<PAGE>
As filed with the Securities and Exchange Commission on April 14, 1998.
File No. 333-41213
File No. 811-4732
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Pre-Effective Amendment No. [ ]
Post-Effective Amendment No. _1_ [x]
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. _88_ [X]
HARTFORD LIFE INSURANCE COMPANY
SEPARATE ACCOUNT TWO
(Exact Name of Registrant)
HARTFORD LIFE INSURANCE COMPANY
(Name of Depositor)
P.O. BOX 2999
HARTFORD, CT 06104-2999
(Address of Depositor's Principal Offices)
(860) 843-6731
(Depositor's Telephone Number, Including Area Code)
LESLIE T. SOLER, ESQ.
HARTFORD LIFE
P.O. BOX 2999
HARTFORD, CT 06104-2999
(Name and Address of Agent for Service)
Approximate Date of Proposed Public Offering as soon as practicable after the
effective date of the Registration Statement.
It is proposed that this filing will become effective:
___ immediately upon filing pursuant to paragraph (b) of Rule 485
_X_ on May 1, 1998 pursuant to paragraph (b) of Rule 485
___ 60 days after filing pursuant to paragraph (a)(1) of Rule 485
___ on May 1, 1998 pursuant to paragraph (a)(1) of Rule 485
___ this post-effective amendment designates a new effective date
for a previously filed post-effective amendment.
PURSUANT TO RULE 24F-2 (a)(1), UNDER THE INVESTMENT COMPANY ACT OF 1940, THE
REGISTRANT HEREBY ELECTS TO REGISTER AN INDEFINITE AMOUNT OF SECURITIES BEING
OFFERED.
<PAGE>
CROSS REFERENCE SHEET
PURSUANT TO RULE 495(a)
N-4 ITEM NO. PROSPECTUS HEADING
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1. Cover Page Hartford Life Insurance Company -
Separate Account Two
2. Definitions Glossary of Special Terms
3. Synopsis or Highlights Introduction
4. Condensed Financial Yield Information
Information
5. General Description of Hartford, Separate Account Two,
Registrant The Fixed Accumulation Feature, and The
Funds
6. Deductions Charges Under the Contract
7. General Description of The Contracts, Separate Account, The
Annuity Contracts Fixed Accumulation Feature, and Surrender
Benefits
8. Annuity Period Settlement Provisions
9. Death Benefit Death Benefits
10. Purchases and Contract Value The Contract, Contracts Offered, Premium
Payments and Initial Allocations and
Contract Value
11. Redemptions Surrender Benefits
12. Taxes Federal Tax Considerations
13. Legal Proceedings Legal Matters & Experts
14. Table of Contents of the Table of Contents to
Statement of Additional Statement of Additional
Information Information
15. Cover Page Part B; Statement of Additional Information
<PAGE>
16. Table of Contents Table of Contents
17. General Information and History Introduction
18. Services None
19. Purchase of Securities Distribution of Contracts
being Offered
20. Underwriters Distribution of Contracts
21. Calculation of Performance Data Calculation of Yield and Return
22. Annuity Payments Annuity Benefits
23. Financial Statements Financial Statements
24. Financial Statements and Financial Statements and
Exhibits Exhibits
25. Directors and Officers of the Directors and Officers of the
Depositor Depositor
26. Persons Controlled by or Under Persons Controlled by or Under
Common Control with the Common Control with the Depositor
Depositor or Registrant or Registrant
27. Number of Contract Owners Number of Contract Owners
28. Indemnification Indemnification
29. Principal Underwriters Principal Underwriters
30. Location of Accounts and Location of Accounts and
Records Records
31. Management Services Management Services
32. Undertakings Undertakings
<PAGE>
NATIONS VARIABLE ANNUITY
SEPARATE ACCOUNT TWO
HARTFORD LIFE INSURANCE COMPANY
P.O. BOX 5085
HARTFORD, CONNECTICUT 06102-5085
TELEPHONE: 1-800-862-6668 (CONTRACT
OWNERS)
[LOGO] 1-800-862-7155 (INVESTMENT CONSULTANTS)
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This Prospectus describes Nations Variable Annuity, an individual and group
flexible premium tax deferred variable annuity contract designed for retirement
planning purposes ("Contracts").
The Contracts are issued by Hartford Life Insurance Company ("Hartford").
Payments for the Contracts will be held in a series of Hartford Life Insurance
Company Separate Account Two (the "Separate Account") or in the Fixed
Accumulation Feature of Hartford. Allocations to and transfers to and from the
Fixed Accumulation Feature are not permitted in certain states.
The following Sub-Accounts are available under the Contracts. Opposite each
Sub-Account is the name of the underlying investment for that Sub-Account.
<TABLE>
<S> <C> <C>
Nations Balanced Assets Portfolio -- shares of the Nations Balanced Assets Portfolio of Nations
Sub-Account Annuity Trust ("Nations Balanced Asset Portfolio")
Nations Disciplined Equity -- shares of the Nations Disciplined Equity Portfolio of
Portfolio Sub-Account Nations Annuity Trust ("Nations Disciplined Equity
Portfolio")
Nations International Growth Portfolio -- shares of the Nations International Growth Portfolio of
Sub-Account Nations Annuity Trust ("Nations International Growth
Portfolio")
Nations Managed Index Portfolio Sub-Account -- shares of the Nations Managed Index Portfolio of Nations
Annuity Trust ("Nations Managed Index Portfolio")
Nations Managed SmallCap -- shares of the Nations Managed SmallCap Index Portfolio of
Index Portfolio Sub-Account Nations Annuity Trust ("Nations Managed SmallCap Index
Portfolio")
Nations Value Portfolio Sub-Account -- shares of the Nations Value Portfolio of Nations Annuity
Trust ("Nations Value Portfolio")
Nations Marsico Growth & -- shares of the Nations Marsico Growth & Income Portfolio of
Income Portfolio Sub-Account Nations Annuity Trust ("Nations Marsico Growth & Income
Portfolio")
Nations Marsico Focused Equities Portfolio -- shares of the Nations Marsico Focused Equities Portfolio
Sub-Account of Nations Annuity Trust ("Nations Marsico Focused
Equities Portfolio")
Advisers Fund Sub-Account -- shares of Class IB of Hartford Advisers HLS Fund, Inc.
("Hartford Advisers Fund")
Bond Fund Sub-Account -- shares of Class IB of Hartford Bond HLS Fund, Inc.
("Hartford Bond Fund")
Capital Appreciation Fund Sub-Account -- shares of Class IB of Hartford Capital Appreciation HLS
Fund, Inc. ("Hartford Capital Appreciation Fund")
Dividend and Growth Fund Sub-Account -- shares of Class IB of Hartford Dividend and Growth HLS
Fund, Inc. ("Hartford Dividend and Growth Fund")
Money Market Fund Sub-Account -- shares of Class IB of Hartford Money Market HLS Fund, Inc.
("Hartford Money Market Fund")
International Opportunities Sub-Account -- shares of Class IB of Hartford International Opportunities
HLS Fund, Inc. ("Hartford International Opportunities
Fund")
Small Company Fund Sub-Account -- shares of Class IB of Hartford Small Company HLS Fund,
Inc. ("Hartford Small Company Fund")
Stock Fund Sub-Account -- shares of Class IB of Hartford Stock HLS Fund, Inc.
("Hartford Stock Fund")
</TABLE>
This Prospectus sets forth the information concerning the Separate Account and
the Fixed Accumulation Feature, where available, that investors should know
before investing. This Prospectus should be kept for future reference.
Additional information about the Separate Account and the Fixed Accumulation
Feature has been filed with the Securities and Exchange Commission and is
available without charge upon
request. To obtain the Statement of Additional Information send a written
request to, or call Hartford Life Insurance Company, Attn: Individual Annuity
Services, P.O. Box 5085, Hartford, CT 06102-5085. The Table of Contents for the
Statement of Additional Information may be found on page 29 of this Prospectus.
The Statement of Additional Information is incorporated by reference into this
Prospectus.
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VARIABLE ANNUITY CONTRACTS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR ENDORSED OR
GUARANTEED BY, ANY BANK, NOR ARE THEY FEDERALLY INSURED OR OTHERWISE PROTECTED
BY THE FDIC, THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY; THEY ARE SUBJECT TO
INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF THE PRINCIPAL AMOUNT INVESTED.
- --------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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PROSPECTUS DATED: MAY 1, 1998
STATEMENT OF ADDITIONAL INFORMATION DATED: MAY 1, 1998
<PAGE>
2 HARTFORD LIFE INSURANCE COMPANY
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
GLOSSARY OF SPECIAL TERMS............................................. 3
FEE TABLE............................................................. 5
INTRODUCTION.......................................................... 7
HARTFORD, SEPARATE ACCOUNT TWO, THE FUNDS AND THE FIXED ACCUMULATION
FEATURE............................................................. 8
Hartford Life Insurance Company..................................... 8
Separate Account Two................................................ 8
The Funds........................................................... 8
The Fixed Accumulation Feature...................................... 10
Performance Related Information..................................... 11
THE CONTRACTS......................................................... 12
Contracts Offered................................................... 12
Premium Payments and Initial Allocations............................ 12
Contract Value...................................................... 13
Transfers Between the Sub-Accounts/Fixed Accumulation Feature....... 13
Charges Under the Contract.......................................... 14
Payments Not Subject to Sales Charges............................... 15
Waiver of Sales Charge.............................................. 16
Mortality and Expense Risk Charge................................... 15
Annual Maintenance Fee.............................................. 16
Premium Taxes....................................................... 16
Fund Expenses....................................................... 16
Sales Compensation.................................................. 16
Exceptions to Charges Under the Contract............................ 16
Death Benefits...................................................... 16
Surrender Benefits.................................................. 17
Settlement Provisions............................................... 18
Other Information................................................... 20
FEDERAL TAX CONSIDERATIONS............................................ 21
A. General.......................................................... 21
B. Taxation of Hartford and the Separate Account.................... 21
C. Taxation of Annuities -- General Provisions Affecting Purchasers
Other Than Qualified Retirement Plans.............................. 21
D. Federal Income Tax Withholding................................... 24
E. General Provisions Affecting Qualified Retirement Plans.......... 24
F. Annuity Purchases by Nonresident Aliens and Foreign
Corporations....................................................... 24
MISCELLANEOUS......................................................... 24
How Contracts Are Sold.............................................. 24
Legal Matters and Experts........................................... 24
Additional Information.............................................. 25
APPENDIX I -- INFORMATION REGARDING TAX QUALIFIED PLANS............... 26
TABLE OF CONTENTS FOR STATEMENT OF ADDITIONAL INFORMATION............. 29
</TABLE>
<PAGE>
HARTFORD LIFE INSURANCE COMPANY 3
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GLOSSARY OF SPECIAL TERMS
ACCUMULATION UNIT: An accounting unit of measure used to calculate values before
Annuity payments begin.
ADMINISTRATIVE OFFICE OF HARTFORD: Currently located at 200 Hopmeadow Street,
Simsbury, CT. All correspondence concerning the Contract should be sent to P.O.
Box 5085, Hartford, CT 06102-5085, Attn. Individual Annuity Services, except for
overnight or express mail packages, which should be sent to: 200 Hopmeadow
Street, Simsbury, CT 06089.
ANNUAL MAINTENANCE FEE: An annual $30 charge on a Contract having a Contract
Value of less than $50,000, as determined on the most recent Contract
Anniversary or upon full surrender of the Contract. The charge is deducted
proportionally from the investment options in use at the time of such deduction.
ANNUAL WITHDRAWAL AMOUNT: The amount which can be withdrawn in any Contract Year
prior to incurring surrender charges.
ANNUITANT: The person or Participant upon whose life the Contract is issued.
ANNUITY: A Contract issued by an insurance company that provides, in exchange
for Premium Payments, a series of income payments. This Prospectus describes a
deferred annuity Contract in which Premium Payments accumulate tax-deferred
until a partial or full surrender is taken or until the Annuity Commencement
Date. Annuity payments under the Contract will begin as of the Annuity
Commencement Date in accordance with the Annuity payment option selected.
ANNUITY COMMENCEMENT DATE: The date on which Annuity payments are to commence.
Under a group unallocated Contract, the date for each Participant is determined
by the Contract Owner in accordance with the terms of the Plan.
ANNUITY UNIT: An accounting unit of measure used to calculate the value of
Annuity payments.
BENEFICIARY: The person(s) who receive Contract Values in the event of the
Annuitant's or Contract Owner's death under certain conditions. Under a group
unallocated Contract, the person named by the Participant within the Plan
documents/enrollment forms who is entitled to receive benefits in case of the
death of the Participant.
CODE: The Internal Revenue Code of 1986, as amended.
COMMISSION: Securities and Exchange Commission.
CONTINGENT ANNUITANT: The person so designated by the Contract Owner, who upon
the Annuitant's death, prior to the Annuity Commencement Date, becomes the
Annuitant.
CONTRACT: For an Annuity issued to an individual, the Contract is the individual
Annuity and any endorsements or riders. For a group Annuity, the Contract is a
certificate evidencing a participatory interest in a group Annuity and any
endorsements or riders. Any reference in this Prospectus to a Contract includes
the certificate.
CONTRACT ANNIVERSARY: The anniversary of the Contract Date.
CONTRACT OWNER(S): The owner(s) of the Contract, trustee or other entity,
sometimes herein referred to as "you".
CONTRACT VALUE: The aggregate value of any Sub-Account Accumulation Units held
under the Contract plus the value of the Fixed Accumulation Feature.
CONTRACT YEAR: A period of 12 months commencing with the Contract Date or any
anniversary thereof.
DEATH BENEFIT: The amount payable upon the death of a Contract Owner, Annuitant
or Participant, in the case of group Contracts, before annuity payments have
commenced.
DUE PROOF OF DEATH: A certified copy of a death certificate, an order of a court
of competent jurisdiction, a statement from a physician who attended the
deceased or any other proof acceptable to Hartford.
FIXED ACCUMULATION FEATURE: Part of the General Account of Hartford to which a
Contract Owner may allocate all or a portion of his Premium Payment or Contract
Value. This term is referred to as the "Fixed Account" in your Contract.
FIXED ANNUITY: An Annuity providing for guaranteed payments which remain fixed
in amount throughout the payment period and which do not vary with the
investment experience of a separate account.
FUNDS: The Funds described commencing on page 8 of this Prospectus and any
additional Funds which may be made available from time to time.
GENERAL ACCOUNT: The General Account of Hartford which consists of all assets of
the Hartford other than those allocated to the separate accounts of the
Hartford.
HARTFORD: Hartford Life Insurance Company.
MAXIMUM ANNIVERSARY VALUE: Value used in determining the Death Benefit. It is
based on a series of calculations of Account Values on Contract Anniversaries,
premium payments and partial surrenders, as described on page 16.
NON-QUALIFIED CONTRACT: A Contract which is not part of a tax-qualified
retirement plan or arrangement which qualifies for special tax treatment under
the Code.
PARTICIPANT (FOR GROUP UNALLOCATED CONTRACTS ONLY): Any eligible employee of an
Employer/Contract Owner participating in the Plan.
PLAN: A voluntary plan of an employer or other person which qualifies for
special tax treatment under the Code.
<PAGE>
4 HARTFORD LIFE INSURANCE COMPANY
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PREMIUM PAYMENT: The payment made to Hartford pursuant to the terms of the
Contract.
PREMIUM TAX: A tax on premiums charged by a state or municipality on Premium
Payments or Contract Values.
QUALIFIED CONTRACT: A Contract which is part of a tax-qualified retirement plan
or arrangement which qualifies for special tax treatment under the Code, such as
an employer-sponsored Section 401(k) plan or an Individual Retirement Annuity
(IRA).
SEPARATE ACCOUNT: The Hartford separate account entitled "Hartford Life
Insurance Company Separate Account Two".
SUB-ACCOUNT: Accounts established within the Separate Account with respect to a
Fund.
TERMINATION VALUE: The Contract Value upon termination of the Contract prior to
the Annuity Commencement Date, less any applicable Premium Taxes, the Annual
Maintenance Fee and any applicable contingent deferred sales charges.
UNALLOCATED CONTRACTS: Contracts issued to employers, or other entities, as
Contract Owner under which no allocation of Contract Values is made for a
specific Participant. The Plans will be responsible for the individual
allocations.
VALUATION DAY: Every day the New York Stock Exchange is open for trading. The
value of the Separate Account is determined at the close of the New York Stock
Exchange (generally 4:00 p.m. Eastern Time) on such days.
VALUATION PERIOD: The period between the close of business on successive
Valuation Days.
VARIABLE ANNUITY: An Annuity providing for payments varying in amount in
accordance with the investment experience of the assets of the Separate Account.
<PAGE>
HARTFORD LIFE INSURANCE COMPANY 5
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FEE TABLE
SUMMARY
Contract Owner Transaction Expenses
(All Sub-Accounts)
<TABLE>
<S> <C>
Sales Load Imposed on Purchases (as a percentage of premium
payments)....................................................... None
Exchange Fee...................................................... $ 0
Deferred Sales Load (as a percentage of amounts withdrawn)
First Year (1)................................................ 6%
Second Year................................................... 6%
Third Year.................................................... 5%
Fourth Year................................................... 5%
Fifth Year.................................................... 4%
Sixth Year.................................................... 3%
Seventh Year.................................................. 2%
Eighth Year................................................... 0%
Annual Maintenance Fee (2)........................................ $ 30
Annual Expenses -- Separate Account (as percentage of average
account value)
Mortality and Expense Risk.................................... 1.250%
</TABLE>
Annual Fund Operating Expenses
(as percentage of net assets)
<TABLE>
<CAPTION>
12B-1
DISTRIBUTION TOTAL FUND
MANAGEMENT AND/OR OPERATING
FEES SERVICING FEES OTHER EXPENSES
(AFTER WAIVERS) (AFTER WAIVERS) EXPENSES (AFTER WAIVERS)
------------------- --------------- ----------- ---------------
<S> <C> <C> <C> <C>
Nations Balanced Assets Portfolio............... 0.750% 0.000%(3) 0.250% 1.000%
Nations Disciplined Equity Portfolio............ 0.750% 0.000%(3) 0.250% 1.000%
Nations International Growth Portfolio.......... 0.900% 0.000%(3) 0.350% 1.250%
Nations Managed Index Portfolio(4).............. 0.300% 0.250% 0.200% 0.750%
Nations Managed SmallCap Index Portfolio(4)..... 0.300% 0.250% 0.200% 0.750%
Nations Value Portfolio......................... 0.750% 0.000%(3) 0.250% 1.000%
Nations Marsico Growth & Income Portfolio....... 0.850% 0.000%(3) 0.250% 1.100%
Nations Marsico Focused Equities Portfolio...... 0.850% 0.000%(3) 0.250% 1.100%
Hartford Advisers Fund.......................... 0.610% 0.180%(5) 0.020% 0.810%
Hartford Bond Fund.............................. 0.490% 0.180%(5) 0.020% 0.690%
Hartford Capital Appreciation Fund.............. 0.620% 0.180%(5) 0.020% 0.820%
Hartford Dividend and Growth Fund............... 0.660% 0.180%(5) 0.020% 0.860%
Hartford International Opportunities Fund....... 0.680% 0.180%(5) 0.090% 0.950%
Hartford Money Market Fund...................... 0.425% 0.180%(5) 0.015% 0.620%
Hartford Small Company Fund..................... 0.750% 0.180%(5) 0.020% 0.950%
Hartford Stock Fund............................. 0.430% 0.180%(5) 0.020% 0.630%
</TABLE>
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(1) Length of time from premium payment.
(2) The Annual Maintenance Fee is a $30 charge deducted on an annual basis. It
is deducted proportionally from the investment options in use at the time of
the charge. Pursuant to requirements of the Investment Company Act of 1940,
as amended (the "1940 Act"), the Annual Maintenance Fee has been reflected
in the Examples by a method intended to show the "average" impact of the
Annual Maintenance Fee on an investment in the Separate Account. The Annual
Maintenance Fee is deducted only when the accumulated value is $50,000 or
less. In the Example, the Annual Maintenance Fee is approximately a 0.06%
annual asset charge based on the experience of the Contracts.
(3) The Funds sponsored by Stephens Inc., are subject to fees of up to 0.250%
paid by the Funds pursuant to a shareholder servicing and distribution plan.
The shareholder servicing and distribution plan provides that the Funds may
pay banks, broker/dealers, insurance companies or other financial
institutions that they have entered into sales support agreements with
Stephens Inc. or a shreholder servicing agreement with the Funds for certain
expenses that are incurred in connection with sales support and shareholder
support services. These fees are currently being voluntarily waived for the
Nations Balanced Assets Portfolio, Nations Disciplined Equity Portfolio,
Nations International Growth Portfolio, Nations Value Portfolio, Nations
Marsico Growth & Income Portfolio and Nations Marsico Focused Equities
Portfolio. Absent such waivers, "12b-1 Distribution and/or Servicing Fees"
would be 0.250% and the "Total Fund Operating Expenses" would be as follows:
Nations Balanced Assets Portfolio -- 1.25%, Nations Disciplined Equity
Portfolio -- 1.25%, Nations International Growth Portfolio -- 1.50%, Nations
<PAGE>
6 HARTFORD LIFE INSURANCE COMPANY
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Value Portfolio --1.25%, Nations Marsico Growth & Income Portfolio -- 1.35%
and Nations Marsico Focused Equities Portfolio --1.35%.
(4) The adviser for these Funds has agreed to temporarily waive a portion of its
management fee. In the absence of this waiver, "Management Fees" for both
Funds would have been 0.500% and the "Total Fund Operating Expenses" for
both Funds would have been 0.950%. There is no assurance that fee waivers
will continue. In particular, to the extent "Other Expenses" are less than
expected, waivers of "Management Fees," if any, may decrease. Contract
Owners will be notified of any decrease that materially increases "Total
Fund Operating Expenses."
(5) The Class IB shares of the Funds sponsored by Hartford are subject to fees
imposed under a distribution plan (herein, the "Distribution Plan") adopted
by the Funds pursuant to Rule 12b-1 of the 1940 Act, as amended. The
Distribution Plan provides that the Funds sponsored by Hartford may pay
annually up to 0.250% of the average daily net assets of a Fund attributable
to its Class IB shares to certain distributors with respect to activities
primarily intended to result in the sale of the Class IB shares. Hartford
has voluntarily and temporarily waived 0.700% of the average daily net
assets of the Funds. Absent such waiver,"12b-1 Distribution and/or Servicing
Fees" would be 0.250% and the "Total Fund Operating Expenses" would be as
follows: Hartford Advisers Fund -- 0.880%; Hartford Bond Fund -- 0.760%;
Hartford Capital Appreciation Fund -- 0.890%; Hartford Dividend and Growth
Fund -- 0.930%; Hartford International Opportunities Fund -- 1.020%;
Hartford Money Market Fund -- 0.690%; Hartford Small Company Fund -- 1.020%;
and Hartford Stock Fund -- 0.700%. Hartford reserves the right to
discontinue the waiver at any time upon notice to shareholders.
EXAMPLES
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
If you surrender your Contract If you annuitize your Contract If you do not surrender your
at the end of the applicable at the end of the applicable Contract, you would pay the
time period, you would pay the time period, you would pay the following expenses on a $1,000
following expenses on a $1,000 following expenses on a $1,000 investment, assuming a 5%
investment, assuming a 5% investment, assuming a 5% annual return on assets:
annual return on assets: annual return on assets:
<CAPTION>
SUB-ACCOUNTS 1 YEAR 3 YEARS 5 YEARS 10 YEARS 1 YEAR 3 YEARS 5 YEARS 10 YEARS 1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- -------- ------ ------- ------- -------- ------ ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Nations Balanced Assets
Portfolio................... $ 84 $ 123 N/A N/A $ 23 $ 72 N/A N/A $ 24 $ 73 N/A N/A
Nations Disciplined Equity
Portfolio................... 84 123 N/A N/A 23 72 N/A N/A 24 73 N/A N/A
Nations International Growth
Portfolio................... 86 131 N/A N/A 26 80 N/A N/A 26 81 N/A N/A
Nations Managed Index
Portfolio................... 81 115 N/A N/A 21 65 N/A N/A 21 65 N/A N/A
Nations Managed SmallCap
Index Portfolio............. 81 115 N/A N/A 21 65 N/A N/A 21 65 N/A N/A
Nations Value Portfolio...... 84 123 N/A N/A 23 72 N/A N/A 24 73 N/A N/A
Nations Marsico Growth &
Income Portfolio............ 85 126 N/A N/A 24 75 N/A N/A 25 76 N/A N/A
Nations Marsico Focused
Equities Portfolio.......... 85 126 N/A N/A 24 75 N/A N/A 25 76 N/A N/A
Advisers Fund................ 76 115 155 247 21 65 112 241 22 67 115 247
Bond Fund.................... 75 111 149 234 20 61 106 228 21 63 109 234
Capital Appreciation Fund.... 76 115 155 248 21 66 112 242 22 67 115 248
Dividend and Growth Fund..... 76 117 158 252 22 67 114 246 22 69 118 252
International Opportunities
Fund........................ 77 119 162 262 23 70 119 256 23 71 122 262
Money Market Fund............ 74 109 145 227 19 59 102 221 20 61 105 227
Small Company Fund........... 77 119 162 262 23 70 119 256 23 71 122 262
Stock Fund................... 64 109 146 228 19 60 102 222 20 61 106 228
</TABLE>
The purpose of this table is to assist the Contract Owner in understanding
various costs and expenses that a Contract Owner will bear directly or
indirectly. The table reflects expenses of the Separate Account and underlying
Funds. Premium taxes may also be applicable.
This EXAMPLE should not be considered a representation of past or future
expenses and actual expenses may be greater or less than those shown.
<PAGE>
HARTFORD LIFE INSURANCE COMPANY 7
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INTRODUCTION
This Prospectus has been designed to provide you with the necessary
information to make a decision on purchasing an individual or group tax deferred
Variable Annuity Contract offered by Hartford Life Insurance Company
("Hartford") in the Fixed Accumulation Feature and/or a series of Separate
Account Two. (See "Hartford Life Insurance Company," page 8; "The Contracts,"
page 12; and "The Separate Account Two," page 8.) Please read the Glossary of
Special Terms on pages 3 and 4 prior to reading this Prospectus to familiarize
yourself with the terms being used.
The Contracts are available for purchase by individuals and groups on both a
non-qualified and qualified basis. The maximum issue age for the Contract is 85
years old. (See "The Contracts," page 12.) Generally, the minimum initial
Premium Payment is $1,000, the minimum subsequent payment is $500, except that,
if you are in the InvestEase program, the minimum subsequent payment is $50.
Thereafter, the minimum payment is $500. There is no deduction for sales
expenses from Premium Payments when made. A deduction will be made for state
Premium Taxes for Contracts sold in certain states. (See "Charges Under the
Contract," page 14.)
Generally, the Contracts are purchased by completing and submitting an
application or an order to purchase, along with the initial Premium Payment, to
Hartford for its approval. Generally, a Contract Owner may exercise his right to
cancel the Contract within ten days of delivery of the Contract by returning the
Contract to the Administrative Office of Hartford. If the Contract Owner
exercises his right to cancel, Hartford will return either the Contract Value or
the original Premium Payments to the Contract Owner. The duration of the right
to cancel period and Hartford's obligation to either return the Contract Value
of the original Premium Payment will depend on state law.
The investment options for the Contracts are Nations Balanced Assets
Portfolio, Nations Disciplined Equity Portfolio, Nations International Growth
Portfolio, Nations Managed Index Portfolio, Nations Managed SmallCap Index
Portfolio, Nations Value Portfolio, Nations Marsico Growth & Income Portfolio,
Nations Marsico Focused Equities Portfolio, Hartford Advisers Fund, Hartford
Bond Fund, Hartford Capital Appreciation Fund, Hartford Dividend and Growth
Fund, Hartford International Opportunities Fund, Hartford Money Market Fund,
Hartford Small Company Fund, Hartford Stock Fund, and such other funds as shall
be offered from time to time (the "Funds"), and the Fixed Accumulation Feature.
(See "The Funds," page 8, and "The Fixed Accumulation Feature," page 10.) With
certain limitations, Contract Owners may allocate their Premium Payments and
Contract Values to one or a combination of these investment options and transfer
among the investment options. (See "Transfers Between Sub-Accounts/Fixed
Accumulation Feature," page 13.)
An Annual Maintenance Fee in the amount of $30.00 is deducted from Contract
Values each Contract Year (not applicable to Contracts with Account Values of
$50,000 or more or under other circumstances at the sole discretion of Hartford)
and there is a 1.25% per annum mortality and expense risk charge applied against
all Contract Values held in the Separate Account. (See "Charges Under the
Contract," page 14). Finally, the Funds are subject to certain fees, charges and
expenses (see the accompanying Funds' prospectuses).
The Contracts may be surrendered, or portions of the value of the Contracts
may be withdrawn, at any time prior to the Annuity Commencement Date. (See
"Surrender Benefits," page 17.) However, a contingent deferred sales charge may
be assessed against Contract Values when they are surrendered. Contingent
deferred sales charges will not be assessed in certain instances, including
withdrawals up to the annual withdrawal amount and the payment of Death
Benefits. (See "Charges Under the Contract," page 14.)
The Contract provides for a minimum Death Benefit in the event of the death
of the Annuitant or Contract Owner before Annuity payments have commenced (see
"Death Benefits," page 16). Various annuity options are available under the
Contract for election by the Contract Owner on either a fixed or variable basis.
In the absence of an annuity option election, the Contract Value (less
applicable Premium Taxes) will be applied on the Annuity Commencement Date to
provide a life annuity with 120 monthly payments certain (see "Annuity
Benefits," page 18).
The Contract may be sold directly to certain individuals under certain
circumstances that do not involve payment of any sales compensation to a
registered representative. In such case, Hartford will credit the Contract with
an additional 5.0% of the premium payment. This additional percentage of premium
payment in no way affects present or future charges, rights, benefits or current
values of other Contract Owners. The following class of individuals are eligible
for this feature: (1) current or retired officers, directors, trustees and
employees (and their families) of the ultimate parent and affiliates of
Hartford; and (2) employees and registered representatives (and their families)
of registered broker-dealers (or financial institutions affiliated therewith)
that have a sales agreement with Hartford and its principal underwriter to sell
the Contracts.
<PAGE>
8 HARTFORD LIFE INSURANCE COMPANY
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HARTFORD, SEPARATE
ACCOUNT TWO, THE FUNDS AND THE FIXED ACCUMULATION FEATURE
HARTFORD LIFE INSURANCE COMPANY
Hartford Life Insurance Company is a stock life insurance company engaged in
the business of writing health and life insurance, both individual and group, in
all states of the United States and the District of Columbia. Hartford was
originally incorporated under the laws of Massachusetts on June 5, 1902, and was
subsequently redomiciled to Connecticut. Its offices are located in Simsbury,
Connecticut; however, its mailing address is P.O. Box 2999, Hartford, CT
06104-2999. Hartford is ultimately controlled by The Hartford Financial Services
Group, Inc., one of the largest financial service providers in the United
States.
HARTFORD RATINGS
<TABLE>
<CAPTION>
EFFECTIVE
DATE OF
RATING AGENCY RATING RATING BASIS OF RATING
- ----------------- ---------- ----------- -------------------------
<S> <C> <C> <C>
A.M. Best and Financial soundness and
Company, Inc. 9/9/97 A+ operating performance.
Standard & Poor's 1/23/98 AA Claims paying ability
Duff & Phelps 1/23/98 AA+ Claims paying ability
</TABLE>
SEPARATE ACCOUNT TWO
The Separate Account was established on June 2, 1986. It is the Separate
Account in which Hartford sets aside and invests the assets attributable to
variable annuity contracts, including the Contracts sold under this Prospectus.
Separate Account assets are held by Hartford under a safekeeping arrangement.
Although the Separate Account is an integral part of Hartford, it is registered
as a unit investment trust under the 1940 Act. This registration does not,
however, involve Commission supervision of the management or the investment
practices or policies of the Separate Account or Hartford. The Separate Account
meets the definition of "separate account" under federal securities law.
Your investment in the Separate Account is allocated to one or more
Sub-Accounts as per your specifications. Each Sub-Account is invested
exclusively in the assets of one underlying Fund. Hartford reserves the right,
subject to compliance with the law, to substitute the shares of any other
registered investment company for the shares of any Fund already purchased or to
be purchased in the future by the Separate Account provided that the
substitution has been approved by the Commission.
Net Premium Payments and proceeds of transfers between Sub-Accounts are
applied to purchase shares in the appropriate Fund at net asset value determined
as of the end of the Valuation Period during which the payments were received or
the transfer made. All distributions from the Fund are reinvested at net asset
value. The value of your investment will therefore vary in accordance with the
net income and fluctuation in the individual investments within the underlying
Fund portfolio or portfolios. During the Variable Annuity payout period, both
your Annuity payments and reserve values will vary in accordance with these
factors.
Under Connecticut law, the assets of the Separate Account attributable to
the Contracts offered under this Prospectus are held for the benefit of the
owners of, and the persons entitled to payments under, those Contracts. Income,
gains, and losses, whether or not realized, from assets allocated to the
Separate Account, are, in accordance with the Contracts, credited to or charged
against the Separate Account. Also, the assets in the Separate Account are not
chargeable with liabilities arising out of any other business Hartford may
conduct. Contract Values allocated to the Separate Account are not affected by
the rate of return of Hartford's General Account, nor by the investment
performance of any of Hartford's other separate accounts. The Separate Account
may be subject to liabilities arising from a Sub-Account of the Separate Account
whose assets are attributable to other variable annuity contracts offered by the
Separate Account which are not described in this Prospectus. However, all
obligations arising under the Contracts are general corporate obligations of
Hartford.
Hartford does not guarantee the investment results of the Separate Accounts
or any of the underlying investments. There is no assurance that the value of a
Contract during the years prior to retirement or the aggregate amount of the
Variable Annuity payments will equal the total of Premium Payments made under
the Contract. Since each underlying Fund has different investment objectives,
each is subject to different risks. These risks are more fully described in the
accompanying Funds' prospectuses.
THE FUNDS
The Hartford Advisers Fund, Hartford Bond Fund, Hartford Capital
Appreciation Fund, Hartford Dividend and Growth Fund, Hartford International
Opportunities Fund, Hartford Money Market Fund, Hartford Small Company Fund, and
Hartford Stock Fund are sponsored by Hartford and are incorporated under the
laws of the State of Maryland. HL Investment Advisors, Inc. ("HL Advisors")
serves as the investment adviser to each of the Funds sponsored by Hartford.
Wellington Management Company, LLP serves as sub-investment adviser for
Hartford Advisers Fund, Hartford Capital Appreciation Fund, Hartford Dividend
and Growth Fund, Hartford International Opportunities Fund, Hartford Small
Company Fund and Hartford Stock Fund.
<PAGE>
HARTFORD LIFE INSURANCE COMPANY 9
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In addition, HL Advisors has entered into an investment services agreement
with The Hartford Investment Management Company, Inc. ("HIMCO"), pursuant to
which HIMCO will provide certain investment services to Hartford Bond Fund and
Hartford Money Market Fund.
The Nations Balanced Assets Portfolio, Nations Disciplined Equity Portfolio,
Nations International Growth Portfolio, Nations Managed Index Portfolio, Nations
Managed SmallCap Index Portfolio, Nations Value Portfolio, Nations Marsico
Growth & Income Portfolio, and Nations Marsico Focused Equities Portfolio are
sponsored by Stephens Inc. and are investment portfolios of Nations Annuity
Trust, a Delaware business trust which is a registered open-end management
investment company. NationsBanc Advisors, Inc. serves as the investment adviser
to these Funds.
TradeStreet Investment Associates, Inc. serves as the investment sub-adviser
to the Nations Balanced Assets Portfolio, Nations Disciplined Equity Portfolio,
Nations Managed Index Portfolio, Nations Managed SmallCap Index Portfolio, and
Nations Value Portfolio. Gartmore Global Partners is investment sub-adviser to
Nations International Growth Portfolio. The Nations Marsico Growth & Income
Portfolio and Nations Marsico Focused Equities Portfolio are sub-advised by
Marsico Capital Management, LLC.
A full description of the Funds, their investment policies and restrictions,
risks, charges and expenses and all other aspects of their operation is
contained in the accompanying Funds' prospectuses which should be read in
conjunction with this Prospectus before investing and in the Funds' Statements
of Additional Information which may be ordered from Hartford. The Funds may not
be available in all states.
The investment objectives of each of the Funds are as follows:
NATIONS BALANCED ASSETS PORTFOLIO
Seeks total return by investing in equity and fixed income securities.
NATIONS DISCIPLINED EQUITY PORTFOLIO
Seeks growth of capital by investing in companies that are expected to
produce significant increases in earnings per share.
NATIONS INTERNATIONAL GROWTH PORTFOLIO
Seeks long-term capital growth by investing primarily in equity securities
of companies domiciled in countries outside of the United States and listed on
major stock exchanges primarily in Europe and the Pacific Basin.
NATIONS MANAGED INDEX PORTFOLIO
Seeks, over the long-term, to provide a total return which (gross of fees
and expenses) exceeds the total return of the Standard & Poor's 500 Composite
Stock Price Index.(1)
NATIONS MANAGED SMALLCAP INDEX PORTFOLIO
Seeks, over the long-term, to provide a total return which (gross of fees
and expenses) exceeds the total return of the Standard & Poor's SmallCap 600
Index.(2)
NATIONS VALUE PORTFOLIO
Seeks growth of capital by investing in companies that are believed to be
undervalued.
NATIONS MARSICO GROWTH & INCOME PORTFOLIO
Seeks long-term growth of capital with a limited emphasis on income.
NATIONS MARSICO FOCUSED EQUITIES PORTFOLIO
Seeks long-term growth of capital.
HARTFORD ADVISERS FUND
Seeks maximum long-term total rate of return by investing in common stocks
and other equity securities, bonds and other debt securities, and money market
instruments.
HARTFORD BOND FUND
Seeks maximum current income consistent with preservation of capital by
investing primarily in fixed-income securities. Up to 20% of the total assets of
this Fund may be invested in debt securities rated in the highest category below
investment grade ("Ba" by Moody's Investor Services, Inc. or "BB" by Standard &
Poor's) or, if unrated, are determined to be of comparable quality by the Fund's
investment adviser. Securities rated below investment grade are commonly
referred to as "high yield-high risk securities" or "junk bonds." For more
information concerning the risks associated with investing in such securities,
please refer to the section in the accompanying prospectus for the Funds
entitled "Hartford Bond Fund, Inc. -- Investment Policies."
HARTFORD CAPITAL APPRECIATION FUND
Seeks growth of capital by investing in securities selected solely on the
basis of potential for capital appreciation; income, if any, is an incidental
consideration.
HARTFORD DIVIDEND AND GROWTH FUND
Seeks a high level of current income consistent with growth of capital and
reasonable investment risk.
(1) "STANDARD & POOR'S 500" IS A REGISTERED SERVICE MARK OF STANDARD & POOR'S
CORPORATION ("S&P").
(2) "STANDARD & POOR'S SMALLCAP 600" IS A REGISTERED SERVICE MARK OF S&P.
<PAGE>
10 HARTFORD LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
HARTFORD INTERNATIONAL OPPORTUNITIES FUND
Seeks growth of capital by investing primarily in equity securities.
HARTFORD MONEY MARKET FUND
Seeks maximum current income consistent with liquidity and preservation of
capital.
HARTFORD SMALL COMPANY FUND
Seeks growth of capital by investing primarily in equity securities selected
on the basis of potential for capital appreciation.
HARTFORD STOCK FUND
Seeks long-term growth by investing primarily in equity securities.
VOTING RIGHTS -- Hartford is the legal owner of all Fund shares held in the
Separate Account. As the owner, Hartford has the right to vote at the Funds'
shareholder meetings. However, to the extent required by federal securities laws
or regulations, Hartford will:
1. Vote all Fund shares attributable to a Contract according to instructions
received from the Contract Owner, and
2. Vote shares attributable to a Contract for which no voting instructions are
received in the same proportion as shares for which instructions are
received.
If any federal securities laws or regulations, or their present
interpretation change to permit Hartford to vote Fund shares in its own right,
Hartford may elect to do so.
Hartford will notify you of any Fund shareholders' meetings if the shares
held for your account may be voted at such meetings. Hartford will send proxy
materials and a form of instruction by means of which you can instruct Hartford
with respect to the voting of the Fund shares held for your account.
In connection with the voting of Fund shares held by it, Hartford will
arrange for the handling and tallying of proxies received from Contract Owners.
Hartford as such, shall have no right, except as hereinafter provided, to vote
any Fund shares held by it hereunder which may be registered in its name or the
names of its nominees. Hartford will, however, vote the Fund shares held by it
in accordance with the instructions received from the Contract Owners for whose
accounts the Fund shares are held. If a Contract Owner desires to attend any
meeting at which shares held for the Contract Owner's benefit may be voted, the
Contract Owner may request Hartford to furnish a proxy or otherwise arrange for
the exercise of voting rights with respect to the Fund shares held for such
Contract Owner's account. Hartford will vote shares for which no instructions
have been given and shares which are not attributable to Contract Owners (i.e.
shares owned by Hartford) in the same proportion as it votes shares of that Fund
for which it has received instructions. During the Annuity period under a
Contract the number of votes will decrease as the assets held to fund Annuity
benefits decrease.
The Funds are available to serve as the underlying investments for variable
annuity and variable life insurance contracts. It is conceivable that in the
future it may be disadvantageous for variable annuity separate accounts and
variable life insurance separate accounts to invest in the Funds simultaneously.
Although Hartford and the Funds do not currently foresee any such disadvantages
either to variable annuity Contract Owners or to variable life insurance Policy
Owners, the Funds' Boards of Directors/Trustees intend to monitor events in
order to identify any material conflicts between such Contract Owners and Policy
Owners and to determine what action, if any, should be taken in response
thereto. If the Boards of Directors/Trustees of the Funds were to conclude that
separate funds should be established for variable life and variable annuity
separate accounts, the variable annuity Contract Owners would not bear any
expenses attendant to the establishment of such separate funds.
THE FIXED ACCUMULATION FEATURE
THAT PORTION OF THE CONTRACT RELATING TO THE FIXED ACCUMULATION FEATURE IS
NOT REGISTERED UNDER THE SECURITIES ACT OF 1933 ("1933 ACT") AND THE FIXED
ACCUMULATION FEATURE IS NOT REGISTERED AS AN INVESTMENT COMPANY UNDER THE 1940
ACT. ACCORDINGLY, NEITHER THE FIXED ACCUMULATION FEATURE NOR ANY INTERESTS
THEREIN ARE SUBJECT TO THE PROVISIONS OR RESTRICTIONS OF THE 1933 ACT OR THE
1940 ACT, AND THE DISCLOSURE REGARDING THE FIXED ACCUMULATION FEATURE HAS NOT
BEEN REVIEWED BY THE STAFF OF THE SECURITIES AND EXCHANGE COMMISSION. THE
FOLLOWING DISCLOSURE ABOUT THE FIXED ACCUMULATION FEATURE MAY BE SUBJECT TO
CERTAIN GENERALLY APPLICABLE PROVISIONS OF THE FEDERAL SECURITIES LAWS REGARDING
THE ACCURACY AND COMPLETENESS OF DISCLOSURE.
Premium Payments and Contract Values allocated to the Fixed Accumulation
Feature become a part of the general assets of Hartford. Hartford invests the
assets of the General Account in accordance with applicable law governing the
investments of Insurance Company General Accounts.
Currently, Hartford guarantees that it will credit interest at a rate of not
less than 3% per year, compounded annually, to amounts allocated to the Fixed
Accumulation Feature under the Contracts. However, Hartford reserves the right
to change the rate according to state insurance law.
<PAGE>
HARTFORD LIFE INSURANCE COMPANY 11
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Hartford may credit interest at a rate in excess of 3% per year. There is no
specific formula for the determination of excess interest credits. Some of the
factors that Hartford may consider in determining whether to credit excess
interest to amounts allocated to the Fixed Accumulation Feature and the amount
thereof, are general economic trends, rates of return currently available and
anticipated on Hartford's investments, regulatory and tax requirements and
competitive factors. ANY INTEREST CREDITED TO AMOUNTS ALLOCATED TO THE FIXED
ACCUMULATION FEATURE IN EXCESS OF 3% PER YEAR WILL BE DETERMINED IN THE SOLE
DISCRETION OF HARTFORD. THE OWNER ASSUMES THE RISK THAT INTEREST CREDITED TO
FIXED ACCUMULATION FEATURE ALLOCATIONS MAY NOT EXCEED THE MINIMUM GUARANTEE OF
3% FOR ANY GIVEN YEAR.
From time to time, Hartford may credit increased interest rates to Contract
Owners under certain programs established at the discretion of Hartford.
Contract Owners may enroll in a special pre-authorized transfer program known as
Hartford's Dollar Cost Averaging Bonus Program (the "Program"). Under this
Program, Contract Owners who enroll may allocate a minimum of $5,000 of their
Premium Payment into the Program (Hartford may allow a lower minimum Premium
Payment for qualified plan transfers or rollovers, including IRAs) and
pre-authorize transfers to any of the Sub-Accounts under either the 6 Month
Transfer Program or 12 Month Transfer Program. The 6 Month Transfer Program and
the 12 Month Transfer Program will generally have different credited interest
rates. Under the 6 Month Transfer Program, the interest rate can accrue up to 6
months and all Premium Payments and accrued interest must be transferred to the
selected Sub-Accounts in 3 to 6 months. Under the 12 Month Transfer Program, the
interest rate can accrue up to 12 months and all Premium Payments and accrued
interest must be transferred to the selected Sub-Accounts in 7 to 12 months.
This will be accomplished by monthly transfers for the period selected and a
final transfer of the entire amount remaining in the Program.
The pre-authorized transfers will begin within 15 days after the initial
Program Premium Payment and complete enrollment instructions are received by
Hartford. If complete Program enrollment instructions are not received by
Hartford within 15 days of receipt of the initial Program Premium Payment, the
Program will be voided and the entire balance in the Program will be credited
with the non-Program interest rate then in effect for the Fixed Account.
Any subsequent Premium Payments received by Hartford within the Program
period selected will be allocated to the Sub-Accounts over the remainder of that
Program transfer period, unless otherwise directed by the Contract Owner.
A Contract Owner may only have one dollar cost averaging program in place at
one time, this means one standard dollar cost averaging plan or one Dollar Cost
Averaging Bonus Program.
Contract Owners may elect to terminate the pre-authorized transfers by
calling or writing Hartford of their intent to cancel their enrollment in the
Program. Upon cancellation of enrollment in the Program, Contract Owners will no
longer receive the increased interest rate. Hartford reserves the right to
discontinue, modify or amend the Program or any other interest rate program
established by Hartford. Any change to the Program will not affect Contract
Owners currently enrolled in the Program. This Program may not be available in
all states; please contact Hartford to determine if it is available in your
state.
PERFORMANCE RELATED INFORMATION
The Separate Account may advertise certain performance related information
concerning its Sub-Accounts. Performance information about a Sub-Account is
based on the Sub-Account's past performance only and is no indication of future
performance.
The Nations Balanced Assets Portfolio, Nations Disciplined Equity Portfolio,
Nations International Growth Portfolio, Nations Managed Index Portfolio, Nations
Managed SmallCap Index Portfolio, Nations Value Portfolio, Nations Marsico
Growth & Income Portfolio, Nations Marsico Select Focused Portfolio, Advisers
Fund, Bond Fund, Capital Appreciation Fund, Dividend and Growth Fund,
International Opportunities Fund, Money Market Fund, Small Company Fund, and
Stock Fund Sub-Accounts may include total return in advertisements or other
sales material.
When a Sub-Account advertises its standardized total return, it will usually
be calculated for one year, five years, and ten years or some other relevant
periods if the Sub-Account has not been in existence for at least ten years.
Total return is measured by comparing the value of an investment in the
Sub-Account at the beginning of the relevant period to the value of the
investment at the end of the period (assuming the deduction of any contingent
deferred sales charge which would be payable if the investment were redeemed at
the end of the period).
In addition to the standardized total return, the Sub-Account may advertise
a non-standardized total return. This figure will usually be calculated for one
year, five years, and ten years or other periods. Non-standardized total return
is measured in the same manner as the standardized total return described above,
except that the contingent deferred sales charge and the Annual Maintenance Fee
are not deducted. Therefore, non-standardized total return for a Sub-Account is
higher than standardized total return for a Sub-Account.
<PAGE>
12 HARTFORD LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
The Bond Fund may advertise yield in addition to total return. The yield
will be computed in the following manner: The net investment income per unit
earned during a recent one month period, divided by the unit value on the last
day of the period. This figure reflects the recurring charges at the Separate
Account level including the Annual Maintenance Fee.
The Money Market Fund Sub-Account may advertise yield and effective yield.
The yield of the Money Market Sub-Account is based upon the income earned by the
Sub-Account over a seven-day period and then annualized, i.e. the income earned
in the period is assumed to be earned every seven days over a 52-week period and
stated as a percentage of the investment. Effective yield is calculated
similarly but when annualized, the income earned by the investment is assumed to
be reinvested in Sub-Account units and thus compounded in the course of a
52-week period. Yield and effective yield reflect the recurring charges at the
Separate Account level including the Annual Maintenance Fee.
The Separate Account may also disclose yield, standard average annual total
return, and non-standard average annual total return for periods prior to the
date the Separate Account commenced operations. For periods prior to the date
the Separate Account commenced operations, performance information for the
Sub-Accounts will be calculated based on the performance of the underlying Funds
and the assumption that the Sub-Accounts were in existence for the same periods
as those of the underlying Funds, with a level of charges equal to those
currently assessed against the Sub-Accounts.
Hartford may provide information on various topics to Contract Owners and
prospective Contract Owners in advertising, sales literature or other materials.
These topics may include the relationship between sectors of the economy and the
economy as a whole and its effect on various securities markets, investment
strategies and techniques (such as value investing, dollar cost averaging and
asset allocation), the advantages and disadvantages of investing in tax-
advantaged and taxable instruments, customer profiles and hypothetical purchase
scenarios, financial management and tax and retirement planning, and other
investment alternatives, including comparisons between the Contracts and the
characteristics of and market for such alternatives.
THE CONTRACTS
CONTRACTS OFFERED
The Contracts are individual or group tax-deferred Variable Annuity
Contracts designed for retirement planning purposes and may be purchased by any
individual, group or trust, including any trustee or custodian for a retirement
plan qualified under Sections 401(a) or 403(a) of the Code; annuity purchase
plans adopted by public school systems and certain tax-exempt organizations
according to Section 403(b) of the Code; Individual Retirement Annuities adopted
according to Section 408 of the Code; employee pension plans established for
employees by a state, a political subdivision of a state, or an agency or
instrumentality of either a state or a political subdivision of a state, and
certain eligible deferred compensation plans as defined in Section 457 of the
Code ("Qualified Contracts"). The maximum issue age for the Contract is 85 years
old.
PREMIUM PAYMENTS AND INITIAL ALLOCATIONS
Generally, the minimum initial Premium Payment is $1,000. The minimum
subsequent payment is $500, except that, if you are enrolled in the InvestEase
Program, the minimum subsequent payment is $50. Thereafter, the minimum Premium
Payment is $500. Certain plans may make smaller periodic payments. Each Premium
Payment may be split among the various Sub-Accounts and/or the Fixed
Accumulation Feature subject to minimum amounts then in effect.
REFUND RIGHTS -- If you are not satisfied with your purchase you may cancel
the Contract by returning it within ten days (or longer in some states) after
you receive it. A written request for cancellation must accompany the Contract.
In such event, Hartford will, without deduction for any charges normally
assessed thereunder, pay you an amount equal to the Contract Value on the date
of receipt of the request for cancellation. You bear the investment risk during
the period prior to Hartford's receipt of request for cancellation. Hartford
will refund the premium paid only for individual retirement annuities (if
returned within seven days of receipt) and in those states where required by
law.
CREDITING AND VALUATION -- The balance of the initial Premium Payment
remaining after the deduction of any applicable Premium Tax is credited to your
Contract within two business days of receipt of a properly completed application
or an order to purchase a Contract and the initial Premium Payment at the
Administrative Office of Hartford, P.O. Box 5085, Hartford, CT 06102-5085. It
will be credited to the Sub-Account(s) and/or the Fixed Accumulation Feature in
accordance with your election. If the application or other information is
incomplete when received, the balance of the initial Premium Payment, after
deduction of any applicable Premium Tax, will be credited to the Sub-Account(s)
or the Fixed Accumulation Feature within five business days of receipt. If the
initial Premium Payment is not credited within five business days, the Premium
Payment will be immediately returned unless you have been informed of the delay
and request that the Premium Payment not be returned.
The number of Accumulation Units in each Sub-Account to be credited to a
Contract will be determined by dividing the portion of the Premium Payment being
<PAGE>
HARTFORD LIFE INSURANCE COMPANY 13
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credited to each Sub-Account by the value of an Accumulation Unit in that
Sub-Account on that date.
Subsequent Premium Payments are priced on the Valuation Day received at the
Administrative Office of Hartford, or other designated administrative offices.
CONTRACT VALUE
The value of the Sub-Account investments under your Contract at any time
prior to the commencement of Annuity payments can be determined by multiplying
the total number of Accumulation Units credited to your Contract in each
Sub-Account by the then current Accumulation Unit values for the applicable
Sub-Account. The value of the Fixed Accumulation Feature under your Contract
will be the amount allocated to the Fixed Accumulation Feature plus interest
credited.
You will be advised at least semiannually of the number of Accumulation
Units credited to each Sub-Account, the current Accumulation Unit values, the
Fixed Accumulation Feature value, and the total value of your Contract.
ACCUMULATION UNIT VALUES -- The Accumulation Unit value for each Sub-Account
will vary to reflect the investment experience of the applicable Fund and will
be determined on each Valuation Day by multiplying the Accumulation Unit value
of the particular Sub-Account on the preceding Valuation Day by a "Net
Investment Factor" for that Sub-Account for the Valuation Period then ended. The
"Net Investment Factor" for each of the Sub-Accounts is equal to (a) the net
asset value per share of the corresponding Fund at the end of the Valuation
Period (plus the per share amount of any dividends or capital gains distributed
by that Fund if the ex-dividend date occurs in the Valuation Period then ended)
divided by the net asset value per share of the corresponding Fund at the
beginning of the Valuation Period, (b) minus the mortality and expense risk
charge and the administration charge described below. You should refer to the
prospectus for each of the Funds which accompanies this Prospectus for a
description of how the assets of each Fund are valued since each determination
has a direct bearing on the Accumulation Unit value of the Sub-Account and
therefore the value of a Contract. The Accumulation Unit Value is affected by
the performance of the underlying Fund(s), expenses and deduction of the charges
described in this Prospectus.
VALUATION OF FUND SHARES -- The shares of the Fund are valued at net asset
value on each Valuation Day. A complete description of the valuation method used
in valuing Fund shares may be found in the accompanying Funds' prospectuses.
VALUATION OF THE FIXED ACCUMULATION FEATURE -- Hartford will determine the
value of the Fixed Accumulation Feature by crediting interest to amounts
allocated to the Fixed Accumulation Feature.
TRANSFERS BETWEEN SUB-ACCOUNTS/
FIXED ACCUMULATION FEATURE
You may transfer the values of your Sub-Account allocations from one or more
Sub-Accounts to another free of charge. However, Hartford reserves the right to
limit the number of transfers to twelve (12) per Contract Year, with no two (2)
transfers occurring on consecutive Valuation Days. Transfers by telephone may be
made by a Contract Owner or by the attorney-in-fact pursuant to a power of
attorney by calling (800) 862-6668 or by the agent of record by calling (800)
862-7155. Telephone transfers may not be permitted by some states for their
residents who purchase variable annuities.
The policy of Hartford and its agents and affiliates is that they will not
be responsible for losses resulting from acting upon telephone requests
reasonably believed to be genuine. Hartford will employ reasonable procedures to
confirm that instructions communicated by telephone are genuine; otherwise,
Hartford may be liable for any losses due to unauthorized or fraudulent
instructions. The procedures Hartford follows for transactions initiated by
telephone include requirements that callers provide certain information for
identification purposes. All transfer instructions by telephone are tape
recorded.
Hartford may permit the Contract Owner to pre-authorize transfers among
Sub-Accounts and between Sub-Accounts and the Fixed Accumulation Feature under
certain circumstances. Transfers between the Sub-Accounts may be made both
before and after Annuity payments commence (limited to once a quarter) provided
that the minimum allocation to any Sub-Account may not be less than $500. No
minimum balance is required in any Sub-Account.
It is the responsibility of the Contract Owner or Participant to verify the
accuracy of all confirmations of transfers and to promptly advise Hartford of
any inaccuracies within 30 days of receipt of the confirmation. Hartford will
send the Contract Owner a confirmation of the transfer within five days from the
date of any instruction.
Transfers from the Fixed Accumulation Feature into a Sub-Account may be made
at any time during the Contract Year. The maximum amount which may be
transferred from the Fixed Accumulation Feature during any Contract Year is the
greater of 30% of the Fixed Accumulation Feature balance as of the last Contract
Anniversary or the greatest amount of any prior transfer from the Fixed
Accumulation Feature. If Hartford permits pre-authorized transfers from the
Fixed Accumulation Feature to the Sub-Accounts, this restriction is
inapplicable. Also, if any interest rate is renewed at a rate of at least one
percentage point less than
<PAGE>
14 HARTFORD LIFE INSURANCE COMPANY
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the previous rate, the Contract Owner may elect to transfer up to 100% of the
funds receiving the reduced rate within 60 days of notification of the interest
rate decrease. Generally, transfers may not be made from any Sub-Account into
the Fixed Accumulation Feature for the six-month period following any transfer
from the Fixed Accumulation Feature into one or more of the Sub-Accounts.
Hartford reserves the right to modify the limitations on transfers from the
Fixed Accumulation Feature and to defer transfers from the Fixed Accumulation
Feature for up to six months from the date of request.
Subject to the exceptions set forth in the following two paragraphs, the
right to reallocate Contract Values is subject to modification if Hartford
determines, in its sole opinion, that the exercise of that right by one or more
Contract Owners is, or would be, to the disadvantage of other Contract Owners.
Any modification could be applied to transfers to or from some or all of the
Sub-Accounts and the Fixed Accumulation Feature and could include, but not be
limited to, the requirement of a minimum time period between each transfer, not
accepting transfer requests of an agent acting under a power of attorney on
behalf of more than one Contract Owner, or limiting the dollar amount that may
be transferred between the Sub-Accounts and the Fixed Accumulation Feature by a
Contract Owner at any one time. Such restrictions may be applied in any manner
reasonably designed to prevent any use of the transfer right which is considered
by Hartford to be to the disadvantage of other Contract Owners.
For Contracts issued in the State of New York, the reservation of rights set
forth in the preceding paragraph is limited to (i) requiring up to a maximum of
10 Valuation Days between each transfer: (ii) limiting the amount to be
transferred on any one Valuation Day to no more than $2 million; and (iii) upon
30 days prior written notice, to only accepting transfer instructions from the
Contract Owner and not from the Contract Owner's representative, agent or person
acting under a power of attorney for the Contract Owner.
Currently, and with respect to Contracts issued in all states, the only
restriction in effect is that Hartford will not accept instructions from agents
acting under a power of attorney of multiple Contract Owners whose accounts
aggregate more than $2 million, unless the agent has entered into a third party
transfer services agreement with Hartford.
CHARGES UNDER THE CONTRACT
CONTINGENT DEFERRED SALES CHARGES ("SALES CHARGES")
PURPOSE OF SALES CHARGES -- Sales Charges cover expenses relating to the
sale and distribution of the Contracts, including commissions paid to
distributing organizations and its sales personnel, the cost of preparing sales
literature and other promotional activities. If these charges are not sufficient
to cover sales and distribution expenses, Hartford will pay them from its
general assets, including surplus. Surplus might include profits resulting from
unused mortality and expense risk charges.
ASSESSMENT OF SALES CHARGES -- There is no deduction for sales expenses from
Premium Payments when made, however, a Sales Charge may be assessed against
Premium Payments when surrendered. The length of time from receipt of a Premium
Payment to the time of surrender determines the percentage of the Sales Charge.
Premium payments are deemed to be surrendered in the order in which they were
received.
During the first seven years from each Premium Payment, a Sales Charge will
be assessed against the surrender of Premium Payments. During this time, all
surrenders in excess of the Annual Withdrawal Amount will be first from Premium
Payments and then from earnings. The Annual Withdrawal Amount is first from
earnings and then from Premium Payments. After the seventh Contract Year, all
surrenders will first be taken from earnings and then from Premium Payments and
a Sales Charge will not be assessed against the surrender of earnings. If an
amount equal to all earnings has been surrendered, a Sales Charge will not be
assessed against Premium Payments received more than seven years prior to
surrender, but will be assessed against Premium Payments received less than
seven years prior to surrender. For additional information, see "Federal Tax
Considerations", page 21.
Upon receipt of a request for a full surrender, Hartford will assess any
applicable Sales Charge against the surrender proceeds representing the lesser
of: (1) aggregate Premium Payments not previously withdrawn or (2) the Contract
Value, less the Annual Withdrawal Amount available at the time of the full
surrender, less the Annual Maintenance Fee, if applicable. Taking the Annual
Withdrawal Amount prior to the full surrender may, depending upon the amount of
investment gain experienced, reduce the amount of any Sales Charge paid.
The Sales Charge is a percentage of the amount surrendered (not to exceed
the aggregate amount of the Premium Payments made) and equals:
<TABLE>
<CAPTION>
LENGTH OF TIME
FROM PREMIUM PAYMENT
CHARGE (NUMBER OF YEARS)
- --------- ----------------------
<S> <C>
6% 1
6% 2
5% 3
5% 4
4% 5
3% 6
2% 7
0% 8 or more
</TABLE>
<PAGE>
HARTFORD LIFE INSURANCE COMPANY 15
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PAYMENTS NOT SUBJECT TO SALES CHARGES
ANNUAL WITHDRAWAL AMOUNT -- During the first seven years from each Premium
Payment, on a non-cumulative basis, a Contract Owner may make a partial
surrender of Contract Values of up to 10% of the aggregate Premium Payments, as
determined on the date of the requested surrender, without the application of
the Sales Charge. After the seventh year from each Premium Payment, also on a
non-cumulative basis, the Contract Owner may make a partial surrender of 10% of
Premium Payments made during the seven years prior to the surrender and 100% of
the Contract Value less the Premium Payments made during the seven years prior
to the surrender.
EXTENDED WITHDRAWAL PRIVILEGE -- This privilege allows Annuitants who attain
age 70 1/2 with a Contract held under an Individual Retirement Account or 403(b)
plan to surrender an amount equal to the required minimum distribution for the
stated Contract without incurring a Sales Charge or not subject to a Sales
Charge.
WAIVERS OF SALES CHARGES
CONFINEMENT IN A HOSPITAL, LONG TERM CARE FACILITY NURSING HOME -- Hartford
will waive any Sales Charge applicable to a partial or full surrender if the
Annuitant is confined, at the recommendation of a physician for medically
necessary reasons, for at least 180 calendar days to: a hospital recognized as a
general hospital by the proper authority of the state in which it is located; or
a hospital recognized as a general hospital by the Joint Commission on the
Accreditation of Hospitals; or a facility certified as a hospital or long-term
care facility; or a nursing home licensed by the state in which it is located
and offers the services of a registered nurse 24 hours a day.
The Annuitant cannot be confined at the time the Contract was purchased in
order to receive this waiver and the Contract Owner(s) must have been the
Contract Owner(s) continuously since the Contract issue date; must provide
written proof of confinement satisfactory to Hartford; and must request the
partial or full surrender within 91 calendar days of the last day of
confinement.
This waiver may not be available in all states. Please contact your
registered representative or Hartford to determine availability.
DEATH OF THE ANNUITANT OR CONTRACT OWNER OR PAYMENTS UNDER AN ANNUITY OPTION
- -- No Sales Charge otherwise applicable will be assessed in the event of death
of the Annuitant, death of the Contract Owner or if payments are made under an
Annuity option (other than a surrender out of Annuity Option 4) provided for
under the Contract.
OTHER PLANS OR PROGRAMS -- Certain plans or programs established by Hartford
from time to time may have different surrender privileges.
MORTALITY AND EXPENSE RISK CHARGE
For assuming these risks under the Contracts, Hartford will make a daily
charge at the rate of 1.25% per annum against all Contract Values held in the
Sub-Accounts during the life of the Contract (estimated at .90% for mortality
and .35% for expense). Although Variable Annuity payments made under the
Contracts will vary in accordance with the investment performance of the
underlying Fund shares held in the Sub-Account(s), the payments will not be
affected by (a) Hartford's actual mortality experience among Annuitants before
or after the Annuity Commencement Date or (b) Hartford's actual expenses, if
greater than the deductions provided for in the Contracts because of the expense
and mortality undertakings by Hartford.
There are two types of mortality undertakings: those made during the
accumulation or deferral phase and those made during the annuity payout phase.
The mortality undertaking made by Hartford in the accumulation phase is that
Hartford may experience a loss resulting from the assumption of the mortality
risk relative to the guaranteed death benefit in event of the death of an
Annuitant or Contract Owner before commencement of Annuity payments, in periods
of declining value or in periods where the contingent deferred sales charges
would have been applicable. The mortality undertakings provided by Hartford
during the annuity payout phase are to make monthly Annuity payments (determined
in accordance with the 1983a Individual Annuity Mortality Table and other
provisions contained in the Contract) to Annuitants regardless of how long an
Annuitant may live, and regardless of how long all Annuitants as a group may
live. Hartford also assumes the liability for payment of a minimum death benefit
under the Contract. These mortality undertakings are based on Hartford's
determination of expected mortality rates among all Annuitants. If actual
experience among Annuitants during the Annuity payment period deviates from
Hartford's actuarial determination of expected mortality rates among Annuitants
because, as a group, their longevity is longer than anticipated, Hartford must
provide amounts from its general funds to fulfill its contractual obligations.
Hartford will bear the loss in such a situation.
During the accumulation phase, Hartford also provides an expense
undertaking. Hartford assumes the risk that the contingent deferred sales
charges and the Annual Maintenance Fee for maintaining the Contracts prior to
the Annuity Commencement Date may be insufficient to cover the actual cost of
providing such items.
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16 HARTFORD LIFE INSURANCE COMPANY
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ANNUAL MAINTENANCE FEE
Each year, on each Contract Anniversary on or before the Annuity
Commencement Date, Hartford will deduct an Annual Maintenance Fee, if
applicable, from Contract Values to reimburse it for expenses relating to the
maintenance of the Contract, the Fixed Account, and the Sub-Account(s)
thereunder. If during a Contract Year the Contract is surrendered for its full
value, Hartford will deduct the Annual Maintenance Fee at the time of such
surrender. The fee is a flat fee which will be due in the full amount regardless
of the time of the Contract Year that Contract Values are surrendered. The
Annual Maintenance Fee is $30.00 per Contract Year for Contracts with less than
$50,000 Contract Value on the Contract Anniversary. Fees will be deducted on a
pro rata basis according to the value in each Sub-Account and the Fixed Account
under a Contract.
WAIVERS OF THE ANNUAL MAINTENANCE FEE -- Annual Maintenance Fees are waived
for Contracts with Contract Value equal to or greater than $50,000. In addition,
Hartford will waive one Annual Maintenance Fee for Contract Owners who own one
or more Contracts with a combined Contract Value of $50,000 up to $100,000. If
the Contract Owner has multiple contracts with a combined Contract Value of
$100,000 or greater, Hartford will waive the Annual Maintenance Fee on all
Contracts. However, Hartford reserves the right to limit the number of Annual
Maintenance Fee waivers to a total of six Contracts. Hartford reserves the right
to waive the Annual Maintenance Fee under other conditions.
PREMIUM TAXES
Charges are also deducted for premium tax, if applicable, imposed by state
or other governmental entity. Certain states impose a premium tax, currently
ranging up to 3.5%. Some states assess the tax at the time purchase payments are
made; others assess the tax at the time of annuitization. Hartford will pay
Premium Taxes at the time imposed under applicable law. At its sole discretion,
Hartford may deduct Premium Taxes at the time Hartford pays such taxes to the
applicable taxing authorities, at the time the Contract is surrendered, at the
time a death benefit is paid, or at the time the Contract annuitizes.
FUND EXPENSES
The investment performance of each Fund reflects the management fee that the
Fund pays to its investment manager as well as other operating expenses that the
Fund incurs investment management fees are generally daily fees computed as a
percent of a Fund's average daily net assets at an annual rate. Please read the
prospectus for each Fund for complete details.
SALES COMPENSATION
Commissions will be paid by Hartford and will not be more than 6% of Premium
Payments. From time to time, Hartford may pay or permit other promotional
incentives in cash or credit or other compensation.
EXCEPTIONS TO CHARGES UNDER THE CONTRACT
Hartford may offer, at its discretion, reduced fees and charges including,
but not limited to, the contingent deferred sales charges, the mortality and
expense risk charge and the maintenance fee for certain sales (including
employer sponsored savings plans) under circumstances which may result in
savings of certain costs and expenses. Reductions in these fees and charges will
not be unfairly discriminatory against any Contract Owner.
DEATH BENEFITS
The Contract provides that, in the event the Annuitant dies before the
selected Annuity Commencement Date, the Contingent Annuitant will become the
Annuitant. If (1) the Annuitant dies before the Annuity Commencement Date and
either (a) there is no designated Contingent Annuitant or (b) the Contingent
Annuitant predeceases the Annuitant, or (2) if any Contract Owner dies before
the Annuity Commencement Date, the Beneficiary as determined under the Contract
Control Provisions, will receive the Death Benefit as determined on the date of
receipt of Due Proof of Death at the Administrative Office of Hartford. With
regard to Joint Contract Owners, at the first death of a joint Contract Owner
prior to the Annuity Commencement Date, the Beneficiary will be the surviving
Contract Owner notwithstanding that the beneficiary designation may be
different.
GUARANTEED DEATH BENEFIT -- If the Annuitant dies before the Annuity
Commencement Date and there is no designated Contingent Annuitant surviving, or
if the Contract Owner dies before the Annuity Commencement Date, the Beneficiary
will receive the greatest of (a) the Contract Value determined as of the day
written proof of death of such person is received by Hartford, or (b) 100% of
the total Premium Payments made to such Contract, reduced by the dollar amount
of any partial surrenders since the issue date, or (c) the Maximum Anniversary
Value immediately preceding the date of death. The Maximum Anniversary Value is
equal to the greatest Anniversary Value attained from the following:
As of the date of receipt of Due Proof of Death, Hartford will calculate an
Anniversary Value for each Contract Anniversary prior to the deceased's attained
age 81. The Anniversary Value is equal to the Contract Value on a Contract
Anniversary, increased by the dollar amount of any premium payments made since
that anniversary and
<PAGE>
HARTFORD LIFE INSURANCE COMPANY 17
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reduced by the dollar amount of any partial surrenders since that anniversary.
If the Annuitant or Contract Owner, as applicable, dies after the Annuity
Commencement Date, then the Death Benefit will equal the present value of any
remaining payments under the elected Annuity Option. In computing such present
value for the portion of such remaining payments attributable to the Separate
Account, Hartford will assume a net investment rate of 5.0% per year.
PAYMENT OF DEATH BENEFIT -- Death Benefit proceeds will remain invested in
the Separate Account in accordance with the allocation instructions given by the
Contract Owner until the proceeds are paid or Hartford receives new instructions
from the Beneficiary. The Death Benefit may be taken in one sum, payable within
seven days after the date Due Proof of Death is received, or under any of the
settlement options then being offered by Hartford provided, however, that: (a)
in the event of the death of any Contract Owner prior to the Annuity
Commencement Date, the entire interest in the Contract will be distributed
within five years after the death of the Contract Owner and (b) in the event of
the death of any Contract Owner or Annuitant which occurs on or after the
Annuity Commencement Date, any remaining interest in the Contract will be paid
at least as rapidly as under the method of distribution in effect at the time of
death, or, if the benefit is payable over a period not extending beyond the life
expectancy of the Beneficiary or over the life of the Beneficiary, such
distribution must commence within one year of the date of death. The proceeds
due on the death may be applied to provide variable payments, fixed payments, or
a combination of variable and fixed payments. However, in the event of the
Contract Owner's death where the sole Beneficiary is the spouse of the Contract
Owner and the Annuitant or Contingent Annuitant is living, such spouse may
elect, in lieu of receiving the death benefit, to be treated as the Contract
Owner. The Contract Value and the Maximum Anniversary Value of the Contract will
be unaffected by treating the spouse as the Contract Owner.
If the Contract is owned by a corporation or other non-individual, the Death
Benefit payable upon the death of the Annuitant prior to the Annuity
Commencement Date will be payable only as one sum or under the same settlement
options and in the same manner as if an individual Contract Owner died on the
date of the Annuitant's death.
There may be postponement in the payment of Death Benefits whenever (a) the
New York Stock Exchange is closed, except for holidays or weekends, or trading
on the New York Stock Exchange is restricted as determined by the Commission;
(b) the Commission permits postponement and so orders; or (c) the Commission
determines that an emergency exists making valuation of the amounts or disposal
of securities not reasonably practicable.
GROUP UNALLOCATED CONTRACTS -- Hartford requires that detailed accounting of
cumulative purchase payments, cumulative gross surrenders, and current Contract
Value attached to each Plan Participant be submitted on an annual basis by the
Contract Owner. Failure to submit accurate data satisfactory to Hartford will
give Hartford the right to terminate this extension of benefits.
SURRENDER BENEFITS
FULL SURRENDERS -- At any time prior to the Annuity Commencement Date (and
after the Annuity Commencement Date with respect to values applied to Annuity
Option 4 or the Annuity Proceeds Settlement Option), the Contract Owner has the
right to terminate the Contract. In such event, the Termination Value of the
Contract may be taken in the form of a lump sum cash settlement.
Under any of the Annuity options excluding Annuity Option 4 and the Annuity
Proceeds Settlement Option, no surrenders are permitted after Annuity payments
commence. Only full surrenders are allowed out of Annuity Option 4 and any such
surrender will be subject to contingent deferred sales charges, if applicable.
Full or partial withdrawals may be made from the Annuity Proceeds Settlement
Option at any time and contingent deferred sales charges will not be applied.
The Termination Value of the Contract is equal to the Contract Value less
any applicable Premium Taxes, the Annual Maintenance Fee if applicable and any
applicable contingent deferred sales charges. The Termination Value may be more
or less than the amount of the Premium Payments made to a Contract.
PARTIAL SURRENDERS -- The Contract Owner may make a partial surrender of
Contract Values at any time prior to the Annuity Commencement Date so long as
the amount surrendered is at least equal to the minimum amount rules then in
effect. Additionally, if the remaining Contract Value following a surrender is
less than $500 ($1,000 in New York), Hartford will terminate the Contract and
pay the Termination Value. For Contracts issued in Texas, there is an additional
requirement that the Contract will not be terminated when the remaining Contract
Value after a surrender is less than $500 unless there were no Premium Payments
made during the previous two Contract Years.
In requesting a partial withdrawal you should specify the Sub-Account(s)
and/or the Fixed Accumulation Feature from which the partial withdrawal is to be
taken. Otherwise, such withdrawal and any applicable contingent deferred sales
charges will be effected on a pro rata basis according to the value in the Fixed
Accumulation Feature and each Sub-Account under a Contract.
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18 HARTFORD LIFE INSURANCE COMPANY
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Hartford may permit the Contract Owner to pre-authorize partial surrenders
subject to certain limitations then in effect.
TELEPHONE SURRENDER PRIVILEGES -- Hartford permits partial surrenders by
telephone subject to dollar amount limitations in effect at the time a Contract
Owner requests the surrender. To request partial surrenders by telephone, a
Contract Owner must have completed and returned to Hartford a Telephone
Redemption Program Enrollment Form authorizing telephone surrenders. If there
are joint Contract Owners, both must authorize Hartford to accept telephone
instructions and agree that Hartford may accept telephone instructions for
partial surrenders from either Contract Owner. Partial surrender requests will
not be honored until Hartford receives all required documents in proper form.
Telephone authorization will remain valid until (a) Hartford receives
written notice of revocation by a Contract Owner, or, in the case of joint
Contract Owners, written notice from either Contract Owner; (b) Hartford
discontinues the privilege; or (c) Hartford has reason to believe that a
Contract Owner has entered into a market timing agreement with an investment
adviser and/or broker/dealer.
Hartford may record any telephone calls to verify data concerning
transactions and may adopt other procedures to confirm that telephone
instructions are genuine. Hartford will not be liable for losses or expenses
arising out of telephone instructions reasonably believed to be genuine.
In order to obtain that day's unit values on surrender, Hartford must
receive telephone surrender instructions prior to the close of trading on the
New York Stock Exchange (generally 4:00 p.m.).
Hartford may modify, suspend, or terminate telephone transaction privileges
at any time.
PAYMENT OF SURRENDER BENEFITS -- Payment on any request for a full or
partial surrender from the Sub-Accounts will be made as soon as possible and in
any event no later than seven days after the written request is received at the
Administrative Office of Hartford, Attn: Individual Annuity Services, P.O. Box
5085, Hartford, CT 06102-5085. Hartford may defer payment of any amounts from
the Fixed Accumulation Feature for up to six months from the date of the request
for surrender. If Hartford defers payment for more than 30 days (10 working days
in New York), Hartford will pay interest of at least 3% per annum on the amount
deferred.
There may be postponement in the payment of Surrender Benefits whenever (a)
the New York Stock Exchange is closed, except for holidays or weekends, or
trading on the New York Stock Exchange is restricted as determined by the
Commission; (b) the Commission permits postponement and so orders; or (c) the
Commission determines that an emergency exists making valuation of the amounts
or disposal of securities not reasonably practicable.
CERTAIN QUALIFIED CONTRACT SURRENDERS -- THERE ARE CERTAIN RESTRICTIONS ON
SECTION 403(B) TAX SHELTERED ANNUITIES. AS OF DECEMBER 31, 1988, ALL SECTION
403(B) ANNUITIES HAVE LIMITS ON FULL AND PARTIAL SURRENDERS. CONTRIBUTIONS TO
THE CONTRACT MADE AFTER DECEMBER 31, 1988 AND ANY INCREASES IN CASH VALUE AFTER
DECEMBER 31, 1988 MAY NOT BE DISTRIBUTED UNLESS THE CONTRACT OWNER/ EMPLOYEE HAS
A) ATTAINED AGE 59 1/2, B) SEPARATED FROM SERVICE, C) DIED, D) BECOME DISABLED
OR E) EXPERIENCED FINANCIAL HARDSHIP. (CASH VALUE INCREASES MAY NOT BE
DISTRIBUTED PRIOR TO AGE 59 1/2 FOR HARDSHIPS.)
DISTRIBUTIONS PRIOR TO AGE 59 1/2 DUE TO FINANCIAL HARDSHIP OR SEPARATION
FROM SERVICE MAY STILL BE SUBJECT TO A PENALTY TAX OF 10%.
HARTFORD WILL NOT ASSUME ANY RESPONSIBILITY IN DETERMINING WHETHER A
WITHDRAWAL IS PERMISSIBLE, WITH OR WITHOUT TAX PENALTY, IN ANY PARTICULAR
SITUATION; OR IN MONITORING WITHDRAWAL REQUESTS REGARDING PRE OR POST JANUARY 1,
1989 ACCOUNT VALUES.
ANY SUCH FULL OR PARTIAL SURRENDER DESCRIBED ABOVE MAY AFFECT THE CONTINUING
TAX QUALIFIED STATUS OF SOME CONTRACTS OR PLANS AND MAY RESULT IN ADVERSE TAX
CONSEQUENCES TO THE CONTRACT OWNER. THE CONTRACT OWNER, THEREFORE, SHOULD
CONSULT WITH HIS TAX ADVISER BEFORE UNDERTAKING ANY SUCH SURRENDER. (See
"Federal Tax Considerations" commencing on page 21.)
SETTLEMENT PROVISIONS
ANNUITY OPTIONS
You select an Annuity Commencement Date and an Annuity option which may be
on a fixed or variable basis, or a combination thereof. The Annuity Commencement
Date will not be deferred beyond the Annuitant's 90th birthday (100th birthday
if sold as part of a Charitable Remainder Trust). The Annuity Commencement Date
and/or the Annuity option may be changed from time to time, but any change must
be at least 30 days prior to the date on which Annuity payments are scheduled to
begin. The Contract allows the Contract Owner to change the Sub-Accounts on
which variable payments are based after payments have
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HARTFORD LIFE INSURANCE COMPANY 19
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commenced once every three months. Any Fixed Annuity allocation may not be
changed.
The Contract contains four Annuity payment options and the Annuity Proceeds
Settlement Option. Annuity Options 2, 4, and the Annuity Proceeds Settlement
Option are available to Qualified Contracts only if the guaranteed payment
period is less than the life expectancy of the Annuitant at the time the option
becomes effective. Such life expectancy shall be computed on the basis of the
mortality table prescribed by the IRS, or if none is prescribed, the mortality
table then in use by Hartford. With respect to Non-Qualified Contracts, if you
do not elect otherwise, payments in most states will automatically begin at the
Annuitant's age 90 under Annuity Option 2 with 120 monthly payments certain. For
Qualified Contracts and Contracts issued in Texas, if you do not elect
otherwise, payments will begin automatically at the Annuitant's age 90 under
Annuity Option 1 to provide a life annuity. After the Annuity Commencement Date,
the Annuity option elected may not be changed.
Under any of the Annuity options excluding Annuity Option 4 and the Annuity
Proceeds Settlement Option, no surrenders are permitted after Annuity payments
commence. Only full surrenders are allowed out of Option 4 and any such
surrender will be subject to contingent deferred sales charges, if applicable.
Full or partial withdrawals may be made from the Annuity Proceeds Settlement
Option at any time and contingent deferred sales charges will not be applied.
OPTION 1 -- Life Annuity
A life annuity is an Annuity payable during the lifetime of the Annuitant
and terminating with the last payment due preceding the death of the Annuitant.
This option offers the largest payment amount of any of the Life Annuity options
since there is no guarantee of a minimum number of payments nor a provision for
a Death Benefit payable to a Beneficiary.
It would be possible under this option for an Annuitant to receive only one
Annuity payment if he died prior to the due date of the second Annuity payment,
two if he died before the date of the third Annuity payment, etc.
OPTION 2 -- Life Annuity with 120, 180 or 240 Monthly Payments Certain
This Annuity option is an Annuity payable monthly during the lifetime of an
Annuitant with the provision that payments will be made for a minimum of 120,
180 or 240 months, as elected. If, at the death of the Annuitant, payments have
been made for less than the minimum elected number of months, then the present
value as of the date of the Annuitant's death, of any remaining guaranteed
payments will be paid in one sum to the Beneficiary or Beneficiaries designated
unless other provisions have been made and approved by Hartford.
OPTION 3 -- Joint and Last Survivor Annuity
An Annuity payable monthly during the joint lifetime of the Annuitant and a
designated second person, and thereafter during the remaining lifetime of the
survivor, ceasing with the last payment prior to the death of the survivor.
Based on the options currently offered by Hartford, the Annuitant may elect that
the payment to the survivor be less than the payment made during the joint
lifetime of the Annuitant and a designated second person.
It would be possible under this option for an Annuitant and designated
second person to receive only one payment in the event of the common or
simultaneous death of the parties prior to the due date for the second payment
and so on.
OPTION 4 -- Payments for a Designated Period
An amount payable monthly for the number of years selected which may be from
5 to 30 years. Under this option, you may, at any time, surrender the Contract
and receive, within seven days, the Termination Value of the Contract as
determined by Hartford.
In the event of the Annuitant's death prior to the end of the designated
period, the present value as of the date of the Annuitant's death, of any
remaining guaranteed payments will be paid in one sum to the Beneficiary or
Beneficiaries designated unless other provisions have been made and approved by
Hartford.
Annuity Option 4 is an option that does not involve life contingencies and
thus no mortality guarantee. Charges made for the mortality undertaking under
the Contracts thus provide no real benefit to a Contract Owner.
DEATH BENEFIT PAYMENT OPTION
OPTION 5 -- Annuity Proceeds Settlement Option
This option is available to a Beneficiary who opts to receive the Death
Benefit as annuity payments rather than as a lump sum. These Death Benefit
proceeds may be left with Hartford for a period not to exceed five years from
the date of the Contract Owner's death prior to the Annuity Commencement Date.
The proceeds will remain in the Sub-Account(s) to which they were allocated at
the time of death unless the Beneficiary elects to reallocate them. Full or
partial withdrawals may be made at any time. In the event of withdrawals, the
remaining value will equal the Contract Value of the proceeds left with
Hartford, minus any withdrawals.
Hartford may offer other annuity or settlement options from time to time.
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20 HARTFORD LIFE INSURANCE COMPANY
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VARIABLE AND FIXED ANNUITY PAYMENTS -- When an Annuity is effected under a
Contract, unless otherwise specified, Contract Values (less applicable Premium
Taxes) held in the Sub-Accounts will be applied to provide a Variable Annuity
based on the pro rata amount in the various Sub-Accounts. Fixed Accumulation
Feature Contract Values will be applied to provide a Fixed Annuity. YOU SHOULD
CONSIDER THE QUESTION OF ALLOCATION OF CONTRACT VALUES (LESS APPLICABLE PREMIUM
TAXES) AMONG SUB-ACCOUNTS OF THE SEPARATE ACCOUNT AND THE GENERAL ACCOUNT OF
HARTFORD TO MAKE CERTAIN THAT ANNUITY PAYMENTS ARE BASED ON THE INVESTMENT
ALTERNATIVE BEST SUITED TO YOUR NEEDS FOR RETIREMENT.
The minimum monthly Annuity payment is $50.00. No election may be made which
results in a first payment of less than $50.00. If at any time Annuity payments
are or become less than $50.00, Hartford has the right to change the frequency
of payment to intervals that will result in payments of at least $50.00. For New
York Contracts, the minimum monthly Annuity payment is $20.00.
When Annuity payments are to commence, the value of the Contract is
determined as the sum of (1) the value of the Fixed Accumulation Feature no
earlier than the close of business on the fifth Valuation Day preceding the date
the first Annuity payment is due plus (2) the product of (a) the value of the
Accumulation Unit of each Sub-Account on that same day and (b) the number of
Accumulation Units credited to each Sub-Account as of the date the Annuity is to
commence.
All Annuity payments under any option will occur the same day of the month
as the Annuity Commencement Date, based on the payment frequency selected by the
Contract Owner. Available payment frequencies include monthly, quarterly,
semi-annual and annual. The payment frequency may not be changed after payout
has begun.
VARIABLE ANNUITY -- The Contract contains tables indicating the minimum
dollar amount of the first monthly payment under the optional variable forms of
Annuity for each $1,000 of value of a Sub-Account under a Contract. The first
monthly payment varies according to the form and type of Variable Payment
Annuity selected. The Contract contains Variable Payment Annuity tables derived
from the 1983a Individual Annuity Mortality Table with ages set back one year
and with an assumed investment rate ("A.I.R.") of 5% per annum. The total first
monthly Variable Annuity payment is determined by multiplying the value
(expressed in thousands of dollars) of a Sub-Account (less any applicable
Premium Taxes) by the amount of the first monthly payment per $1,000 of value
obtained from the tables in the Contracts.
The amount of the first monthly Variable Annuity payment is divided by the
value of an Annuity Unit for the appropriate Sub-Account no earlier than the
close of business on the fifth Valuation Day preceding the day on which the
payment is due in order to determine the number of Annuity Units represented by
the first payment. This number of Annuity Units remains fixed during the Annuity
payment period, and in each subsequent month the dollar amount of the Variable
Annuity payment is determined by multiplying this fixed number of Annuity Units
by the then current Annuity Unit value.
The value of the Annuity Unit for each Sub-Account in the Separate Account
for any day is determined by multiplying the value for the preceding day by the
product of (1) the net investment factor for the day for which the Annuity Unit
value is being calculated, and (2) a factor to neutralize the assumed investment
rate of 5.00% per annum. The Annuity Unit value used in calculating the amount
of the Variable Annuity payments will be based on an Annuity Unit value
determined as of the close of business on a day no earlier than the fifth
Valuation Day preceding the date of the Annuity payment.
LEVEL VARIABLE ANNUITY PAYMENTS WOULD BE PRODUCED IF THE INVESTMENT RATE
REMAINED CONSTANT AND EQUAL TO THE A.I.R. IN FACT, PAYMENTS WILL VARY UP OR DOWN
AS THE INVESTMENT RATE VARIES UP OR DOWN FROM THE A.I.R.
FIXED ANNUITY -- Fixed Annuity payments are determined at annuitization by
multiplying the Contract Value (less applicable Premium Taxes) by a rate to be
determined by Hartford which is no less than the rate specified in the Fixed
Payment Annuity tables in the Contract. The Annuity payment will remain level
for the duration of the Annuity.
OTHER INFORMATION
ASSIGNMENT -- Ownership of a Contract described herein is generally
assignable. However, if the Contracts are issued pursuant to some form of
Qualified Plan, it is possible that the ownership of the Contracts may not be
transferred or assigned depending on the type of tax-qualified retirement plan
involved. An assignment of a Non-Qualified Contract may subject the Contract
values or assignment proceeds to income taxes and certain penalty taxes.
CONTRACT MODIFICATION -- The Annuitant may not be changed; however, the
Contingent Annuitant may be changed at any time prior to the Annuity
Commencement Date by written notice to Hartford.
Subject to approval of the Commission, the Separate Account may contain
assets of other variable annuity and variable life contracts. In addition,
Hartford reserves the right to modify the Contract, but only if such
modification: (i) is necessary to make the Contract or the Separate Account
comply with any law or regulation issued by a
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HARTFORD LIFE INSURANCE COMPANY 21
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governmental agency to which Hartford is subject; or (ii) is necessary to assure
continued qualification of the Contract under the Code or other federal or state
laws relating to retirement annuities or annuity Contracts; or (iii) is
necessary to reflect a change in the operation of the Separate Account or the
Sub-Account(s) or (iv) provides additional Separate Account options or (v)
withdraws Separate Account options. In the event of any such modification
Hartford will provide notice to the Contract Owner or to the payee(s) during the
Annuity period. Hartford may also make appropriate endorsement in the Contract
to reflect such modification.
FEDERAL TAX CONSIDERATIONS
What are some of the federal tax consequences which affect these Contracts?
A. GENERAL
SINCE THE TAX LAW IS COMPLEX AND SINCE TAX CONSEQUENCES WILL VARY ACCORDING
TO THE ACTUAL STATUS OF THE CONTRACT OWNER INVOLVED AND THE TYPE OF PLAN UNDER
WHICH THE CONTRACT IS PURCHASED, LEGAL AND TAX ADVICE MAY BE NEEDED BY A PERSON,
TRUSTEE, OR OTHER ENTITY CONTEMPLATING THE PURCHASE OF A CONTRACT DESCRIBED
HEREIN.
It should be understood that any detailed description of the federal income
tax consequences regarding the purchase of these Contracts cannot be made in
this Prospectus and that special tax rules may be applicable with respect to
certain purchase situations not discussed herein. In addition, no attempt is
made here to consider any applicable state or other tax laws. For detailed
information, a qualified tax adviser should always be consulted. The discussion
here and in Appendix I, commencing on page 26, is based on Hartford's
understanding of existing federal income tax laws as they are currently
interpreted.
B. TAXATION OF HARTFORD AND
THE SEPARATE ACCOUNT
The Separate Account is taxed as part of Hartford which is taxed as a life
insurance company in accordance with the Internal Revenue Code of 1986, as
amended (the "Code"). Accordingly, the Separate Account will not be taxed as a
"regulated investment company" under subchapter M of Chapter 1 of the Code.
Investment income and any realized capital gains on the assets of the Separate
Account are reinvested and are taken into account in determining the value of
the Accumulation and Annuity Units. As a result, such investment income and
realized capital gains are automatically applied to increase reserves under the
Contract.
No taxes are due on interest, dividends and short-term or long-term capital
gains earned by the Separate Account with respect to Qualified or Non-Qualified
Contracts.
C. TAXATION OF ANNUITIES -- GENERAL
PROVISIONS AFFECTING PURCHASERS OTHER
THAN QUALIFIED RETIREMENT PLANS
Section 72 of the Code governs the taxation of annuities in general.
1. NON-NATURAL PERSONS, CORPORATIONS, ETC.
Section 72 contains provisions for Contract Owners which are non-natural
persons. Non-natural persons include corporations, trusts, limited liability
companies and partnerships. The annual net increase in the value of the Contract
is currently includable in the gross income of a non-natural person unless the
non-natural person holds the Contract as an agent for a natural person. There
are additional exceptions from current inclusion for (i) certain annuities held
in tax-qualified retirement arrangements, (ii) certain annuities held by
structured settlement companies, certain annuities held by an employer with
respect to a terminated qualified retirement plan and (iii) certain immediate
annuities. A non-natural person which is a tax-exempt entity for federal tax
purposes will not be subject to income tax as a result of this provision.
If the Contract Owner is not an individual, the primary Annuitant shall be
treated as the Contract Owner for purposes of making distributions which are
required to be made upon the death of the Contract Owner. If there is a change
in the primary Annuitant, such change shall be treated as the death of the
Contract Owner.
2. OTHER CONTRACT OWNERS (NATURAL PERSONS).
A Contract Owner is not taxed on increases in the value of the Contract
until an amount is received or deemed received, e.g., in the form of a lump sum
payment (full or partial value of a Contract) or as Annuity payments under the
settlement option elected.
The provisions of Section 72 of the Code concerning distributions are
summarized briefly below. Also summarized are special rules affecting
distributions from Contracts obtained in a tax-free exchange for other annuity
contracts or life insurance contracts which were purchased prior to August 14,
1982.
A. DISTRIBUTIONS PRIOR TO THE ANNUITY COMMENCEMENT DATE.
i. Total premium payments less amounts received which were not includable in
gross income equal the "investment in the contract" under Section 72 of the
Code.
ii. To the extent that the value of the Contract (ignoring any surrender
charges except on a full surrender)
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22 HARTFORD LIFE INSURANCE COMPANY
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exceeds the "investment in the contract," such excess constitutes the
"income on the contract."
iii. Any amount received or deemed received prior to the Annuity Commencement
Date (e.g., upon a partial surrender) is deemed to come first from any such
"income on the contract" and then from "investment in the contract," and for
these purposes such "income on the contract" shall be computed by reference
to any aggregation rule in subparagraph 2.c., below. As a result, any such
amount received or deemed received (1) shall be includable in gross income
to the extent that such amount does not exceed any such "income on the
contract," and (2) shall not be includable in gross income to the extent
that such amount does exceed any such "income on the contract." If at the
time that any amount is received or deemed received there is no "income on
the contract" (e.g., because the gross value of the Contract does not exceed
the "investment in the contract" and no aggregation rule applies), then such
amount received or deemed received will not be includable in gross income,
and will simply reduce the "investment in the contract."
iv. The receipt of any amount as a loan under the Contract or the assignment or
pledge of any portion of the value of the Contract shall be treated as an
amount received for purposes of this subparagraph a. and the next
subparagraph b.
v. In general, the transfer of the Contract, without full and adequate
consideration, will be treated as an amount received for purposes of this
subparagraph a. and the next subparagraph b. This transfer rule does not
apply, however, to certain transfers of property between spouses or incident
to divorce.
B. DISTRIBUTIONS AFTER ANNUITY COMMENCEMENT DATE.
Annuity payments made periodically after the Annuity Commencement Date are
includable in gross income to the extent the payments exceed the amount
determined by the application of the ratio of the "investment in the contract"
to the total amount of the payments to be made after the Annuity Commencement
Date (the "exclusion ratio").
i. When the total of amounts excluded from income by application of the
exclusion ratio is equal to the investment in the contract as of the Annuity
Commencement Date, any additional payments (including surrenders) will be
entirely includable in gross income.
ii. If the annuity payments cease by reason of the death of the Annuitant and,
as of the date of death, the amount of annuity payments excluded from gross
income by the exclusion ratio does not exceed the investment in the contract
as of the Annuity Commencement Date, then the remaining portion of
unrecovered investment shall be allowed as a deduction for the last taxable
year of the Annuitant.
iii. Generally, non-periodic amounts received or deemed received after the
Annuity Commencement Date are not entitled to any exclusion ratio and shall
be fully includable in gross income. However, upon a full surrender after
such date, only the excess of the amount received (after any surrender
charge) over the remaining "investment in the contract" shall be includable
in gross income (except to the extent that the aggregation rule referred to
in the next subparagraph c. may apply).
C. AGGREGATION OF TWO OR MORE ANNUITY CONTRACTS.
Contracts issued after October 21, 1988 by the same insurer (or affiliated
insurer) to the same Contract Owner within the same calendar year (other than
certain contracts held in connection with a tax-qualified retirement
arrangement) will be treated as one annuity Contract for the purpose of
determining the taxation of distributions prior to the Annuity Commencement
Date. An annuity contract received in a tax-free exchange for another annuity
contract or life insurance contract may be treated as a new Contract for this
purpose. Hartford believes that for any annuity subject to such aggregation, the
values under the Contracts and the investment in the contracts will be added
together to determine the taxation under subparagraph 2.a., above, of amounts
received or deemed received prior to the Annuity Commencement Date. Withdrawals
will first be treated as withdrawals of income until all of the income from all
such Contracts is withdrawn. As of the date of this Prospectus, there are no
regulations interpreting this provision.
D. 10% PENALTY TAX -- APPLICABLE TO CERTAIN WITHDRAWALS AND ANNUITY PAYMENTS.
i. If any amount is received or deemed received on the Contract (before or
after the Annuity Commencement Date), the Code applies a penalty tax equal
to ten percent of the portion of the amount includable in gross income,
unless an exception applies.
ii. The 10% penalty tax will not apply to the following distributions
(exceptions vary based upon the precise plan involved):
1. Distributions made on or after the date the recipient has attained the
age of 59 1/2.
2. Distributions made on or after the death of the holder or where the
holder is not an individual, the death of the primary annuitant.
3. Distributions attributable to a recipient's becoming disabled.
4. A distribution that is part of a scheduled series of substantially equal
periodic payments for the life (or life expectancy) of the recipient (or
the joint lives or life expectancies of the recipient and the
recipient's Beneficiary).
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HARTFORD LIFE INSURANCE COMPANY 23
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5. Distributions of amounts which are allocable to the "investment in the
contract" prior to August 14, 1982 (see next subparagraph e.).
E. SPECIAL PROVISIONS AFFECTING CONTRACTS OBTAINED THROUGH A TAX-FREE EXCHANGE
OF OTHER ANNUITY OR LIFE INSURANCE CONTRACTS PURCHASED PRIOR TO AUGUST 14,
1982.
If the Contract was obtained by a tax-free exchange of a life insurance or
annuity contract purchased prior to August 14, 1982, then any amount received or
deemed received prior to the Annuity Commencement Date shall be deemed to come
(1) first from the amount of the "investment in the contract" prior to August
14, 1982 ("pre-8/14/82 investment") carried over from the prior Contract, (2)
then from the portion of the "income on the contract" (carried over to, as well
as accumulating in, the successor Contract) that is attributable to such
pre-8/14/82 investment, (3) then from the remaining "income on the contract" and
(4) last from the remaining "investment in the contract." As a result, to the
extent that such amount received or deemed received does not exceed such
pre-8/14/82 investment, such amount is not includable in gross income. In
addition, to the extent that such amount received or deemed received does not
exceed the sum of (a) such pre-8/14/82 investment and (b) the "income on the
contract" attributable thereto, such amount is not subject to the 10% penalty
tax. In all other respects, amounts received or deemed received from such post-
exchange Contracts are generally subject to the rules described in this
subparagraph 3.
F. REQUIRED DISTRIBUTIONS.
i. Death of Contract Owner or Primary Annuitant
Subject to the alternative election or spouse beneficiary provisions in ii
or iii below:
1. If any Contract Owner dies on or after the Annuity Commencement Date and
before the entire interest in the Contract has been distributed, the
remaining portion of such interest shall be distributed at least as
rapidly as under the method of distribution being used as of the date of
such death;
2. If any Contract Owner dies before the Annuity Commencement Date, the
entire interest in the Contract will be distributed within 5 years after
such death; and
3. If the Contract Owner is not an individual, then for purposes of 1. or
2. above, the primary annuitant under the Contract shall be treated as
the Contract Owner, and any change in the primary annuitant shall be
treated as the death of the Contract Owner. The primary annuitant is the
individual, the events in the life of whom are of primary importance in
affecting the timing or amount of the payout under the Contract.
ii. Alternative Election to Satisfy Distribution
Requirements
If any portion of the interest of a Contract Owner described in i. above is
payable to or for the benefit of a designated beneficiary, such beneficiary
may elect to have the portion distributed over a period that does not extend
beyond the life or life expectancy of the beneficiary. The election and
payments must begin within a year of the death.
iii. Spouse Beneficiary
If any portion of the interest of a Contract Owner is payable to or for the
benefit of his or her spouse, and the Annuitant or Contingent Annuitant is
living, such spouse shall be treated as the Contract Owner of such portion
for purposes of section i. above.
3. DIVERSIFICATION REQUIREMENTS.
Section 817 of the Code provides that a variable annuity contract will not
be treated as an annuity contract for any period during which the investments
made by the separate account or underlying fund are not adequately diversified
in accordance with regulations prescribed by the Treasury Department. If a
Contract is not treated as an annuity contract, the Contract Owner will be
subject to income tax on the annual increases in cash value.
The Treasury Department has issued diversification regulations which
generally require, among other things, that no more than 55% of the value of the
total assets of the segregated asset account underlying a variable contract is
represented by any one investment, no more than 70% is represented by any two
investments, no more than 80% is represented by any three investments, and no
more than 90% is represented by any four investments. In determining whether the
diversification standards are met, all securities of the same issuer, all
interests in the same real property project, and all interests in the same
commodity are each treated as a single investment. In addition, in the case of
government securities, each government agency or instrumentality shall be
treated as a separate issuer.
A separate account must be in compliance with the diversification standards
on the last day of each calendar quarter or within 30 days after the quarter
ends. If an insurance company inadvertently fails to meet the diversification
requirements, the company may comply within a reasonable period and avoid the
taxation of contract income on an ongoing basis. However, either the company or
the Contract Owner must agree to pay the tax due for the period during which the
diversification requirements were not met.
Hartford monitors the diversification of investments in the separate
accounts and tests for diversification as
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24 HARTFORD LIFE INSURANCE COMPANY
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required by the Code. Hartford intends to administer all contracts subject to
the diversification requirements in a manner that will maintain adequate
diversification.
4. OWNERSHIP OF THE ASSETS IN THE SEPARATE ACCOUNT.
In order for a variable annuity contract to qualify for tax deferral, assets
in the segregated asset accounts supporting the variable contract must be
considered to be owned by the insurance company and not by the variable contract
owner for tax purposes. The Internal Revenue Service ("IRS") has issued several
rulings which discuss investor control. The IRS has ruled that certain incidents
of ownership by the contract owner, such as the ability to select and control
investments in a separate account, could cause the contract owner to be treated
as the owner of the assets for tax purposes.
Further, in the explanation to the temporary Section 817 diversification
regulations, the Treasury Department noted that the temporary regulations "do
not provide guidance concerning the circumstances in which investor control of
the investments of a segregated asset account may cause the investor, rather
than the insurance company, to be treated as the owner of the assets in the
account." The explanation further indicates that "the temporary regulations
provide that in appropriate cases a segregated asset account may include
multiple sub-accounts, but do not specify the extent to which policyholders may
direct their investments to particular sub-accounts without being treated as the
owners of the underlying assets. Guidance on this and other issues will be
provided in regulations or revenue rulings under Section 817(d), relating to the
definition of variable contract." The final regulations issued under Section 817
did not provide guidance regarding investor control, and as of the date of this
Prospectus, no other such guidance has been issued. Further, Hartford does not
know if or in what form such guidance will be issued. In addition, although
regulations are generally issued with prospective effect, it is possible that
regulations may be issued with retroactive effect. Due to the lack of specific
guidance regarding the issue of investor control, there is necessarily some
uncertainty regarding whether a Contract Owner could be considered the owner of
the assets for tax purposes. Hartford reserves the right to modify the
contracts, as necessary, to prevent Contract Owners from being considered the
owners of the assets in the separate accounts.
D. FEDERAL INCOME TAX WITHHOLDING
The portion of a distribution which is taxable income to the recipient will
be subject to federal income tax withholding, pursuant to Section 3405 of the
Code. The application of this provision is summarized below:
1. NON-PERIODIC DISTRIBUTIONS.
The portion of a non-periodic distribution which constitutes taxable income
will be subject to federal income tax withholding unless the recipient elects
not to have taxes withheld. If an election not to have taxes withheld is not
provided, 10% of the taxable distribution will be withheld as federal income
tax. Election forms will be provided at the time distributions are requested. If
the necessary election forms are not submitted to Hartford, Hartford will
automatically withhold 10% of the taxable distribution.
2. PERIODIC DISTRIBUTIONS (DISTRIBUTIONS PAYABLE OVER A PERIOD GREATER THAN ONE
YEAR).
The portion of a periodic distribution which constitutes taxable income will
be subject to federal income tax withholding as if the recipient were married
claiming three exemptions. A recipient may elect not to have income taxes
withheld or have income taxes withheld at a different rate by providing a
completed election form. Election forms will be provided at the time
distributions are requested.
E. GENERAL PROVISIONS AFFECTING
QUALIFIED RETIREMENT PLANS
The Contract may be used for a number of qualified retirement plans. If the
Contract is being purchased with respect to some form of qualified retirement
plan, please refer to Appendix I commencing on page 26 for information relative
to the types of plans for which it may be used and the general explanation of
the tax features of such plans.
F. ANNUITY PURCHASES BY NONRESIDENT
ALIENS AND FOREIGN CORPORATIONS
The discussion above provides general information regarding U.S. federal
income tax consequences to annuity purchasers that are U.S. citizens or
residents. Purchasers that are not U.S. citizens or residents will generally be
subject to U.S. federal income tax and withholding on annuity distributions at a
30% rate, unless a lower treaty rate applies. In addition, purchasers may be
subject to state premium tax, other state and/or municipal taxes, and taxes that
may be imposed by the purchaser's country of citizenship or residence.
Prospective purchasers are advised to consult with a qualified tax adviser
regarding U.S., state, and foreign taxation with respect to an annuity purchase.
MISCELLANEOUS
HOW CONTRACTS ARE SOLD
Hartford Securities Distribution Company, Inc. ("HSD") serves as Principal
Underwriter for the securities
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HARTFORD LIFE INSURANCE COMPANY 25
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issued with respect to the Separate Account. HSD is a wholly-owned subsidiary of
Hartford. The principal business address of HSD is the same as that of Hartford.
The securities will be sold by salespersons of HSD who represent Hartford as
insurance and variable annuity agents and who are registered representatives of
broker-dealers who have entered into distribution agreements with HSD.
HSD is registered with the Commission under the Securities Exchange Act of
1934 as a broker-dealer and is a member of the National Association of
Securities Dealers, Inc.
Broker-dealers or financial institutions are compensated according to a
schedule set forth by HSD and any applicable rules or regulations for variable
insurance compensation. Compensation is generally based on premium payments made
by policyholders or contract owners. This compensation is usually paid from the
sales charges described in this Prospectus.
In addition, a broker-dealer or financial institution may also receive
additional compensation for, among other things, training, marketing or other
services provided. HSD, its affiliates or Hartford may also make compensation
arrangements with certain broker-dealers or financial institutions based on
total sales by the broker-dealer or financial institution of insurance products.
These payments, which may be different for different broker-dealers or financial
institutions, will be made by HSD, its affiliates or Hartford out of their own
assets and will not effect the amounts paid by the policyholders or contract
owners to purchase, hold or surrender variable insurance products.
The Contract may be sold directly to certain individuals under certain
circumstances that do not involve payment of any sales compensation to a
registered representative. In such case, Hartford will credit the Contract with
an additional 5.0% of the premium payment. This additional percentage of premium
payment in no way affects present or future charges, rights, benefits or current
values of other Contract Owners. The following class of individuals are eligible
for this feature: (1) current or retired officers, directors, trustees and
employees (and their families) of the ultimate parent and affiliates of
Hartford; and (2) employees and registered representatives (and their families)
of registered broker-dealers (or financial institutions affiliated therewith)
that have a sales agreement with Hartford and its principal underwriter to sell
the Contracts.
LEGAL MATTERS AND EXPERTS
There are no material legal proceedings pending to which the Separate
Account is a party.
Counsel with respect to federal laws and regulations applicable to the issue
and sale of the Contracts and with respect to Connecticut law is Lynda Godkin,
Senior Vice President, General Counsel and Corporate Secretary, Hartford Life,
P.O. Box 2999, Hartford, Connecticut 06104-2999.
The audited financial statements and financial statement schedules included
in this Prospectus and elsewhere in the registration statement have been audited
by Arthur Andersen LLP, independent public accountants, as indicated in their
reports with respect thereto, and are included herein in reliance upon the
authority of said firm as experts in giving said reports. The principal business
address of Arthur Andersen LLP is One Financial Plaza, Hartford, Connecticut
06103.
ADDITIONAL INFORMATION
Inquiries will be answered by calling your representative or by writing:
Hartford Life Insurance Company
Attn: Individual Annuity Services
P.O. Box 5085
Hartford, Connecticut 06102-5085.
Telephone: (800) 862-6668 (Contract Owners)
(800) 862-7155 (Investment Consultants)
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26 HARTFORD LIFE INSURANCE COMPANY
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APPENDIX I
INFORMATION REGARDING TAX-QUALIFIED RETIREMENT PLANS
The tax rules applicable to tax qualified contract owners, including
restrictions on contributions and distributions, taxation of distributions and
tax penalties, vary according to the type of plan as well as the terms and
conditions of the plan itself. Various tax penalties may apply to contributions
in excess of applicable limits, distributions prior to age 59 1/2 (subject to
certain exceptions), distributions which do not conform to applicable
commencement and minimum distribution rules, and certain other transactions with
respect to tax-qualified plans. Therefore, this summary does not attempt to
provide more than general information about the tax rules associated with use of
a Contract by a tax-qualified retirement plan. Contract owners, plan
participants and beneficiaries are cautioned that the rights and benefits of any
person to benefits may be controlled by the terms and conditions of the
tax-qualified retirement plan itself, regardless of the terms and conditions of
a Contract, but that Hartford is not bound by the terms and conditions of such
plans to the extent such terms conflict with a Contract, unless Hartford
specifically consents to be bound. Additionally, some tax-qualified retirement
plans are subject to distribution and other requirements which are not
incorporated into Hartford's administrative procedures. Contract Owners,
participants and beneficiaries are responsible for determining that
contributions, distributions and other transactions comply with applicable law.
Because of the complexity of these rules, owners, participants and beneficiaries
are encouraged to consult their own tax advisors as to specific tax
consequences.
A. TAX-QUALIFIED PENSION OR
PROFIT-SHARING PLANS
Provisions of the Code permit eligible employers to establish tax-qualified
pension or profit sharing plans (described in Section 401(a) and 401(k), if
applicable, and exempt from taxation under Section 501(a) of the Code), and
Simplified Employee Pension Plans (described in Section 408(k)). Such plans are
subject to limitations on the amount that may be contributed, the persons who
may be eligible to participate and the time when distributions must commence.
Employers intending to use these contracts in connection with tax-qualified
pension or profit-sharing plans should seek competent tax and other legal
advice.
B. TAX SHELTERED ANNUITIES
UNDER SECTION 403(B)
Section 403(b) of the Code permits public school employees and employees of
certain types of charitable, educational and scientific organizations, as
specified in Section 501(c)(3) of the Code, to purchase annuity contracts, and,
subject to certain limitations, to exclude such contributions from gross income.
Generally, such contributions may not exceed the lesser of $10,000 (indexed) or
20% of an employee's "includable compensation" for such employee's most recent
full year of employment, subject to other adjustments. Special provisions under
the Code may allow some employees to elect a different overall limitation.
Tax-sheltered annuity programs under Section 403(b) are subject to a
PROHIBITION AGAINST DISTRIBUTIONS FROM THE CONTRACT ATTRIBUTABLE TO
CONTRIBUTIONS MADE PURSUANT TO A SALARY REDUCTION AGREEMENT unless such
distribution is made:
(1) after the participating employee attains age 59 1/2;
(2) upon separation from service;
(3) upon death or disability; or
(4) in the case of hardship (and in the case of hardship, any income
attributable to such contributions may not be distributed).
Generally, the above restrictions do not apply to distributions attributable
to cash values or other amounts held under a Section 403(b) contract as of
December 31, 1988.
C. DEFERRED COMPENSATION PLANS
UNDER SECTION 457
Employees and independent contractors performing services for eligible
governmental or other tax-exempt employers may have contributions made to an
Eligible Deferred Compensation Plan of their employer in accordance with the
employer's plan and Section 457 of the Code. Section 457 places limitations on
contributions to Eligible Deferred Compensation Plans maintained by a State or
other tax-exempt organization. For these purposes, the term "State" means a
State, a political sub-division of a State, and an agency or instrumentality of
a State or political sub-division of a State. Generally, the limitation is
33 1/3% of includable compensation (typically 25% of gross compensation) or for
1998, $8,000 (indexed), whichever is less. Such a plan may also provide for
additional "catch-up" deferrals during the three taxable years ending before a
Participant attains normal retirement age.
An employee electing to participate in an Eligible Deferred Compensation
Plan should understand that his or her rights and benefits are governed strictly
by the terms of the plan and that the employer is the legal owner of any
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HARTFORD LIFE INSURANCE COMPANY 27
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contract issued with respect to the plan. The employer, as owner of the
contract(s), retains all voting and redemption rights which may accrue to the
contract(s) issued with respect to the plan. The participating employee should
look to the terms of his or her plan for any charges in regard to participating
therein other than those disclosed in this Prospectus. Participants should also
be aware that effective August 20, 1996, the Small Business Job Protection Act
of 1996 requires that all assets and income of an Eligible Deferred Compensation
Plan established by a governmental employer which is a State, a political
subdivision of a State, or any agency or instrumentality of a State or political
subdivision of a State, must be held in trust (or under certain specified
annuity contracts or custodial accounts) for the exclusive benefit of
participants and their beneficiaries. Special transition rules apply to such
governmental eligible govermental Deferred Compensation Plans already in
existence on August 20, 1996, and provide that such plans need not establish a
trust before January 1, 1999. However, this requirement of a trust does not
apply to amounts under an Eligible Deferred Compensation Plan of a tax-exempt
(non-governmental) organization and such amounts will be subject to the claims
of such tax-exempt employer's general creditors.
In general, distributions from an Eligible Deferred Compensation Plan are
prohibited under Section 457 of the Code unless made after the participating
employee attains age 70 1/2, separates from service, dies, or suffers an
unforeseeable financial emergency. Present federal tax law does not allow
tax-free transfers or rollovers for amounts accumulated in a Section 457 plan
except for transfers to other Section 457 plans in limited cases.
D. INDIVIDUAL RETIREMENT ANNUITIES
UNDER SECTION 408
Section 408 of the Code permits eligible individuals to establish individual
retirement programs through the purchase of Individual Retirement Annuities
("IRAs"). IRAs are subject to limitations on the amount that may be contributed,
the contributions that may be deducted from taxable income, the persons who may
be eligible and the time when distributions may commence. Also, distributions
from certain qualified plans may be "rolled-over" on a tax-deferred basis into
an IRA.
The Contracts may be offered as SIMPLE IRAs in connection with a SIMPLE IRA
plan of an employer. Special rollover rules apply to SIMPLE IRAs. Amounts can be
rolled over from one SIMPLE IRA to another SIMPLE IRA. However, amounts can be
rolled over from a SIMPLE IRA to a regular IRA only after two years have expired
since the participant first commenced participation in your employer's SIMPLE
IRA plan. Amounts cannot be rolled over to a SIMPLE IRA from a qualified plan or
a regular IRA. Hartford is a non-designated financial institution.
Beginning in 1998, the Contracts may be offered as ROTH IRAs under Section
408A of the Code. Contributions to a ROTH IRA are not deductible. Subject to
special limitations, a regular IRA may be converted into a Roth IRA or a
distribution from a regular IRA may be rolled over to a ROTH IRA. However, a
conversion or a rollover from a regular IRA to a ROTH IRA is not excludable from
gross income. If certain conditions are met, qualified distributions from a ROTH
IRA are tax-free.
E. FEDERAL TAX PENALTIES AND WITHHOLDING
Distributions from retirement plans are generally taxed under Section 72 of
the Code. Under these rules, a portion of each distribution may be excludable
from income. The excludable amount is the portion of the distribution which
bears the same ratio as the after-tax contributions bear to the expected return.
1. PREMATURE DISTRIBUTION
Distributions from an IRA or a tax-qualified plan before the Participant
attains age 59 1/2 are generally subject to an additional penalty tax equal to
10% of the taxable portion of the distribution. The 10% penalty does not apply
to distributions made after the employee's death, on account of disability, for
eligible medical expenses and distributions in the form of a life annuity and,
except in the case of an IRA, certain distributions after separation from
service after age 55. For these purposes, a life annuity means a scheduled
series of substantially equal periodic payments for the life or life expectancy
of the Participant (or the joint lives or life expectancies of the Participant
and Beneficiary).
In addition, effective for distributions made from an IRA after December 31,
1997, there is no such penalty tax on distributions that do not exceed the
amount of certain qualifying higher education expenses, as defined by Section
72(t)(7) of the Code, or which are qualified first-time home buyer distributions
meeting the requirements of Section 72(t)(8) of the Code.
If you are a participant in a SIMPLE IRA plan, you should be aware that the
10% penalty tax discussed above is increased to 25% with respect to non-exempt
premature distributions made from your SIMPLE IRA during the first two years
following the date you first commenced participation in any SIMPLE IRA plan of
your employer.
2. MINIMUM DISTRIBUTION TAX
If the amount distributed is less than the minimum required distribution for
the year, the Participant is subject to a 50% tax on the amount that was not
properly distributed.
An individual's interest in a tax-qualified retirement plan must generally
must be distributed, or begin to be distributed, not later than April 1 of the
calendar year
<PAGE>
28 HARTFORD LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
following the later of (i) the calendar year in which the individual attains age
70 1/2 or (ii) the calendar year in which the individual retires from service
with the employer sponsoring the plan ("required beginning date"). However, the
required beginning date for an individual who is a five (5) percent owner (as
defined in the Code), or who is the owner of an IRA, is April 1 of the calendar
year following the calendar year in which the individual attains age 70 1/2. The
entire interest of the Participant must be distributed beginning no later than
the required beginning date over a period which may not extend beyond a maximum
of the life expectancy of the Participant and a designated Beneficiary. Each
annual distribution must equal or exceed a "minimum distribution amount" which
is determined by dividing the account balance by the applicable life expectancy.
This account balance is generally based upon the account value as of the close
of business on the last day of the previous calendar year. In addition, minimum
distribution incidental benefit rules may require a larger annual distribution.
If an individual dies before reaching his or her required beginning date,
the individual's entire interest must generally be distributed within five years
of the individual's death. However, this rule will be deemed satisfied, if
distributions begin before the close of the calendar year following the
individual's death to a designated Beneficiary (or over a period not extending
beyond the life expectancy of the beneficiary). If the Beneficiary is the
individual's surviving spouse, distributions may be delayed until the individual
would have attained age 70 1/2.
If an individual dies after reaching his or her required beginning date or
after distributions have commenced, the individual's interest must generally be
distributed at least as rapidly as under the method of distribution in effect at
the time of the individual's death.
3. WITHHOLDING
In general, distributions from IRAs and plans described in Section 457 of
the Code are subject to regular wage withholding rules. Periodic distributions
from other tax-qualified retirement plans that are made for a specified period
of 10 or more years or for the life or life expectancy of the participant (or
the joint lives or life expectancies of the participant and the beneficiary) are
generally subject to federal income tax withholding as if the recipient were
married claiming three exemptions. The recipient of periodic distributions may
generally elect not to have withholding apply or to have income taxes withheld
at a different rate by providing a completed election form.
Other distributions from such other tax-qualified retirement plans are
generally subject to mandatory income tax withholding at the flat rate of 20%
unless such distributions are:
a) the non-taxable portion of the distribution;
b) required minimum distributions; or
c) direct transfer distributions.
Direct transfer distributions are direct payments to an IRA or to another
eligible retirement plan under Code section 401(a)(31).
<PAGE>
HARTFORD LIFE INSURANCE COMPANY 29
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
TO
STATEMENT OF ADDITIONAL INFORMATION
<TABLE>
<CAPTION>
SECTION
----------------------------------------------------------------------
<S> <C>
INTRODUCTION..........................................................
DESCRIPTION OF HARTFORD LIFE INSURANCE COMPANY........................
SAFEKEEPING OF ASSETS.................................................
INDEPENDENT PUBLIC ACCOUNTANTS........................................
DISTRIBUTION OF CONTRACTS.............................................
CALCULATION OF YIELD AND RETURN.......................................
PERFORMANCE COMPARISONS...............................................
FINANCIAL STATEMENTS..................................................
</TABLE>
<PAGE>
This form must be completed for all tax sheltered annuities.
SECTION 403(B)(11) ACKNOWLEDGMENT FORM
The Hartford variable annuity Contract which you have recently purchased is
subject to certain restrictions imposed by the Tax Reform Act of 1986.
Contributions to the Contract after December 31, 1988 and any increases in cash
value after December 31, 1988 may not be distributed to you unless you have:
a. attained age 59 1/2,
b. separated from service,
c. died, or
d. become disabled.
Distributions of post December 31, 1988 contributions (excluding any income
thereon) may also be made if you have experienced a financial hardship.
Also, there may be a 10% penalty tax for distributions made prior to age 59 1/2
because of financial hardship or separation from service.
Also, please be aware that your 403(b) Plan may also offer other financial
alternatives other than the Hartford variable annuity. Please refer to your
Plan.
Please complete the following and return to:
Hartford Life Insurance Company
Individual Annuity Services
P.O. Box 5085
Hartford, CT 06102-5085
Name of Contract Owner/Participant
- -------------------------------------------------------------------------
Address
- --------------------------------------------------------------------------------
City or Plan/School District
- --------------------------------------------------------------------------------
Date:
- --------------------------------------------------------------------------------
Contract No:
- --------------------------------------------------------------------------------
Signature:
- --------------------------------------------------------------------------------
<PAGE>
To Obtain a Statement of Additional Information, please complete the form
below and mail to:
Hartford Life Insurance Company
Attn: Individual Annuity Services
P.O. Box 5085
Hartford, CT 06102-5085
Please send a Statement of Additional Information for the Nations Variable
Annuity to me at the following address:
- ----------------------------------------------------
Name
- ------------------------------------------------------------
Address
- ------------------------------------------------------------
City/State Zip
Code
<PAGE>
PART B
STATEMENT OF ADDITIONAL INFORMATION
HARTFORD LIFE INSURANCE COMPANY
SEPARATE ACCOUNT TWO
This Statement of Additional Information is not a prospectus. The information
contained herein should be read in conjunction with the Prospectus.
To obtain a Prospectus, send a written request to Hartford Life Insurance
Company Attn: Individual Annuity Services, P.O. Box 5085, Hartford, CT
06102-5085.
Date of Prospectus: May 1, 1998
Date of Statement of Additional Information: May 1, 1998
<PAGE>
2
TABLE OF CONTENTS
SECTION PAGE
INTRODUCTION .................................................
DESCRIPTION OF HARTFORD LIFE INSURANCE COMPANY ..............
SAFEKEEPING OF ASSETS ........................................
INDEPENDENT PUBLIC ACCOUNTANTS ...............................
DISTRIBUTION OF CONTRACTS ....................................
CALCULATION OF YIELD AND RETURN ..............................
PERFORMANCE COMPARISONS ......................................
FINANCIAL STATEMENTS .........................................
<PAGE>
3
INTRODUCTION
The individual and group tax-deferred variable annuity Contracts described in
the Prospectus are designed to provide Annuity benefits to individuals who
have established or wish to establish retirement programs which may or may
not qualify for special federal income tax treatment. The Annuitant under
these Contracts may receive Annuity benefits in accordance with the Annuity
option selected and the retirement program, if any, under which the Contracts
have been purchased. Annuity payments under a Contract will begin on a
particular future date which may be selected at any time under the Contract
or automatically when the Annuitant reaches age 90. There are several
alternative annuity payment options available under the Contract (see
"Settlement Provisions," commencing on page 18).
The Premium Payments under a Contract, less any applicable Premium Taxes,
will be applied to the Separate Account and/or the Fixed Accumulation Feature.
Accordingly, the net Premium Payment under the Contract will be applied to
purchase interests in one or more of the Nations Balanced Assets Portfolio,
Nations Disciplined Equity Portfolio, Nations International Growth Portfolio,
Nations Managed Index Portfolio, Nations Managed SmallCap Index Portfolio,
Nations Value Portfolio, Nations Marsico Growth & Income Portfolio, Nations
Marsico Focused Equities Portfolio, Hartford Advisers Fund, Hartford Bond
Fund, Hartford Capital Appreciation Fund, Hartford Dividend and Growth Fund,
Hartford Money Market Fund, Hartford International Opportunities Fund, Hartford
Small Company Fund, and Hartford Stock Fund.
Shares of the Funds are purchased by the Separate Account without the
imposition of a sales charge. The value of a Contract depends on the value
of the shares of the Fund held by the Separate Account pursuant to that
Contract. As a result, the Contract Owner bears the investment risk since
market value of the shares may increase or decrease.
The Contracts provide that in the event the Annuitant dies before the
selected Annuity Commencement Date, the Contingent Annuitant will become the
Annuitant. If the Annuitant dies before the Annuity Commencement Date and
there is no designated Contingent Annuitant, or the Contingent Annuitant
predeceases the Annuitant, or if the Contract Owner dies before the Annuity
Commencement Date the Beneficiary will receive the Contract Value determined
on the date of receipt of due proof of death by Hartford Life Insurance
Company ("Hartford") at the Home Office. If, upon death prior to the Annuity
Commencement Date, the Annuitant or Contract Owner, as applicable, had not
attained his 90th birthday, the Beneficiary will receive the greater of (a)
the Contract Value determined as of the day Hartford receives written due
proof of death of such person, or (b) 100% of the total Premium Payments made
to such Contract, reduced by any prior surrenders, or (c) the Maximum
Anniversary Value immediately preceding the date of death established up to
age 80, adjusted for additions and surrenders. (See "Death Benefits"
commencing on page 16 of the Prospectus).
<PAGE>
4
DESCRIPTION OF HARTFORD LIFE INSURANCE COMPANY
Hartford Life Insurance Company is a stock life insurance company engaged
in the business of writing life insurance, both individual and group, in all
states of the United States and the District of Columbia. Hartford was
originally incorporated under the laws of Massachusetts on June 5, 1902, and
was subsequently redomiciled to Connecticut. Its offices are located in
Simsbury, Connecticut; however, its mailing address is P.O. Box 2999,
Hartford, CT 06104-2999. Hartford is ultimately controlled by The Hartford
Financial Services Group, Inc., one of the largest financial service
providers in the United States.
<TABLE>
<CAPTION>
HARTFORD RATINGS
RATING AGENCY EFFECTIVE RATING BASIS OF RATING
DATE OF RATING
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
A.M. Best and Company, Inc. 9/9/97 A+ Financial soundness and operating
performance.
- ---------------------------------------------------------------------------------------
Standard & Poor's 1/23/98 AA Claims paying ability
- ---------------------------------------------------------------------------------------
Duff & Phelps 1/23/98 AA+ Claims paying ability
- ---------------------------------------------------------------------------------------
</TABLE>
SAFEKEEPING OF ASSETS
Title to the assets of the Separate Account is held by Hartford. The assets are
kept physically segregated and are held separate and apart from Hartford's
general corporate assets. Records are maintained of all purchases and
redemptions of Fund shares held in each of the Sub-Accounts.
INDEPENDENT PUBLIC ACCOUNTANTS
The audited financial statements and financial statement schedules
included in this prospectus and elsewhere in the registration statement have
been audited by Arthur Andersen LLP, independent public accountants, as
indicated in their report with respect thereto, and are included herein in
reliance upon the authority of said firm as experts in giving said report.
<PAGE>
5
The principal business address of Arthur Andersen LLP is One Financial Plaza,
Hartford, Connecticut 06103.
DISTRIBUTION OF CONTRACTS
Hartford Securities Distribution Company, Inc. ("HSD") serves as principal
underwriter for the securities issued with respect to the Separate Account and
will offer the Contracts on a continuous basis.
HSD is a wholly-owned subsidiary of Hartford. The principal business address of
HSD is the same as Hartford.
The securities will be sold by salespersons of HSD, who represent Hartford as
insurance and Variable Annuity agents and who are registered representatives of
Broker-Dealers who have entered into distribution agreements with HSD.
HSD is registered with the Securities and Exchange Commission under the
Securities and Exchange Act of 1934 as a Broker-Dealer and is a member of the
National Association of Securities Dealers, Inc. ("NASD").
CALCULATION OF YIELD AND RETURN
YIELD OF THE MONEY MARKET FUND SUB-ACCOUNT. As summarized in the Prospectus
under the heading "Performance Related Information," the yield of the Money
Market Fund Sub-Account for a seven day period (the "base period") will be
computed by determining the "net change in value" (calculated as set forth
below) of a hypothetical account having a balance of one accumulation unit of
the Sub-Account at the beginning of the period, subtracting a hypothetical
charge reflecting deductions from Contract Owner accounts, and dividing the
difference by the value of the account at the beginning of the base period to
obtain the base period return, and then multiplying the base period return by
365/7 with the resulting yield figure carried to the nearest hundredth of one
percent. Net changes in value of a hypothetical account will include net
investment income of the account (accrued daily dividends as declared by the
underlying funds, less daily expense charges of the account) for the period,
but will not include realized gains or losses or unrealized appreciation or
depreciation on the underlying fund shares.
The effective yield is calculated by compounding the base period return by
adding 1, raising the sum to a power equal to 365 divided by 7 and
subtracting 1 from the result, according to the following formula:
Effective Yield = [(Base Period Return + 1)(365/7)] - 1
<PAGE>
6
THE MONEY MARKET FUND SUB-ACCOUNT'S YIELD AND EFFECTIVE YIELD WILL VARY IN
RESPONSE TO FLUCTUATIONS IN INTEREST RATES AND IN THE EXPENSES OF THE
SUB-ACCOUNT.
YIELDS OF BOND FUND SUB-ACCOUNT.
As summarized in the Prospectus under the heading "Performance Related
Information," yields of the Bond Fund Sub-Account will be computed by
annualizing a recent month's net investment income, divided by a Fund share's
net asset value on the last trading day of that month. Net changes in the
value of a hypothetical account will assume the change in the underlying
Fund's "net asset value per share" for the same period in addition to the
daily expense charge assessed, at the sub-account level for the respective
period. The Bond Fund Sub-Account's yield will vary from time to time
depending upon market conditions and the composition of the underlying Funds'
portfolios. Yield should also be considered relative to changes in the value
of the Sub-Accounts' shares and to the relative risks associated with the
investment objectives and policies of the Bond Fund.
The yield reflects recurring charges on the Separate Account level, including
the annual policy fee.
Yield calculations of the Bond Fund Sub-Account used for illustration
purposes reflect dividends and interest earned by the Sub-Account, less
applicable asset based charges assessed under the Contract over the base
period. Yield quotations based on a 30 day period are computed by dividing
the dividends and interests earned during the period by the maximum offering
price per unit on the last day of the period, according to the following
formula:
<PAGE>
7
Example:
Current Yield Formula for the Sub-Account 2[((A-B)/(CD) + 1)(6)- 1]
here A = Dividends and interest earned during the period.
B = Expenses accrued for the period (net of reimbursements).
C = The average daily number of units outstanding during the period that
were entitled to receive dividends.
D = The maximum offering price per unit on the last day of the period.
AT ANY TIME IN THE FUTURE, YIELDS AND TOTAL RETURN MAY BE HIGHER OR LOWER THAN
PAST YIELDS AND THERE CAN BE NO ASSURANCE THAT ANY HISTORICAL RESULTS WILL
CONTINUE.
CALCULATION OF TOTAL RETURN. As summarized in the Prospectus under the
heading "Performance Related Information," total return is a measure of the
change in value of an investment in a Sub-Account over the period covered.
The formula for total return used herein includes three steps: (1)
calculating the value of the hypothetical initial investment of $1,000 as of
the end of the period by multiplying the total number of units owned at the
end of the period by the unit value per unit on the last trading day of the
period; (2) assuming redemption at the end of the period and deducting any
applicable contingent deferred sales charge and (3) dividing this
<PAGE>
8
account value for the hypothetical investor by the initial $1,000
investment and annualizing the result for periods of less than one year.
Total return will be calculated for one year, five years and ten years or
some other relevant periods if a Sub-Account has not been in existence for at
least ten years.
<PAGE>
9
In addition to the standardized total return, the Sub-Account may advertise a
non-standardized total return. This figure will usually be calculated for
one year, five years, and ten years or other periods. Non-standardized total
return is measured in the same manner as the standardized total return
described above, except that the contingent deferred sales charge and the
Annual Maintenance Fee are not deducted. Therefore, non-standardized total
return for a Sub-Account is higher than standardized total return for a
Sub-Account.
PERFORMANCE COMPARISONS
YIELD AND TOTAL RETURN. Each Sub-Account may from time to time include its
total return in advertisements or in information furnished to present or
prospective shareholders. Each Sub-Account may from time to time include its
yield and total return in advertisements or information furnished to present or
prospective shareholders. Each Sub-Account may from time to time include in
advertisements its total return (and yield in the case of certain Sub-Accounts)
the ranking of those performance figures relative to such figures for groups of
other annuities analyzed by Lipper Analytical Services and Morningstar, Inc. as
having the same investment objectives.
The total return and yield may also be used to compare the performance of the
Sub-Accounts against certain widely acknowledged outside standards or indices
for stock and bond market
<PAGE>
10
performance. The Standard & Poor's Composite Index of 500 Stocks (the "S&P
500") is a market value-weighted and unmanaged index showing the changes in
the aggregate market value of 500 stocks relative to the base period 1941-43.
The S&P 500 is composed almost entirely of common stocks of companies listed
on the New York Stock Exchange, although the common stocks of a few companies
listed on the American Stock Exchange or traded over-the-counter are
included. The 500 companies represented include about 400 industrial, 60
transportation and 40 financial services concerns. The S&P 500 represents
about 80% of the market value of all issues traded on the New York Stock
Exchange.
The NASDAQ-OTC Composite Price Index (The "NASDAQ Index") is a market
value-weighted and unmanaged index showing the changes in the aggregate
market value of approximately 3,500 stocks relative to the base measure of
100.00 on February 5, 1971. The NASDAQ Index is composed entirely of common
stocks of companies traded over-the-counter and often through the National
Association of Securities Dealers Automated Quotations ("NASDAQ") system.
Only those over-the-counter stocks having only one market maker or traded on
exchanges are excluded.
The Morgan Stanley Capital International EAFE Index (the "EAFE Index") is an
unmanaged index, which includes over 1,000 companies representing the stock
markets of Europe, Australia, New Zealand, and the Far East. The EAFE Index
is weighted by market capitalization, and therefore, it has a heavy
representation in countries with large stock markets, such as Japan.
The Shearson Lehman Government Bond Index (the "SL Government Index") is a
measure of the market value of all public obligations of the U.S. Treasury; all
publicly issued debt of all agencies of the U.S. Government and all
quasi-federal corporations; and all corporate debt guaranteed by the U.S.
Government. Mortgage-backed securities, flower bonds and foreign targeted
issues are not included in the SL Government Index.
The Shearson Lehman Government/Corporate Bond Index (the "SL
Government/Corporate Index") is a measure of the market value of approximately
5,300 bonds with a face value currently in excess of $1.3 trillion. To be
included in the SL Government/Corporate Index, an issue must have amounts
outstanding in excess of $1 million, have at least one year to maturity and be
rated "Baa" or higher ("investment grade") by a nationally recognized rating
agency.
The Composite Index for Hartford Advisers Fund is comprised of the S&P 500
(55%), the Lehman Government/Corporate Bond Index (35%), both mentioned
above, and 90 Day U.S. Treasury Bills (10%).
<PAGE>
- --------------------------------------------------------------------------------
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 statement of assets and liabilities of Hartford
Life Insurance Company Separate Account Two (the Account) as of December 31,
1997, and the related statement of operations for the year then ended and
statements of changes in net assets for each of the two years in the period then
ended. 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 Hartford Life Insurance Company
Separate Account Two as of December 31, 1997, the results of its operations for
the year then ended and the changes in its net assets for each of the two years
in the period then ended in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Hartford, Connecticut
February 16, 1998
<PAGE>
This page intentionally left blank.
<PAGE>
- --------------------------------------------------------------------------------
SEPARATE ACCOUNT TWO
HARTFORD LIFE INSURANCE COMPANY
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1997
<TABLE>
<CAPTION>
MONEY
BOND FUND STOCK FUND MARKET FUND
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
------------ -------------- ------------
<S> <C> <C> <C>
ASSETS:
Investments:
Hartford Bond Fund, Inc.
Shares 233,750,856
Cost $ 239,212,290
Market Value....................................... $245,380,897 -- --
Hartford Stock Fund, Inc.
Shares 342,491,362
Cost $1,100,714,577
Market Value....................................... -- $1,754,695,243 --
HVA Money Market Fund, Inc.
Shares 267,032,906
Cost $ 267,032,906
Market Value....................................... -- -- $267,032,906
Hartford Advisers Fund, Inc.
Shares 1,464,839,883
Cost $2,548,538,776
Market Value....................................... -- -- --
Hartford Capital Appreciation Fund, Inc.
Shares 393,201,702
Cost $1,191,518,665
Market Value....................................... -- -- --
Hartford Mortgage Securities Fund, Inc.
Shares 176,335,636
Cost $ 190,215,927
Market Value....................................... -- -- --
Hartford Index Fund, Inc.
Shares 142,876,568
Cost $ 270,370,922
Market Value....................................... -- -- --
Hartford International Opportunities Fund, Inc.
Shares 303,637,818
Cost $ 352,424,043
Market Value....................................... -- -- --
Hartford Dividend and Growth Fund, Inc.
Shares 342,782,937
Cost $ 502,839,651
Market Value....................................... -- -- --
Due from Hartford Life Insurance Company............. 509,273 3,595 34,153,395
Receivable from fund shares sold..................... 239 13,285,824 4
------------ -------------- ------------
Total Assets......................................... 245,890,409 1,767,984,662 301,186,305
------------ -------------- ------------
LIABILITIES:
Due to Hartford Life Insurance Company............... 240 13,285,750 74
Payable for fund shares purchased.................... 509,402 3,595 34,148,202
------------ -------------- ------------
Total Liabilities.................................... 509,642 13,289,345 34,148,276
------------ -------------- ------------
Net Assets (variable annuity contract liabilities)... $245,380,767 $1,754,695,317 $267,038,029
------------ -------------- ------------
------------ -------------- ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CAPITAL MORTGAGE
ADVISERS FUND APPRECIATION FUND SECURITIES FUND INDEX FUND
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
-------------- ----------------- --------------- ------------
<S> <C> <C> <C> <C>
ASSETS:
Investments:
Hartford Bond Fund, Inc.
Shares 233,750,856
Cost $ 239,212,290
Market Value....................................... -- -- -- --
Hartford Stock Fund, Inc.
Shares 342,491,362
Cost $1,100,714,577
Market Value....................................... -- -- -- --
HVA Money Market Fund, Inc.
Shares 267,032,906
Cost $ 267,032,906
Market Value....................................... -- -- -- --
Hartford Advisers Fund, Inc.
Shares 1,464,839,883
Cost $2,548,538,776
Market Value....................................... $3,701,278,316 -- -- --
Hartford Capital Appreciation Fund, Inc.
Shares 393,201,702
Cost $1,191,518,665
Market Value....................................... -- $1,733,908,230 -- --
Hartford Mortgage Securities Fund, Inc.
Shares 176,335,636
Cost $ 190,215,927
Market Value....................................... -- -- $191,109,211 --
Hartford Index Fund, Inc.
Shares 142,876,568
Cost $ 270,370,922
Market Value....................................... -- -- -- $411,157,188
Hartford International Opportunities Fund, Inc.
Shares 303,637,818
Cost $ 352,424,043
Market Value....................................... -- -- -- --
Hartford Dividend and Growth Fund, Inc.
Shares 342,782,937
Cost $ 502,839,651
Market Value....................................... -- -- -- --
Due from Hartford Life Insurance Company............. 452,648 7,173 99,310 --
Receivable from fund shares sold..................... 549 13,688,014 142,887 6,849,126
-------------- ----------------- --------------- ------------
Total Assets......................................... 3,701,731,513 1,747,603,417 191,351,408 418,006,314
-------------- ----------------- --------------- ------------
LIABILITIES:
Due to Hartford Life Insurance Company............... 434 13,688,077 144,327 6,850,498
Payable for fund shares purchased.................... 459,485 7,172 93,430 --
-------------- ----------------- --------------- ------------
Total Liabilities.................................... 459,919 13,695,249 237,757 6,850,498
-------------- ----------------- --------------- ------------
Net Assets (variable annuity contract liabilities)... $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>
ASSETS:
Investments:
Hartford Bond Fund, Inc.
Shares 233,750,856
Cost $ 239,212,290
Market Value....................................... -- --
Hartford Stock Fund, Inc.
Shares 342,491,362
Cost $1,100,714,577
Market Value....................................... -- --
HVA Money Market Fund, Inc.
Shares 267,032,906
Cost $ 267,032,906
Market Value....................................... -- --
Hartford Advisers Fund, Inc.
Shares 1,464,839,883
Cost $2,548,538,776
Market Value....................................... -- --
Hartford Capital Appreciation Fund, Inc.
Shares 393,201,702
Cost $1,191,518,665
Market Value....................................... -- --
Hartford Mortgage Securities Fund, Inc.
Shares 176,335,636
Cost $ 190,215,927
Market Value....................................... -- --
Hartford Index Fund, Inc.
Shares 142,876,568
Cost $ 270,370,922
Market Value....................................... -- --
Hartford International Opportunities Fund, Inc.
Shares 303,637,818
Cost $ 352,424,043
Market Value....................................... $393,046,097 --
Hartford Dividend and Growth Fund, Inc.
Shares 342,782,937
Cost $ 502,839,651
Market Value....................................... -- $ 669,224,723
Due from Hartford Life Insurance Company............. 3,770 1,032,701
Receivable from fund shares sold..................... 108,721 182
------------------ -------------
Total Assets......................................... 393,158,588 670,257,606
------------------ -------------
LIABILITIES:
Due to Hartford Life Insurance Company............... 109,361 147
Payable for fund shares purchased.................... 3,769 1,033,593
------------------ -------------
Total Liabilities.................................... 113,130 1,033,740
------------------ -------------
Net Assets (variable annuity contract liabilities)... $393,045,458 $ 669,223,866
------------------ -------------
------------------ -------------
</TABLE>
<PAGE>
SEPARATE ACCOUNT TWO
HARTFORD LIFE INSURANCE COMPANY
STATEMENT OF ASSETS AND LIABILITIES -- (CONTINUED)
DECEMBER 31, 1997
<TABLE>
<CAPTION>
INTERNATIONAL SMALL
ADVISERS FUND COMPANY FUND
SUB-ACCOUNT SUB-ACCOUNT
------------- ------------
<S> <C> <C>
ASSETS:
Investments:
Hartford International Advisers Fund, Inc.
Shares 48,879,214
Cost $56,417,985
Market Value....................................... $57,422,859 --
Hartford Small Company Fund, Inc.
Shares 59,385,385
Cost $69,986,701
Market Value....................................... -- $71,393,763
Hartford MidCap Fund, Inc.
Shares 8,067,718
Cost $ 8,836,979
Market Value....................................... -- --
Smith Barney Cash Portfolio
Shares 507,910
Cost $ 507,910
Market Value....................................... -- --
Smith Barney Appreciation Fund
Shares 12,256
Cost $ 87,371
Market Value....................................... -- --
Smith Barney Government Portfolio
Shares 37,076
Cost $ 37,076
Market Value....................................... -- --
BB&T Growth & Income Fund
Shares 545,238
Cost $ 6,067,937
Market Value....................................... -- --
AmSouth Equity Income Fund
Shares 233,814
Cost $ 2,359,717
Market Value....................................... -- --
Dividend Receivable.................................. -- --
Due from Hartford Life Insurance Company............. 25,458 175,566
Receivable from fund shares sold..................... 9 16
------------- ------------
Total Assets......................................... 57,448,326 71,569,345
------------- ------------
LIABILITIES:
Due to Hartford Life Insurance Company............... 8 19
Payable for fund shares purchased.................... 25,945 175,691
------------- ------------
Total Liabilities.................................... 25,953 175,710
------------- ------------
Net Assets (variable annuity contract liabilities)... $57,422,373 $71,393,635
------------- ------------
------------- ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
<TABLE>
<CAPTION>
SMITH BARNEY
SMITH BARNEY SMITH BARNEY GOVERNMENT
MIDCAP FUND CASH PORTFOLIO APPRECIATION FUND PORTFOLIO
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
----------- ------------------- ----------------- --------------
<S> <C> <C> <C> <C>
ASSETS:
Investments:
Hartford International Advisers Fund, Inc.
Shares 48,879,214
Cost $56,417,985
Market Value....................................... -- -- -- --
Hartford Small Company Fund, Inc.
Shares 59,385,385
Cost $69,986,701
Market Value....................................... -- -- -- --
Hartford MidCap Fund, Inc.
Shares 8,067,718
Cost $ 8,836,979
Market Value....................................... $9,173,875 -- -- --
Smith Barney Cash Portfolio
Shares 507,910
Cost $ 507,910
Market Value....................................... -- $507,912 -- --
Smith Barney Appreciation Fund
Shares 12,256
Cost $ 87,371
Market Value....................................... -- -- $170,562 --
Smith Barney Government Portfolio
Shares 37,076
Cost $ 37,076
Market Value....................................... -- -- -- $37,076
BB&T Growth & Income Fund
Shares 545,238
Cost $ 6,067,937
Market Value....................................... -- -- -- --
AmSouth Equity Income Fund
Shares 233,814
Cost $ 2,359,717
Market Value....................................... -- -- -- --
Dividend Receivable.................................. -- 1,205 -- 96
Due from Hartford Life Insurance Company............. 48,940 26,690 -- --
Receivable from fund shares sold..................... 1 162 120 24
----------- -------- -------- -------
Total Assets......................................... 9,222,816 535,969 170,682 37,196
----------- -------- -------- -------
LIABILITIES:
Due to Hartford Life Insurance Company............... 1 200 109 32
Payable for fund shares purchased.................... 48,925 26,757 -- --
----------- -------- -------- -------
Total Liabilities.................................... 48,926 26,957 109 32
----------- -------- -------- -------
Net Assets (variable annuity contract liabilities)... $9,173,890 $509,012 $170,573 $37,164
----------- -------- -------- -------
----------- -------- -------- -------
<CAPTION>
BB&T AMSOUTH
GROWTH AND EQUITY
INCOME FUND INCOME FUND
SUB-ACCOUNT SUB-ACCOUNT
----------- -------------
<S> <C> <C>
ASSETS:
Investments:
Hartford International Advisers Fund, Inc.
Shares 48,879,214
Cost $56,417,985
Market Value....................................... -- --
Hartford Small Company Fund, Inc.
Shares 59,385,385
Cost $69,986,701
Market Value....................................... -- --
Hartford MidCap Fund, Inc.
Shares 8,067,718
Cost $ 8,836,979
Market Value....................................... -- --
Smith Barney Cash Portfolio
Shares 507,910
Cost $ 507,910
Market Value....................................... -- --
Smith Barney Appreciation Fund
Shares 12,256
Cost $ 87,371
Market Value....................................... -- --
Smith Barney Government Portfolio
Shares 37,076
Cost $ 37,076
Market Value....................................... -- --
BB&T Growth & Income Fund
Shares 545,238
Cost $ 6,067,937
Market Value....................................... $6,477,421 --
AmSouth Equity Income Fund
Shares 233,814
Cost $ 2,359,717
Market Value....................................... -- $2,391,912
Dividend Receivable.................................. -- --
Due from Hartford Life Insurance Company............. 11,400 6,464
Receivable from fund shares sold..................... -- --
----------- -------------
Total Assets......................................... 6,488,821 2,398,376
----------- -------------
LIABILITIES:
Due to Hartford Life Insurance Company............... -- --
Payable for fund shares purchased.................... 11,401 6,460
----------- -------------
Total Liabilities.................................... 11,401 6,460
----------- -------------
Net Assets (variable annuity contract liabilities)... $6,477,420 $2,391,916
----------- -------------
----------- -------------
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
SEPARATE ACCOUNT TWO
HARTFORD LIFE INSURANCE COMPANY
STATEMENT OF ASSETS AND LIABILITIES -- (CONTINUED)
DECEMBER 31, 1997
<TABLE>
<CAPTION>
UNITS
OWNED BY UNIT CONTRACT
PARTICIPANTS PRICE LIABILITY
------------- --------- --------------
DEFERRED ANNUITY CONTRACTS IN THE ACCUMULATION
PERIOD:
<S> <C> <C> <C>
INDIVIDUAL SUB-ACCOUNTS:
Bond Fund Qualified 1.00%....................... 276,322 $ 4.084713 $ 1,128,696
Bond Fund Non-Qualified 1.00%................... 1,879,248 4.022607 7,559,476
Bond Fund 1.25%................................. 111,586,155 2.113753 235,865,570
Bond Fund .25%.................................. 57,428 1.421542 81,636
Stock Fund Qualified 1.00%...................... 848,097 8.882260 7,533,018
Stock Fund Non-Qualified 1.00%.................. 3,172,838 8.493415 26,948,230
Stock Fund 1.25%................................ 372,753,860 4.601624 1,715,273,108
Stock Fund .25%................................. 1,113,935 2.442242 2,720,499
Money Market Fund Qualified 1.00%............... 979,465 2.570693 2,517,904
Money Market Fund Non-Qualified 1.00%........... 12,009,970 2.571915 30,888,622
Money Market Fund 1.25%......................... 140,796,551 1.650311 232,358,097
Money Market Fund .25%.......................... 412,812 1.237665 510,923
Advisers Fund Qualified 1.00%................... 3,353,386 5.351192 17,944,612
Advisers Fund Non-Qualified 1.00%............... 11,223,033 5.351192 60,056,604
Advisers Fund 1.25%............................. 1,012,471,703 3.572368 3,616,921,513
Advisers Fund .25%.............................. 1,064,392 2.012508 2,142,097
Capital Appreciation Fund Qualified 1.00%....... 858,728 8.154392 7,002,405
Capital Appreciation Fund Non-Qualified 1.00%... 2,279,033 8.150600 18,575,486
Capital Appreciation Fund 1.25%................. 351,188,619 4.845288 1,701,610,001
Capital Appreciation Fund .25%.................. 2,365,382 2.354942 5,570,337
Mortgage Securities Fund Qualified 1.00%........ 694,613 2.692454 1,870,214
Mortgage Securities Fund Non-Qualified 1.00%.... 6,914,379 2.692454 18,616,647
Mortgage Securities Fund 1.25%.................. 81,142,537 2.097829 170,223,167
Mortgage Securities Fund .25%................... 15,250 1.370090 20,891
Index Fund 1.00%................................ 102,566 1.472201 150,998
Index Fund Non-Qualified 1.00%.................. 557,157 1.472201 820,247
Index Fund 1.25%................................ 109,836,846 3.726058 409,258,459
Index Fund .25%................................. 216,268 2.411839 521,604
International Opportunities Fund Qualified
1.00%.......................................... 314,039 1.496781 470,048
International Opportunities Fund Non-Qualified
1.00%.......................................... 1,518,024 1.496728 2,272,069
International Opportunities Fund 1.25%.......... 264,642,015 1.468965 388,749,858
International Opportunities Fund .25%........... 733,875 1.660294 1,218,449
Dividend and Growth Fund Qualified 1.00%........ 390,646 2.169750 847,604
Dividend and Growth Fund Non-Qualified 1.00%.... 1,710,116 2.169750 3,710,524
Dividend and Growth Fund 1.25%.................. 308,682,099 2.149172 663,410,924
Dividend and Growth Fund .25%................... 268,881 2.232593 600,302
International Advisers Fund Sub-Account 1.00%... 37,492 1.328248 49,796
International Advisers Fund Non-Qualified
1.00%.......................................... 223,145 1.328248 296,392
International Advisers Fund 1.25%............... 43,216,995 1.318862 56,997,252
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
UNITS
OWNED BY UNIT CONTRACT
PARTICIPANTS PRICE LIABILITY
------------- --------- --------------
INDIVIDUAL SUB-ACCOUNTS -- (CONTINUED)
<S> <C> <C> <C>
International Advisers Fund .25%................ 39,807 $ 1.356789 $ 54,010
Hartford Small Company 1.00%.................... 99,533 1.250966 124,512
Hartford Small Company Non-Qualified 1.00%...... 377,483 1.250966 472,218
Hartford Small Company 1.25%.................... 56,706,183 1.246631 70,691,687
Hartford Small Company .25%..................... 48,170 1.264068 60,890
MidCap Fund Sub-Account 1.00% Qualified......... 12,789 1.098000 14,042
MidCap Fund Sub-Account 1.00% Non-Qualified..... 34,465 1.098000 37,843
MidCap Fund Sub-Account 1.25%................... 8,305,640 1.096832 9,109,892
MidCap Fund Sub-Account 1.00% Qualified......... 10,996 1.101485 12,113
Smith Barney Shearson Daily Dividend, Inc.
Qualified 1.00%................................ 53,613 2.777393 148,906
Smith Barney Shearson Daily Dividend, Inc.
Non-Qualified 1.00%............................ 125,291 2.874151 360,106
Smith Barney Shearson Appreciation Fund, Inc.
Qualified 1.00%................................ 18,335 9.303319 170,573
Smith Barney Shearson Gov't and Agencies, Inc.
Qualified 1.00%................................ 14,846 2.503304 37,164
BB&T Growth and Income Fund Sub-Account......... 5,443,658 1.189902 6,477,420
Am South Fund Sub-Account 1.00% Qualified....... 2,337,620 1.023227 2,391,916
--------------
TOTAL ACCUMULATION PERIOD......................... 9,503,477,571
--------------
ANNUITY CONTRACTS IN THE ANNUITY PERIOD:
INDIVIDUAL SUB-ACCOUNTS:
Bond Fund Non-Qualified 1.00%................... 14,968 4.022607 60,210
Bond Fund 1.25%................................. 324,152 2.113753 685,179
Stock Fund Non-Qualified 1.00%.................. 11,832 8.493415 100,494
Stock Fund 1.25%................................ 460,700 4.601624 2,119,968
Money Market Fund Qualified 1.00%............... 11,497 2.570693 29,553
Money Market Fund Non-Qualified 1.00%........... 75,465 2.571915 194,090
Money Market Fund 1.25%......................... 326,508 1.650311 538,840
Advisers Fund Qualified 1.00%................... 3,304 5.351192 17,680
Advisers Fund Non-Qualified 1.00%............... 57,148 5.351192 305,810
Advisers Fund 1.25%............................. 1,087,032 3.572368 3,883,278
Capital Appreciation Fund Non-Qualified 1.00%... 2,576 8.150600 20,996
Capital Appreciation Fund 1.25%................. 232,998 4.845288 1,128,942
Mortgage Securities Fund Non-Qualified 1.00%.... 72,723 2.692454 195,803
Mortgage Securities Fund 1.25%.................. 89,106 2.097829 186,929
Index Fund 1.25%................................ 108,562 3.726058 404,508
International Opportunities Fund 1.25%.......... 228,075 1.468965 335,034
Dividend and Growth Fund 1.25%.................. 304,541 2.149172 654,512
International Advisers Fund 1.25%............... 18,897 1.318862 24,923
Hartford Small Company 1.25%.................... 35,558 1.246631 44,328
--------------
TOTAL ANNUITY PERIOD.............................. 10,931,077
--------------
GRAND TOTAL....................................... $9,514,408,648
--------------
--------------
</TABLE>
<PAGE>
SEPARATE ACCOUNT TWO
HARTFORD LIFE INSURANCE COMPANY
STATEMENT OF OPERATIONS
DECEMBER 31, 1997
<TABLE>
<CAPTION>
MONEY
BOND FUND STOCK FUND MARKET FUND
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
----------- ------------ -----------
<S> <C> <C> <C>
INVESTMENT INCOME:
Dividends............................................ $12,961,364 $ 16,077,936 $13,797,570
EXPENSES:
Mortality and expense undertakings................... (2,612,230) (18,967,977) (3,238,151)
----------- ------------ -----------
Net investment income (loss)....................... 10,349,134 (2,890,041) 10,559,419
----------- ------------ -----------
CAPITAL GAINS INCOME................................... -- 64,909,605 --
----------- ------------ -----------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
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 gain (loss) on investments..................... 10,136,980 316,914,280 --
----------- ------------ -----------
Net increase (decrease) in net assets resulting
from operations................................... $20,486,114 $378,933,844 $10,559,419
----------- ------------ -----------
----------- ------------ -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
<TABLE>
<CAPTION>
U.S. GOVERNMENT CAPITAL MORTGAGE
ADVISERS FUND MONEY MARKET FUND APPRECIATION FUND SECURITIES FUND
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
------------- ----------------- ----------------- ---------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends............................................ $ 77,714,905 $2,646 $ 8,543,668 $11,347,408
EXPENSES:
Mortality and expense undertakings................... (41,311,784) (627) (19,474,176) (2,333,945)
------------- ------ ----------------- ---------------
Net investment income (loss)....................... 36,403,121 2,019 (10,930,508) 9,013,463
------------- ------ ----------------- ---------------
CAPITAL GAINS INCOME................................... 129,600,221 -- 103,244,397 --
------------- ------ ----------------- ---------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain (loss) on security transactions.... 2,159,454 -- 413,746 28,917
Net unrealized appreciation (depreciation) of
investments during
the period.......................................... 501,068,905 -- 190,913,008 5,074,541
------------- ------ ----------------- ---------------
Net gain (loss) on investments..................... 503,228,359 -- 191,326,754 5,103,458
------------- ------ ----------------- ---------------
Net increase (decrease) in net assets resulting
from operations................................... $ 669,231,701 $2,019 $283,640,643 $14,116,921
------------- ------ ----------------- ---------------
------------- ------ ----------------- ---------------
<CAPTION>
INTERNATIONAL DIVIDEND AND
INDEX FUND OPPORTUNITIES FUND GROWTH FUND
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
----------- ------------------ ------------
<S> <C> <C> <C>
INVESTMENT INCOME:
Dividends............................................ $ 4,750,804 $ 3,651,850 $ 9,408,629
EXPENSES:
Mortality and expense undertakings................... (4,257,897) (5,181,012) (6,174,075)
----------- ------------------ ------------
Net investment income (loss)....................... 492,907 (1,529,162) 3,234,554
----------- ------------------ ------------
CAPITAL GAINS INCOME................................... 21,612,566 29,748,890 9,959,170
----------- ------------------ ------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain (loss) on security transactions.... 243,148 29,653 (4,003)
Net unrealized appreciation (depreciation) of
investments during
the period.......................................... 65,120,869 (32,127,237) 111,067,791
----------- ------------------ ------------
Net gain (loss) on investments..................... 65,364,017 (32,097,584) 111,063,788
----------- ------------------ ------------
Net increase (decrease) in net assets resulting
from operations................................... $87,469,490 $ (3,877,856) $124,257,512
----------- ------------------ ------------
----------- ------------------ ------------
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
SEPARATE ACCOUNT TWO
HARTFORD LIFE INSURANCE COMPANY
STATEMENT OF OPERATIONS -- (CONTINUED)
DECEMBER 31, 1997
<TABLE>
<CAPTION>
INTERNATIONAL SMALL
ADVISERS FUND COMPANY FUND
SUB-ACCOUNT SUB-ACCOUNT
------------- ------------
<S> <C> <C>
INVESTMENT INCOME:
Dividends............................................ $1,605,717 $ 32,487
EXPENSES:
Mortality and expense undertakings................... (569,723) (489,607)
------------- ------------
Net investment income (loss)......................... 1,035,994 (457,120)
------------- ------------
CAPITAL GAINS INCOME................................... 110,732 3,307,195
------------- ------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain (loss) on security transactions.... 13,808 (36,223)
Net unrealized appreciation (depreciation) of
investments during the period....................... 118,913 1,332,603
------------- ------------
Net gain (loss) on investments..................... 132,721 1,296,380
------------- ------------
Net increase (decrease) in net assets resulting
from operations................................... $1,279,447 $4,146,455
------------- ------------
------------- ------------
</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.
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SMITH BARNEY
SMITH BARNEY SMITH BARNEY GOVERNMENT
MIDCAP FUND CASH PORTFOLIO FUND APPRECIATION FUND PORTFOLIO
SUB-ACCOUNT* SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
------------ ------------------- ----------------- --------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends............................................ $ 8,146 $26,755 $ 2,394 $1,998
EXPENSES:
Mortality and expense undertakings................... (20,807) (5,365) (1,707) (404)
------------ ------- ------- ------
Net investment income (loss)......................... (12,661) 21,390 687 1,594
------------ ------- ------- ------
CAPITAL GAINS INCOME................................... -- -- 22,341 --
------------ ------- ------- ------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain (loss) on security transactions.... (2,185) -- 6,810 --
Net unrealized appreciation (depreciation) of
investments during the period....................... 336,895 -- 8,816 --
------------ ------- ------- ------
Net gain (loss) on investments..................... 334,710 -- 15,626 --
------------ ------- ------- ------
Net increase (decrease) in net assets resulting
from operations................................... $322,049 $21,390 $38,654 $1,594
------------ ------- ------- ------
------------ ------- ------- ------
<CAPTION>
BB&T AMSOUTH
GROWTH AND EQUITY INCOME
INCOME FUND FUND
SUB-ACCOUNT** SUB-ACCOUNT***
------------- ----------------
<S> <C> <C>
INVESTMENT INCOME:
Dividends............................................ $ 43,938 $ 4,389
EXPENSES:
Mortality and expense undertakings................... (21,234) (2,657)
------------- -------
Net investment income (loss)......................... 22,704 1,732
------------- -------
CAPITAL GAINS INCOME................................... 662 --
------------- -------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain (loss) on security transactions.... -- (1)
Net unrealized appreciation (depreciation) of
investments during the period....................... 409,485 32,196
------------- -------
Net gain (loss) on investments..................... 409,485 32,195
------------- -------
Net increase (decrease) in net assets resulting
from operations................................... $432,851 $33,927
------------- -------
------------- -------
</TABLE>
<PAGE>
SEPARATE ACCOUNT TWO
HARTFORD LIFE INSURANCE
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
MONEY
BOND FUND STOCK FUND MARKET FUND
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
------------ -------------- -------------
<S> <C> <C> <C>
OPERATIONS:
Net investment income (loss)......................... $ 10,349,134 $ (2,890,041) $ 10,558,627
Capital gains income................................. -- 64,909,605 792
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 10,559,419
------------ -------------- -------------
UNIT TRANSACTIONS:
Purchases............................................ 28,788,526 208,829,884 56,766,167
Net transfers........................................ 19,102,654 45,780,800 (9,782,834)
Surrenders........................................... (18,300,042) (92,238,226) (68,418,264)
Net annuity transactions............................. 325,387 633,517 12,261
------------ -------------- -------------
Net increase (decrease) in net assets resulting from
unit transactions................................... 29,916,525 163,005,975 (21,422,670)
------------ -------------- -------------
Total increase (decrease) in net assets.............. 50,402,639 541,939,819 (10,863,251)
NET ASSETS:
Beginning of period.................................. 194,978,128 1,212,755,498 277,901,280
------------ -------------- -------------
End of period........................................ $245,380,767 $1,754,695,317 $ 267,038,029
------------ -------------- -------------
------------ -------------- -------------
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1996
MONEY
BOND FUND STOCK FUND MARKET FUND
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
------------ -------------- -------------
OPERATIONS:
Net investment income (loss)......................... $ 9,645,789 $ 3,458,346 $ 9,260,160
Capital gains income................................. -- 36,500,208 --
Net realized gain (loss) on security transactions.... (221,405) 1,221,317 --
Net unrealized (depreciation) appreciation of
investments during the period....................... (5,160,742) 171,537,514 --
------------ -------------- -------------
Net increase (decrease) in net assets resulting from
operations.......................................... 4,263,642 212,717,385 9,260,160
------------ -------------- -------------
UNIT TRANSACTIONS:
Purchases............................................ 25,740,584 167,200,796 69,939,055
Net transfers........................................ (16,696,613) 28,419,235 66,601,560
Surrenders........................................... (15,363,352) (50,578,919) (52,603,716)
Net annuity transactions............................. 63,477 (84,340) (175,109)
------------ -------------- -------------
Net (decrease) increase in net assets resulting from
unit transactions................................... (6,255,904) 144,956,772 83,761,790
------------ -------------- -------------
Total (decrease) increase in net assets.............. (1,992,262) 357,674,157 93,021,950
NET ASSETS:
Beginning of period.................................. 196,970,390 855,081,341 184,879,330
------------ -------------- -------------
End of period........................................ $194,978,128 $1,212,755,498 $ 277,901,280
------------ -------------- -------------
------------ -------------- -------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
<TABLE>
<CAPTION>
U.S. GOVERNMENT CAPITAL MORTGAGE
ADVISERS FUND MONEY MARKET FUND APPRECIATION FUND SECURITIES FUND
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
-------------- ----------------- ----------------- ---------------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income (loss)......................... $ 36,403,121 $ 2,019 $ (10,930,508) $ 9,013,463
Capital gains income................................. 129,600,221 -- 103,244,397 --
Net realized gain (loss) on security transactions.... 2,159,454 -- 413,746 28,917
Net unrealized appreciation (depreciation) of
investments during the period....................... 501,068,905 -- 190,913,008 5,074,541
-------------- ----------------- ----------------- ---------------
Net increase (decrease) in net assets resulting from
operations.......................................... 669,231,701 2,019 283,640,643 14,116,921
-------------- ----------------- ----------------- ---------------
UNIT TRANSACTIONS:
Purchases............................................ 364,832,050 -- 194,562,087 7,925,304
Net transfers........................................ 27,406,992 (88,379) (11,521,643) (9,594,437)
Surrenders........................................... (206,501,208) (9,133) (87,759,430) (17,575,723)
Net annuity transactions............................. 725,608 (21,870) 361,130 (3,307)
-------------- ----------------- ----------------- ---------------
Net increase (decrease) in net assets resulting from
unit transactions................................... 186,463,442 (119,382) 95,642,144 (19,248,163)
-------------- ----------------- ----------------- ---------------
Total increase (decrease) in net assets.............. 855,695,143 (117,363) 379,282,787 (5,131,242)
NET ASSETS:
Beginning of period.................................. 2,845,576,451 117,363 1,354,625,381 196,244,893
-------------- ----------------- ----------------- ---------------
End of period........................................ $3,701,271,594 $-- $1,733,908,168 $191,113,651
-------------- ----------------- ----------------- ---------------
-------------- ----------------- ----------------- ---------------
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1996
U.S. GOVERNMENT CAPITAL MORTGAGE
ADVISERS FUND MONEY MARKET FUND APPRECIATION FUND SECURITIES FUND
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
-------------- ----------------- ----------------- ---------------
OPERATIONS:
Net investment income (loss)......................... $ 42,565,178 $ 4,826 $ (6,448,058) $ 10,591,830
Capital gains income................................. 52,150,764 -- 66,515,678 --
Net realized gain (loss) on security transactions.... 1,838,982 -- 2,074,856 (435,321)
Net unrealized (depreciation) appreciation of
investments during the period....................... 271,199,538 -- 145,316,093 (2,802,442)
-------------- ----------------- ----------------- ---------------
Net increase (decrease) in net assets resulting from
operations.......................................... 367,754,462 4,826 207,458,569 7,354,067
-------------- ----------------- ----------------- ---------------
UNIT TRANSACTIONS:
Purchases............................................ 317,249,591 -- 189,467,703 8,471,412
Net transfers........................................ (5,375,317) (10,049) (3,020,837) (18,731,894)
Surrenders........................................... (148,652,281) (5,248) (57,537,694) (18,950,990)
Net annuity transactions............................. (7,328) (12,789) 159,816 (68,468)
-------------- ----------------- ----------------- ---------------
Net (decrease) increase in net assets resulting from
unit transactions................................... 163,214,665 (28,086) 129,068,988 (29,279,940)
-------------- ----------------- ----------------- ---------------
Total (decrease) increase in net assets.............. 530,969,127 (23,260) 336,527,557 (21,925,873)
NET ASSETS:
Beginning of period.................................. 2,314,607,324 140,623 1,018,097,824 218,170,766
-------------- ----------------- ----------------- ---------------
End of period........................................ $2,845,576,451 $ 117,363 $1,354,625,381 $196,244,893
-------------- ----------------- ----------------- ---------------
-------------- ----------------- ----------------- ---------------
<CAPTION>
INTERNATIONAL DIVIDEND AND
INDEX FUND OPPORTUNITIES FUND GROWTH FUND
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
------------ ------------------ -------------
<S> <C> <C> <C>
OPERATIONS:
Net investment income (loss)......................... $ 492,907 $ (1,529,162) $ 3,234,554
Capital gains income................................. 21,612,566 29,748,890 9,959,170
Net realized gain (loss) on security transactions.... 243,148 29,653 (4,003)
Net unrealized appreciation (depreciation) of
investments during the period....................... 65,120,869 (32,127,237) 111,067,791
------------ ------------------ -------------
Net increase (decrease) in net assets resulting from
operations.......................................... 87,469,490 (3,877,856) 124,257,512
------------ ------------------ -------------
UNIT TRANSACTIONS:
Purchases............................................ 65,766,703 38,595,370 159,109,767
Net transfers........................................ 26,458,731 (16,075,692) 87,528,713
Surrenders........................................... (18,692,668) (26,504,799) (20,331,098)
Net annuity transactions............................. 190,331 66,746 349,515
------------ ------------------ -------------
Net increase (decrease) in net assets resulting from
unit transactions................................... 73,723,097 (3,918,375) 226,656,897
------------ ------------------ -------------
Total increase (decrease) in net assets.............. 161,192,587 (7,796,232) 350,914,409
NET ASSETS:
Beginning of period.................................. 249,963,229 400,841,689 318,309,457
------------ ------------------ -------------
End of period........................................ $411,155,816 $393,045,458 $ 669,223,866
------------ ------------------ -------------
------------ ------------------ -------------
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1996
INTERNATIONAL DIVIDEND AND
INDEX FUND OPPORTUNITIES FUND GROWTH FUND
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
------------ ------------------ -------------
OPERATIONS:
Net investment income (loss)......................... $ 1,647,249 $ 2,504,471 $ 2,622,394
Capital gains income................................. 3,111,887 9,391,222 2,783,157
Net realized gain (loss) on security transactions.... 136,100 91,388 (4,854)
Net unrealized (depreciation) appreciation of
investments during the period....................... 34,189,219 27,779,181 37,804,713
------------ ------------------ -------------
Net increase (decrease) in net assets resulting from
operations.......................................... 39,084,455 39,766,262 43,205,410
------------ ------------------ -------------
UNIT TRANSACTIONS:
Purchases............................................ 45,748,598 41,231,155 98,719,762
Net transfers........................................ 19,409,151 19,333,907 69,845,165
Surrenders........................................... (10,550,651) (21,132,233) (8,446,511)
Net annuity transactions............................. (31,502) 8,570 153,439
------------ ------------------ -------------
Net (decrease) increase in net assets resulting from
unit transactions................................... 54,575,596 39,441,399 160,271,855
------------ ------------------ -------------
Total (decrease) increase in net assets.............. 93,660,051 79,207,661 203,477,265
NET ASSETS:
Beginning of period.................................. 156,303,178 321,634,028 114,832,192
------------ ------------------ -------------
End of period........................................ $249,963,229 $400,841,689 $ 318,309,457
------------ ------------------ -------------
------------ ------------------ -------------
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
SEPARATE ACCOUNT TWO
HARTFORD LIFE INSURANCE COMPANY
STATEMENT OF CHANGES IN NET ASSETS -- (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
INTERNATIONAL SMALL
ADVISERS FUND COMPANY FUND
SUB-ACCOUNT SUB-ACCOUNT
------------- ------------
<S> <C> <C>
OPERATIONS:
Net investment income (loss)......................... $ 1,035,994 $ (457,120)
Capital gains income................................. 110,732 3,307,195
Net realized gain (loss) on security transactions.... 13,808 (36,223)
Net unrealized appreciation (depreciation) of
investments during the period....................... 118,913 1,332,603
------------- ------------
Net increase (decrease) in net assets resulting from
operations.......................................... 1,279,447 4,146,455
------------- ------------
UNIT TRANSACTIONS:
Purchases............................................ 18,887,741 24,742,079
Net transfers........................................ 9,531,179 30,544,670
Surrenders........................................... (2,110,213) (1,630,264)
Net annuity transactions............................. 25,045 44,603
------------- ------------
Net increase (decrease) in net assets resulting from
unit transactions................................... 26,333,752 53,701,088
------------- ------------
Total increase (decrease) in net assets.............. 27,613,199 57,847,543
NET ASSETS:
Beginning of period.................................. 29,809,174 13,546,092
------------- ------------
End of period........................................ $57,422,373 $71,393,635
------------- ------------
------------- ------------
* 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.
STATEMENT OF CHANGES IN NET ASSETS -- (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1996
INTERNATIONAL SMALL
ADVISERS FUND COMPANY FUND
SUB-ACCOUNT SUB-ACCOUNT****
---------- ------------
OPERATIONS:
Net investment income (loss)......................... $ 644,546 $ (17,678)
Capital gains income................................. 595,787 --
Net realized gain on security transactions........... (3,562) 922
Net unrealized (depreciation) appreciation of
investments during the period....................... 708,119 74,459
---------- ----------
Net increase (decrease) in net assets resulting from
operations.......................................... 1,944,890 57,703
---------- ----------
UNIT TRANSACTIONS:
Purchases............................................ 10,618,419 4,333,960
Net transfers........................................ 10,257,798 9,203,248
Surrenders........................................... (609,471) (48,819)
Net annuity transactions............................. -- --
---------- ----------
Net increase (decrease) in net assets resulting from
unit transactions................................... 20,266,746 13,488,389
---------- ----------
Total increase (decrease) in net assets.............. 22,211,636 13,546,092
NET ASSETS:
Beginning of period.................................. 7,597,538 --
---------- ----------
End of period........................................ $29,809,174 $13,546,092
---------- ----------
---------- ----------
</TABLE>
**** From inception, August 9, 1996 to December 31, 1996.
The accompanying notes are an integral part of these financial statements.
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SMITH BARNEY
SMITH BARNEY SMITH BARNEY GOVERNMENT
MIDCAP FUND CASH PORTFOLIO APPRECIATION FUND PORTFOLIO
SUB-ACCOUNT* SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
------------ ------------------- ----------------- --------------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income (loss)......................... $ (12,661) $ 21,390 $ 687 $ 1,594
Capital gains income................................. -- -- 22,341 --
Net realized gain (loss) on security transactions.... (2,185) -- 6,810 --
Net unrealized appreciation (depreciation) of
investments during the period....................... 336,895 -- 8,816 --
------------ -------- -------- -------
Net increase (decrease) in net assets resulting from
operations.......................................... 322,049 21,390 38,654 1,594
------------ -------- -------- -------
UNIT TRANSACTIONS:
Purchases............................................ 2,088,623 -- -- --
Net transfers........................................ 6,774,154 -- -- --
Surrenders........................................... (10,936) (93,309) (40,942) (4,272)
Net annuity transactions............................. -- -- -- --
------------ -------- -------- -------
Net increase (decrease) in net assets resulting from
unit transactions................................... 8,851,841 (93,309) (40,942) (4,272)
------------ -------- -------- -------
Total increase (decrease) in net assets.............. 9,173,890 (71,919) (2,288) (2,678)
NET ASSETS:
Beginning of period.................................. -- 580,931 172,861 39,842
------------ -------- -------- -------
End of period........................................ $9,173,890 $509,012 $170,573 $37,164
------------ -------- -------- -------
------------ -------- -------- -------
* 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.
STATEMENT OF CHANGES IN NET ASSETS -- (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1996
SMITH BARNEY SMITH BARNEY
CASH SMITH BARNEY GOVERNMENT
PORTFOLIO APPRECIATION FUND PORTFOLIO
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
------------ ------------------ ----------------
OPERATIONS:
Net investment income (loss)......................... $ 22,053 $ 15,035 $ 1,646
Capital gains income................................. -- -- --
Net realized gain on security transactions........... -- 174 --
Net unrealized (depreciation) appreciation of
investments during the period....................... -- 11,776 --
--------- ------- -------
Net increase (decrease) in net assets resulting from
operations.......................................... 22,053 26,985 1,646
--------- ------- -------
UNIT TRANSACTIONS:
Purchases............................................ 25 -- --
Net transfers........................................ -- -- --
Surrenders........................................... (10,494) (2,558) (4,273)
Net annuity transactions............................. -- -- --
--------- ------- -------
Net increase (decrease) in net assets resulting from
unit transactions................................... (10,469) (2,558) (4,273)
--------- ------- -------
Total increase (decrease) in net assets.............. 11,584 24,427 (2,627)
NET ASSETS:
Beginning of period.................................. 569,347 148,434 42,469
--------- ------- -------
End of period........................................ $ 580,931 $172,861 $ 39,842
--------- ------- -------
--------- ------- -------
<CAPTION>
BB&T
GROWTH AND AMSOUTH EQUITY
INCOME FUND INCOME FUND
SUB-ACCOUNT** SUB-ACCOUNT***
------------- ---------------
<S> <C> <C>
OPERATIONS:
Net investment income (loss)......................... $ 22,704 $ 1,732
Capital gains income................................. 662 --
Net realized gain (loss) on security transactions.... -- --
Net unrealized appreciation (depreciation) of
investments during the period....................... 409,485 32,195
------------- ---------------
Net increase (decrease) in net assets resulting from
operations.......................................... 432,851 33,927
------------- ---------------
UNIT TRANSACTIONS:
Purchases............................................ 5,104,417 2,100,608
Net transfers........................................ 1,006,220 259,438
Surrenders........................................... (66,068) (2,057)
Net annuity transactions............................. -- --
------------- ---------------
Net increase (decrease) in net assets resulting from
unit transactions................................... 6,044,569 2,357,989
------------- ---------------
Total increase (decrease) in net assets.............. 6,477,420 2,391,916
NET ASSETS:
Beginning of period.................................. -- --
------------- ---------------
End of period........................................ $6,477,420 $2,391,916
------------- ---------------
------------- ---------------
* 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, 19
STATEMENT OF CHANGES IN NET ASSETS -- (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1996
------------ ------------------ ---------
OPERATIONS:
Net investment income (loss).........................
Capital gains income.................................
Net realized gain on security transactions...........
Net unrealized (depreciation) appreciation of
investments during the period.......................
Net increase (decrease) in net assets resulting from
operations..........................................
UNIT TRANSACTIONS:
Purchases............................................
Net transfers........................................
Surrenders...........................................
Net annuity transactions.............................
Net increase (decrease) in net assets resulting from
unit transactions...................................
Total increase (decrease) in net assets..............
NET ASSETS:
Beginning of period..................................
End of period........................................
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
SEPARATE ACCOUNT TWO
HARTFORD LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
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
dividends from the Funds which are characterized as capital gains under tax
regulations.
b) SECURITY VALUATION -- The investment in shares of the Hartford, Smith
Barney, BB&T and AmSouth mutual funds are valued at the closing net asset value
per share as determined by the appropriate Fund as of December 31, 1997.
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:
a) MORTALITY AND EXPENSE UNDERTAKINGS -- The Company, as issuer of variable
annuity contracts, provides the mortality and expense undertakings and, with
respect to the Account, receives a maximum annual fee of up to 1.25% of the
Account's average daily net assets.
b) DEDUCTION OF ANNUAL MAINTENANCE FEE -- Annual maintenance fees are
deducted through termination of units of interest from applicable contract
owners' accounts, in accordance with the terms of the contracts.
4. HARTFORD U.S. GOVERNMENT MONEY
MARKET FUND:
On 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.
<PAGE>
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Hartford Life Insurance Company:
We have audited the accompanying Consolidated Balance Sheets of Hartford Life
Insurance Company (the "Company") and subsidiaries as of December 31, 1997 and
1996, and the related Consolidated Statements of Income, Stockholder's Equity
and Cash Flows for each of the three years in the period ended December 31,
1997. These consolidated financial statements and the schedules referred to
below are the responsibility of the Company's management. Our responsibility is
to express an opinion on these financial statements and schedules 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 consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Hartford Life
Insurance Company and subsidiaries as of December 31, 1997 and 1996, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1997, in conformity with generally accepted
accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedules listed in Index to
Consolidated Financial Statements and Schedules are presented for the purpose of
complying with the Securities and Exchange Commission's rules and are not part
of the basic financial statements. These schedules have been subjected to the
auditing procedures applied in the audits of the basic financial statements and,
in our opinion, fairly state in all material respects the financial data
required to be set forth therein in relation to the basic financial statements
taken as a whole.
ARTHUR ANDERSEN LLP
Hartford, Connecticut
January 27, 1998
<PAGE>
- --------------------------------------------------------------------------------
HARTFORD LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
------------------------
1997 1996 1995
------ ------ ------
(IN MILLIONS)
<S> <C> <C> <C>
Revenues
Premiums and other considerations............... $1,637 $1,705 $1,487
Net investment income........................... 1,368 1,397 1,328
Net realized capital gains (losses)............. 4 (213) (11)
------ ------ ------
Total revenues................................ 3,009 2,889 2,804
------ ------ ------
Benefits, claims and expenses
Benefits, claims and claim adjustment
expenses....................................... 1,379 1,535 1,422
Amortization of deferred policy acquisition
costs.......................................... 335 234 199
Dividends to policyholders...................... 240 635 675
Other expenses.................................. 586 427 317
------ ------ ------
Total benefits, claims and expenses........... 2,540 2,831 2,613
------ ------ ------
Income before income tax expense................ 469 58 191
Income tax expense.............................. 167 20 62
------ ------ ------
Net income........................................ $ 302 $ 38 $ 129
------ ------ ------
------ ------ ------
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
- --------------------------------------------------------------------------------
HARTFORD LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
AS OF DECEMBER
31,
-----------------
1997 1996
------- -------
<S> <C> <C>
(IN MILLIONS,
EXCEPT FOR SHARE
DATA)
Assets
Investments
Fixed maturities, available for sale, at fair
value (amortized cost of $13,885 and
$13,579)....................................... $14,176 $13,624
Equity securities, at fair value................ 180 119
Policy loans, at outstanding balance............ 3,756 3,836
Other investments, at cost...................... 47 56
------- -------
Total investments............................. 18,159 17,635
Cash............................................ 54 43
Premiums receivable and agents' balances........ 18 137
Accrued investment income....................... 330 407
Reinsurance recoverables........................ 6,325 6,259
Deferred policy acquisition costs............... 3,315 2,760
Deferred income tax............................. 348 474
Other assets.................................... 352 357
Separate account assets......................... 69,055 49,690
------- -------
Total assets.................................. $97,956 $77,762
------- -------
------- -------
Liabilities
Future policy benefits.......................... $ 3,270 $ 2,474
Other policyholder funds........................ 21,034 22,134
Other liabilities............................... 2,254 1,572
Separate account liabilities.................... 69,055 49,690
------- -------
Total liabilities............................. 95,613 75,870
------- -------
Stockholder's Equity
Common stock -- 1,000 shares authorized, issued
and outstanding, par value $5,690.............. 6 6
Additional paid in capital...................... 1,045 1,045
Net unrealized capital gains on securities, net
of tax......................................... 179 30
Retained earnings............................... 1,113 811
------- -------
Total stockholder's equity.................... 2,343 1,892
------- -------
Total liabilities and stockholder's equity...... $97,956 $77,762
------- -------
------- -------
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
- --------------------------------------------------------------------------------
HARTFORD LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
<TABLE>
<CAPTION>
NET UNREALIZED
CAPITAL GAINS
ADDITIONAL (LOSSES) ON TOTAL
COMMON PAID IN SECURITIES, RETAINED STOCKHOLDER'S
STOCK CAPITAL NET OF TAX EARNINGS EQUITY
------ -------------- --------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
(IN MILLIONS)
Balance, December 31, 1994.............. $6 $ 826 $(654) $ 644 $ 822
Net income............................ -- -- -- 129 129
Capital contribution.................. -- 181 -- -- 181
Change in net unrealized capital gains
(losses) on securities, net of tax... -- -- 597 -- 597
--
------ ------ ----------- ------
Balance, December 31, 1995.............. 6 1,007 (57) 773 1,729
Net income............................ -- -- -- 38 38
Capital contribution.................. -- 38 -- -- 38
Change in net unrealized capital gains
(losses) on securities, net of tax... -- -- 87 -- 87
--
------ ------ ----------- ------
Balance, December 31, 1996.............. 6 1,045 30 811 1,892
Net income............................ -- -- -- 302 302
Change in net unrealized capital gains
(losses) on securities, net of tax... -- -- 149 -- 149
--
------ ------ ----------- ------
Balance, December 31, 1997.............. $6 $1,045 $179 $1,113 $2,343
--
--
------ ------ ----------- ------
------ ------ ----------- ------
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
- --------------------------------------------------------------------------------
HARTFORD LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER
31,
------------------------------
1997 1996 1995
-------- -------- --------
(IN MILLIONS)
<S> <C> <C> <C>
Operating Activities
Net income............................ $ 302 $ 38 $ 129
Adjustments to reconcile net income to
cash provided by operating activities
Depreciation and amortization......... 8 14 21
Net realized capital (gains) losses... (4) 213 11
Decrease (increase) in deferred income
taxes................................ 40 (102) (172)
Increase in deferred policy
acquisition costs.................... (555) (572) (379)
Decrease (increase) in premiums
receivable and agents' balances...... 119 10 (81)
Decrease (increase) in accrued
investment income.................... 77 (13) (16)
Decrease (increase) in other assets... 52 (132) (177)
(Increase) decrease in reinsurance
recoverables......................... (416) 179 (35)
Increase (decrease) in liabilities for
future policy benefits............... 796 (92) 483
Increase in other liabilities......... 379 477 281
-------- -------- --------
Cash provided by operating
activities......................... 798 20 65
-------- -------- --------
Investing Activities
Purchases of fixed maturity
investments.......................... (6,231) (5,747) (6,228)
Sales of fixed maturity investments... 4,232 3,459 4,845
Maturities and principal paydowns of
fixed maturity investments........... 2,329 2,693 1,741
Net sales (purchases) of other
investments.......................... 24 (107) (871)
Net (purchases) sales of short-term
investments.......................... (638) 84 (24)
-------- -------- --------
Cash (used for) provided by
investing activities............... (284) 382 (537)
-------- -------- --------
Financing Activities
Capital contribution.................. -- 38 --
Net (disbursements for) receipts from
investment and universal life-type
contracts (charged against) credited
to policyholder accounts............. (503) (443) 498
-------- -------- --------
Cash (used for) provided by
financing activities............... (503) (405) 498
-------- -------- --------
Increase (decrease) in cash........... 11 (3) 26
Cash -- beginning of year............. 43 46 20
-------- -------- --------
Cash -- end of year................... $ 54 $ 43 $ 46
-------- -------- --------
-------- -------- --------
Supplemental Disclosure of Cash Flow
Information:
Net Cash Paid During the Year for:
Income taxes.......................... $ 9 $ 189 $ 162
Noncash Financing Activities:
Capital contribution.................. $ -- $ -- $ 181
-------- -------- --------
-------- -------- --------
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN MILLIONS EXCEPT PER SHARE DATA UNLESS OTHERWISE STATED)
1. ORGANIZATION AND DESCRIPTION OF BUSINESS
These consolidated financial statements include Hartford Life Insurance
Company and its wholly-owned subsidiaries (the "Company"), ITT Hartford Life and
Annuity Insurance Company ("ILA") and ITT Hartford International Life
Reassurance Corporation ("HLRe"), formerly American Skandia Life Reinsurance
Corporation. The Company is a wholly-owned subsidiary of Hartford Life and
Accident Insurance Company ("HLA"), a wholly-owned subsidiary of Hartford Life,
Inc. ("Hartford Life"). Hartford Life is a direct subsidiary of Hartford
Accident and Indemnity Company ("HA&I"), an indirect subsidiary of The Hartford
Financial Services Group, Inc. ("The Hartford"). On February 10, 1997, Hartford
Life filed a registration statement, as amended, with the Securities and
Exchange Commission relating to an Initial Public Offering ("IPO") of the
Hartford Life's Class A Common Stock. Pursuant to the IPO on May 22, 1997,
Hartford Life sold to the public 26 million shares at $28.25 per share and
received net proceeds of $687. Of the proceeds, $527 was used to retire debt
related to Hartford Life's outstanding promissory notes and line of credit with
the remaining $160 contributed by Hartford Life to HLA to support growth in its
core businesses.
On December 19, 1995, ITT Industries, Inc. (formerly ITT Corporation)
("ITT") distributed all the outstanding shares of capital stock of The Hartford
to ITT stockholders of record on such date. As a result, The Hartford became an
independent, publicly traded company.
Along with its parent, the Company is a leading insurance and financial
services company which provides (a) investment products such as individual
variable annuities and fixed market value adjusted annuities, deferred
compensation and retirement plan services and mutual funds for savings and
retirement needs; (b) life insurance for income protection and estate planning;
and (c) employee benefits products such as group life and group disability
insurance and corporate owned life insurance.
2. SIGNIFICANT ACCOUNTING POLICIES
(A) BASIS OF PRESENTATION
These consolidated financial statements present the financial position,
results of operations and cash flows of the Company. All material intercompany
transactions and balances between the Company, its subsidiaries and affiliates
have been eliminated. The consolidated financial statements are prepared on the
basis of generally accepted accounting principles which differ materially from
the statutory accounting practices prescribed by various insurance regulatory
authorities.
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 and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. The most
significant estimates include those used in determining deferred policy
acquisition costs and the liability for future policy benefits and other
policyholder funds. Although some variability is inherent in these estimates,
management believes the amounts provided are adequate.
Certain reclassifications have been made to prior year financial information
to conform to the current year presentation.
(B) CHANGES IN ACCOUNTING PRINCIPLES
In December 1997, the American Institute of Certified Public Accountants
("AICPA") issued Statement of Position ("SOP") No. 97-3 "Accounting by Insurance
and Other Enterprises for Insurance Related Assessments". This SOP provides
guidance on accounting by insurance and other enterprises for assessments
related to insurance activities. Specifically, the SOP provides guidance on when
a guaranty fund or other assessment should be recognized, how to measure the
liability, and what information should be disclosed. This SOP will be effective
for fiscal years beginning after December 15, 1998. Adoption of SOP 97-3 is not
expected to have a material impact on the Company's financial condition or
results of operations.
On November 14, 1996, the Emerging Issues Task Force ("EITF") reached a
consensus on Issue No. 96-12, "Recognition of Interest Income and Balance Sheet
Classification of Structured Notes". This EITF issue requires companies to
record income on certain structured securities on a retrospective interest
method. The Company adopted EITF No. 96-12 for structured securities acquired
after November 14, 1996. Adoption of EITF No. 96-12 did not have a material
effect on the Company's financial condition or results of operations.
In June 1996, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 125, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishment of Liabilities"
which is effective for transfers and servicing of financial
<PAGE>
- --------------------------------------------------------------------------------
assets and extinguishments of liabilities occurring after December 31, 1996.
This statement established criteria for determining whether transferred assets
should be accounted for as sales or secured borrowings. Subsequently, in
December 1996, the FASB issued SFAS No. 127, "Deferral of Effective Date of
Certain Provisions of FASB Statement No. 125", which defers the effective date
of certain provisions of SFAS No. 125 for one year. Adoption of SFAS No. 125 is
not expected to have a material effect on the Company's financial condition or
results of operations.
Effective January 1, 1996, the Company adopted SFAS No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of". This statement establishes accounting standards for the impairment of
long-lived assets, certain identifiable intangibles, and goodwill related to
those assets to be held and used and for long-lived assets and certain
identifiable intangibles to be disposed of. Adoption of SFAS No. 121 did not
have a material effect on the Company's financial condition or results of
operations.
The Company's cash flows were not impacted by these changes in accounting
principles.
(C) REVENUE RECOGNITION
Revenues for universal life-type policies and investment products consist of
policy charges for the cost of insurance, policy administration and surrender
charges assessed to policy account balances and are recognized in the period in
which services are provided. Premiums for traditional life insurance and
disability policies are recognized as revenues when they are due from
policyholders.
(D) FUTURE POLICY BENEFITS AND OTHER POLICYHOLDER FUNDS
Liabilities for future policy benefits are computed by the net level premium
method using interest rate assumptions varying from 3% to 11% and withdrawal and
mortality assumptions appropriate at the time the policies were issued. Health
reserves, which are the result of sales of group long-term and short-term
disability, stop loss, Medicare Supplement and individual disability products,
are stated at amounts determined by estimates on individual cases and estimates
of unreported claims based on past experience. Liabilities for universal
life-type and investment contracts are stated at policyholder account values
before surrender charges.
(E) POLICYHOLDER REALIZED CAPITAL GAINS AND LOSSES
Realized capital gains and losses on security transactions associated with
the Company's immediate participation guaranteed contracts are excluded from
revenues and deferred over the expected maturity of the securities, since under
the terms of the contracts the realized gains and losses will be credited to
policyholders in future years as they are entitled to receive them.
(F) INVESTMENTS
The Company's investments in fixed maturities include bonds and commercial
paper which are considered "available for sale" and accordingly are carried at
fair value with the after-tax difference from cost reflected as a component of
Stockholder's Equity designated "Net unrealized capital gains (losses) on
securities, net of tax". Equity securities, which include common and
non-redeemable preferred stocks, are carried at fair values with the after-tax
difference from cost reflected in Stockholder's Equity. Policy loans are carried
at outstanding balance which approximates fair value. Net realized capital gains
and losses, after deducting pension policyholders' share, are reported as a
component of revenue and are determined on a specific identification basis.
The Company's accounting policy for impairment requires recognition of an
other than temporary impairment charge on a security if it is determined that
the Company is unable to recover all amounts due under the contractual
obligations of the security. In addition, for securities expected to be sold, an
other than temporary impairment charge is recognized if the Company does not
expect the fair value of a security to recover to cost or amortized cost prior
to the expected date of sale. Once an impairment charge has been recorded, the
Company then continues to review the other than temporarily impaired securities
for appropriate valuation on an on-going basis.
During 1996, it was determined that certain individual securities within the
investment portfolio supporting the Company's block of guaranteed rate contract
business written prior to 1995 ("Closed Book GRC") could not recover to
amortized cost prior to sale. Therefore, an other than temporary impairment loss
of $88, after-tax, was recorded.
(G) DERIVATIVE INSTRUMENTS
The Company uses a variety of derivative instruments including swaps, caps,
floors, forwards and exchange traded financial futures and options as part of an
overall risk management strategy. These instruments are used as a means of
hedging exposure to price, foreign currency and/ or interest rate risk on
planned investment purchases or existing assets and liabilities. The Company
does not hold or issue derivative instruments for trading purposes. The
Company's accounting for derivative instruments used to manage risk is in
accordance with the concepts established in SFAS No. 80, "Accounting for Futures
Contracts", SFAS No. 52, "Foreign Currency Translation", AICPA SOP 86-2,
"Accounting for Options" and various EITF pronouncements. Written options are
used, in all cases in conjunction with other assets and derivatives, as part of
the Company's asset and liability management strategy. Derivative instruments
are carried at values consistent with the asset or liability being hedged.
Derivative instruments used to hedge fixed maturities or equity securities are
carried at fair value
<PAGE>
- --------------------------------------------------------------------------------
with the after-tax difference from cost reflected in Stockholder's Equity.
Derivative instruments used to hedge other invested assets or liabilities are
carried at cost.
Derivative instruments must be designated at inception as a hedge and
measured for effectiveness both at inception and on an on-going basis. The
Company's minimum correlation threshold for hedge designation is 80%. If
correlation, which is assessed monthly and measured based on a rolling three
month average, falls below 80%, hedge accounting will be terminated. Derivative
instruments used to create a synthetic asset must meet synthetic accounting
criteria including designation at inception and consistency of terms between the
synthetic and the instrument being replicated. Consistent with industry
practice, synthetic instruments are accounted for like the financial instrument
it is intended to replicate. Derivative instruments which fail to meet risk
management criteria, subsequent to acquisition, are marked to market with the
impact reflected in the Consolidated Statements of Income.
Gains or losses on financial futures contracts entered into in anticipation
of the investment of future receipt of product cash flows are deferred and, at
the time of the ultimate investment purchase, reflected as an adjustment to the
cost basis of the purchased asset. Gains or losses on futures used in invested
asset risk management are deferred and adjusted into the cost basis of the
hedged asset when the contract futures are closed, except for futures used in
duration hedging which are deferred and basis adjusted on a quarterly basis. The
basis adjustments are amortized into net investment income over the remaining
asset life.
Open forward commitment contracts are marked to market through Stockholder's
Equity. Such contracts are accounted for at settlement by recording the purchase
of the specified securities at the previously committed price. Gains or losses
resulting from the termination of forward commitment contracts before the
delivery of the securities are recognized immediately in the Consolidated
Statements of Income as a component of net investment income.
The cost of options entered into as part of a risk management strategy are
basis adjusted to the underlying asset or liability and amortized over the
remaining life of the option. Gains or losses on expiration or termination are
adjusted into the basis of the underlying asset or liability and amortized over
the remaining asset life.
Interest rate swaps involve the periodic exchange of payments without the
exchange of underlying principal or notional amounts. Net receipts or payments
are accrued and recognized over the life of the swap agreement as an adjustment
to investment income. Should the swap be terminated, the gain or loss is
adjusted into the basis of the asset or liability and amortized over the
remaining life. Should the hedged asset be sold or liability terminated without
terminating the swap position, any swap gains or losses are immediately
recognized in net investment income. Interest rate swaps purchased in
anticipation of an asset purchase ("anticipatory transaction") are recognized
consistent with the underlying asset components such that the settlement
component is recognized in the Consolidated Statements of Income while the
change in market value is recognized as an unrealized capital gain or loss.
Premiums paid on purchased floor or cap agreements and the premium received
on issued cap or floor agreements (used for risk management) are adjusted into
the basis of the applicable asset and amortized over the asset life. Gains or
losses on termination of such positions are adjusted into the basis of the asset
or liability and amortized over the remaining asset life. Net payments are
recognized as an adjustment to income or basis adjusted and amortized depending
on the specific hedge strategy.
Forward exchange contracts and foreign currency swaps are accounted for in
accordance with SFAS No. 52. Changes in the spot rate of instruments designated
as hedges of the net investment in a foreign subsidiary are reflected in the
cumulative translation adjustments component of Stockholder's Equity. Cash flows
from futures, options, and swaps, accounted for as hedges, are included with the
cash flows of the item being hedged.
(H) SEPARATE ACCOUNTS
The Company maintains separate account assets and liabilities which are
reported at fair value. Separate account assets are segregated from other
investments, and investment income and gains and losses accrue directly to the
policyholders. Separate accounts reflect two categories of risk assumption:
non-guaranteed separate accounts, wherein the policyholder assumes the
investment risk, and guaranteed separate account assets, wherein the Company
contractually guarantees either a minimum return or account value to the
policyholder.
(I) DEFERRED POLICY ACQUISITION COSTS
Policy acquisition costs, which include commissions and certain underwriting
expenses associated with acquiring business, are deferred and amortized over the
estimated lives of the contracts, generally 20 years. Generally, acquisition
costs are deferred and amortized using the retrospective deposit method. Under
the retrospective deposit method, acquisition costs are amortized in proportion
to the present value of expected gross profits from surrender charges,
investment, mortality and expense margins. Actual gross profits can vary from
management's estimates resulting in increases or decreases in the rate of
amortization. Management periodically updates these estimates, when appropriate,
and evaluates the recoverability of the deferred acquisition cost asset. When
appropriate, management revises its assumptions on the estimated gross profits
of these contracts and the cumulative amortization
<PAGE>
- --------------------------------------------------------------------------------
for the books of business are reestimated and adjusted by a cumulative charge or
credit to income.
The Company's other expenses include the following:
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Commissions........................... $ 976 $ 848 $ 619
Deferred acquisition costs............ (862) (823) (618)
Other................................. 472 402 316
--------- --------- ---------
Total other expenses.............. $ 586 $ 427 $ 317
--------- --------- ---------
--------- --------- ---------
</TABLE>
(J) DIVIDENDS TO POLICYHOLDERS
Certain life insurance policies contain dividend payment provisions that
enable the policyholder to participate in the earnings of the life insurance
subsidiaries of the Company. The participating insurance in force accounted for
55%, 44%, and 41% in 1997, 1996, and 1995, respectively, of total insurance in
force.
3. INITIAL PUBLIC OFFERING
On February 10, 1997, Hartford Life filed a registration statement, as
amended, with the Securities and Exchange Commission, relating to the IPO of
Hartford Life's Class A Common Stock. Pursuant to the IPO on May 22, 1997,
Hartford Life sold to the public 26 million shares at $28.25 per share and
received proceeds, net of offering expenses, of $687. Of the proceeds, $527 was
used to retire debt related to Hartford Life's promissory notes outstanding and
line of credit. The remaining $160 was contributed by Hartford Life to HLA to
support growth in its core businesses. The 26 million shares sold in the
Offering represent approximately 18.6% of the equity ownership in Hartford Life
and approximately 4.4% of the combined voting power of Hartford Life's Class A
and Class B Common Stock. The Hartford owns all of the 114 million outstanding
shares of Class B Common Stock of Hartford Life, representing approximately
81.4% of the equity ownership in Hartford Life and approximately 95.6% of the
combined voting power of Hartford Life's Class A and Class B Common Stock.
Holders of Class A Common Stock generally have identical rights to the holders
of Class B Common Stock except that the holders of Class A Common Stock are
entitled to one vote per share while holders of Class B Common Stock are
entitled to five votes per share on all matters submitted to a vote of Hartford
Life's stockholders.
4. INVESTMENTS AND DERIVATIVE INSTRUMENTS
(A) COMPONENTS OF NET INVESTMENT INCOME
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
-------------------------------
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Interest income from fixed
maturities......................... $ 932 $ 918 $ 996
Interest income from policy loans... 425 477 342
Income from other investments....... 26 15 1
--------- --------- ---------
Gross investment income............. 1,383 1,410 1,339
Less: Investment expenses........... 15 13 11
--------- --------- ---------
Net investment income............... $ 1,368 $ 1,397 $ 1,328
--------- --------- ---------
--------- --------- ---------
</TABLE>
(B) COMPONENTS OF NET REALIZED CAPITAL GAINS (LOSSES)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
---------------------------------
1997 1996 1995
----- --------- ---------
<S> <C> <C> <C>
Fixed maturities......................... $ (7) $ (201) $ 23
Equity securities........................ 12 2 (6)
Real estate and other.................... (1) (4) (25)
Less: Increase in liability to
policyholders for realized capital
gains................................... -- (10) (3)
--- --------- ---------
Net realized capital gains (losses) $ 4 $ (213) $ (11)
--- --------- ---------
--- --------- ---------
</TABLE>
(C) NET UNREALIZED CAPITAL GAINS (LOSSES) ON EQUITY SECURITIES
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
-------------------------------------
1997 1996 1995
----- ----- -----
<S> <C> <C> <C>
Gross unrealized capital gains.............. $ 14 $ 13 $ 4
Gross unrealized capital losses............. -- (1) (2)
--- --- ---
Net unrealized capital gains................ 14 12 2
Deferred income tax expense................. 5 4 1
--- --- ---
Net unrealized capital gains, net of tax.... 9 8 1
Balance -- beginning of year................ 8 1 (6)
--- --- ---
Net change in unrealized capital gains
(losses) on equity securities.............. $ 1 $ 7 $ 7
--- --- ---
--- --- ---
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
(D) NET UNREALIZED CAPITAL GAINS (LOSSES) ON FIXED MATURITIES
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
---------------------
1997 1996 1995
----- ----- -----
<S> <C> <C> <C>
Gross unrealized capital gains................................... $ 371 $ 386 $ 529
Gross unrealized capital losses.................................. (80) (341) (569)
Unrealized capital (gains) losses credited to policyholders...... (30) (11) (52)
----- ----- -----
Net unrealized capital gains (losses)............................ 261 34 (92)
Deferred income tax expense (benefit)............................ 91 12 (34)
----- ----- -----
Net unrealized capital gains (losses), net of tax................ 170 22 (58)
Balance -- beginning of year..................................... 22 (58) (648)
----- ----- -----
Net change in unrealized capital gains (losses) on fixed
maturities...................................................... $ 148 $ 80 $ 590
----- ----- -----
----- ----- -----
</TABLE>
(E) FIXED MATURITY INVESTMENTS
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1997
---------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED
COST GAINS LOSSES FAIR VALUE
---------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
U.S. gov't and gov't agencies and authorities
(guaranteed and sponsored)...................................... $ 217 $ 3 $ (1) $ 219
U.S. gov't and gov't agencies and authorities
(guaranteed and sponsored) -- asset backed...................... 1,175 64 (35) 1,204
States, municipalities and political subdivisions................ 211 7 (1) 217
International governments........................................ 376 20 (3) 393
Public utilities................................................. 871 26 (3) 894
All other corporate including international...................... 5,033 200 (25) 5,208
All other corporate -- asset backed.............................. 4,091 41 (8) 4,124
Short-term investments........................................... 1,318 -- -- 1,318
Certificates of deposit.......................................... 593 10 (4) 599
---------- ----- ----- ----------
Total fixed maturities....................................... $13,885 $371 $(80) $14,176
---------- ----- ----- ----------
---------- ----- ----- ----------
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1996
---------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED
COST GAINS LOSSES FAIR VALUE
---------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
U.S. gov't and gov't agencies and authorities
(guaranteed and sponsored)...................................... $ 166 $ 12 $ (3) $ 175
U.S. gov't and gov't agencies and authorities
(guaranteed and sponsored) -- asset backed...................... 1,970 161 (128) 2,003
States, municipalities and political subdivisions................ 373 6 (11) 368
International governments........................................ 281 12 (4) 289
Public utilities................................................. 877 12 (8) 881
All other corporate including international...................... 4,656 120 (107) 4,669
All other corporate -- asset backed.............................. 3,601 49 (59) 3,591
Short-term investments........................................... 1,655 14 (21) 1,648
---------- ----- ----------- ----------
Total fixed maturities....................................... $13,579 $386 $(341) $13,624
---------- ----- ----------- ----------
---------- ----- ----------- ----------
</TABLE>
The amortized cost and estimated fair value of fixed maturity investments at
December 31, 1997 by estimated maturity year are shown below. Expected
maturities differ from contractual maturities due to call or prepayment
provisions. Asset backed securities, including MBS and CMO's, are distributed to
maturity year based on the Company's estimates of the rate of future prepayments
of principal over the remaining lives of the securities. These estimates are
developed using prepayment speeds provided in broker consensus data. Such
estimates are derived from prepayment speeds experienced at the interest rate
levels projected for the applicable underlying collateral and can be expected to
vary from actual experience.
MATURITY
<TABLE>
<CAPTION>
AMORTIZED
COST FAIR VALUE
----------- -----------
<S> <C> <C>
One year or less......................... $ 2,838 $ 2,867
Over one year through five years......... 5,528 5,595
Over five years through ten years........ 3,094 3,156
Over ten years........................... 2,425 2,558
----------- -----------
Total................................ $ 13,885 $ 14,176
----------- -----------
----------- -----------
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
Sales of fixed maturities, excluding short-term fixed maturities, for the
years ended December 31, 1997, 1996 and 1995 resulted in proceeds of $4.2
billion, $3.5 billion and $4.8 billion, gross realized capital gains of $169,
$87 and $91, gross realized capital losses (including writedowns) of $176, $298
and $72, respectively. Sales of equity security investments for the years ended
December 31, 1997, 1996 and 1995 resulted in proceeds of $132, $74 and $64,
gross realized capital gains of $12, $2 and $28 and gross realized capital
losses of $0, $0 and $59, respectively.
(F) CONCENTRATION OF CREDIT RISK
Excluding investments in U.S. government and agencies, the Company has not
invested in the securities of a single issuer in amounts greater than 10% of
stockholder's equity at December 31, 1997.
(G) DERIVATIVE INSTRUMENTS
The Company utilizes a variety of derivative instruments, including swaps,
caps, floors, forwards and exchange traded futures and options, in accordance
with Company policy and in order to achieve one of three Company approved
objectives: to hedge risk arising from interest rate, price or currency exchange
rate volatility; to manage liquidity; or, to control transactions costs. The
Company utilizes derivative instruments to manage market risk through four
principal risk management strategies: hedging anticipated transactions, hedging
liability instruments, hedging invested assets and hedging portfolios of assets
and/or liabilities. The Company does not trade in these instruments for the
express purpose of earning trading profits.
The Company maintains a derivatives counterparty exposure policy which
establishes market-based credit limits, favors long-term financial stability and
creditworthiness, and typically requires credit enhancement/credit risk reducing
agreements. Credit risk is measured as the amount owed to the Company based on
current market conditions and potential payment obligations between the Company
and its counterparties. Credit exposures are quantified weekly and netted, and
collateral is pledged to or held by the Company to the extent the current value
of derivatives exceed exposure policy thresholds.
The Company's derivative program is monitored by an internal compliance unit
and is reviewed by senior management and Hartford Life's Finance Committee.
Notional amounts, which represent the basis upon which pay or receive amounts
are calculated and are not reflective of credit risk, pertaining to derivative
financial instruments (excluding the Company's guaranteed separate account
derivative investments), totaled $6.5 billion and $9.9 billion ($4.6 billion and
$7.4 billion related to the Company's investments, $1.9 billion and $2.5 billion
on the Company's liabilities) at December 31, 1997 and 1996, respectively.
The table below provides a summary of derivative instruments held by the
Company at December 31, 1997 and 1996, segregated by major investment and
liability category:
<TABLE>
<CAPTION>
1997 -- AMOUNT HEDGED (NOTIONAL AMOUNTS)
----------------------------------------------------------------------------------
PURCHASED
CAPS, FOREIGN
TOTAL ISSUED FLOORS INTEREST CURRENCY TOTAL
CARRYING CAPS & AND FUTURES RATE SWAPS NOTIONAL
ASSETS HEDGED VALUE FLOORS OPTIONS (2) SWAPS (3) AMOUNT
- ----------------------------------- -------- -------- ---------- ---------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Asset backed securities (excluding
inverse floaters and
anticipatory)..................... $ 5,253 $ 500 $ 1,404 $ 28 $ 221 $-- $ 2,153
Inverse floaters (1)............... 75 47 80 -- 25 -- 152
Anticipatory (4)................... -- -- -- -- -- -- --
Other bonds and notes.............. 7,531 462 460 22 1,258 91 2,293
Short-term investments............. 1,317 -- -- -- -- -- --
-------- -------- ---------- --- ---------- --- ----------
Total fixed maturities......... 14,176 1,009 1,944 50 1,504 91 4,598
Equity securities, policy loans and
other investments................. 3,983 -- -- -- -- -- --
-------- -------- ---------- --- ---------- --- ----------
Total investments.............. $ 18,159 $ 1,009 $ 1,944 $ 50 $ 1,504 $91 $ 4,598
Long term debt................. -- -- -- -- -- -- --
Other policy claims............ -- 10 150 -- 1,747 -- 1,907
-------- -------- ---------- --- ---------- --- ----------
Total derivatives -- notional
value........................... $ 1,019 $ 2,094 $ 50 $ 3,251 $91 $ 6,505
-------- -------- ---------- --- ---------- --- ----------
Total derivatives -- fair value.... $ (8) $ 23 $ -- $ 19 $(6) $ 28
-------- -------- ---------- --- ---------- --- ----------
-------- -------- ---------- --- ---------- --- ----------
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1996 --AMOUNT HEDGED (NOTIONAL AMOUNTS)
--------------------------------------------------------------------------
FOREIGN
TOTAL ISSUED PURCHASED INTEREST CURRENCY TOTAL
CARRYING CAPS & CAPS, FLOORS RATE SWAPS NOTIONAL
ASSETS HEDGED VALUE FLOORS AND OPTIONS FUTURES (2) SWAPS (3) AMOUNT
- ----------------------------------- -------- ------- ------------ ----------- --------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Asset backed securities (excluding
inverse floaters and
anticipatory)..................... $ 5,242 $ 500 $ 2,454 $ -- $ 941 $ -- $3,895
Inverse floaters (1)............... 352 98 856 -- 346 -- 1,300
Anticipatory (4)................... -- -- -- 132 -- -- 132
Other bonds and notes.............. 7,369 425 440 5 1,079 125 2,074
Short-term investments............. 661 -- -- -- -- -- --
-------- ------- ------------ ----- --------- -------- -------
Total fixed maturities......... 13,624 1,023 3,750 137 2,366 125 7,401
Equity securities, policy loans and
other investments................. 4,011 -- -- -- 19 -- 19
-------- ------- ------------ ----- --------- -------- -------
Total investments.............. $ 17,635 $ 1,023 $ 3,750 $ 137 $ 2,385 $ 125 $7,420
Long term debt................. -- -- -- -- -- -- --
Other policy claims............ -- 10 150 -- 2,351 -- 2,511
-------- ------- ------------ ----- --------- -------- -------
Total derivatives -- notional
value......................... $ 1,033 $ 3,900 $ 137 $ 4,736 $ 125 $9,931
-------- ------- ------------ ----- --------- -------- -------
Total derivatives -- fair
value......................... $ (10) $ 38 $ -- $ 2 $ (9 ) $ 21
-------- ------- ------------ ----- --------- -------- -------
-------- ------- ------------ ----- --------- -------- -------
</TABLE>
- ---------
(1) Inverse floaters are variations of collateralized mortgage obligations
("CMO's") for which the coupon rates move inversely with an index rate such as
the London interbank offered rate ("LIBOR"). The risk to principal is considered
negligible as the underlying collateral for the securities is guaranteed or
sponsored by government agencies. To address the volatility risk created by the
coupon variability, the Company uses a variety of derivative instruments,
primarily interest rate swaps, caps and floors.
(2) As of December 31, 1997 and 1996, over 44% and 39% , respectively, of
the notional futures contracts expire within one year.
(3) As of December 31, 1997 and 1996, over 16% and 42%, respectively, of
foreign currency swaps expire within one year; the balance matures over the
succeeding 9 years.
(4) Deferred gains and losses on anticipatory transactions are included in
the carrying value of fixed maturities in the Consolidated Balance Sheets. At
the time of the ultimate purchase, they are reflected as a basis adjustment to
the purchased asset. At December 31, 1997, the Company had $0 deferred gains and
losses. At December 31, 1996, the Company had $0.9 in net deferred gains for
futures, interest rate swaps and purchased options of which $2.0 was basis
adjusted in 1997.
The following is a reconciliation of notional amounts by derivative type and
strategy as of December 31, 1997 and 1996:
<TABLE>
<CAPTION>
DECEMBER 31, 1996 MATURITIES/ DECEMBER 31, 1997
NOTIONAL AMOUNT ADDITIONS TERMINATIONS (1) NOTIONAL AMOUNT
----------------- -------- ----------------- -----------------
<S> <C> <C> <C> <C>
BY DERIVATIVE TYPE
Caps......................................... $1,755 $ 14 $ 530 $1,239
Floors....................................... 3,168 28 1,332 1,864
Swaps/Forwards............................... 4,861 941 2,460 3,342
Futures...................................... 137 131 218 50
Options...................................... 10 -- -- 10
------- -------- ------- -------
Total.................................... $9,931 $1,114 $4,540 $6,505
------- -------- ------- -------
BY STRATEGY
Liability.................................... $2,511 $ 191 $ 795 $1,907
Anticipatory................................. 132 4 136 --
Asset........................................ 2,112 739 1,046 1,805
Portfolio.................................... 5,176 180 2,563 2,793
------- -------- ------- -------
Total.................................... $9,931 $1,114 $4,540 $6,505
------- -------- ------- -------
------- -------- ------- -------
</TABLE>
- ---------
(1) During 1997, the Company had no significant gains or losses on terminations
of hedge positions using derivative financial instruments.
<PAGE>
- --------------------------------------------------------------------------------
5. FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107 "Disclosure about Fair
Value of Financial Instruments" requires disclosure of fair value information of
financial instruments. For certain financial instruments where quoted market
prices are not available, other independent valuation techniques and assumptions
are used. Because considerable judgment is used, these estimates are not
necessarily indicative of amounts that could be realized in a current market
exchange. SFAS No. 107 excludes certain financial instruments from disclosure,
including insurance contracts.
For cash, short-term investments, accounts receivable, policy loans,
mortgage loans and other liabilities, carrying amounts on the Consolidated
Balance Sheets approximate fair value.
Fair value for fixed maturities and marketable equity securities are based
upon quoted market prices. Fair value for securities that are not publicly
traded are analytically determined. These amounts are disclosed in Note 4 of
Notes to Consolidated Financial Statements.
The fair value of derivative financial instruments, including swaps, caps,
floors, futures, options and forward commitments, is determined using a pricing
model which is validated through quarterly comparison to dealer quoted prices.
Amounts are disclosed in Note 4 of Notes to Consolidated Financial Statements.
Fair value for partnerships and trusts are based on external market
valuations from partnership and trust management.
Other policy claims and benefits payable fair value information is
determined by estimating future cash flows, discounted at the current market
rate.
The carrying amount and fair values of the Company's financial instruments
at December 31, 1997 and 1996 were as follows:
<TABLE>
<CAPTION>
1997 1996
------------------ ------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
--------- ------- --------- -------
<S> <C> <C> <C> <C>
ASSETS
Fixed maturities..................................... $ 14,176 $14,176 $ 13,624 $13,624
Equity securities.................................... 180 180 119 119
Policy loans......................................... 3,756 3,756 3,836 3,836
Mortgage loans....................................... -- -- 2 2
Investments in partnerships, trusts and other........ 47 91 54 104
LIABILITIES
Other policy benefits................................ $ 11,769 $11,755 $ 11,707 $11,469
</TABLE>
6. SEPARATE ACCOUNTS
The Company maintained separate account assets and liabilities totaling
$69.1 billion and $49.7 billion at December 31, 1997 and 1996, respectively,
which are reported at fair value. Separate account assets are segregated from
other investments and net investment income and net realized capital gains and
losses accrue directly to the policyholder. Separate accounts reflect two
categories of risk assumption: non-guaranteed separate accounts totaling $58.6
billion and $39.4 billion at December 31, 1997 and 1996, respectively, wherein
the policyholder assumes the investment risk, and guaranteed separate accounts
totaling $10.5 and $10.3 billion at December 31, 1997 and 1996, respectively,
wherein the Company contractually guarantees either a minimum return or account
value to the policyholder. Included in the non-guaranteed category were policy
loans totaling $1.9 billion and $2.0 billion at December 31, 1997 and 1996,
respectively. Net investment income (including net realized capital gains and
losses) and interest credited to policyholders on separate account assets are
not reflected in the Consolidated Statements of Income.
Separate account management fees were $699, $538 and $387 in 1997, 1996 and
1995, respectively. The guaranteed separate accounts include fixed market value
adjusted individual annuity and modified guaranteed life insurance. The average
credited interest rate on these contracts was 6.52% at December 31, 1997. The
assets that support these liabilities were comprised of $10.2 billion in fixed
maturities as of December 31, 1997. The portfolios are segregated from other
investments and are managed to minimize liquidity and interest rate risk. In
order to minimize the risk of disintermediation associated with early
withdrawals, fixed MVA annuity and modified guaranteed life insurance contracts
carry a graded surrender charge as well as a market value adjustment. Additional
investment risk is hedged using a variety of derivatives which totaled $119 in
carrying value and $3.0 billion in notional amounts as of December 31, 1997.
<PAGE>
- --------------------------------------------------------------------------------
7. INCOME TAX
Hartford Life and The Hartford have entered into a tax sharing agreement
under which each member in the consolidated U.S. Federal income tax return will
make payments between them such that, with respect to any period, the amount of
taxes to be paid by the Company, subject to certain adjustments, generally will
be determined as though the Company were filing separate Federal, state and
local income tax returns.
As long as The Hartford continues to beneficially own, directly or
indirectly, at least 80% of the combined voting power and 80% of the value of
the outstanding capital stock of Hartford Life, the Company will be included for
Federal income tax purposes in the affiliated group of which The Hartford is the
common parent. To the extent allowed by law, it is the intention of The Hartford
and its subsidiaries to continue to file a single consolidated Federal income
tax return. The Company will continue to remit (receive from) The Hartford a
current income tax provision (benefit) computed in accordance with such tax
sharing agreement. The Company's effective tax rate was 36%, 35% and 32% in
1997, 1996 and 1995, respectively.
Income tax expense is as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
-------------------------
1997 1996 1995
---- ------ ------
<S> <C> <C> <C>
Current...................................... $119 $ 122 $ 211
Deferred..................................... 48 (102) (149)
---- ------ ------
Income tax expense......................... $167 $ 20 $ 62
---- ------ ------
---- ------ ------
</TABLE>
A reconciliation of the tax provision at the U.S. Federal statutory rate to
the provision for income taxes is as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
-----------------------------------
1997 1996 1995
--------- ----- -----
<S> <C> <C> <C>
Tax provision at the U.S. Federal statutory
rate...................................... $ 164 $ 20 $ 67
Tax-exempt income.......................... -- -- (3)
Foreign tax credit......................... -- -- (4)
Other...................................... 3 -- 2
--------- --- ---
Total.................................... $ 167 $ 20 $ 62
--------- --- ---
--------- --- ---
</TABLE>
Deferred tax assets include the following at December 31:
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Tax return deferred acquisition costs............ $ 639 $ 514
Financial statement deferred acquisition costs
and reserves.................................... (366) (242)
Employee benefits................................ 5 8
Net unrealized capital gains on securities....... (96) (16)
Investments and other............................ 166 210
--------- ---------
Total.......................................... $ 348 $ 474
--------- ---------
--------- ---------
</TABLE>
Income taxes paid were $9, $189 and $162 in 1997, 1996 and 1995,
respectively. The Company had a current tax payment of $27 due to The Hartford
at December 31, 1997 and a tax refund due from The Hartford of $72 at December
31, 1996.
Prior to the Tax Reform Act of 1984, the Life Insurance Company Income Tax
Act of 1959 permitted the deferral from taxation of a portion of statutory
income under certain circumstances. In these situations, the deferred income was
accumulated in a "Policyholders' Surplus Account" and will be taxable in the
future only under conditions which management considers to be remote; therefore,
no Federal income taxes have been provided on this deferred income. The balance
for tax return purposes of the Policyholders' Surplus Account as of December 31,
1997 was $37.
8. POSTRETIREMENT BENEFIT AND SAVINGS PLANS
(A) PENSION PLANS
The Company's employees are included in The Hartford's noncontributory
defined benefit pension plans. These plans provide pension benefits that are
based on years of service and the employee's compensation during the last ten
years of employment. The Company's funding policy is to contribute annually an
amount between the minimum funding requirements set forth in the Employee
Retirement Income Security Act of 1974, as amended, and the maximum amount that
can be deducted for U.S. Federal income tax purposes. Generally, pension costs
are funded through the purchase of the Company's group pension contracts. The
cost to the Company was approximately $5, $5 and $2 in 1997, 1996 and 1995,
respectively.
The Company also provides, through The Hartford, certain health care and
life insurance benefits for eligible retired employees. A substantial portion of
the Company's employees may become eligible for these benefits upon retirement.
The Company's contribution for health care benefits will depend on the retiree's
date of retirement and years of service. In addition, the plan has a defined
dollar cap which limits average Company contributions. The Company has prefunded
a portion of the health care and life insurance obligations through trust funds
where such prefunding can be accomplished on a tax effective basis.
Postretirement health care and life insurance benefits expense, allocated by The
Hartford, was immaterial to the results of operations for 1997, 1996 and 1995,
respectively.
The assumed rate in the per capita cost of health care (the health care
trend rate) was 8.5% for 1997, decreasing ratably to 6.0% in the year 2001.
Increasing the health care trend rates by one percent per year would have an
immaterial impact on the accumulated postretirement benefit obligation and the
annual expense. To the extent that the actual experience differs from the
inherent assumptions,
<PAGE>
- --------------------------------------------------------------------------------
the effect will be amortized over the average future service of covered
employees.
(B) INVESTMENT AND SAVINGS PLAN
Substantially all employees of the Company are eligible to participate in The
Hartford's Investment and Savings Plan. Under this plan, designated
contributions, which may be invested in Class A Common Stock of Hartford Life or
certain other investments, are matched, up to 3% of compensation, by the
Company. The cost to the Company for the above-mentioned plans was approximately
$2 in 1997.
9. STOCK COMPENSATION PLANS
During the second quarter of 1997, Hartford Life adopted the 1997 HLI
Incentive Stock Plan (the "Plan"). Under the Plan, options granted may be either
non-qualified options or incentive stock options qualifying under Section 422A
of the Internal Revenue Code. The aggregate number of shares of Class A Common
Stock which may be awarded in any one year shall be subject to an annual limit.
The maximum number of shares of Class A Common Stock which may be granted under
the Plan in each year shall be 1.5% of the total issued and outstanding shares
of Hartford Life Class A Common Stock and treasury stock as reported in the
Annual Report on Hartford Life's Form 10-K for the preceding year plus unused
portions of such limit from prior years. In addition, no more than 5,000,000
shares of Class A Common Stock shall be cumulatively available for awards of
incentive stock options under the Plan, and no more than 20% of the total number
of shares on a cumulative basis shall be available for restricted stock and
performance shares.
All options granted have an exercise price equal to the market price of
Hartford Life's stock on the date of grant and an option's maximum term is ten
years. Certain nonperformance based options become exercisable upon the
attainment of specified market price appreciation of Hartford Life's common
shares or at seven years after the date of grant, while the remaining
nonperformance based options become exercisable over a three year period
commencing with the date of grant.
Also included in the Plan are long term performance awards which become
payable upon the attainment of specific performance goals achieved over a three
year period.
During the second quarter of 1997, Hartford Life established the HLI
Employee Stock Purchase Plan ("ESPP"). Under this plan, eligible employees of
Hartford Life and the Company may purchase Class A Common Stock of Hartford Life
at a 15% discount from the lower of the market price at the beginning or end of
the quarterly offering period. Hartford Life may sell up to 2,700,000 shares of
stock to eligible employees. Hartford Life sold 54,316 shares under the ESPP in
1997.
10. REINSURANCE
The Company cedes insurance to other insurers, including its parent HLA, in
order to limit its maximum loss. Such transfer does not relieve the Company of
its primary liability. The Company also assumes insurance from other insurers.
Failure of reinsurers to honor their obligations could result in losses to the
Company. The Company evaluates the financial condition of its reinsurers and
monitors concentration of credit risk.
Net premiums and other considerations were comprised of the following:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
-------------------------------------
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Gross premiums............................... $ 2,164 $ 2,138 $ 1,545
Assumed...................................... 159 190 591
Ceded........................................ (686) (623) (649)
--------- --------- ---------
Net premiums and other considerations...... $ 1,637 $ 1,705 $ 1,487
--------- --------- ---------
--------- --------- ---------
</TABLE>
The Company ceded approximately $76, $100 and $101 of group life premium in
1997, 1996 and 1995, respectively, representing $33.6 billion, $33.3 billion and
$32.3 billion of insurance in force, respectively. The Company ceded $339, $318
and $320 of accident and health premium to HLA in 1997, 1996 and 1995,
respectively. The Company assumed $89, $101 and $103 of premium in 1997, 1996
and 1995, respectively, representing $8.2 billion, $8.5 billion and $8.5 billion
of individual life insurance in force, respectively, from HLA.
Life reinsurance recoveries, which reduce death and other benefits,
approximated $158, $140 and $220 for the years ended December 31, 1997, 1996 and
1995, respectively.
As of December 31, 1997, the Company had reinsurance recoverables of $5.0
billion from Mutual Benefit Life Assurance Corporation ("Mutual Benefit"),
supported by assets in a security trust of $5.0 billion (including policy loans
and accrued interest of $4.5 billion). The risk of Mutual Benefit becoming
insolvent is mitigated by the reinsurance agreement's requirement that the
assets be kept in a security trust with the Company as sole beneficiary. The
Company has no other significant reinsurance-related concentrations of credit
risk.
11. RELATED PARTY TRANSACTIONS
Transactions of the Company with HA&I and its affiliates relate principally
to tax settlements, reinsurance, insurance coverage, rental and service fees,
payment of dividends and capital contributions. In addition, certain affiliated
insurance companies purchased group annuity contracts from the Company to fund
pension costs and claim annuities to settle casualty claims. Substantially all
general insurance expenses related to the Company, including rent and employee
benefit plan expenses, are initially paid by The Hartford. Direct expenses are
allocated to the Company using specific identification, and indirect expenses
are allocated using other applicable methods. Indirect expenses include those
for corporate areas which,
<PAGE>
- --------------------------------------------------------------------------------
depending on type, are allocated based on either a percentage of direct expenses
or on utilization. Indirect expenses allocated to the Company by The Hartford
were $34, $40, and $45 in 1997, 1996 and 1995, respectively. Management believes
that the methods used are reasonable.
The rent paid to Hartford Fire for space occupied by the Company was $7 in
1997, and $3 in 1996 and 1995. The Company expects to pay annual rent of $7 in
1998 and 1999, respectively, $12 in 2000 and 2001, respectively, $13 in 2002 and
$87 thereafter, over the remaining term of the sublease, which expires on
December 31, 2009. Rental expense is recognized over a level basis over the term
of the sublease and amounted to approximately $9 in 1997 and $8 in 1996 and
1995.
12. STATUTORY RESULTS
The domestic insurance subsidiaries of Hartford Life prepare their statutory
financial statements in accordance with accounting practices prescribed by the
State of Connecticut Insurance Department. Prescribed statutory accounting
practices include publications of the National Association of Insurance
Commissioners ("NAIC"), as well as state laws, regulations, and general
administrative rules.
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
--------------------------
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Statutory net income......................... $ 214 $ 144 $ 112
------ ------ ------
Statutory surplus............................ $1,441 $1,207 $1,125
------ ------ ------
------ ------ ------
</TABLE>
A significant percentage of the consolidated statutory surplus is
permanently reinvested or is subject to various state regulatory restrictions
which limit the payment of dividends without prior approval. The total amount of
statutory dividends which may be paid by the insurance subsidiaries of the
Company in 1998 is estimated to be $144.
13. COMMITMENTS AND CONTINGENT LIABILITIES
(A) LITIGATION
The Company is involved in pending and threatened litigation in the normal
course of its business in which claims for monetary and punitive damages have
been asserted. Although there can be no assurances, management, at the present
time, does not anticipate that the ultimate liability arising from such pending
or threatened litigation will have a material effect on the financial condition
or operating results of the Company.
(B) GUARANTY FUNDS
Under insurance guaranty fund laws in each state, the District of Columbia
and Puerto Rico, insurers licensed to do business can be assessed by state
insurance guaranty associations for certain obligations of insolvent insurance
companies to policyholders and claimants. Recent regulatory actions against
certain large life insurers encountering financial difficulty have prompted
various state insurance guaranty associations to begin assessing life insurance
companies for the deemed losses. Most of these laws do provide, however, that an
assessment may be excused or deferred if it would threaten an insurer's solvency
and further provide annual limits on such assessments. A large part of the
assessments paid by the Company's insurance subsidiaries pursuant to these laws
may be used as credits for a portion of the Company's insurance subsidiaries'
premium taxes. The Company paid guaranty fund assessments of approximately $15,
$11 and $10 in 1997, 1996 and 1995, respectively, of which $4, $5, and $6 were
estimated to be creditable against premium taxes.
14. BUSINESS SEGMENT INFORMATION
The Company, along with its parent, sells financial products such as fixed
and variable annuities, retirement plan services, and life and disability
insurance on both an individual and a group basis. The Company divides its core
businesses into three segments: Annuity, Individual Life Insurance, and Employee
Benefits. The Company also maintains a Guaranteed Investment Contracts segment,
which is primarily comprised of guaranteed rate contract business written prior
to 1995 and a Corporate Operation. The Annuity segment offers individual
variable annuities and fixed market value adjusted annuities, deferred
compensation and retirement plan services, mutual funds, investment management
services and other financial products. The Individual Life Insurance segment
sells a variety of individual life insurance products, including variable life,
universal life, interest-sensitive whole life, and term life policies. The
Employee Benefits segment sells group insurance products, including group life,
group short and long-term disability and corporate owned life insurance, and
engages in certain international operations. The Guaranteed Investment Contracts
segment sells a limited amount of guaranteed investment contracts and contains
Closed Book GRC. Through its Corporate Operation, the Company reports items that
are not directly allocable to any of its business segments. Included in the
Corporate Operation are unallocated income and expense and certain other items
not directly allocable to any segment. Net realized capital gains and losses are
recognized in the period of realization, but are allocated to the segments
utilizing durations of the segment portfolios.
<PAGE>
- --------------------------------------------------------------------------------
The following table outlines revenues, operating income and assets by
business segment:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
----------------------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
REVENUES
Annuity.............................................. $ 1,269 $ 968 $ 759
Individual Life Insurance............................ 487 440 383
Employee Benefits.................................... 972 1,366 1,273
Guaranteed Investment Contracts...................... 241 34 337
Corporate Operation.................................. 40 81 52
-------- -------- --------
Total revenues..................................... $ 3,009 $ 2,889 $ 2,804
-------- -------- --------
-------- -------- --------
INCOME (LOSS) BEFORE INCOME TAX EXPENSE (BENEFIT)
Annuity.............................................. $ 317 $ 226 $ 171
Individual Life Insurance............................ 85 68 56
Employee Benefits.................................... 53 44 37
Guaranteed Investment Contracts...................... -- (346) (103)
Corporate Operation.................................. 14 66 30
-------- -------- --------
Total income before income tax expense............. $ 469 $ 58 $ 191
-------- -------- --------
-------- -------- --------
ASSETS
Annuity $ 69,152 $ 52,877 $ 39,732
Individual Life Insurance............................ 4,918 3,753 3,173
Employee Benefits.................................... 18,196 14,708 13,494
Guaranteed Investment Contracts...................... 3,347 4,533 6,069
Corporate Operation.................................. 2,343 1,891 1,729
-------- -------- --------
Total assets....................................... $ 97,956 $ 77,762 $ 64,197
-------- -------- --------
-------- -------- --------
</TABLE>
<PAGE>
HARTFORD LIFE INSURANCE COMPANY AND SUBSIDIARIES
- --------------------------------------------------------------------------------
SCHEDULE I -- SUMMARY OF INVESTMENTS OTHER THAN INVESTMENTS IN AFFILIATES
AS OF DECEMBER 31, 1997
(IN MILLIONS)
<TABLE>
<CAPTION>
AMOUNT AT
WHICH
FAIR SHOWN ON
TYPE OF INVESTMENT COST VALUE BALANCE SHEET
- --------------------------------------------- ------- ------- --------------
<S> <C> <C> <C>
Fixed Maturities
Bonds and Notes
U. S. gov't and gov't agencies and
authorities (guaranteed and sponsored) $ 217 $ 219 $ 219
U. S. gov't and gov't agencies and
authorities (guaranteed and sponsored) --
asset-backed.............................. 1,175 1,204 1,204
States, municipalities and political
subdivisions.............................. 211 217 217
International governments.................. 376 393 393
Public utilities........................... 871 894 894
All other corporate including
international............................. 5,033 5,208 5,208
All other corporate -- asset-backed........ 4,091 4,124 4,124
Short-term investments..................... 1,318 1,318 1,318
Certificates of deposit...................... 593 599 599
------- ------- -------
Total fixed maturities....................... 13,885 14,176 14,176
------- ------- -------
Equity Securities
Common Stocks
Public utilities........................... -- -- --
Banks, trusts and insurance companies...... -- -- --
Industrial and miscellaneous............... 166 180 180
Nonredeemable preferred stocks............. -- -- --
------- ------- -------
Total equity securities...................... 166 180 180
------- ------- -------
Total fixed maturities and equity
securities.................................. 14,051 14,356 14,356
------- ------- -------
Real Estate.................................. -- -- --
Other Investments
Mortgage loans on real estate.............. -- -- --
Policy loans............................... 3,756 3,756 3,756
Investments in partnerships, trusts and
other..................................... 47 91 47
------- ------- -------
Total other investments...................... 3,803 3,847 3,803
------- ------- -------
Total investments............................ $17,854 $18,203 $18,159
------- ------- -------
------- ------- -------
</TABLE>
<PAGE>
HARTFORD LIFE INSURANCE COMPANY AND SUBSIDIARIES
- --------------------------------------------------------------------------------
SCHEDULE III -- SUPPLEMENTARY INSURANCE INFORMATION
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(IN MILLIONS)
<TABLE>
<CAPTION>
FUTURE
POLICY
BENEFITS,
UNPAID OTHER
DEFERRED CLAIMS POLICY
POLICY AND CLAIM CLAIMS AND PREMIUMS NET
ACQUISITION ADJUSTMENT BENEFITS AND OTHER INVESTMENT
SEGMENT COSTS EXPENSES PAYABLE CONSIDERATIONS INCOME
- --------------------------------------------- ----------- --------- ---------- --------------- ---------
<S> <C> <C> <C> <C> <C>
1997
Annuity...................................... $2,478 $2,070 $ 6,838 $ 769 $ 500
Individual Life Insurance.................... 837 392 2,182 323 164
Employee Benefits............................ -- 780 9,232 541 431
Guaranteed Investment Contracts.............. -- -- 2,782 2 239
Corporate Operation.......................... -- 28 -- 2 34
----------- --------- ---------- ------ ---------
Consolidated operations...................... $3,315 $3,270 $21,034 $1,637 $1,368
----------- --------- ---------- ------ ---------
----------- --------- ---------- ------ ---------
1996
Annuity...................................... $2,030 $1,526 $ 6,016 $ 535 $ 433
Individual Life Insurance.................... 730 346 2,160 287 153
Employee Benefits............................ -- 574 9,834 881 485
Guaranteed Investment Contracts.............. -- -- 4,124 2 251
Corporate Operation.......................... -- 28 -- -- 75
----------- --------- ---------- ------ ---------
Consolidated operations...................... $2,760 $2,474 $22,134 $1,705 $1,397
----------- --------- ---------- ------ ---------
----------- --------- ---------- ------ ---------
1995
Annuity...................................... $1,561 $1,314 $ 5,661 $ 319 $ 400
Individual Life Insurance.................... 615 706 1,932 246 137
Employee Benefits............................ 12 325 9,285 922 351
Guaranteed Investment Contracts.............. -- 28 5,720 -- 377
Corporate Operation.......................... -- -- -- -- 63
----------- --------- ---------- ------ ---------
Consolidated operations...................... $2,188 $2,373 $22,598 $1,487 $1,328
----------- --------- ---------- ------ ---------
----------- --------- ---------- ------ ---------
<CAPTION>
NET BENEFITS, AMORTIZATION
REALIZED CLAIMS AND OF DEFERRED
CAPITAL CLAIM POLICY
GAINS ADJUSTMENT ACQUISITION DIVIDENDS TO OTHER
SEGMENT (LOSSES) EXPENSES COSTS POLICYHOLDERS EXPENSES
- --------------------------------------------- ----------- ----------- ------------- ------------- ----------
<S> <C> <C> <C> <C> <C>
1997
Annuity...................................... $ -- $ 445 $250 $ -- $ 257
Individual Life Insurance.................... -- 242 83 -- 77
Employee Benefits............................ -- 425 2 240 252
Guaranteed Investment Contracts.............. -- 232 -- -- 9
Corporate Operation.......................... 4 35 -- -- (9)
----------- ----------- ----- ----- -----
Consolidated operations...................... $ 4 $1,379 $335 $240 $ 586
----------- ----------- ----- ----- -----
----------- ----------- ----- ----- -----
1996
Annuity...................................... $ -- $ 412 $174 $ -- $ 156
Individual Life Insurance.................... -- 245 59 -- 68
Employee Benefits............................ -- 546 -- 635 141
Guaranteed Investment Contracts.............. (219) 332 1 -- 47
Corporate Operation.......................... 6 -- -- -- 15
----------- ----------- ----- ----- -----
Consolidated operations...................... $(213) $1,535 $234 $635 $ 427
----------- ----------- ----- ----- -----
----------- ----------- ----- ----- -----
1995
Annuity...................................... $ -- $ 317 $117 $ -- $ 114
Individual Life Insurance.................... -- 203 70 -- 54
Employee Benefits............................ -- 424 -- 675 137
Guaranteed Investment Contracts.............. -- 453 12 -- 15
Corporate Operation.......................... (11) 25 -- -- (3)
----------- ----------- ----- ----- -----
Consolidated operations...................... $ (11) $1,422 $199 $675 $ 317
----------- ----------- ----- ----- -----
----------- ----------- ----- ----- -----
</TABLE>
<PAGE>
HARTFORD LIFE INSURANCE COMPANY AND SUBSIDIARIES
- --------------------------------------------------------------------------------
SCHEDULE IV -- REINSURANCE
(IN MILLIONS)
<TABLE>
<CAPTION>
CEDED TO ASSUMED FROM PERCENTAGE
GROSS OTHER OTHER NET OF AMOUNT
AMOUNT COMPANIES COMPANIES AMOUNT ASSUMED TO NET
-------- -------------- -------------- -------- ---------------
<S> <C> <C> <C> <C> <C>
For the year ended December 31, 1997
Life insurance in force........................... $245,487 $ 178,771 $ 33,156 $ 99,872 33.2%
Insurance revenues
Life insurance and annuities.................... 1,818 340 157 1,635 9.6%
Accident and health insurance................... 346 346 2 2 100.0%
-------- -------------- ------- --------
Total insurance revenues.......................... $ 2,164 $ 686 $ 159 $ 1,637 9.7%
-------- -------------- ------- --------
-------- -------------- ------- --------
For the year ended December 31, 1996
Life insurance in force......................... $177,094 $ 106,146 $ 31,957 $102,905 31.1%
Insurance revenues
Life insurance and annuities.................... 1,801 298 169 1,672 10.1%
Accident and health insurance................... 337 325 21 33 63.6%
-------- -------------- ------- --------
Total insurance revenues.......................... $ 2,138 $ 623 $ 190 $ 1,705 11.1%
-------- -------------- ------- --------
-------- -------------- ------- --------
For the year ended December 31, 1995
Life insurance in force......................... $182,716 $ 112,774 $ 26,996 $ 96,938 27.8%
Insurance revenues
Life insurance and annuities.................... 1,232 325 574 1,481 38.8%
Accident and health insurance................... 313 324 17 6 283.3%
-------- -------------- ------- --------
Total insurance revenues.......................... $ 1,545 $ 649 $ 591 $ 1,487 39.7%
-------- -------------- ------- --------
-------- -------------- ------- --------
</TABLE>
<PAGE>
PART C
<PAGE>
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) All financial statements are included in Part A and Part B of the
Registration Statement.
(b) (1) Resolution of the Board of Directors of Hartford Life Insurance
Company ("Hartford") authorizing the establishment of the
Separate Account.(1)
(2) Not applicable.
(3) (a) Principal Underwriter Agreement.(2)
(3) (b) Form of Dealer Agreement.(2)
(4) Form of Variable Annuity Contract.(1)
(5) Form of Application.(1)
(6) (a) Certificate of Incorporation of Hartford.(3)
(6) (b) Bylaws of Hartford.(1)
(7) Not applicable.
(8) Not applicable.
(9) Opinion and Consent of Lynda Godkin, Senior Vice President,
General Counsel, and Corporate Secretary.
(10) Consent of Arthur Andersen LLP, Independent Public Accountants.
(11) No financial statements are omitted.
(12) Not applicable.
______________
(1) Incorporated by reference to Post-Effective Amendment No. 2, to the
Registration Statement File No. 33-73570, dated May 1, 1995.
(2) Incorporated by reference to Post Effective Amendment No. 3, to
the Registration Statement File No. 33-73570, dated April 29, 1996.
(3) Incorporated by reference to Post Effective Amendment No. 19, to the
Registration Statement File No. 33-73570, filed on April 14, 1997.
<PAGE>
(13) Not applicable.
(14) Not applicable.
(15) Copy of Power of Attorney.
(16) Organizational Chart.(4)
Item 25. Directors and Officers of the Depositor
NAME POSITION WITH HARTFORD
- ---- -----------------------
Dong H. Ahn Vice President
Wendell J. Bossen Vice President
Gregory A. Boyko Senior Vice President, Chief Financial
Officer, and Treasurer, Director*
Peter W. Cummins Senior Vice President
Ann M. de Raismes Senior Vice President
Timothy M. Fitch Vice President and Actuary
David Foy Vice President
Bruce D. Gardner Vice President
J. Richard Garrett Vice President and Assistant Treasurer
John P. Ginnetti Executive Vice President & Director of
Asset Management Services, Director*
William A. Godfrey, III Senior Vice President
Lynda Godkin Senior Vice President, General Counsel
and Corporate Secretary, Director*
Lois W. Grady Senior Vice President
Christopher Graham Vice President
Mark E. Hunt Vice President
Stephen T. Joyce Vice President
Michael D. Keeler Vice President
Robert A. Kerzner Vice President
David N. Levenson Vice President
Steven M. Maher Vice President and Actuary
William B. Malchodi, Jr. Vice President
- -------------------------
(4) Incorporated by reference to the Initial Filing to the Registration
Statement File No. 333-41213, filed on November 26, 1997.
<PAGE>
Thomas M. Marra Executive Vice President and Director,
Individual Life and Annuity Division,
Director*
Robert F. Nolan, Jr. Senior Vice President
Joseph J. Noto Vice President
Michael C. O'Halloran Vice President
Lawrence M. O'Rourke Vice President
Daniel E. O'Sullivan Vice President
Craig R. Raymond Senior Vice President and Chief Actuary
Mary P. Robinson Vice President
Donald A. Salama Vice President
Timothy P. Schiltz Vice President
Lowndes A. Smith President and Chief Executive Officer,
Director*
Keith A. Stevenson Vice President
Edward A. Sweeney Vice President
Judith V. Tilbor Vice President
Raymond P. Welnicki Senior Vice President and Director,
Employee Benefit Division, Director*
Walter C. Welsh Senior Vice President
Lizabeth H. Zlatkus Senior Vice President, Director*
David M. Znamierowski Senior Vice President, Director*
Unless otherwise indicated, the principal business address of each the above
individuals is P.O. Box 2999, Hartford, CT 06104-2999.
*Denotes Board of Directors.
Item 26. Persons Controlled By or Under Common Control with the Depositor or
Registrant
Filed herewith as Exhibit 16.
Item 27. Number of Contract Owners
As of February 20, 1998, there are 154,444 Contract Owners.
Item 28. Indemnification
Under Section 33-772 of the Connecticut General Statutes, unless
limited by its certificate of incorporation, the Registrant must
indemnify a director who was wholly successful, on the merits or
otherwise, in the defense of any proceeding to which he was a party
because he is or was a director of the corporation against reasonable
expenses incurred by him in connection with the proceeding.
<PAGE>
The Registrant may indemnify an individual made a party to a
proceeding because he is or was a director against liability incurred
in the proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of
the Registrant, and, with respect to any criminal proceeding, had no
reason to believe his conduct was unlawful. Conn. Gen. Stat. Section
33-771(a). Additionally, pursuant to Conn. Gen. Stat. Section 33-776,
the Registrant may indemnify officers and employees or agents for
liability incurred and for any expenses to which they becomes subject
by reason of being or having been an employees or officers of the
Registrant. Connecticut law does not prescribe standards for the
indemnification of officers, employees and agents and expressly states
that their indemnification may be broader than the right of
indemnification granted to directors.
The foregoing statements are specifically made subject to the detailed
provisions of Section 33-770 et seq.
Notwithstanding the fact that Connecticut law obligates the Registrant
to indemnify a only a director that was successful on the merits in a
suit, under Article VIII, Section 1 of the Registrant's bylaws, the
Registrant must indemnify both directors and officers of the
Registrant for (1) any claims and liabilities to which they become
subject by reason of being or having been a directors or officers of
the company and legal and (2) other expenses incurred in defending
against such claims, in each case, to the extent such is consistent
with statutory provisions.
Additionally, the directors and officers of Hartford and Hartford
Securities Distribution Company, Inc. ("HSD") are covered under a
directors and officers liability insurance policy issued to The
Hartford Financial Services Group, Inc. and its subsidiaries. Such
policy will reimburse the Registrant for any payments that it shall
make to directors and officers pursuant to law and will, subject to
certain exclusions contained in the policy, further pay any other
costs, charges and expenses and settlements and judgments arising from
any proceeding involving any director or officer of the Registrant in
his past or present capacity as such, and for which he may be liable,
except as to any liabilities arising from acts that are deemed to be
uninsurable.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the foregoing
provisions, or otherwise, the Registrant has been advised that in the
opinion of the Securities and Exchange Commission such indemnification
is against public policy as expressed in the Act and is, therefore,
unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the
Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling
person in connection with the securities being
<PAGE>
registered, the Registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed
in the Act and will be governed by the final adjudication of such
issue.
Item 29. Principal Underwriters
(a) HSD acts as principal underwriter for the following investment
companies:
<TABLE>
<S> <C>
Hartford Life Insurance Company - Separate Account One
Hartford Life Insurance Company - Separate Account Two
Hartford Life Insurance Company - Separate Account Two (DC Variable Account I)
Hartford Life Insurance Company - Separate Account Two (DC Variable Account II)
Hartford Life Insurance Company - Separate Account Two (QP Variable Account)
Hartford Life Insurance Company - Separate Account Two (Variable Account "A")
Hartford Life Insurance Company - Separate Account Two (NQ Variable Account)
Hartford Life Insurance Company - Putnam Capital Manager Trust Separate Account
Hartford Life Insurance Company - Separate Account Three
Hartford Life Insurance Company - Separate Account Five
Hartford Life and Annuity Insurance Company - Separate Account One
Hartford Life and Annuity Insurance Company - Putnam Capital Manager
Trust Separate Account Two
Hartford Life and Annuity Insurance Company - Separate Account Three
Hartford Life and Annuity Insurance Company - Separate Account Five
Hartford Life and Annuity Insurance Company - Separate Account Six
American Maturity Life Insurance Company - Separate Account AMLVA
</TABLE>
(b) Directors and Officers of HSD
<TABLE>
<CAPTION>
NAME AND PRINCIPAL POSITIONS AND OFFICES
BUSINESS ADDRESS WITH UNDERWRITER
--------------------- ------------------------
<S> <C>
Lowndes A. Smith President and Chief Executive Officer, Director
John P. Ginnetti Executive Vice President, Director
Thomas M. Marra Executive Vice President, Director
Peter W. Cummins Senior Vice President
Lynda Godkin Senior Vice President, General Counsel and
Corporate Secretary
Donald E. Waggaman, Jr. Treasurer
George R. Jay Controller
Paul E. Olson Supervising Registered Principal
James Cubanski Assistant Secretary
Stephen T. Joyce Assistant Secretary
Glen J. Kvadus Assistant Secretary
Edward M. Ryan, Jr. Assistant Secretary
Michael Wilder Director
</TABLE>
Unless otherwise indicated, the principal business address of each the above
individuals is P.O. Box 2999, Hartford, CT 06104-2999.
<PAGE>
Item 30. Location of Accounts and Records
All of the accounts, books, records or other documents required to be
kept by Section 31(a) of the Investment Company Act of 1940 and rules
thereunder, are maintained by Hartford at 200 Hopmeadow Street,
Simsbury, Connecticut 06089.
Item 31. Management Services
All management contracts are discussed in Part A and Part B of this
Registration Statement.
Item 32. Undertakings
(a) The Registrant hereby undertakes to file a post-effective
amendment to this Registration Statement as frequently as is
necessary to ensure that the audited financial statements in
the Registration Statement are never more than 16 months old
so long as payments under the variable annuity Contracts
may be accepted.
(b) The Registrant hereby undertakes to include either (1) as part
of any application to purchase a Contract offered by the
Prospectus, a space that an applicant can check to request a
Statement of Additional Information, or (2) a post card or
similar written communication affixed to or included in
the Prospectus that the applicant can remove to send for a
Statement of Additional Information.
(c) The Registrant hereby undertakes to deliver any Statement
of Additional Information and any financial statements required
to be made available under this Form promptly upon written or
oral request.
(d) Hartford hereby represents that the aggregate fees and charges
under the Contract are reasonable in relation to the services
rendered, the expenses expected to be incurred, and the risks
assumed by Hartford.
The Registrant is relying on the no-action letter issued by the Division of
Investment Management to American Counsel of Life Insurance, Ref. No.
IP-6-88, November 28, 1988. The Registrant has complied with conditions
one through four of the no-action letter.
<PAGE>
SIGNATURES
As required by the Securities Act of 1933 and the Investment Company Act
of 1940, the Registrant certifies that it meets all the requirements for
effectiveness of this Registration Statement pursuant to Rule 485(b) under
the Securities Act of 1933 and duly caused this Registration Statement to be
signed on its behalf, in the City of Hartford, and State of Connecticut on
this 10th day of April, 1998.
HARTFORD LIFE INSURANCE COMPANY -
SEPARATE ACCOUNT TWO
(Registrant)
*By: /s/ Thomas M. Marra *By: /s/ Leslie T. Soler
------------------------- ------------------------
Thomas M. Marra, Executive Vice Leslie T. Soler
President and Director, Attorney-in-Fact
Individual Life and Annuity
Division, Director
HARTFORD LIFE INSURANCE COMPANY
(Depositor)
*By: /s/ Thomas M. Marra
---------------------------
Thomas M. Marra, Executive Vice
President and Director,
Individual Life and Annuity
Division, Director
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed below by the following persons and in
the capacity and on the date indicated.
Gregory A. Boyko, Senior Vice President,
Chief Financial Officer, and Treasurer,
Director* *By: /s/ Leslie T. Soler
John P. Ginnetti, Executive Vice -------------------
President and Director, Asset Management Leslie T. Soler
Services, Director* Attorney-in-Fact
Lynda Godkin, Senior Vice President, General Dated: April 10, 1998
Counsel and Corporate Secretary, Director*
Thomas M. Marra, Executive Vice
President and Director, Individual Life and
Annuity Division, Director*
Lowndes A. Smith, President and
Chief Executive Officer, Director*
Raymond P. Welnicki, Senior Vice
President and Director, Employee Benefit
Division, Director*
Lizabeth H. Zlatkus, Senior Vice President,
Director*
David M. Znamierowski, Senior Vice President,
Director*
<PAGE>
EXHIBIT INDEX
(9) Opinion and Consent of Lynda Godkin, Senior Vice President, General
Counsel and Corporate Secretary.
(10) Consent of Arthur Andersen LLP, Independent Public Accountants.
(15) Power of Attorney.
(16) Organizational Chart.
<PAGE>
Exhibit 9
[LOGO]
HARTFORD LIFE
April 10, 1998 LYNDA GODKIN
Senior Vice President, General
Counsel & Corporate Secretary
Board of Directors
Hartford Life Insurance Company
200 Hopmeadow Street
Simsbury, CT 06089
RE: SEPARATE ACCOUNT TWO
HARTFORD LIFE INSURANCE COMPANY
FILE NO.: 333-41213
Dear Sir/Madam:
I have acted as General Counsel to Hartford Life Insurance Company (the
"Company"), a Connecticut insurance company, and Hartford Life Insurance
Company Separate Account Two (the "Account") in Connecticut with the
registration of an indefinite amount of securities in the form of variable
annuity contracts (the "Contracts") with the Securities and Exchange
Commission under the Securities Act of 1933, as amended. I have examined
such documents (including the Form N-4 registration statement) and reviewed
such questions of law as I considered necessary and appropriate, and on the
basis of such examination and review, it is my opinion that:
1. The Company is a corporation duly organized and validly existing as a
stock life insurance company under the laws of the State of Connecticut
and is duly authorized by the Insurance Department of the State of
Connecticut to issue the Contacts.
2. The Account is a duly authorized and existing separate account established
pursuant to the provisions of Section 38a-433 of the Connecticut Statutes.
3. To the extent so provided under the Contracts, that portion of the assets
of the Account equal to the reserves and other contract liabilities with
respect to the Account will not be chargeable with liabilities arising out
of any other business that the Company may conduct.
4. The Contracts, when issued as contemplated by the Form N-4 Registration
Statement, will constitute legal, validly issued and binding obligations
of the Company.
<PAGE>
Board of Directors
April 10, 1998
Page 2
I hereby consent to the filing of this opinion as an exhibit to the Form N-4
registration statement for the Contracts and the Account.
Sincerely yours,
/s/ Lynda Godkin
Lynda Godkin
<PAGE>
ARTHUR ANDERSEN LLP
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
-----------------------------------------
As independent public accountants, we hereby consent to the use of our
reports (and to all references to our Firm) included in or made a part of
this Registration Statement File No. 333-41213 for Hartford Life Insurance
Company Separate Account Two on Form N-4.
/s/ Arthur Andersen LLP
Hartford, Connecticut
April 13, 1998
<PAGE>
HARTFORD LIFE INSURANCE COMPANY
POWER OF ATTORNEY
-----------------
Gregory A. Boyko
John P. Ginnetti
Lynda Godkin
Thomas M. Marra
Lowndes A. Smith
Raymond P. Welnicki
Lizabeth H. Zlatkus
David M. Znamierowski
do hereby jointly and severally authorize Lynda Godkin, Marianne O'Doherty,
and Leslie T. Soler to sign as their agent, any Registration Statement,
pre-effective amendment, post-effective amendment and any application for
exemptive relief of the Hartford Life Insurance Company and Hartford Life and
Accident Insurance Company under the Securities Act of 1933 and/or the
Investment Company Act of 1940.
IN WITNESS WHEREOF, the undersigned have executed this Power of Attorney for
the purpose herein set forth.
/s/ Gregory A. Boyko Dated as of March 16, 1998
- --------------------------------------- --------------------------
Gregory A. Boyko
/s/ John P. Ginnetti Dated as of March 16, 1998
- --------------------------------------- --------------------------
John P. Ginnetti
/s/ Lynda Godkin Dated as of March 16, 1998
- --------------------------------------- --------------------------
Lynda Godkin
/s/ Thomas M. Marra Dated as of March 16, 1998
- --------------------------------------- --------------------------
Thomas M. Marra
/s/ Lowndes A. Smith Dated as of March 16, 1998
- --------------------------------------- --------------------------
Lowndes A. Smith
/s/ Raymond P. Welnicki Dated as of March 16, 1998
- --------------------------------------- --------------------------
Raymond P. Welnicki
/s/ Lizabeth H. Zlatkus Dated as of March 16, 1998
- --------------------------------------- --------------------------
Lizabeth H. Zlatkus
/s/ David M. Znamierowski Dated as of March 16, 1998
- --------------------------------------- --------------------------
David M. Znamierowski
