid expenses and other assets............... 3,224
-----------
Total assets................................ 23,496,674
-----------
LIABILITIES:
Cash overdraft.................................. 15,636
Payable for investment securities purchased..... 918,568
Accrued expenses and other payables:
Investment advisory fees...................... 9
Administration fees........................... 488
Variable contract owner servicing fees........ 458
Accounting fees............................... 73
Other......................................... 18,706
-----------
Total liabilities........................... 953,938
-----------
NET ASSETS:
Capital......................................... 21,533,905
Undistributed (distributions in excess of) net
investment income.............................. (8,707)
Net unrealized appreciation (depreciation) from
investments.................................... 2,298,740
Undistributed net realized gains (losses) from
investment transactions........................ (1,281,202)
-----------
Net assets.................................. $22,542,736
-----------
-----------
Outstanding units of beneficial interest
(shares)......................................... 2,001,942
-----------
-----------
Net asset value -- offering and redemption price
per share........................................ $ 11.26
-----------
-----------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THIS FINANCIAL STATEMENT.
MF-84
<PAGE>
AMSOUTH EQUITY INCOME FUND
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest income................................. $ 64,349
Dividend income................................. 402,033
-----------
Total income.................................. 466,382
-----------
EXPENSES:
Investment advisory fees........................ 85,510
Administration fees............................. 28,503
Variable contract owner servicing fees.......... 35,629
Accounting fees................................. 7,452
Audit fees...................................... 13,707
Insurance fees.................................. 3,432
Legal fees...................................... 23,803
Printing fees................................... 5,130
Transfer agent fees............................. 1,980
Trustee fees and expenses....................... 4,644
Organizational fees............................. 6,733
Other........................................... 1,257
-----------
Total expenses.................................. 217,780
Expenses reimbursed and voluntarily reduced..... (55,119)
-----------
Net expenses.................................. 162,661
-----------
Net investment income........................... 303,721
-----------
REALIZED/UNREALIZED GAINS (LOSSES) FROM
INVESTMENTS:
Net realized gains (losses) from investment
transactions................................... (1,278,675)
Net change in unrealized appreciation
(depreciation) from investments................ 2,263,855
-----------
Net realized/unrealized gains (losses) from
investments.................................. 985,180
-----------
Change in net assets resulting from
operations................................... $ 1,288,901
-----------
-----------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THIS FINANCIAL STATEMENT.
MF-85
<PAGE>
AMSOUTH EQUITY INCOME FUND
- --------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR OCTOBER 23,
ENDED 1997 TO
DECEMBER 31, DECEMBER 31,
1998 1997(A)
---------------- ----------------
<S> <C> <C>
FROM INVESTMENT ACTIVITIES:
OPERATIONS:
Net investment income................. $ 303,721 $ 4,906
Net realized gains (losses) from
investment transactions.............. (1,278,675) (2,073)
Net change in unrealized appreciation
(depreciation) from investments...... 2,263,855 34,885
---------------- ----------------
Change in net assets resulting from
operations........................... 1,288,901 37,718
---------------- ----------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income............ (304,238) (4,389)
In excess of net investment income.... (9,161) --
---------------- ----------------
Change in net assets from shareholder
distributions........................ (313,399) (4,389)
---------------- ----------------
CAPITAL TRANSACTIONS:
Proceeds from shares issued........... 20,248,784 2,348,968
Dividends reinvested.................. 313,399 4,389
Cost of shares redeemed............... (1,381,615) (20)
---------------- ----------------
Change in net assets from capital
transactions......................... 19,180,568 2,353,337
---------------- ----------------
Change in net assets.................. 20,156,070 2,386,666
NET ASSETS:
Beginning of period................... 2,386,666 --
---------------- ----------------
End of period......................... $ 22,542,736 $2,386,666
---------------- ----------------
---------------- ----------------
SHARE TRANSACTIONS:
Issued................................ 1,874,103 232,760
Reinvested............................ 29,521 432
Redeemed.............................. (134,871) (2)
---------------- ----------------
Change in shares...................... $ 1,768,753 $ 233,190
---------------- ----------------
---------------- ----------------
</TABLE>
(a) Period from commencement of operations.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THIS FINANCIAL STATEMENT.
MF-86
<PAGE>
AMSOUTH EQUITY INCOME FUND
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
1. ORGANIZATION:
The Variable Insurance Funds (the "Trust") was organized on July 20, 1994,
and is registered under the Investment Company Act of 1940, as amended (the
"Act"), as a diversified, open-end management investment company established
as a Massachusetts business trust. Between the date of organization and the
date of commencement of Trust operations (October 23, 1997), the Trust had
no operations other than incurring organizational expenses and the sale of
initial units of beneficial interest ("shares").
The Trust is authorized to issue an unlimited number of shares without par
value. The Trust currently offers shares of the AmSouth Equity Income Fund
(the "Fund"). Shares of the Fund are offered to a separate account of
Hartford Life Insurance Company, as well as other eligible purchasers.
The investment objective of the Fund is to seek to provide above average
income and capital appreciation. It seeks this objective by investing, under
normal market conditions, at least 65% of its total assets in
income-producing equity securities, including common stock, preferred stock,
and securities that are convertible into common stocks, such as convertible
bonds and convertible preferred stocks.
2. SIGNIFICANT ACCOUNTING POLICIES:
The following is a summary of significant accounting policies followed by
the Trust in the preparation of its financial statements. The policies are
in conformity with generally accepted accounting principles ("GAAP"). The
preparation of financial statements requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities
at the date of the financial statements and the reported amounts of income
and expenses for the period. Actual results could differ from those
estimates.
SECURITIES VALUATION--Exchange-listed securities are valued at the closing
price on the exchange on the day of computation, or, if there have been no
sales during such day, at the latest bid quotation. Unlisted securities are
valued at their latest bid quotation in their principal market. If no such
bid is available, then such securities are valued in good faith at their
respective fair market values using methods determined by or under the
supervision of the Trust's Board of Trustees. Portfolio securities with a
remaining maturity of 60 days or less are valued either at amortized cost or
original cost plus accrued interest, which approximates current value.
SECURITIES TRANSACTIONS AND RELATED INCOME--Securities transactions are
accounted for on the date the security is purchased or sold (trade date).
Interest income is recognized on the accrual basis and includes, where
applicable, the pro rata amortization of premium or discount. Dividend
income is recorded on the ex-dividend date. Gains or losses realized on
sales of securities are determined by comparing the identified cost of the
security lot sold with the net sales proceeds.
DIVIDENDS TO SHAREHOLDERS--Dividends from net investment income, if any, are
declared and paid monthly for the Fund. Distributable net realized gains, if
any, are declared and distributed at least annually.
Dividends from net investment income and net realized capital gains are
determined in accordance with income tax regulations, which may differ from
GAAP. These differences are primarily due to differing treatments of
deferrals of certain losses.
These "book/tax" differences are considered to be either temporary or
permanent in nature. To the extent these differences are permanent in
nature, such amounts are reclassified within the composition of net assets
based on their federal tax-basis treatment; temporary differences do not
require reclassifications. Dividends and distributions to shareholders which
exceed net investment income and net realized gains for financial reporting
purposes but not for tax purposes are reported as dividends in excess of net
investment income or distributions in excess of net realized gains. To the
extent they exceed net investment income and net realized gains for tax
purposes, they are reported as distribution of capital.
As of December 31, 1998, the following reclassification have been made to
increase (decrease) such accounts with offsetting adjustments made to
additional paid-in-capital:
<TABLE>
<CAPTION>
ACCUMULATED ACCUMULATED
UNDISTRIBUTED NET UNDISTRIBUTED NET REALIZED
FUND INVESTMENT INCOME GAIN (LOSS) ON INVESTMENTS
- ---------------------------------------- ------------------ ---------------------------
<S> <C> <C>
AmSouth Equity Income Fund $454 ($454)
</TABLE>
FEDERAL INCOME TAXES--It is the intention of the Fund to qualify or continue
to qualify as a regulated investment company by complying with the
provisions available to certain investment companies, as defined in
applicable sections of the Internal Revenue Code, and to make distributions
of net investment income and net realized capital gains sufficient to
relieve it from all, or substantially all, federal income taxes.
ORGANIZATION COSTS--Costs incurred by the Fund in connection with its
organization and registration of shares have been deferred and are amortized
using the straight-line method over a period of two years from October 23,
1997, the commencement of the public offering of shares of the Fund. In the
event that any of the initial shares of the Fund are redeemed during the
amortization period by any holder thereof, the redemption proceeds may be
reduced by any unamortized organizational expenses of the Fund in
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THIS FINANCIAL STATEMENT.
MF-87
<PAGE>
AMSOUTH EQUITY INCOME FUND
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1998
the same proportion as the number of said shares of the Fund being redeemed
bears to the number of initial shares of the Fund that are outstanding at
the time of redemption.
OTHER--Expenses that are directly related to the Fund are charged directly
to the Fund.
3. PURCHASES AND SALES OF SECURITIES:
Purchases and sales of portfolio securities (excluding short-term
securities) for the year ended December 31, 1998, were as follows:
<TABLE>
<CAPTION>
PURCHASES SALES
----------- -----------
<S> <C> <C>
AmSouth Equity Income Fund $35,481,421 $16,662,098
</TABLE>
4. RELATED PARTY TRANSACTIONS:
Investment advisory services are provided to the Fund by AmSouth. Under the
terms of the investment advisory agreement, AmSouth is entitled to receive
fees based on a percentage of the average daily net assets of the Fund.
Sub-advisory services are provided to the Fund by Rockhaven Asset
Management, LLC ("Rockhaven"). Under the terms of the sub-advisory
agreement, Rockhaven is entitled to receive fees, payable by AmSouth, based
on a percentage of the average daily net assets of the Fund, provided that
if AmSouth waives a portion of its investment advisory fee, Rockhaven has
agreed that its sub-advisory fee shall not exceed 60% of AmSouth's net
investment advisory fee. AmSouth also serves as custodian for the Fund.
Pursuant to the Custodian Agreement with the Trust, the Custodian receives
compensation from the Fund for such services in an amount equal to an asset-
based fee plus fixed fees charged for certain portfolio transactions and
out-of-pocket expenses.
BISYS Fund Services Limited Partnership d/b/a BISYS Fund Services ("BISYS"),
with which certain officers and trustees of the Trust are affiliated, serves
the Trust as Administrator. Such officers and trustees are paid no fees
directly by the Trust for serving as officers and trustees of the Trust.
Under the terms of the Management and Administration Agreement between BISYS
and the Trust, BISYS' fees are computed daily as a percentage of the average
net assets of the Fund. BISYS also serves, without compensation, as
Distributor of the Fund's. BISYS Fund Services Ohio, Inc. ("BISYS Ohio")
serves the Fund as Transfer agent and Mutual fund accountant. BISYS, an Ohio
limited partnership, and BISYS Ohio are subsidiaries of The BISYS Group,
Inc.
Shares of the Trust are subject to a Variable Contract Owner Servicing Plan
(the "Servicing Plan") permitting payment of compensation to financial
institutions that agree to provide certain administrative support services
for their customers or account holders. The Fund has entered into a specific
arrangement with BISYS for the provision of such services and reimburses
BISYS for its cost of providing these services, subject to a maximum annual
rate equal to 0.25% of the average daily net assets of the Fund.
Fees may be voluntarily reduced or reimbursed to assist the Fund in
maintaining competitive expense ratios. Information regarding these
transactions is as follows for the year ended December 31, 1998:
<TABLE>
<S> <C>
INVESTMENT ADVISORY FEES:
Annual fee before voluntary fee reductions
(percentage of average daily net assets) 0.60%
Voluntary fee reductions $32,185
ADMINISTRATION FEES:
Annual fee before voluntary fee reductions and
reimbursements
(percentage of average daily net assets) 0.20%
Voluntary fee reductions $17,598
Voluntary fee reimbursements $ 4,566
VARIABLE CONTRACT OWNER SERVICING FEES:
Annual fee
(percentage of average daily net assets) 0.25%
CUSTODIAN FEES:
Annual fee before voluntary fee reductions 0.006%
(percentage of average daily net assets)
MUTUAL FUND ACCOUNTING FEES:
Annual fee before voluntary fee reductions and
reimbursements
(percentage of average daily net assets) 0.03%
Voluntary fee reductions $ 770
</TABLE>
5. FEDERAL INCOME TAX INFORMATION (UNAUDITED):
At December 31, 1998, the Fund had available $1,160,555 of capital loss
carryforwards which, if not utilized, will expire in the year 2006.
Under current tax law, capital losses realized after October 31, may be
deferred and treated as occurring on the first day of the next fiscal year.
As of December 31, 1998, the Fund had deferred losses of $20,569.
For the year ended December 31, 1998, 92.56% of income dividends paid by the
Fund qualify for the dividends received deduction available to corporations.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THIS FINANCIAL STATEMENT.
MF-88
<PAGE>
AMSOUTH EQUITY INCOME FUND
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
YEAR OCTOBER 23,
ENDED 1997 TO
DECEMBER 31, DECEMBER 31,
1998 1997(A)
------------- -------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD.... $ 10.23 $10.00
------------- ------
INVESTMENT ACTIVITIES:
Net investment income................. 0.22 0.03
Net realized and unrealized gains..... 1.03 0.23
------------- ------
Total investment activities........... 1.25 0.26
------------- ------
DISTRIBUTIONS:
From net investment income............ (0.22) (0.03)
------------- ------
Total distributions................... (0.22) (0.03)
------------- ------
NET ASSET VALUE, END OF PERIOD.......... $ 11.26 $10.23
------------- ------
------------- ------
Total return.......................... 12.36% 2.27%(b)
RATIOS/SUPPLEMENTAL DATA:
Net assets, at end of period (000).... $22,543 $2,387
Ratio of expenses to average net
assets............................... 1.14% 1.22%(c)
Ratio of net investment income to
average net assets................... 2.13% 2.39%(c)
Ratio of expenses to average net
assets*.............................. 1.53% 7.26%(c)
Portfolio turnover rate............... 120.83% 4.00%
- ------------------------
</TABLE>
(a) Period from commencement of operations.
(b) Not annualized
(c) Annualized
* During the period certain fees were reimbursed and voluntarily reduced. If
such reimbursements and voluntary fee reductions had not occurred, the ratios
would have been as indicated.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THIS FINANCIAL STATEMENT.
MF-89
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholder and Trustees of
The AmSouth Equity Income Fund:
In our opinion, the accompanying statements of assets and liabilities, including
the schedules of portfolio investments, and the related statements of operations
and changes in net assets, and the financial highlights present fairly, in all
material respects, the financial position of the AmSouth Equity Income Fund,
(hereafter referred to as the "the Fund") at December 31, 1998, the results of
their operations, the changes in their net assets, and the financial highlights
for each of the periods presented, in conformity with generally accepted
accounting principles. These financial statements and financial highlights
(hereafter referred to as "financial statements") are the responsibility of the
Funds' management; our responsibility is to express an opinion on these
financial statements based on our aduit. We conducted our audit of these
financial statements in accordance with generally accepted auditing standards
which require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audit, which included
confirmation and verification by examination of securities at December 31, 1998
and correspondence with the custodian and brokers, provide a reasonable basis
for the opinion expressed above.
PricewaterhouseCoopers LLP
Columbus, Ohio
February 11, 1999
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THIS FINANCIAL STATEMENT.
MF-90
<PAGE>
MENTOR VARIABLE INVESTMENT PORTFOLIOS
- --------------------------------------------------------------------------------
MENTOR VIP GROWTH PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1998
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
- ---------- -----------
<C> <S> <C>
COMMON STOCKS -- 94.57%
CAPITAL GOODS -- 3.39%
1,900 C & D Technology, Inc................... $ 52,250
2,750 Conrad Industries, Inc.*................ 10,742
3,700 Denali, Inc.*........................... 51,800
6,100 MotivePower Industries, Inc............. 196,344
4,050 Rental Service Corporation*............. 63,534
-----------
374,670
-----------
CONSUMER CYCLICAL -- 10.00%
1,800 Action Performance Companies, Inc.*..... 63,675
3,400 Butler International, Inc.*............. 89,888
2,350 Cadmus Communication Corporation........ 44,356
3,400 Central Garden & Pet Company*........... 48,875
3,500 Chattem, Inc............................ 167,562
762 Dollar General Corporation.............. 18,002
2,900 Dollar Tree Stores, Inc.*............... 126,694
5,050 Fairfield Communities, Inc.*............ 55,866
8,400 Family Dollar Stores.................... 184,800
2,050 Galey & Lord, Inc.*..................... 17,681
4,400 Keystone Automotive Industries, Inc.*... 92,125
5,100 Media Arts Group, Inc.*................. 71,719
5,850 SCP Pool Corporation*................... 88,481
4,450 Suburban Lodges of America*............. 36,434
-----------
1,106,158
-----------
CONSUMER STAPLES -- 12.51%
2,300 Celestial Seasonings, Inc.*............. 63,969
2,100 Chancellor Media Corporation*........... 100,538
2,100 Clear Channel Communications............ 114,450
1,600 Cox Radio, Inc. - Class A*.............. 67,600
6,850 Cumulus Media - Class A*................ 113,881
2,550 Lamar Advertising Company*.............. 94,987
4,150 Medialink Worldwide, Inc.*.............. 70,550
1,750 Metro Networks, Inc.*................... 74,594
3,400 Natrol, Inc.*........................... 37,400
2,950 Omega Protein Corporation*.............. 29,869
6,950 Outdoor Systems, Inc.*.................. 208,500
2,950 Papa John's International, Inc.*........ 130,169
3,300 Richfood Holdings, Inc.................. 68,475
3,050 U.S. Foodservice*....................... 149,450
1,900 Wild Oats Markets, Inc.*................ 59,850
-----------
1,384,282
-----------
ENERGY -- 1.98%
4,400 Core Laboratories N.V.*................. 84,150
3,600 Global Industries, Limited*............. 22,050
3,100 Gulf Island Fabrication, Inc.*.......... 24,025
2,950 Hanover Compressor*..................... 75,778
1,650 Unifab International, Inc.*............. 13,200
-----------
219,203
-----------
FINANCIAL -- 6.65%
1,200 CCB Financial Corporation............... 68,400
4,125 Concord EFS, Inc.*...................... 174,797
6,200 Hibernia Corporation - Class A.......... 107,725
1,150 Markel Corporation*..................... 208,150
9,400 National Commerce Bancorporation........ 176,837
-----------
735,909
-----------
<CAPTION>
MARKET
SHARES VALUE
- ---------- -----------
<C> <S> <C>
</TABLE>
<TABLE>
<C> <S> <C>
HEALTH -- 23.63%
750 American Dental Partners, Inc.*......... $ 8,672
2,550 Assisted Living Concepts, Inc.*......... 33,469
1,400 Bindley Western Industries.............. 68,950
400 Biomatrix, Inc.*........................ 23,300
2,000 Boron Lepore & Associates*.............. 69,000
5,100 Brookdale Living Communities*........... 99,450
3,500 CareMatrix Corporation*................. 107,187
4,550 Curative Health Services, Inc.*......... 152,425
3,100 Express Scripts, Inc. - Class A*........ 208,087
4,625 Health Management Associates, Inc.*..... 100,016
1,800 Healthcare Recoveries*.................. 30,600
2,750 Henry Schein, Inc.*..................... 123,062
3,150 Mecon, Inc.*............................ 33,075
4,100 Medquist, Inc.*......................... 161,950
5,550 Molecular Devices Corporation*.......... 120,713
4,850 NCS Healthcare, Inc. - Class A*......... 115,187
3,250 Omnicare, Inc........................... 112,937
1,800 Osteotech, Inc.*........................ 83,700
3,250 Pharmaceutical Products Development*.... 97,703
2,700 Priority Healthcare Corporation - Class 140,063
B*......................................
5,100 Province Healthcare Company*............ 182,963
2,150 QuadraMed Corporation*.................. 44,075
5,200 Serologicals Corporation*............... 156,000
4,150 Sunrise Assisted Living, Inc.*.......... 215,281
4,050 United Payors & Providers, Inc.*........ 115,425
400 Wesley Jessen Visioncare, Inc.*......... 11,100
-----------
2,614,390
-----------
TECHNOLOGY -- 21.12%
4,700 ADE Corporation*........................ 61,100
2,600 ATMI, Inc.*............................. 65,650
1,850 AXENT Technologies, Inc.*............... 56,541
4,500 Benchmark Electronics, Inc.*............ 164,812
5,100 Billing Concepts Corporation*........... 56,100
1,800 Black Box Corporation*.................. 68,175
6,400 Cerprobe Corporation.................... 86,000
1,200 Check Point Software*................... 54,975
1,800 Cognizant Technology Solutions*......... 54,675
1,100 CSG Systems International, Inc.*........ 86,900
4,100 ICG Communications*..................... 88,150
6,550 ITC DeltaCom*........................... 99,888
3,400 Kulicke & Soffa Industries, Inc......... 60,350
1,900 Level One Communications*............... 67,450
2,600 Mylex Corporation*...................... 31,200
1,200 Network Appliance, Inc.*................ 54,000
3,050 Optek Technology, Inc.*................. 57,569
4,950 Parlex Corporation*..................... 49,500
4,450 PCD, Inc.*.............................. 57,850
6,450 Peerless Systems*....................... 54,825
1,550 Peregrine Systems, Inc.*................ 71,881
3,200 Photronics, Inc.*....................... 76,700
5,750 Powerwave Technologies, Inc.*........... 107,094
1,550 Proxim, Inc.*........................... 41,366
5,150 PRI Automation, Inc.*................... 133,900
800 RF Micro Devices, Inc.*................. 37,100
9,600 SCB Computer Technology, Inc.*.......... 94,800
4,150 Segue Software, Inc.*................... 84,037
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THIS FINANCIAL STATEMENT.
MF-91
<PAGE>
MENTOR VARIABLE INVESTMENT PORTFOLIOS
- --------------------------------------------------------------------------------
MENTOR VIP GROWTH PORTFOLIO
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
DECEMBER 31, 1998
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
- ---------- -----------
<C> <S> <C>
</TABLE>
COMMON STOCKS -- (CONTINUED)
TECHNOLOGY -- (CONTINUED)
<TABLE>
<C> <S> <C>
2,650 Sipex Corporation*...................... $ 93,081
3,800 Speedfam International, Inc.*........... 65,075
5,150 World Access, Inc....................... 110,081
1350 Xircom, Inc.*........................... 45,900
-----------
2,336,725
-----------
TRANSPORTATION -- 9.46%
5,900 Atlantic Coast Airlines, Inc.*.......... 147,500
4,350 Avis Rent A Car*........................ 105,216
3,000 Carey International, Inc.*.............. 52,500
3,350 Coach USA, Inc.*........................ 116,203
3,000 Comair Holdings, Inc.................... 101,250
5,000 Covenant Transport, Inc. - Class A*..... 89,375
8,675 Mesaba Holdings, Inc.................... 178,922
2,800 M.S. Carriers, Inc.*.................... 92,225
4,400 Travel Services International, Inc.*.... 134,200
2,000 US Xpress Enterprise - Class A*......... 30,000
-----------
1,047,391
-----------
MISCELLANEOUS -- 5.83%
3,550 ABR Information Services, Inc.*......... 69,669
4,650 AHL Services, Inc.*..................... 145,312
1,400 Modis Professionals..................... 20,300
4,666 NOVA Corporation*....................... 161,852
2,350 Rock of Ages Corporation*............... 33,488
4,727 Romac International, Inc.*.............. 105,176
3,150 Select Appointments Holding PLC~........ 67,725
1,850 StaffMark, Inc.*........................ 41,394
-----------
644,916
-----------
Total common stocks (cost $9,262,660)... 10,463,644
-----------
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
- ---------- -----------
<C> <S> <C>
SHORT-TERM INVESTMENT -- 9.53%
REPURCHASE AGREEMENT
$1,054,247 Goldman Sachs & Company $ 1,054,247
Dated 12/31/98, 5.08%, due 1/04/99
collateralized by $1,060,829 Federal
National Mortgage Association 6.50%,
1/01/02, market value $1,076,201
(cost $1,054,247).......................
-----------
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
Total investments (cost $10,316,907).... 104.10% 11,517,891
Other assets less liabilities........... (4.10) (453,663)
------ -----------
Net assets.............................. 100.00% $11,064,228
------ -----------
------ -----------
</TABLE>
- ------------------------------
* Non-income producing.
~ American Depository Receipts.
INVESTMENT TRANSACTIONS
Cost of purchases and proceeds from sales of securities, other than short-term
securities, aggregated $11,706,265 and $1,893,379, respectively.
INCOME TAX INFORMATION
At December 31, 1998, the aggregated cost of investment securities for federal
income tax purposes was $10,437,947. Net unrealized appreciation aggregated
$1,079,944, of which $1,393,054, related to appreciated investment securities
and $313,110, related to depreciated investment securities.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THIS FINANCIAL STATEMENT.
MF-92
<PAGE>
MENTOR VARIABLE INVESTMENT PORTFOLIOS
- --------------------------------------------------------------------------------
MENTOR VIP PERPETUAL INTERNATIONAL PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1998
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
- ---------- -----------
<C> <S> <C>
PREFERRED STOCKS -- 2.20%
GERMANY
1,430 Koenig & Bauer.......................... $ 34,355
56 Porsche AG.............................. 128,821
800 Prosieben Media AG...................... 38,343
122 SAP AG.................................. 58,584
-----------
Total preferred stocks (cost 260,103
$254,148)...............................
-----------
COMMON STOCKS -- 87.53%
ARGENTINA -- 0.09%
390 Telefonica de Argentina SA~............. 10,896
-----------
AUSTRIA -- 0.26%
598 Bank Austria AG......................... 30,437
-----------
BELGIUM -- 0.56%
150 Cofinimmo............................... 19,921
880 G.I.B. Group Holdings SA................ 46,032
-----------
65,953
-----------
BRAZIL -- 0.29%
410 Companhia Energetica de Minais 7,805
Gerais~.................................
670 Petroleo Brasileiro SA~................. 7,597
145 Telecomunicacoes Brasileiras SA~........ 10,540
630 Vale do Rio Doche~...................... 8,082
-----------
34,024
-----------
CHINA -- 0.31%
1,000 Huaneng Power International, Inc.~*..... 14,500
100,000 Jiangsu Express Company, Limited........ 21,813
-----------
36,313
-----------
DENMARK -- 0.39%
850 Vestas Wind Systems..................... 45,543
-----------
FINLAND -- 3.09%
1,160 Huhtamaki............................... 44,135
4,740 Metra Oyj - Class B..................... 81,805
1,744 Nokia Oyj - Class A..................... 212,059
980 UPM - Kymmene Oyj....................... 27,292
-----------
365,291
-----------
FRANCE -- 9.80%
470 Accor SA................................ 101,740
530 Air Liquide............................. 97,187
431 Atos SA................................. 103,013
570 Axa..................................... 82,598
1,120 Casino Guichard Perrachn................ 116,613
440 Cie De St Gobain........................ 62,107
775 Coflexip................................ 52,547
100 Colas................................... 21,039
710 Elf Aquitaine SA........................ 82,054
1,100 Entrelec................................ 50,181
380 Genset SA~*............................. 29,232
300 Imetal.................................. 30,055
292 Sanofi SA............................... 48,059
400 Serp Recyclage*......................... 57,248
1,265 Societe Generale D'Enterprises.......... 59,292
1,070 Total SA - Class B...................... 108,345
<CAPTION>
MARKET
SHARES VALUE
- ---------- -----------
<C> <S> <C>
</TABLE>
COMMON STOCKS -- (CONTINUED)
FRANCE -- (CONTINUED)
<TABLE>
<C> <S> <C>
220 Vivendi................................. $ 57,069
-----------
1,158,379
-----------
GERMANY -- 3.10%
110 AVA Allg Handels Der Verbrau............ 44,266
1,158 Daimler Chrysler........................ 115,108
1,000 Hawesko Holding AG...................... 55,858
2,550 Veba AG................................. 151,167
-----------
366,399
-----------
GREAT BRITAIN -- 18.85%
3,500 Abbey National Bank PLC................. 74,696
2,875 Allied Zurich PLC*...................... 42,883
4,800 Arcadia Group PLC....................... 14,088
2,620 Arriva PLC.............................. 16,423
14,600 ASDA Group PLC.......................... 38,797
2,550 BAA PLC................................. 29,515
3,150 Barclays Bank PLC....................... 67,540
3,175 Bass PLC................................ 44,515
1,850 Britannic Assurance PLC................. 40,341
4,500 British Aerospace PLC................... 38,094
7,900 British Airways......................... 53,318
6,175 British American Tobacco Industries 54,629
PLC.....................................
8,000 British Borneo Oil & Gas................ 13,266
350 British Petroleum Company PLC........... 5,206
2,050 Burmah Castrol.......................... 29,354
2,250 Carlton Communication................... 20,558
1,400 Celltech PLC*........................... 9,309
5,400 Centrica PLC*........................... 10,813
4,500 Debenhams Retail PLC.................... 26,789
2,000 Dixons Group............................ 27,908
3,800 Emap PLC................................ 71,394
3,960 Enterprise Oil PLC...................... 19,208
6,400 Express Dairies PLC..................... 14,168
4,000 Gallaher Group PLC...................... 27,013
1,365 Garban PLC.............................. 5,229
1,350 Glaxo Wellcome PLC...................... 46,138
4,150 Granada Group PLC....................... 73,394
2,800 Great Universal Stores PLC.............. 29,228
4,800 Greenalls Group PLC..................... 25,391
4,500 HSBC Holdings PLC....................... 113,350
3,900 Iceland Group PLC....................... 15,424
5,500 III Group PLC........................... 52,716
5,800 Imperial Chemical Industries PLC........ 49,917
3,000 Inchcape PLC............................ 6,393
8,500 Ladbroke Group.......................... 33,828
7,500 Lloyds TSB Group PLC.................... 106,087
5,600 Meggitt PLC............................. 11,515
4,800 National Westminster Bank............... 92,172
3,900 Northern Foods PLC...................... 9,086
4,000 Nycomed Amersham PLC.................... 27,527
2,740 PowderJect Pharmacy..................... 24,535
4,510 Prudential Corporation PLC.............. 67,944
1,950 Rank Group PLC.......................... 7,405
1,000 Reckitt & Colman PLC.................... 13,167
3,300 Reuters Group PLC....................... 34,502
15,820 Rolls-Royce PLC......................... 64,797
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THIS FINANCIAL STATEMENT.
MF-93
<PAGE>
MENTOR VARIABLE INVESTMENT PORTFOLIOS
- --------------------------------------------------------------------------------
MENTOR VIP PERPETUAL INTERNATIONAL PORTFOLIO
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
DECEMBER 31, 1998
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
- ---------- -----------
<C> <S> <C>
</TABLE>
COMMON STOCKS -- (CONTINUED)
GREAT BRITAIN -- (CONTINUED)
<TABLE>
<C> <S> <C>
6,000 Sainsbury (J.) PLC*..................... $ 46,539
1,100 Scot & Newcastle........................ 12,431
1,200 Scotia Holdings*........................ 1,244
7,000 Securicor PLC........................... 58,155
7,250 Shell Transportation & Trading Company 44,242
PLC....................................
46,925 Signet Group............................ 24,317
3,260 Smith (H.W.) Group PLC.................. 25,948
2,070 SmithKline Beecham PLC.................. 28,954
1,800 Smiths Industries PLC................... 25,132
2,500 Spirax-Sarco Engineering PLC............ 21,578
22,500 Stakis PLC.............................. 37,311
5,900 Standard Chartered Bank................. 67,899
1,600 Tate & Lyle PLC......................... 8,888
13,200 Tesco PLC............................... 37,758
2,500 Trinity PLC............................. 16,520
3,500 United Assurance Group CNV.............. 31,776
4,400 United News & Media PLC................. 37,977
600 Vickers Group........................... 1,801
-----------
2,228,040
-----------
HONG KONG -- 3.31%
48,000 Aeon Credit Services.................... 9,913
16,000 Asia Satellite Telecommunications 28,500
Holdings, Limited......................
4,000 Cheung Kong Holdings.................... 28,783
32,000 China Foods Holdings, Limited*.......... 7,476
50,000 China Resources Beijing................. 12,456
4,000 Citic Pacific, Limited.................. 8,622
170,000 Elec & Eltek International Company, 32,475
Limited................................
70,000 Giordano International.................. 13,101
40,000 HKR International, Limited.............. 24,395
8,000 Hong Kong & China Gas................... 10,171
3,000 HSBC Holdings PLC....................... 74,734
80,000 Hung Hing Printing Group................ 31,236
15,000 Hysan Development....................... 22,362
20,000 National Mutual Asia, Limited........... 14,973
6,000 New World Development................... 15,102
20,000 Road King Infrastructure, Limited....... 14,714
10,000 Sime Darby.............................. 3,033
5,000 Swire Pacific, Limited - Class A........ 22,394
100,000 Yanzhou Coal Mining Company - Class H... 16,780
-----------
391,220
-----------
INDIA -- 0.22%
2,000 BSES, Limited#*......................... 25,500
-----------
INDONESIA -- 0.40%
40,000 PT HM Sampoerna......................... 26,375
20,000 PT Semen Gresik......................... 20,750
-----------
47,125
-----------
IRELAND -- 2.73%
5,400 Bank of Ireland......................... 118,290
6,330 CRH PLC................................. 107,381
<CAPTION>
MARKET
SHARES VALUE
- ---------- -----------
<C> <S> <C>
</TABLE>
IRELAND -- (CONTINUED)
<TABLE>
<C> <S> <C>
1,400 Elan Corporation PLC~*.................. $ 97,387
-----------
32,3058
-----------
ITALY -- 5.54%
1,470 Assicurazioni Generali.................. 61,410
101,000 Finmeccanica SPA........................ 103,526
10,500 Grupo Editoriale L'Espresso............. 92,179
25,600 Ina SPA................................. 67,654
8,070 Rinascente SPA.......................... 83,036
4,180 San Paolo Imi SPA....................... 73,898
5,600 Telecom Italia SPA...................... 47,806
20,000 Telecom Italia SPA - Warrants........... 125,932
-----------
655,441
-----------
JAPAN -- 16.51%
20,000 Asahi Glass Company, Limited............ 123,551
35 DDI Corporation......................... 129,544
20,000 Fujitsu General......................... 118,088
23,000 Industrial Bank of Japan................ 105,600
130 Japan Tobacco........................... 129,456
12,000 Kirin Brewery Company, Limited.......... 152,280
13,000 Kokusai Securities Company, Limited..... 121,666
35,000 Mitsui Chemicals, Inc................... 121,216
25,000 Nippon Mining & Metals.................. 109,275
80,000 Nippon Steel Corporation................ 144,525
250 Nippon Telegraph & Telephone 192,113
Corporation.............................
45,000 Nitto Boseki Company.................... 111,831
27,000 Oji Paper Company....................... 139,669
28,000 Sumitomo Warehouse Company, Limited..... 122,388
11,000 Tokio Marine & Fire Insurance........... 130,866
-----------
1,952,068
-----------
MALAYSIA -- 0.05%
10,000 IOI Corporation Berhad (a).............. 5,737
-----------
MEXICO -- 0.30%
1,400 Grupo Carso SA~......................... 9,513
490 Panamerican Beverages - Class A*........ 10,688
320 Telefonos de Mexico SA- Class L~........ 15,580
-----------
35,781
-----------
NETHERLANDS -- 2.11%
1,250 Akzo Nobel.............................. 56,854
2,310 Royal Dutch Petroleum Company........... 114,898
3,200 Vendex International NV................. 77,625
-----------
249,377
-----------
PHILIPPINES -- 0.25%
13,800 Bank of the Philippine Islands.......... 29,267
-----------
PORTUGAL -- 1.48%
2,540 BPI SGPS SA............................. 86,053
1,300 Cimpor Cimentos de Portugal............. 41,428
880 Jeronimo Martins........................ 48,060
-----------
175,541
-----------
SINGAPORE -- 1.41%
20,000 DBS Land................................ 29,437
5,000 GP Batteries International, Limited..... 10,660
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THIS FINANCIAL STATEMENT.
MF-94
<PAGE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
- ---------- -----------
<C> <S> <C>
</TABLE>
COMMON STOCKS -- (CONTINUED)
SINGAPORE -- (CONTINUED)
<TABLE>
<C> <S> <C>
10,000 Jardine Strategic....................... $ 14,500
12,000 Marco Polo Developments, Limited........ 12,647
10,000 Overseas Chinese Bank*.................. 67,838
5,000 United Overseas Bank.................... 32,102
-----------
167,184
-----------
SPAIN -- 9.20%
870 Acciona SA.............................. 71,042
3,621 Argentaria Caja Postal y Banco 93,755
Hipotecario de Espana SA...............
2,550 Baron de Ley*........................... 83,452
3,160 Centros Comerciales Continente SA....... 107,088
3,320 Corporate Finance Reunida............... 48,302
1,600 Dragados & Construcciones SA............ 58,957
4,000 Endesa SA............................... 105,964
1,206 Gas Natural SDG, SA..................... 131,276
8,900 Prosegur CIA de Seguridad SA............ 103,776
5,390 Tabacalera SA........................... 135,951
1,090 Telefonica de Espana SA................. 48,458
1,090 Telefonica de Espana SA - Rights........ 968
5,400 Telepizza............................... 51,362
1,465 Viscofan Envolturas Celulosicas SA...... 47,376
-----------
1,087,727
-----------
SWEDEN -- 2.16%
27,000 BPA AB.................................. 63,140
4,350 Celsius AB - Class B.................... 58,894
4,050 ForeningsSparbanken AB - Class A........ 104,680
350 Hennes & Mauritz AB - Class B........... 28,518
-----------
255,232
-----------
SWITZERLAND -- 4.43%
54 Jelmoli Holding AG...................... 60,524
66 Nestle SA............................... 143,624
69 Novartis AG............................. 135,590
19 SCHW Rueckversicherungs................. 49,519
88 Zurich Allied AG........................ 65,135
225 UBS AG*................................. 69,105
-----------
523,497
-----------
THAILAND -- 0.69%
33,000 Cogeneration PLC........................ 25,193
10,000 Electricity Generating Public 27,098
Company*................................
<CAPTION>
MARKET
SHARES VALUE
- ---------- -----------
<C> <S> <C>
</TABLE>
THAILAND -- (CONTINUED)
<TABLE>
<C> <S> <C>
17,900 Tipco Asphalt Company................... $ 29,546
-----------
81,837
-----------
Total common stocks (cost $9,707,555)... 10,346,867
-----------
<CAPTION>
PRINCIPAL
AMOUNT
- ----------
<C> <S> <C>
CORPORATE BOND -- 0.23%
$ 27,000 Republic of Korea, 8.88%, 04/15/08 (cost 27,810
$19,785)...............................
-----------
Total corporate bond.................... 10,634,780
-----------
SHORT-TERM INVESTMENT -- 10.55%
REPURCHASE AGREEMENT
1,246,987 Goldman Sachs & Company 1,246,987
Dated 12/31/98, 5.08%, due 1/04/99,
collateralized by Federal National
Mortgage Association, $1,290,000,
6.00%, 12/01/28, market value
$1,273,472, (cost $1,246,987)..........
-----------
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
Total investments (cost $11,228,475).... 100.51% 11,881,767
Other assets less liabilities........... (0.51) (60,525)
------ -----------
Net assets.............................. 100.00% $11,821,242
------ -----------
------ -----------
- ------------------------------
</TABLE>
* Non-income producing.
~ American Depository Receipts.
# Global Depository Receipts.
(a) These securities are considered illiquid due to a one year moratorium on
the repatriation of assets from Malaysia.
INVESTMENT TRANSACTIONS
Cost of purchases and proceeds from sales of securities, other than short-term
securities, aggregated $13,922,936 and $3,964,341, respectively.
INCOME TAX INFORMATION
At December 31, 1998, the aggregated cost of investment securities for federal
income tax purposes was $11,201,955. Net unrealized appreciation aggregated
$679,812, of which $1,118,829, related to appreciated investment securities and
$439,017, related to depreciated investment securities.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THIS FINANCIAL STATEMENT.
MF-95
<PAGE>
MENTOR VARIABLE INVESTMENT PORTFOLIOS
- --------------------------------------------------------------------------------
MENTOR VIP CAPITAL GROWTH PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1998
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
- ---------- -----------
<C> <S> <C>
COMMON STOCKS -- 97.85%
BASIC MATERIALS -- 6.31%
16,490 Bemis Company, Inc...................... $ 625,589
22,000 Sherwin-Williams Company................ 646,250
-----------
1,271,839
-----------
CAPITAL GOODS & CONSTRUCTION -- 9.98%
11,260 Emerson Electric Company................ 704,454
11,460 Illinois Tool Works..................... 664,680
15,410 W.W. Grainger, Inc...................... 641,441
-----------
2,010,575
-----------
CONSUMER CYCLICAL -- 16.07%
11,480 Chancellor Media Corporation*........... 549,605
9,710 Clear Channel Communications............ 529,195
10,030 Gannett Company......................... 663,861
9,810 Interpublic Group Companies............. 782,347
8,280 Newell Company.......................... 341,550
11,750 Rubbermaid, Inc......................... 369,391
-----------
3,235,949
-----------
CONSUMER STAPLES -- 6.72%
12,550 Philip Morris Companies, Inc............ 671,425
24,840 Sysco Corporation....................... 681,548
-----------
1,352,973
-----------
FINANCIAL -- 22.29%
7,000 American Express Company................ 715,750
8,180 BankAmerica Corporation................. 491,822
8,910 Federal National Mortgage Association... 659,340
14,150 SouthTrust Corporation.................. 522,666
14,700 UNUM Corporation........................ 858,112
19,248 Washington Mutual, Inc.................. 735,033
12,680 Wells Fargo Company..................... 506,408
-----------
4,489,131
-----------
HEALTH -- 10.46%
5,480 Bristol-Myers Squibb Company............ 733,292
7,930 Johnson & Johnson....................... 665,129
26,950 Tenet Healthcare Corporation............ 707,438
-----------
2,105,859
-----------
TECHNOLOGY -- 19.19%
17,650 Computer Associates International, 752,331
Inc.....................................
<CAPTION>
MARKET
SHARES VALUE
- ---------- -----------
<C> <S> <C>
</TABLE>
TECHNOLOGY -- (CONTINUED)
<TABLE>
<C> <S> <C>
13,070 Computer Sciences Corporation........... $ 842,198
11,390 MCI WorldCom, Inc....................... 817,232
8,430 Sun Microsystems, Inc.*................. 721,819
18,450 SunGard Data Systems.................... 732,234
-----------
3,865,814
-----------
TRANSPORTATION & SERVICES -- 2.55%
29,000 Werner Enterprises, Inc................. 512,938
-----------
MISCELLANEOUS -- 4.28%
11,440 Tyco International Limited.............. 863,005
-----------
Total common stocks (cost 19,708,083
$17,927,025)............................
-----------
<CAPTION>
PRINCIPAL
AMOUNT
- ----------
<C> <S> <C>
SHORT-TERM INVESTMENT -- 9.46%
REPURCHASE AGREEMENT
$1,906,113 Goldman Sachs & Company 1,906,113
dated 12/31/98, 5.08%, due 1/04/99,
collateralized by $1,878,660 Federal
National Mortgage Association, 8.00%,
07/01/24, market value $1,946,175 (cost
$1,906,113)............................
-----------
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
Total investments (cost $19,833,138).... 107.31% 21,614,196
Other assets less liabilities........... (7.31) (1,472,191)
------ -----------
Net assets.............................. 100.00% $20,142,005
------ -----------
------ -----------
- ------------------------------
</TABLE>
* Non-income producing.
INVESTMENT TRANSACTIONS
Cost of purchases and proceeds from sales of securities, other than short-term
securities, aggregated $21,620,334 and $3,680,748, respectively.
INCOME TAX INFORMATION
At December 31, 1998, the aggregated cost of investment securities for federal
income tax purposes was $19,885,337. Net unrealized appreciation aggregated
$1,728,859, of which $2,007,513, related to appreciated investment securities
and $278,654, related to depreciated investment securities.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THIS FINANCIAL STATEMENT.
MF-96
<PAGE>
MENTOR VARIABLE INVESTMENT PORTFOLIOS
- --------------------------------------------------------------------------------
STATEMENTS OF ASSETS AND LIABILITIES
DECEMBER 31, 1998
<TABLE>
<CAPTION>
MENTOR VIP PERPETUAL
MENTOR VIP INTERNATIONAL MENTOR VIP CAPITAL
GROWTH PORTFOLIO PORTFOLIO GROWTH PORTFOLIO
-------------------- --------------------- -------------------
<S> <C> <C> <C>
ASSETS:
Investments, at market value
Investment securities.......... $10,463,644 $10,634,780 $19,708,083
Repurchase agreements.......... 1,054,247 1,246,987 1,906,113
-------------------- --------------------- -------------------
Total investments(a)......... 11,517,891 11,881,767 21,614,196
-------------------- --------------------- -------------------
Receivables
Investments sold............. 40,209 109,941 --
Fund shares sold............. 67,727 15,308 11,898
Dividends and interest....... 1,556 10,678 13,265
Unrealized appreciation on
forward foreign currency
exchange contracts............ -- 27 --
Deferred expenses.............. 7,969 9,604 14,104
-------------------- --------------------- -------------------
Total assets................. 11,635,352 12,027,325 21,653,463
-------------------- --------------------- -------------------
LIABILITIES:
Investments purchased............ 558,818 176,609 1,500,584
Fund shares redeemed............. 20 35 50
Accrued expenses and other
liabilities
Custodian fee.................. 10,500 28,009 4,681
Other.......................... 1,786 1,430 6,143
-------------------- --------------------- -------------------
Total liabilities............ 571,124 206,083 1,511,458
-------------------- --------------------- -------------------
NET ASSETS:
Capital.......................... 10,396,782 11,184,090 18,338,161
Accumulated undistributed net
investment income............... 16,688 (10,945) 35,347
Accumulated undistributed net
realized loss on investment
transactions.................... (550,226) (4,586) (12,561)
Net unrealized appreciation of
investments..................... 1,200,984 652,683 1,781,058
-------------------- --------------------- -------------------
Net assets................... $11,064,228 $11,821,242 $20,142,005
-------------------- --------------------- -------------------
-------------------- --------------------- -------------------
Shares outstanding................. 965,261 844,066 1,483,661
-------------------- --------------------- -------------------
-------------------- --------------------- -------------------
Net asset value -- offering and
redemption price per share........ $ 11.46 $ 14.01 $ 13.58
-------------------- --------------------- -------------------
-------------------- --------------------- -------------------
</TABLE>
(a) Investments at cost are $10,316,907, $11,228,475, and $19,833,138,
respectively.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THIS FINANCIAL STATEMENT.
MF-97
<PAGE>
MENTOR VARIABLE INVESTMENT PORTFOLIOS
- --------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS
FOR THE PERIOD FROM INCEPTION, MARCH 3, 1998 TO DECEMBER 31, 1998
<TABLE>
<CAPTION>
MENTOR VIP MENTOR VIP PERPETUAL MENTOR VIP CAPITAL
GROWTH PORTFOLIO INTERNATIONAL PORTFOLIO GROWTH PORTFOLIO
----------------- ------------------------ -------------------
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest income.................. $ 49,954 $ 38,814 $ 40,129
Dividends........................ 3,680 46,999 70,174
----------------- -------- -------------------
Total income................... 53,634 85,813 110,303
----------------- -------- -------------------
EXPENSES:
Custodian and accounting fees.... 26,589 62,989 10,018
Management fee................... 25,960 43,460 56,416
Distribution fee................. 9,226 10,807 17,544
Administration fees.............. 3,691 4,323 7,018
Organizational expenses.......... 1,594 1,921 2,821
Shareholder reports and postage
expenses........................ -- -- 2,782
Miscellaneous.................... 412 378 593
----------------- -------- -------------------
Total expenses................. 67,472 123,878 97,192
----------------- -------- -------------------
DEDUCT:
Waiver of management fee......... 21,300 42,172 4,692
Waiver of distribution fee....... 9,226 10,807 17,544
----------------- -------- -------------------
Net expenses................... 36,946 70,899 74,956
----------------- -------- -------------------
Net investment income.......... 16,688 14,914 35,347
----------------- -------- -------------------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Net realized loss on
investments..................... (550,226) (30,445) (12,561)
Change in unrealized appreciation
on investments.................. 1,200,984 652,683 1,781,058
----------------- -------- -------------------
Net gain on investments........ 650,758 622,238 1,768,497
----------------- -------- -------------------
Net increase in net assets
resulting from operations..... $ 667,446 $637,152 $1,803,844
----------------- -------- -------------------
----------------- -------- -------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THIS FINANCIAL STATEMENT.
MF-98
<PAGE>
MENTOR VARIABLE INVESTMENT PORTFOLIOS
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE PERIOD FROM INCEPTION, MARCH 3, 1998 TO DECEMBER 31, 1998
<TABLE>
<CAPTION>
MENTOR VIP PERPETUAL
MENTOR VIP INTERNATIONAL MENTOR VIP CAPITAL
GROWTH PORTFOLIO PORTFOLIO GROWTH PORTFOLIO
----------------- --------------------- -------------------
<S> <C> <C> <C>
NET INCREASE IN NET ASSETS:
OPERATIONS
Net investment income............ $ 16,688 $ 14,914 $ 35,347
Net realized loss on
investments..................... (550,226) (30,445) (12,561)
Change in unrealized appreciation
on investments.................. 1,200,984 652,683 1,781,058
----------------- --------------------- -------------------
Increase in net assets resulting
from operations................. 667,446 637,152 1,803,844
----------------- --------------------- -------------------
CAPITAL TRANSACTIONS:
Proceeds from sale of shares..... 10,698,100 11,422,347 18,945,250
Cost of shares redeemed.......... (301,318) (238,257) (607,089)
----------------- --------------------- -------------------
Net change in net assets
resulting from capital share
transactions.................... 10,396,782 11,184,090 18,338,161
----------------- --------------------- -------------------
Total increase in net assets..... 11,064,228 11,821,242 20,142,005
NET ASSETS:
Beginning of period.............. -- -- --
----------------- --------------------- -------------------
End of period (including
undistributed net investment
income (loss) of $16,688,
($10,945) and $35,347,
respectively)................... $11,064,228 $11,821,242 $20,142,005
----------------- --------------------- -------------------
----------------- --------------------- -------------------
SHARE TRANSACTIONS:
Issued........................... 993,514 862,079 1,533,925
Redeemed......................... (28,253) (18,013) (50,264)
----------------- --------------------- -------------------
Change in shares................. 965,261 844,066 1,483,661
----------------- --------------------- -------------------
----------------- --------------------- -------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THIS FINANCIAL STATEMENT.
MF-99
<PAGE>
MENTOR VARIABLE INVESTMENT PORTFOLIOS
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
NOTE 1: ORGANIZATION
Mentor Variable Investment Portfolios (the "Trust") is registered under the
Investment Company Act of 1940, as amended, as an open-end management
investment company. The Trust consists of five separate Portfolios
(hereinafter each individually referred to as a Portfolio or collectively as
the "Portfolios") at December 31, 1998, as follows:
Mentor VIP Growth Portfolio
("Growth Portfolio")
Mentor VIP Perpetual International Portfolio
("International Portfolio")
Mentor VIP Capital Growth Portfolio
("Capital Growth Portfolio")
Mentor VIP Strategy Portfolio
("Strategy Portfolio")
Mentor VIP Balanced Portfolio
("Balanced Portfolio")
These financial statements include only the Growth Portfolio, the
International Portfolio and the Capital Growth Portfolio.
The Portfolios shares are sold subject to a contingent deferred sales charge
payable upon redemption which decreases depending on when shares were
purchased and how long they have been held.
The Growth Portfolio's investment objective is to seek long-term
appreciation of capital through investments in a diversified portfolio of
securities.
The investment objective of the Capital Growth Portfolio is to provide
long-term appreciation of capital by investing in a wide variety of
securities which the investment advisor believes offers the potential for
capital appreciation over both the intermediate and long-term.
The International Portfolio's investment objective is to seek long-term
appreciation of capital through investments in a diversified portfolio of
securities of issuers located outside the United States.
NOTE 2: SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Portfolios in the preparation of their financial statements.
The policies are in conformity with generally accepted accounting principles
which require management to make estimates and assumptions that affect
amounts reported therein. Although actual results could differ from these
estimates, any such differences are expected to be immaterial to the net
assets of the Portfolios.
(a) VALUATION OF SECURITIES--Listed securities held by the Growth Portfolio,
the International Portfolio and the Capital Growth Portfolio traded on
national stock exchanges and over-the-counter securities quoted on the
NASDAQ National Market System are valued at the last reported sales price
or, lacking any sales, at the last available bid price. In cases where
securities are traded on more than one exchange, the securities are
valued on the exchange determined by the advisor of the Portfolios as the
primary market. Securities traded in the over-the-counter market, other
than those quoted on the NASDAQ National Market System, are valued at the
last available bid price. Short-term investments with remaining
maturities of 60 days or less are carried at amortized cost, which
approximates market value. Securities for which market quotations are not
readily available are valued at fair value as determined in good faith
under procedures established by the Board of Trustees.
Investment valuations, other assets, and liabilities initially expressed
in foreign currencies are converted each business day into U.S. dollars
based upon current exchange rates. Purchases and sales of foreign
investments, income, and expenses are converted into U.S. dollars based
upon currency exchange rates prevailing on the respective dates of such
transactions. Net realized gains and losses on foreign currency
transactions represent net gains and losses from sales and maturities of
forward currency contracts, disposition of foreign currencies, and
currency gains and losses realized between the trade and the settlement
dates on securities transactions. The effects of changes in foreign
currency exchange rates on investments in securities are included with
the net unrealized appreciation/depreciation of investment securities.
(b) REPURCHASE AGREEMENTS--It is the policy of the Trust to require the
custodian bank to take possession, to have legally segregated in the
Federal Reserve Book entry system all securities held as collateral in
support of repurchase agreement investments. Additionally, procedures
have been established by the Trust to monitor, on a daily basis, the
market value of each repurchase agreement's underlying securities to
ensure the existence of a proper level of collateral.
The Trust will only enter into repurchase agreements with banks and other
recognized financial institutions such as broker/dealers which are deemed
by the Trust's advisor to be creditworthy pursuant to guidelines
established by the Trustees.
____________________________________ MF-100 ____________________________________
<PAGE>
Risks may arise from the potential inability of counterparties to honor
the terms of the repurchase agreement. Accordingly, the Trust could
receive less than the repurchase price on the sale of collateral
securities.
(c) SECURITY TRANSACTIONS AND INVESTMENT INCOME-- Security transactions for
the Portfolios are accounted for on trade date. Dividend income is
recorded on the ex-dividend date. Interest income is recorded on the
accrual basis. Interest income includes interest and discount earned (net
of premium) on short-term obligations. Dividends to shareholders and
capital gain distributions, if any, are recorded on the ex-dividend date.
(d) FEDERAL INCOME TAXES--No provision for federal income taxes has been made
since it is the Portfolios' policy to comply with the provisions
applicable to regulated investment companies under the Internal Revenue
Code and to distribute to its shareholders within the allowable time
limit substantially all taxable income and realized capital gains. At
December 31, 1998, the Capital Growth Portfolio for federal tax purposes,
had a capital loss carryforward of $429,186. Pursuant to the Internal
Revenue Code, such capital loss carryforward expires on 12/31/05.
(e) DEFERRED EXPENSES--Costs incurred by the Portfolios in connection with
their initial share registration and organization costs were deferred and
are being amortized on a straight-line basis over a five-year period.
(f) DISTRIBUTIONS--Income distributions and capital gain distributions are
determined in accordance with income tax regulations which may differ
from generally accepted accounting principles. These differences are
primarily due to differing treatments for net operating losses and
deferral of wash sales.
NOTE 3: DIVIDENDS
Dividends are declared and paid annually to all shareholders invested in the
Growth Portfolio, the Capital Growth Portfolio and the International
Portfolio. Dividends will be reinvested in additional shares of the
Portfolios on payment dates at the ex-dividend date net asset value without
a sales charge unless an election is made on behalf of a separate account to
receive some or all distributions in cash. Capital gains realized by the
Portfolios, if any, are paid annually.
NOTE 4: INVESTMENT MANAGEMENT AND ADMINISTRATION
AGREEMENTS
Mentor Investment Advisors, LLC ("Mentor Advisors"), is the investment
advisor for the Growth Portfolio and the Capital Growth Portfolio. Mentor
Advisors is a wholly owned subsidiary of Mentor Investment Group, LLC
("Mentor") which is in turn a partially owned subsidiary of Wheat First
Union. EVEREN Capital Corporation owns 20% of the outstanding interest in
Mentor.
Mentor Advisors receives for its services an annual fee of 0.70% and 0.80%
as a percentage of the average daily net assets of the Growth Portfolio and
the Capital Growth Portfolio, respectively. For the period ended December
31, 1998, Mentor Advisors earned $25,960 and $56,416 in advisory fees and
waived $21,300 and $4,692 of such fees for the Growth Portfolio and Capital
Growth Portfolio, respectively.
The International Portfolio has entered into an Investment Advisory
Agreement with Mentor Perpetual Advisors, LLC ("Mentor Perpetual"). Mentor
Perpetual is owned equally by Mentor Investment Advisors, LLC and Perpetual
plc., a diversified financial services holding company. Under this
agreement, Mentor Perpetual's management fee is accrued daily and paid
monthly at an annual rate of 1.00% applied to the average daily net assets
of the International Portfolio. For the period ended December 31, 1998,
Mentor Perpetual earned advisory fees of $43,460 and waived $42,172 of such
fees.
Administrative personnel and services are provided by Mentor Investment
Group LLC ("Mentor"), under an Administration Agreement, at an annual rate
of 0.10% of the average daily net assets of the Portfolios. Mentor earned
administration fees in the amount of $3,691, $4,323 and $7,018 for the
Growth Portfolio, International Portfolio and Capital Growth Portfolio,
respectively.
NOTE 5: DISTRIBUTION AGREEMENT AND OTHER TRANSACTIONS
WITH AFFILIATES
The Portfolios have adopted a Distribution Plan (the Plan) pursuant to Rule
12b-1 under the Investment Company Act of 1940. Under a Distribution
Agreement between the Portfolios and Mentor Distributors, LLC ("Mentor
Distributors") a wholly-owned subsidiary of BISYS Fund Services, Inc.,
Mentor Distributors was appointed distributor of the Portfolios. To
compensate Mentor Distributors for the services it provides and for the
expenses it incurs under the Distribution Agreement, the Portfolios pay a
distribution fee,
____________________________________ MF-101 ____________________________________
<PAGE>
MENTOR VARIABLE INVESTMENT PORTFOLIOS
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1998
which is accrued daily and paid monthly at the annual rate of 0.25% of the
Portfolios' average daily net assets. For the period ended December 31,
1998, Mentor Distributors waived such fees in the amount of $9,226, $10,807
and $17,544 for the Growth Portfolio, International Portfolio and Capital
Growth Portfolio, respectively.
NOTE 6: FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
In connection with portfolio purchases and sales of securities denominated
in a foreign currency, the International Portfolio may enter into forward
foreign currency exchange contracts (contracts). Additionally, from time to
time the International Portfolio may enter into contracts to hedge certain
foreign currency assets. Contracts are recorded at market value. Realized
gains and losses arising from such transactions are included in net gain
(loss) on investments and forward foreign currency exchange contracts. The
International Portfolio is subject to the credit risk that the other party
will not complete the obligations of the contract. At December 31, 1998, the
International Portfolio had outstanding forward contracts as set forth
below.
<TABLE>
<CAPTION>
CONTRACTS IN NET
TO EXCHANGE UNREALIZED
SETTLEMENT DATE RECEIVE VALUE FOR APPRECIATION
- ------------------------------ ---------- -------- --------- -------------
<S> <C> <C> <C> <C>
PURCHASES
1/06/99 Philippines Peso 416,268 $ 10,701 $10,674 $27
---
---
</TABLE>
YEAR 2000
The Portfolios receive services from a number of providers which rely on the
effective functioning of their respective systems and the systems of others
to perform those services. It is generally recognized that certain systems
in use today may not be able to perform their intended functions adequately
after the Year 1999 because of the inability of computer software to
distinguish the Year 2000 from the Year 1900. Mentor Advisors is taking
steps that it believes are reasonably designed to address this potential
"Year 2000" problem and to obtain satisfactory assurances that comparable
steps are being taken by each of the Portfolios' other major service
providers. There can be no assurance, however, that these steps will be
sufficient to avoid any adverse impact on the Portfolios from this problem.
____________________________________ MF-102 ____________________________________
<PAGE>
MENTOR VARIABLE INVESTMENT PORTFOLIOS
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
FOR THE PERIOD FROM INCEPTION, MARCH 3, 1998 TO DECEMBER 31, 1998
<TABLE>
<CAPTION>
MENTOR VIP PERPETUAL
MENTOR VIP INTERNATIONAL MENTOR VIP CAPITAL
GROWTH PORTFOLIO PORTFOLIO GROWTH PORTFOLIO
----------------- --------------------- -------------------
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
NET ASSET VALUE, BEGINNING OF
PERIOD............................ $ 12.50 $ 12.50 $ 12.50
------- ------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income............ 0.02 0.02 0.03
Net realized and unrealized gain
(loss) on investments........... (1.06) 1.49 1.05
------- ------- -------
Total from investment
operations...................... (1.04) 1.51 1.08
------- ------- -------
NET ASSET VALUE, END OF PERIOD..... $ 11.46 $ 14.01 $ 13.58
------- ------- -------
------- ------- -------
Total Return*(b)................. (8.32)% 12.08% 8.64%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in
thousands)...................... $11,064 $11,821 $20,142
Ratio of expenses to average net
assets.......................... 0.97%(a) 1.60%(a) 1.05%(a)
Ratio of expenses to average net
assets excluding waiver......... 1.77%(a) 2.79%(a) 1.36%(a)
Ratio of net investment income to
average net assets.............. 0.44%(a) 0.34%(a) 0.50%(a)
Portfolio turnover rate.......... 62% 95% 54%
- ------------------------
</TABLE>
(a) Annualized.
(b) Total return does not reflect charges of the separate accounts.
* Total return does not include sales commissions and is not annualized.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THIS FINANCIAL STATEMENT.
MF-103
<PAGE>
INDEPENDENT AUDITORS' REPORT
- --------------------------------------------------------------------------------
THE TRUSTEES AND SHAREHOLDERS
MENTOR VARIABLE INVESTMENT PORTFOLIOS
We have audited the accompanying statements of assets and liabilities, including
the portfolios of investments, of Mentor VIP Growth Portfolio, Mentor VIP
Perpetual International Portfolio and Mentor VIP Capital Growth Portfolio,
portfolios of Mentor Variable Investment Portfolios as of December 31, 1998, and
the related statements of operations, changes in net assets and financial
highlights for the period from March 3, 1998 (inception date) through December
31, 1998. These financial statements and financial highlights are the
responsibility of the Funds' management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1998 by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of Mentor
VIP Growth Portfolio, Mentor VIP Perpetual International Portfolio and Mentor
VIP Capital Growth Portfolio, portfolios of Mentor Variable Investment
Portfolios as of December 31, 1998, the results of their operations, changes in
their net assets and financial highlights for the period from March 3, 1998
(inception date) through December 31, 1998, in conformity with generally
accepted accounting principles.
[LOGO]
Boston, Massachusetts
February 12, 1999
____________________________________ MF-104 ____________________________________
