<PAGE>
As filed with the Securities and Exchange Commission on February 20, 1998.
File No. 33-73570
811-4372
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. 22 [X]
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 82 [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) 843-6733
(Depositor's Telephone Number, Including Area Code)
Marianne O'Doherty, Esq.
HARTFORD LIFE
P.O. BOX 2999
HARTFORD, CT 06104-2999
(Name and Address of Agent for Service)
It is proposed that this filing will become effective:
___ immediately upon filing pursuant to paragraph (b) of Rule 485
_X_ on February 20, 1998 pursuant to paragraph (b) of Rule 485
___ 60 days after filing pursuant to paragraph (a)(1) of Rule 485
___ on February 20, 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 HAS REGISTERED AN INDEFINITE AMOUNT OF SECURITIES. THE RULE 24F-2
NOTICE FOR THE REGISTRANT'S MOST RECENT FISCAL YEAR WAS FILED ON OR ABOUT
FEBRUARY 28, 1997.
The purpose of this post-effective amendment no. 22 to the registration
statement on Form N-4 (File No. 33-73570) is to add the attached prospectus
which describes The Director Select, an individual and group tax deferred
variable annuity contract to the registration statement. This post-effective
amendment no. 22 does not supersede post-effective amendment no. 21 filed with
the Securities and Exchange Commission on October 16, 1997.
<PAGE>
CROSS REFERENCE SHEET
PURSUANT TO RULE 495(a)
N-4 ITEM NO. PROSPECTUS HEADING
----------------------- ----------------------------------
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 Account, and the Funds
6. Deductions Charges Under the Contract
7. General Description of The Contracts, Separate Account,
Annuity Contracts the Fixed Account, and Surrender
Benefits
8. Annuity Period Annuity Benefits
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
16. Table of Contents Table of Contents
17. General Information and History Introduction
<PAGE>
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>
THE DIRECTOR SELECT
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 REPRESENTATIVES)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
This Prospectus describes The Director Select, an individual and group 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 Hartford Life Insurance Company
Separate Account Two (the "Separate Account") or in the Fixed Account of
Hartford. Allocations to and transfers to and from the Fixed Account 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>
Mentor Perpetual International Sub-Account -- shares of Mentor Perpetual VIP International Portfolio of
the Mentor Variable Investment Portfolios ("Mentor
Perpetual International Portfolio")
Mentor Capital Growth Sub-Account -- shares of the Mentor VIP Capital Growth Portfolio of the
Mentor Variable Investment Portfolios ("Mentor Capital
Growth Portfolio")
Mentor Growth Sub-Account -- shares of the Mentor VIP Growth Portfolio of the Mentor
Variable Investment Portfolios ("Mentor Growth Portfolio")
Advisers Fund Sub-Account -- shares of Class IA of Hartford Advisers Fund, Inc.
("Advisers Fund")
Bond Fund Sub-Account -- shares of Class IA of Hartford Bond Fund, Inc. ("Bond
Fund")
Capital Appreciation Fund Sub-Account -- shares of Class IA of Hartford Capital Appreciation Fund,
Inc. ("Capital Appreciation Fund")
Dividend and Growth Fund Sub-Account -- shares of Class IA of Hartford Dividend and Growth Fund,
Inc. ("Dividend and Growth Fund")
Index Fund Sub-Account -- shares of Class IA of Hartford Index Fund, Inc. ("Index
Fund")
International Advisers Fund Sub-Account -- shares of Class IA Hartford International Advisers Fund,
Inc. ("International Advisers Fund")
International Opportunities Fund Sub-Account -- shares of Class IA of Hartford International Opportunities
Fund, Inc. ("International Opportunities Fund")
MidCap Fund Sub-Account -- shares of Class IA of Hartford MidCap Fund, Inc. ("MidCap
Fund")
Money Market Fund Sub-Account -- shares of Class IA of HVA Money Market Fund, Inc. ("Money
Market Fund")
Mortgage Securities Fund Sub-Account -- shares of Class IA Hartford Mortgage Securities Fund, Inc.
("Mortgage Securities Fund")
Small Company Fund Sub-Account -- shares of Class IA of Hartford Small Company Fund, Inc.
("Small Company Fund")
Stock Fund Sub-Account -- shares of Class IA of Hartford Stock Fund, Inc. ("Stock
Fund")
</TABLE>
This Prospectus sets forth the information concerning the Separate Account and
the Fixed Account, 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 Account 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 to this Prospectus.
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
PROSPECTUS DATED: FEBRUARY 20, 1998
STATEMENT OF ADDITIONAL INFORMATION DATED: FEBRUARY 20, 1998
<PAGE>
2 HARTFORD LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
GLOSSARY OF SPECIAL TERMS............................................. 3
FEE TABLE............................................................. 5
ACCUMULATION UNIT VALUES.............................................. 7
INTRODUCTION.......................................................... 8
HARTFORD, SEPARATE ACCOUNT TWO, THE FIXED ACCOUNT AND THE FUNDS....... 8
Hartford Life Insurance Company..................................... 8
Separate Account Two................................................ 9
The Funds........................................................... 9
The Fixed Account................................................... 11
Performance Related Information..................................... 12
THE CONTRACTS......................................................... 13
Contracts Offered................................................... 13
Premium Payments and Initial Allocations............................ 13
Contract Value...................................................... 14
Transfers Between Sub-Accounts/Fixed Account........................ 14
Charges Under the Contract.......................................... 15
Waiver of Sales Charge.............................................. 17
Death Benefits...................................................... 17
Surrender Benefits.................................................. 18
Annuity Benefits.................................................... 19
Other Information................................................... 21
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....................................................... 25
MISCELLANEOUS......................................................... 25
How Contracts Are Sold.............................................. 25
Legal Matters and Experts........................................... 25
Additional Information.............................................. 25
APPENDIX I -- INFORMATION REGARDING TAX-QUALIFIED RETIREMENT PLANS.... 26
TABLE OF CONTENTS TO STATEMENT OF ADDITIONAL INFORMATION.............. 29
</TABLE>
<PAGE>
HARTFORD LIFE INSURANCE COMPANY 3
- --------------------------------------------------------------------------------
GLOSSARY OF SPECIAL TERMS
ACCUMULATION UNIT: An accounting unit of measure used to calculate values before
Annuity payments begin.
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 series of payments for life, or for life with a minimum number of
payments or a determinable sum guaranteed, or for a joint lifetime and
thereafter during the lifetime of the survivor, or for a designated period.
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 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 Account.
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.
FIXED ACCOUNT: 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.
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 9 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.
HOME OFFICE OF THE COMPANY: Currently located at 200 Hopmeadow Street, Simsbury,
CT. All correspondence concerning this Contract should be sent to P.O. Box 5085,
Hartford, CT 06102-5085, Attn: Individual Annuity Services.
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 17.
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.
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 Section401(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 entity, 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.
<PAGE>
4 HARTFORD LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
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 (currently 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>
- ----------
(1) Length of time from premium payment.
(2) The Annual Maintenance Fee is a single $30 charge on the Contract. It is
deducted proportionally from the investment options in use at the time of
the charge. Pursuant to requirements of the 1940 Act, the Annual Maintenance
Fees have 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 below, the Annual
Maintenance Fee is approximately 0.06% annual asset charge based on the
experience of the Contracts.
Annual Fund Operating Expenses
(as percentage of net assets)
<TABLE>
<CAPTION>
TOTAL FUND
MANAGEMENT OTHER OPERATING
FEES EXPENSES EXPENSES
---------- -------- ----------
<S> <C> <C> <C>
Mentor Perpetual International Portfolio
(1)(2)........................................ 1.000% 0.550% 1.550%
Mentor Capital Growth Portfolio (1)(2).......... 0.800% 0.250% 1.050%
Mentor Growth Portfolio (1)(2).................. 0.700% 0.250% 0.950%
Bond Fund....................................... 0.490% 0.020% 0.510%
Stock Fund...................................... 0.430% 0.020% 0.450%
Money Market Fund............................... 0.425% 0.015% 0.440%
Advisers Fund................................... 0.610% 0.020% 0.630%
Capital Appreciation Fund....................... 0.620% 0.020% 0.640%
Mortgage Securities Fund........................ 0.425% 0.025% 0.450%
Index Fund...................................... 0.375% 0.015% 0.390%
International Opportunities Fund................ 0.680% 0.090% 0.770%
Dividend & Growth Fund.......................... 0.660% 0.020% 0.680%
International Advisers Fund..................... 0.750% 0.120% 0.870%
MidCap Fund (3)................................. 0.750% 0.040% 0.790%
Small Company Fund.............................. 0.750% 0.020% 0.770%
</TABLE>
- ----------
(1) Each of Mentor Perpetual International Portfolio, Mentor Capital Growth
Portfolio, and Mentor Growth Portfolio is a new mutual fund. Operating
expenses are estimated based on the expenses the Portfolios expect to incur
during their first year of operation.
(2) Each of Mentor Perpetual International Portfolio, Mentor Capital Growth
Portfolio, and Mentor Growth Portfolio has adopted a distribution plan
pursuant to Rule 12b-1 under the Investment Company Act of 1940, as amended.
Under the plans, a Portfolio may pay fees at an annual rate of up to 0.25%
of the Portfolio's average daily net assets. None of the Portfolios
currently make payments under the plans, though they may do so at any time
in the future.
(3) Hartford MidCap Fund is a new Fund. Operating expenses are based on
annualized estimates of such expenses to be incurred in the current fiscal
year.
<PAGE>
6 HARTFORD LIFE INSURANCE COMPANY
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EXAMPLE
<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-ACCOUNT 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>
Mentor Perpetual
International.............. $ 89 $ 139 N/A N/A $ 29 $ 89 N/A N/A $ 29 $ 89 N/A N/A
Mentor Capital Growth........ 84 124 N/A N/A 24 74 N/A N/A 24 74 N/A N/A
Mentor Growth................ 83 121 N/A N/A 23 71 N/A N/A 23 71 N/A N/A
Bond Fund.................... 79 107 $ 139 $ 214 18 57 $ 98 $ 213 19 57 $ 99 $ 214
Stock Fund................... 78 106 136 208 17 55 95 207 18 56 96 208
Money Market Fund............ 78 105 135 208 17 55 95 206 18 55 95 207
Advisers Fund................ 80 111 145 227 19 61 104 226 20 61 105 227
Capital Appreciation Fund.... 80 111 146 228 19 61 105 227 20 61 106 228
Mortgage Securities Fund..... 78 106 136 208 17 55 95 207 18 56 96 208
Index Fund................... 77 104 132 201 17 53 92 200 17 54 92 201
International Opportunities
Fund....................... 81 116 152 242 21 65 112 241 21 66 112 242
Dividend & Growth Fund....... 80 113 148 232 20 62 107 232 20 63 108 232
International Advisers
Fund....................... 82 119 158 252 22 68 117 252 22 69 118 252
MidCap Fund.................. 81 116 N/A N/A 21 66 N/A N/A 21 66 N/A N/A
Small Company Fund........... 81 116 152 242 21 65 112 241 21 66 112 242
</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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ACCUMULATION UNIT VALUES
(FOR AN ACCUMULATION UNIT OUTSTANDING THROUGHOUT THE PERIOD)
The following information has been examined by Arthur Andersen LLP,
independent public accountants, whose report thereon is included in the
Statement of Additional information, which is incorporated by reference to this
Prospectus. No information is included for the MidCap Fund Sub-Account, Mentor
Perpetual International, Mentor Capital Growth and Mentor Growth Sub-Accounts
because as of December 31, 1996, the Sub-Account had not commenced operations.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------
1996 1995 1994 1993 1992 1991 1990
------- ------- ---------- ------- ------- ------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
BOND FUND SUB-ACCOUNT
Accumulation unit value at beginning of
period................................. $1.880 $1.607 $1.694 $1.556 $1.493 $1.298 $1.212
Accumulation unit value at end of
period................................. $1.922 $1.880 $1.607 $1.694 $1.556 $1.493 $1.298
Number accumulation units outstanding at
end of period (in thousands)........... 96,857 99,377 85,397 79,080 41,204 25,267 14,753
STOCK FUND SUB-ACCOUNT
Accumulation unit value at beginning of
period................................. $2.887 $2.180 $2.250 $1.993 $1.834 $1.490 $1.569
Accumulation unit value at end of
period................................. $3.546 $2.887 $2.180 $2.250 $1.993 $1.834 $1.490
Number accumulation units outstanding at
end of period (in thousands)........... 333,176 285,640 248,563 203,873 121,100 72,780 31,149
MONEY MARKET FUND SUB-ACCOUNT
Accumulation unit value at beginning of
period................................. $1.528 $1.462 $1.424 $1.401 $1.369 $1.307 $1.225
Accumulation unit value at end of
period................................. $1.587 $1.528 $1.462 $1.424 $1.401 $1.369 $1.307
Number accumulation units outstanding at
end of period (in thousands)........... 151,978 102,635 138,396 102,328 78,664 60,774 67,059
ADVISERS FUND SUB-ACCOUNT
Accumulation unit value at beginning of
period................................. $2.523 $1.991 $2.072 $1.870 $1.748 $1.470 $1.470
Accumulation unit value at end of
period................................. $2.905 $2.523 $1.991 $2.072 $1.870 $1.748 $1.470
Number accumulation units outstanding at
end of period (in thousands)........... 953,998 888,803 858,014 688,865 295,387 166,408 101,758
U.S. GOVERNMENT MONEY MARKET FUND
SUB-ACCOUNT
Accumulation unit value at beginning of
period................................. $1.468 $1.409 $1.376 $1.357 $1.331 $1.276 $1.202
Accumulation unit value at end of
period................................. $1.521 $1.468 $1.409 $1.376 $1.357 $1.331 $1.276
Number accumulation units outstanding at
end of period (in thousands)........... 46 48 48 52 161 213 243
CAPITAL APPRECIATION FUND SUB-ACCOUNT
Accumulation unit value at beginning of
period................................. $3.364 $2.615 $2.583 $2.165 $1.874 $1.231 $1.400
Accumulation unit value at end of
period................................. $4.010 $3.364 $2.615 $2.583 $2.165 $1.874 $1.231
Number accumulation units outstanding at
end of period (in thousands)........... 330,580 292,671 220,936 160,934 75,653 39,031 10,501
MORTGAGE SECURITIES FUND SUB-ACCOUNT
Accumulation unit value at beginning of
period................................. $1.878 $1.637 $1.685 $1.604 $1.552 $1.370 $1.264
Accumulation unit value at end of
period................................. $1.949 $1.878 $1.637 $1.685 $1.604 $1.552 $1.370
Number accumulation units outstanding at
end of period (in thousands)........... 89,098 101,881 112,417 138,666 98,494 46,464 18,632
INDEX FUND SUB-ACCOUNT
Accumulation unit value at beginning of
period................................. $2.359 $1.750 $1.755 $1.629 $1.544 $1.207 $1.274
Accumulation unit value at end of
period................................. $2.845 $2.359 $1.750 $1.755 $1.629 $1.544 $1.207
Number accumulation units outstanding at
end of period (in thousands)........... 87,611 65,954 50,799 46,504 29,723 15,975 10,015
INTERNATIONAL OPPORTUNITIES FUND
SUB-ACCOUNT
Accumulation unit value at end of
period................................. $1.329 $1.181 $1.220 $0.924 $0.979 $0.877 $1.000(c)
Accumulation unit value at end of
period................................. $1,482 $1.329 $1.181 $1.220 $0.924 $0.979 $0.877
Number accumulation units outstanding at
end of period (in thousands)........... 266,962 238,086 246,259 132,795 32,597 13,109 2,892
DIVIDEND & GROWTH FUND SUB-ACCOUNT
Accumulation unit value at beginning of
period................................. $1.359 $1.009 $1.000(d)
Accumulation unit value at end of
period................................. $1.650 $1.359 $1.009
Number accumulation units outstanding at
end of period (in thousands)........... 190,958 83,506 29,146
INTERNATIONAL ADVISERS FUND SUB-ACCOUNT
Accumulation unit value at beginning of
period................................. $1.146 $1,000(e)
Accumulation unit value at end of
period................................. $1.266 $1.146
Number accumulation units outstanding at
end of period (in thousands)........... 23,174 6,577
SMALL COMPANY FUND SUB-ACCOUNT
Accumulation unit value at beginning of
period................................. $0.000 $0.000(f)
Accumulation unit value at end of
period................................. $1.066 $0.000
Number accumulation units outstanding at
end of period (in thousands)........... 12,563 --
<CAPTION>
1989 1988 1987 1986
------- ------- ---------- ----------
<S> <C> <C> <C> <C>
BOND FUND SUB-ACCOUNT
Accumulation unit value at beginning of
period................................. $1.095 $1.031 $1.044 $1.000(a)
Accumulation unit value at end of
period................................. $1.212 $1.095 $1.031 $1.044
Number accumulation units outstanding at
end of period (in thousands)........... 9,267 5,786 3,576 802
STOCK FUND SUB-ACCOUNT
Accumulation unit value at beginning of
period................................. $1.261 $1.073 $1.031 $1.000(a)
Accumulation unit value at end of
period................................. $1.569 $1.261 $1.073 $1.031
Number accumulation units outstanding at
end of period (in thousands)........... 30,096 9.158 9,229 1,250
MONEY MARKET FUND SUB-ACCOUNT
Accumulation unit value at beginning of
period................................. $1.136 $1.071 $1.019 $1.000(a)
Accumulation unit value at end of
period................................. $1.225 $1.136 $1.071 $1.019
Number accumulation units outstanding at
end of period (in thousands)........... 28,291 29,043 11,633 243
ADVISERS FUND SUB-ACCOUNT
Accumulation unit value at beginning of
period................................. $1.223 $1.085 $1.036 $1.000(a)
Accumulation unit value at end of
period................................. $1.470 $1.223 $1.085 $1.036
Number accumulation units outstanding at
end of period (in thousands)........... 79,738 56.584 56,332 9,405
U.S. GOVERNMENT MONEY MARKET FUND
SUB-ACCOUNT
Accumulation unit value at beginning of
period................................. $1.122 $1.062 $1.018 $1.000(a)
Accumulation unit value at end of
period................................. $1.202 $1.122 $1.062 $1.018
Number accumulation units outstanding at
end of period (in thousands)........... 297 281 187 10
CAPITAL APPRECIATION FUND SUB-ACCOUNT
Accumulation unit value at beginning of
period................................. $1.142 $0.916 $0.969 $1.000(a)
Accumulation unit value at end of
period................................. $1.400 $1.142 $0.916 $0.969
Number accumulation units outstanding at
end of period (in thousands)........... 8,041 3,606 2,989 431
MORTGAGE SECURITIES FUND SUB-ACCOUNT
Accumulation unit value at beginning of
period................................. $1.132 $1.057 $1.043 $1.000(a)
Accumulation unit value at end of
period................................. $1.264 $1.132 $1.057 $1.043
Number accumulation units outstanding at
end of period (in thousands)........... 12,248 11,061 9,397 3,773
INDEX FUND SUB-ACCOUNT
Accumulation unit value at beginning of
period................................. $0.989 $0.862 $1.000(b) --
Accumulation unit value at end of
period................................. $1.274 $0.989 $0.862 --
Number accumulation units outstanding at
end of period (in thousands)........... 6,306 2,868 1,758 --
INTERNATIONAL OPPORTUNITIES FUND
SUB-ACCOUNT
Accumulation unit value at end of
period................................. -- -- -- --
Accumulation unit value at end of
period................................. -- -- -- --
Number accumulation units outstanding at
end of period (in thousands)........... -- -- -- --
DIVIDEND & GROWTH FUND SUB-ACCOUNT
Accumulation unit value at beginning of
period.................................
Accumulation unit value at end of
period.................................
Number accumulation units outstanding at
end of period (in thousands)...........
INTERNATIONAL ADVISERS FUND SUB-ACCOUNT
Accumulation unit value at beginning of
period.................................
Accumulation unit value at end of
period.................................
Number accumulation units outstanding at
end of period (in thousands)...........
SMALL COMPANY FUND SUB-ACCOUNT
Accumulation unit value at beginning of
period.................................
Accumulation unit value at end of
period.................................
Number accumulation units outstanding at
end of period (in thousands)...........
</TABLE>
- -------------
(a) Inception date August 1, 1986.
(b) Inception date May 1, 1987.
(c) Inception date July 2, 1990.
(d) Inception date March 8, 1994.
(e) Inception date March 1, 1995.
(f) Inception date August 9, 1996.
<PAGE>
8 HARTFORD LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
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 Account and/or a series of Separate Account Two. (See
"Hartford Life Insurance Company," page 8; "The Contracts," page 13; and "The
Separate Account," page 9.) 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 13.) Generally, the minimum initial
Premium Payment is $1,000. 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 15.)
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 Hartford at its Home Office. 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 the Mentor VIP Perpetual
International Portfolio, Mentor VIP Capital Growth Portfolio, Mentor VIP Growth
Portfolio, Hartford Advisers Fund, Inc., Hartford Bond Fund, Inc., Hartford
Capital Appreciation Fund, Inc., Hartford Dividend and Growth Fund, Inc.,
Hartford Index Fund, Inc., Hartford International Advisers Fund, Inc., Hartford
International Opportunities Fund, Inc., Hartford MidCap Fund, Inc., Hartford
Mortgage Securities Fund, Inc., Hartford Small Company Fund, Inc., Hartford
Stock Fund, Inc., HVA Money Market Fund, Inc., and such other funds as shall be
offered from time to time (the "Funds"), and the Fixed Account. (See "The
Funds," page 9, and "The Fixed Account," page 11.) 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 Account," page 14.)
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 15). Finally, the Funds are subject to certain fees, charges and
expenses (see the Funds' prospectus attached hereto).
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 18.) 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 15.)
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 17). 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 19).
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.
HARTFORD, SEPARATE ACCOUNT
TWO, THE FIXED ACCOUNT,
AND THE FUNDS
HARTFORD LIFE INSURANCE COMPANY
Hartford Life Insurance Company ("Hartford") is a stock life insurance
company engaged in the business of writing health and life insurance, both
individual and
<PAGE>
HARTFORD LIFE INSURANCE COMPANY 9
- --------------------------------------------------------------------------------
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 a subsidiary of Hartford Fire Insurance Company, one
of the largest multiple lines insurance carriers in the United States. Hartford
is ultimately controlled by The Hartford Financial Services Group Inc., one of
the largest financial service providers in the United States.
HARTFORD RATING
<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 Investment Company Act of 1940. This
registration does not, however, involve Commission supervision of the management
or the investment practices or policies of the Separate Account or 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 is 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 or variable
life insurance policies 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' prospectus.
THE FUNDS
The Mentor VIP Perpetual International Portfolio, Mentor VIP Capital Growth
Portfolio and Mentor VIP Growth Portfolio are series of Mentor Variable
Investment Portfolios, a Massachusetts business trust. Mentor Perpetual
Advisors, LLC is the investment advisor to the Mentor Perpetual International
Portfolio. Mentor Perpetual Advisors is an investment advisory firm organized in
1995 and owned equally by Perpetual plc, a diversified financial services
holding company, and Mentor Investment Advisors, LLC ("Mentor Advisors"). Mentor
Advisors is the investment advisor to the Mentor Capital Growth Portfolio and
Mentor Growth Portfolio. Mentor Advisors is a wholly owned subsidiary of Mentor
Investment Group LLC, which in turn is a subsidiary of Wheat First Butcher
Singer, Inc. Wheat First Butcher Singer is a wholly owned subsidiary of First
Union Corporation, a leading financial services company with approximately $157
billion in assets and $12 billion in total stockholders' equity as of December
31, 1997. EVEREN Capital Corporation currently has a 20% ownership in Mentor
Investment Group and may acquire additional ownership based principally on the
amount of
<PAGE>
10 HARTFORD LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
Mentor Investment Group's revenues attributable to clients of EVEREN Securities,
Inc. and its affiliates.
The Hartford Advisers Fund, Inc., Hartford Bond Fund, Inc., Hartford Capital
Appreciation Fund, Inc., Hartford Dividend and Growth Fund, Inc., Hartford Index
Fund, Inc., Hartford International Advisers Fund, Inc., Hartford International
Opportunities Fund, Inc., Hartford MidCap Fund, Inc., Hartford Mortgage
Securities Fund, Inc., Hartford Small Company Fund, Inc., Hartford Stock Fund,
Inc., HVA Money Market Fund, Inc., 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 Hartford
Funds.
Wellington Management Company, L.L.P. serves as sub-investment adviser for
Hartford Advisers Fund, Hartford Capital Appreciation Fund, Hartford Dividend
and Growth Fund, Hartford International Advisers Fund, Hartford International
Opportunities Fund, Hartford MidCap Fund, Hartford Small Company Fund and
Hartford Stock Fund.
In addition, The Hartford Investment Management Company, Inc. ("HIMCO"),
serves as sub-investment adviser for the Hartford Bond Fund, Hartford Index
Fund, Hartford Mortgage Securities Fund and HVA Money Market Fund.
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' Prospectus which should be read in
conjunction with this Prospectus before investing and in the Funds' Statement 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:
MENTOR VIP PERPETUAL INTERNATIONAL PORTFOLIO:
Seeks to provide long-term capital appreciation by investing in a
diversified portfolio of securities of issuers located outside the United
States. The Portfolio's investments will normally include common stocks,
preferred stocks, securities convertible into commons stocks or preferred
stocks, and warrants to purchase common stocks or preferred stocks. The
Portfolio may also invest to a lesser extent in debt securities and other types
of investments if the investment adviser believe that they would help achieve
the Portfolio's objective.
MENTOR VIP CAPITAL GROWTH PORTFOLIO:
Seeks to provide long-term appreciation of capital by investing in a wide
variety of securities which the investment advisor believes offers the potential
for capital appreciation over both the immediate and long term.
MENTOR VIP GROWTH PORTFOLIO:
Seeks to provide long-term growth of capital through a diversified portfolio
of equity securities. Although the Portfolio may invest in companies of any
size, the Portfolio invests principally in common stocks of small to mid-sized
companies.
HARTFORD ADVISERS FUND, INC.
Seeks maximum long-term total rate of return consistent with prudent
investment risk by investing in common stock and other equity securities, bonds
and other debt securities, and money market instruments.
HARTFORD BOND FUND, INC.
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 or "BB" by S&P) 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 Hartford Funds entitled "Hartford Bond Fund,
Inc. -- Investment Policies."
HARTFORD CAPITAL APPRECIATION FUND, INC.
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, INC.
Seeks a high level of current income consistent with growth of capital and
reasonable investment risk.
HARTFORD INDEX FUND, INC.
Seeks to provide investment results which approximate the price and yield
performance of publicly-traded common stocks in the aggregate, as represented by
the Standard & Poor's 500 Composite Stock Price Index.*
HARTFORD INTERNATIONAL ADVISERS FUND, INC.
Seeks maximum long-term total rate of return consistent with prudent
investment risk by investing in a portfolio of equity, debt and money market
securities. Securities in which the Fund invests primarily will be denominated
in non-U.S. currencies and will be traded in non-U.S. markets.
* "STANDARD & POOR'S-REGISTERED TRADEMARK-," "S&P-REGISTERED TRADEMARK-," "S&P
500-REGISTERED TRADEMARK-," "STANDARD & POOR'S 500," AND "500" ARE TRADEMARKS
OF THE MCGRAW-HILL COMPANIES, INC. AND HAVE BEEN LICENSED FOR USE BY HARTFORD.
THE INDEX FUND IS NOT SPONSORED, ENDORSED, SOLD OR PROMOTED BY STANDARD &
POOR'S AND STANDARD & POOR'S MAKES NO REPRESENTATION REGARDING THE
ADVISABILITY OF INVESTING IN THE INDEX FUND.
<PAGE>
HARTFORD LIFE INSURANCE COMPANY 11
- --------------------------------------------------------------------------------
HARTFORD INTERNATIONAL OPPORTUNITIES FUND, INC.
Seeks long-term total rate of return consistent with prudent investment risk
through investment primarily in equity securities issued by non-U.S. companies.
HARTFORD MIDCAP FUND, INC.
Seeks to achieve long-term capital growth through capital appreciation by
investing primarily in equity securities.
HARTFORD MORTGAGE SECURITIES FUND, INC.
Seeks maximum current income consistent with safety of principal and
maintenance of liquidity by investing primarily in mortgage-related securities,
including securities issued by the Government National Mortgage Association.
HARTFORD SMALL COMPANY FUND, INC.
Seeks growth of capital by investing primarily in equity securities selected
on the basis of potential for capital appreciation.
HARTFORD STOCK FUND, INC.
Seeks long-term capital growth primarily through capital appreciation, with
income as a secondary consideration, by investing primarily in equity
securities.
HVA MONEY MARKET FUND, INC.
Seeks maximum current income consistent with liquidity and preservation of
capital.
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'
meeting 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 only to serve as the underlying investment for
variable annuity and variable life insurance Contracts issued by Hartford. 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' Board of Directors intends to monitor
events in order to identify any material conflicts between such Contract Owners
and Policy Owners and to determine what action, if any, should be taken in
response thereto. If the Board of Directors of 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 ACCOUNT
THAT PORTION OF THE CONTRACT RELATING TO THE FIXED ACCOUNT IS NOT REGISTERED
UNDER THE SECURITIES ACT OF 1933 ("1933 ACT") AND THE FIXED ACCOUNT IS NOT
REGISTERED AS AN INVESTMENT COMPANY UNDER THE INVESTMENT COMPANY ACT OF 1940
("1940 ACT"). ACCORDINGLY, NEITHER THE FIXED ACCOUNT NOR ANY INTERESTS THEREIN
ARE SUBJECT TO THE PROVISIONS OR RESTRICTIONS OF THE 1933 ACT OR THE 1940 ACT,
AND THE DISCLOSURE REGARDING THE FIXED ACCOUNT HAS NOT BEEN REVIEWED BY THE
STAFF OF THE SECURITIES AND EXCHANGE COMMISSION. THE FOLLOWING DISCLOSURE ABOUT
THE FIXED ACCOUNT MAY BE SUBJECT TO CERTAIN GENERALLY APPLICABLE PROVISIONS OF
THE FEDERAL SECURITIES LAWS REGARDING THE ACCURACY AND COMPLETENESS OF
DISCLOSURE.
<PAGE>
12 HARTFORD LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
Premium Payments and Contract Values allocated to the Fixed Account 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
Account under the Contracts. However, Hartford reserves the right to change the
rate according to state insurance law. 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 the Company may consider in
determining whether to credit excess interest to amounts allocated to the Fixed
Account and the amount thereof, are general economic trends, rates of return
currently available and anticipated on the Company's investments, regulatory and
tax requirements and competitive factors. ANY INTEREST CREDITED TO AMOUNTS
ALLOCATED TO THE FIXED ACCOUNT IN EXCESS OF 3% PER YEAR WILL BE DETERMINED IN
THE SOLE DISCRETION OF THE COMPANY. THE OWNER ASSUMES THE RISK THAT INTEREST
CREDITED TO FIXED ACCOUNT ALLOCATIONS MAY NOT EXCEED THE MINIMUM GUARANTEE OF 3%
FOR ANY GIVEN YEAR.
From time to time, Hartford may credit increased interest rates to Contract
Owners under certain programs established at the discretion of Hartford.
Effective August 6, 1997, Contract Owners may enroll in a special preauthorized
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 and preauthorize
between 3 and 12 monthly transfers to any of the Sub-Accounts. Contract Owners
enrolled in the Program will receive an increased interest rate guaranteed for a
12 month period.
The preauthorized transfers will begin on or about 15 days following receipt
of an initial Program Premium Payment. That Premium Payment plus any subsequent
Premium Payments and any accrued interest will be completely transferred into
the Sub-Accounts within twelve months of receipt of the initial Program Premium
Payment. This will be accomplished by equal monthly transfers for the period
selected, and a final transfer of the entire amount remaining in the Program.
Any subsequent Premium Payments received by Hartford within the period
selected for transfer will be allocated to the Sub-Accounts over the remainder
of the transfer period. If, while the Program is still in effect but the
transfer period has expired, a subsequent Premium Payment of $5,000 is received
by Hartford, a new Program cycle will be initiated. Unless instructed otherwise,
Hartford will allocate that Premium Payment in the same number of transfers and
into the same Sub-Accounts as the previous election. If, while the Program is
still in effect but the transfer period has expired, a subsequent Premium
Payment of less than $5,000 is received by Hartford, the entire amount will be
credited with the non-Program interest rate then in effect for the Fixed
Account.
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.
The Contract Owner may elect to terminate the preauthorized transfers by
calling or writing Hartford of their intent to cancel their enrollment in the
Program. Upon cancellation of enrollment in the Program the Contract Owner 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.
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 Mentor Perpetual International Portfolio, Mentor Capital Growth
Portfolio, Mentor Growth Portfolio, Hartford Advisers Fund, Hartford Bond Fund,
Hartford Capital Appreciation Fund, Inc., Hartford Dividend and Growth Fund,
Hartford Index Fund, Hartford International Advisers Fund, Hartford
International Opportunities Fund, Hartford MidCap Fund, Hartford Mortgage
Securities Fund, Hartford Small Company Fund, Hartford Stock Fund, and HVA Money
Market 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
<PAGE>
HARTFORD LIFE INSURANCE COMPANY 13
- --------------------------------------------------------------------------------
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.
The Hartford Bond Fund and Hartford Mortgage Securities Fund Sub-Accounts
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 HVA Money Market Fund Sub-Account may advertise yield and effective
yield. The yield of a 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 total return, and
non-standard 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").
PREMIUM PAYMENTS AND INITIAL ALLOCATIONS
The minimum initial Premium Payment is $1,000. 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
Account subject to minimum amounts then in effect.
REFUND RIGHTS -- If you are not satisfied with your purchase you may cancel
the Contract by returning it within ten days (or longer in some states) after
you receive it. A written request for cancellation must accompany the Contract.
In such event, 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 the Company'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 by Hartford
at its Home Office, P. O. Box 5085, Hartford, CT 06102-5085. It will be credited
to the Sub-Account(s) and/or the Fixed Account in accordance with your election.
If the application or other information is incomplete when received, the balance
of the initial Premium Payment, after deduction of any applicable Premium Tax,
will be credited to the Sub-Account(s) or the Fixed Account within five business
days of receipt. If the initial Premium Payment is not credited within five
business
<PAGE>
14 HARTFORD LIFE INSURANCE COMPANY
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days, the Premium Payment will be immediately returned unless you have been
informed of the delay and request that the Premium Payment not be returned.
The number of Accumulation Units in each Sub-Account to be credited to a
Contract will be determined by dividing the portion of the Premium Payment being
credited to each Sub-Account by the value of an Accumulation Unit in that
Sub-Account on that date.
Subsequent Premium Payments are priced on the Valuation Day received by
Hartford in its Home Office, 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 Account under your Contract will be the
amount allocated to the Fixed Account plus interest credited.
You will be advised at least semiannually of the number of Accumulation
Units credited to each Sub-Account, the current Accumulation Unit values, the
Fixed Account value, and the total value of your Contract.
ACCUMULATION UNIT VALUES -- The Accumulation Unit value for each Sub-Account
will vary to reflect the investment experience of the applicable Fund and will
be determined on each Valuation Day by multiplying the Accumulation Unit value
of the particular Sub-Account on the preceding Valuation Day by a "Net
Investment Factor" for that Sub-Account for the Valuation Period then ended. The
"Net Investment Factor" for each of the Sub-Accounts is equal to (a) the net
asset value per share of the corresponding Fund at the end of the Valuation
Period (plus the per share amount of any dividends or capital gains distributed
by that Fund if the ex-dividend date occurs in the Valuation Period then ended)
divided by the net asset value per share of the corresponding Fund at the
beginning of the Valuation Period, (b) minus the mortality and expense risk
charge and the administration charge described below. You should refer to the
prospectus for each of the Funds which accompanies this Prospectus for a
description of how the assets of each Fund are valued since each determination
has a direct bearing on the Accumulation Unit value of the Sub-Account and
therefore the value of a Contract. The Accumulation Unit Value is affected by
the performance of the underlying Fund(s), expenses and deduction of the charges
described in this Prospectus.
VALUATION OF FUND SHARES -- The shares of the Fund are valued at net asset
value on each Valuation Day. A complete description of the valuation method used
in valuing Fund shares may be found in the accompanying Funds= prospectus.
VALUATION OF THE FIXED ACCOUNT -- Hartford will determine the value of the
Fixed Account by crediting interest to amounts allocated to the Fixed Account.
TRANSFERS BETWEEN SUB-ACCOUNTS/FIXED ACCOUNT
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 preauthorize transfers among
Sub-Accounts and between Sub-Accounts and the Fixed Account under certain
circumstances. Transfers between the Sub-Accounts may be made both before and
after Annuity payments commence (limited to once a quarter) provided that the
minimum allocation to any Sub-Account may not be less than $500. No minimum
balance is required in any Sub-Account.
It is the responsibility of the Contract Owner or Participant to verify the
accuracy of all confirmations of transfers and to promptly advise Hartford of
any inaccuracies within one business day 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 Account into a Sub-Account may be made at any time
during the Contract Year. The maximum amount which may be transferred from the
Fixed Account during any Contract Year is the greater of 30% of the Fixed
Account balance as of the last Contract Anniversary or the greatest amount of
any prior transfer from the Fixed Account. If Hartford permits preauthorized
transfers from the Fixed Account to the Sub-Accounts, this restriction
<PAGE>
HARTFORD LIFE INSURANCE COMPANY 15
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is inapplicable. Also, if any interest rate is renewed at a rate of at least one
percentage point less than the previous rate, the Contract Owner may elect to
transfer up to 100% of the funds receiving the reduced rate within 60 days of
notification of the interest rate decrease. Generally, transfers may not be made
from any Sub-Account into the Fixed Account for the six-month period following
any transfer from the Fixed Account into one or more of the Sub-Accounts.
Hartford reserves the right to modify the limitations on transfers from the
Fixed Account and to defer transfers from the Fixed Account for up to six months
from the date of request.
Subject to the exceptions set forth in the following two paragraphs, the
right to reallocate Contract Values is subject to modification if 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 Account and could include, but not be limited to, the
requirement of a minimum time period between each transfer, not accepting
transfer requests of an agent acting under a power of attorney on behalf of more
than one Contract Owner, or limiting the dollar amount that may be transferred
between the Sub-Accounts and the Fixed Account by 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
There is no deduction for sales expenses from Premium Payments when made.
However, a contingent deferred sales charge may be assessed against Contract
Values when they are surrendered. The length of time from receipt of a Premium
Payment to the time of surrender determines the contingent deferred sales
charge. Premium payments will be deemed to be surrendered in the order in which
they were received.
A Contract Owner who chooses to surrender a Contract in full who has not yet
withdrawn the Annual Withdrawal Amount during the current Contract Year (as
described at page 16 below under the sub-heading "Payments Not Subject to Sales
Charges") may, depending upon the amount of investment gain experienced under
the Contract, reduce the amount of any contingent deferred sales charge paid by
first withdrawing the Annual Withdrawal Amount and then requesting a full
surrender of the Contract. Currently, regardless of whether a Contract Owner
first requests a partial withdrawal of the Annual Withdrawal Amount, upon
receiving a request for a full surrender of a Contract, Hartford assesses any
applicable contingent deferred sales charge against the surrender proceeds
representing the lesser of: (1) aggregate Premium Payments not previously
withdrawn; and (2) the Contract Value, less the Annual Withdrawal Amount
available at the time of the full surrender, less the Annual Maintenance Fee.
PAYMENTS SUBJECT TO SALES CHARGES DURING THE FIRST SEVEN CONTRACT YEARS
During the first seven Contract years, a contingent deferred sales charge
will be assessed against the surrender of the Premium Payments. All surrenders
will be first from Premium Payments and then from other Contract Values.
AFTER THE SEVENTH CONTRACT YEAR
After the seventh Contract year, all surrenders will first be from earnings
and then from premium payments. A contingent deferred sales charge will not be
assessed against the surrender of earnings. If an amount equal to all earnings
has been surrendered, a contingent deferred 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.
The charge is a percentage of the amount withdrawn (not to exceed the
aggregate amount of the Premium Payments made) and equals:
<TABLE>
<CAPTION>
LENGTH OF TIME
FROM PREMIUM PAYMENT
(NUMBER OF YEARS) CHARGE
- ---------------------- -----------
<S> <C>
1 6%
2 6%
3 5%
4 5%
5 4%
6 3%
7 2%
8 or more 0%
</TABLE>
<PAGE>
16 HARTFORD LIFE INSURANCE COMPANY
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PAYMENTS NOT SUBJECT TO SALES CHARGES -- During the first seven Contract
Years, 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 made to the
Contract (as determined on the date of the requested withdrawal) without the
application of the contingent deferred sales charge. After the seventh Contract
year, 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. The amount which can be withdrawn in any Contract Year prior to
incurring sales charges is the "Annual Withdrawal Amount." An Extended
Withdrawal Privilege rider allows an Annuitant who attains age 70 1/2 under a
Qualified Plan to withdraw an amount in excess of the Annual Withdrawal Amount
to comply with IRS minimum distribution rules.
Certain plans or programs may have different withdrawal privileges. Any such
withdrawal will be deemed to be from Contract Values other than Premium
Payments. From time to time, Hartford may permit the Contract Owner to
preauthorize partial surrenders subject to certain limitations then in effect.
Additional surrenders or any surrender of the Contract Values in excess of such
amount in any Contract Year during the period when contingent deferred sales
charges are applicable will be subject to the appropriate charge.
No contingent deferred sales charges 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 Option
4) provided for under the Contract.
PURPOSE OF SALES CHARGES -- The contingent deferred sales charges are used
to cover expenses relating to the sale and distribution of the Contracts,
including commissions paid to any distribution organization and its sales
personnel, the cost of preparing sales literature and other promotional
activities. To the extent that these charges do not cover such distribution
expenses they will be borne by Hartford from its general assets, including
surplus. The surplus might include profits resulting from unused mortality and
expense risk charges.
MORTALITY AND EXPENSE RISK CHARGE -- 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.
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).
The mortality undertakings provided by Hartford under the Contracts,
assuming the selection of one of the forms of life Annuities, is 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.
The 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 Contract obligations. Hartford will bear the
loss in such a situation. Also, in the event of the death of an Annuitant or
Contract Owner before the commencement of Annuity payments, whichever is
earlier, Hartford can, in periods of declining value or in periods where the
contingent deferred sales loads would have been applicable, experience a loss
resulting from the assumption of the mortality risk relative to the guaranteed
Death Benefit.
In providing 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.
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. The deduction will be made
pro rata according to the value in each Sub-Account and the Fixed Account under
a Contract.
<PAGE>
HARTFORD LIFE INSURANCE COMPANY 17
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PREMIUM TAXES -- A deduction is also made for Premium Tax, if applicable,
imposed by a 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, or at the time the Contract annuitizes.
EXCEPTIONS -- Hartford may offer, in 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.
WAIVER OF SALES CHARGE
Hartford will waive any contingent deferred sales charges applicable to a
partial or full surrender of the Contract Value 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 the 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 requests the
partial or full surrender of the Contract Value within 91 calendar days of the
last day of confinement.
This contingent deferred charge waiver may not be available in all states.
Please contact your registered representative or Hartford to determine state
availability.
DEATH BENEFITS
The Contract provides that, in the event the Annuitant dies before the
selected Annuity Commencement Date, the Contingent Annuitant will become the
Annuitant. If (1) the Annuitant dies before the Annuity Commencement Date and
either (a) there is no designated Contingent Annuitant or (b) the Contingent
Annuitant predeceases the Annuitant, or (2) if any Contract Owner dies before
the Annuity Commencement Date, the Beneficiary as determined under the Contract
Control Provisions, will receive the Death Benefit as determined on the date of
receipt of due proof of death by Hartford in its Home Office. With regard to
Joint Contract Owners, at the first death of a joint Contract Owner prior to the
Annuity Commencement Date, the Beneficiary will be the surviving Contract Owner
notwithstanding that the beneficiary designation may be different.
GUARANTEED DEATH BENEFIT -- If the Annuitant dies before the Annuity
Commencement Date and there is no designated Contingent Annuitant surviving, or
if the Contract Owner dies before the Annuity Commencement Date, the Beneficiary
will receive the greatest of (a) the Contract Value determined as of the day
written proof of death of such person is received by 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 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 the Company 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
<PAGE>
18 HARTFORD LIFE INSURANCE COMPANY
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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 Option 4
or 5), 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 Options 4 and 5, 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
Option 5 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 Account from which the partial withdrawal is to be taken.
Otherwise, such withdrawal and any applicable contingent deferred sales charges
will be effected on a pro rata basis according to the value in the Fixed Account
and each Sub-Account under a Contract.
Hartford may permit the Contract Owner to preauthorize partial surrenders
subject to certain limitations then in effect.
PAYMENT OF SURRENDER BENEFITS -- Payment on any request for a full or
partial surrender from the Sub-Accounts will be made as soon as possible and in
any event no later than seven days after the written request is received by
Hartford at its Home Office, Attn: Individual Annuity Services, P.O. Box 5085,
Hartford, CT 06102-5085. Hartford may defer payment of any amounts from the
Fixed Account 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/
<PAGE>
HARTFORD LIFE INSURANCE COMPANY 19
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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.)
ANNUITY BENEFITS
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 (85th birthday in
some states, 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 commenced once every three months. Any Fixed Annuity allocation may not be
changed.
ANNUITY OPTIONS
The Contract contains the five optional Annuity forms described below.
Options 2, 4, and 5 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 (with the exception of states that
do not allow deferral past age 85) under 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 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 Options 4 and 5, 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
Option 5 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.
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20 HARTFORD LIFE INSURANCE COMPANY
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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.
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.
OPTION 5 -- Death Benefit Remaining with Hartford
Proceeds from the Death Benefit 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. These proceeds will remain in the Sub-Account(s) to
which they were allocated at the time of death unless the Beneficiary elects to
reallocate them. Full or partial withdrawals may be made at any time. In the
event of withdrawals, the remaining value will equal the Contract Value of the
proceeds left with Hartford, minus any withdrawals.
Hartford may offer other annuity options from time to time.
VARIABLE AND FIXED ANNUITY PAYMENTS -- When an Annuity is effected under a
Contract, unless otherwise specified, Contract Values (less applicable Premium
Taxes) held in the Sub-Accounts will be applied to provide a Variable Annuity
based on the pro rata amount in the various Sub-Accounts. Fixed Account Contract
Values will be applied to provide a Fixed Annuity. YOU SHOULD CONSIDER THE
QUESTION OF ALLOCATION OF CONTRACT VALUES (LESS APPLICABLE PREMIUM TAXES) AMONG
SUB-ACCOUNTS OF THE SEPARATE ACCOUNT AND THE GENERAL ACCOUNT OF 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 Account no earlier than the
close of business on the fifth Valuation Day preceding the date the first
Annuity payment is due plus (2) the product of (a) the value of the Accumulation
Unit of each Sub-Account on that same day and (b) the number of Accumulation
Units credited to each Sub-Account as of the date the Annuity is to commence.
The first payment under any option should be made on the 15th day of the
month immediately following approval of the claim for settlement. Subsequent
payments shall be made on the 15th day of each subsequent month in accordance
with the manner of payment selected.
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.
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HARTFORD LIFE INSURANCE COMPANY 21
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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 the Company.
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 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
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 (See "Accumulation Unit Values" commencing on
page 7). 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, 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 is an exception from current
inclusion for certain annuities held in tax-qualified retirement arrangements,
certain annuities held by structured settlement companies, certain annuities
held by an employer with respect to a terminated tax-qualified retirement plan
and 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.
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22 HARTFORD LIFE INSURANCE COMPANY
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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) 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, nonperiodic 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
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HARTFORD LIFE INSURANCE COMPANY 23
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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).
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.
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24 HARTFORD LIFE INSURANCE COMPANY
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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 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, unless the recipient elects otherwise. A recipient
may elect not to have income taxes withheld or to 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
TAX-QUALIFIED RETIREMENT PLANS
The Contract may be used for a number of tax-qualified retirement plans. If
the Contract is being purchased with respect to some form of tax-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.
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HARTFORD LIFE INSURANCE COMPANY 25
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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 advisor
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 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 salesperson 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.
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.
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,
General Counsel, Hartford Life Insurance Companies, 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. Reference is made to
said report on the financial statements of Hartford Life Insurance Company (the
Depositor), which includes an explanatory paragraph with respect to the change
in method of accounting for debt and equity securities as of January 1, 1994, as
discussed in Note 2 of Notes to Consolidated Financial Statements. 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 Representatives)
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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 specified limits, to distributions in excess of specified limits,
distributions which do not satisfy certain requirements and certain other
transactions with respect to qualified plans. Accordingly, this summary provides
only general information about the tax rules associated with use of the Contract
by a qualified plan. Contract owners, plan participants and beneficiaries are
cautioned that the rights and benefits of any person to benefits are controlled
by the terms and conditions of the plan regardless of the terms and conditions
of the Contract. Some qualified plans are subject to distribution and other
requirements which are not incorporated into Hartford's administrative
procedures. 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 and the time when distributions must commence. Employers
intending to use these contracts in connection with such 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 specified
in Section 501(c)(3) of the Code to purchase annuity contracts, and, subject to
certain limitations, exclude such contributions from gross income. Generally,
such contributions may not exceed the lesser of $9,500 or 20% of the employees
"includable compensation" for his most recent full year of employment, subject
to other adjustments. Special provisions 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
Eligible Deferred Compensation Plans of their employers 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. ("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 $7,500 (indexed),
whichever is less. Such a plan may also provide for additional "catch-up"
deferrals during the three taxable years ending before a participant attains
normal retirement age.
An employee electing to participate in an Eligible Deferred Compensation
Plan should understand that his or her rights and benefits are governed strictly
by the terms of the plan and that the employer is the legal owner of any
contract issued with respect to the plan. The employer, as owner of the
contract(s), retains all voting and redemption rights 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
<PAGE>
HARTFORD LIFE INSURANCE COMPANY 27
- --------------------------------------------------------------------------------
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 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 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 gross 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.
IRAs generally may not invest in life insurance contracts. However, an
annuity that is used as an IRA may provide a death benefit that equals the
greater of the premiums paid and the annuity's cash value. The Contract offers
an enhanced Death Benefit that may exceed the greater of the Contract Value and
total Premium Payments less prior surrenders. For Contracts issued in most
states, Hartford has obtained approval from the Internal Revenue Service to use
the Contract as an IRA. For Contracts issued in New York, Hartford has asked the
Internal Revenue Service to approve use of the Contract as an IRA, but there is
no assurance that approval will be granted.
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 the SIMPLE IRA. Amounts cannot be
rolled over to a SIMPLE IRA from a qualified plan or a regular IRA.
Effective after December 31, 1997, the Contract can be offered as ROTH IRAs
under Section 408A of the Code. Contributions to a ROTH IRA are not deductible.
Subject to special limitations, a distribution from a regular IRA may be rolled
over to a ROTH IRA. However, a rollover to a ROTH IRA is not excludable from
gross income. If certain specified conditions are met, qualified distributions
from a ROTH IRA are tax-free.
E. TAX PENALTIES
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 a qualified plan before the Participant attains age
59 1/2 are generally subject to an additional 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, "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 described 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.
<PAGE>
28 HARTFORD LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
An individual's interest in a tax-qualified retirement plan must generally
be distributed, or begin to be distributed, not later than April 1 of the
calendar year following the later of (i) the calendar year in which the
individual attains age 70 1/2 or (ii) the calendar year in which the individual
retires from service with the employer sponsoring the plan ("required beginning
date"). However, the required beginning date for an individual who is a five (5)
percent owner (as defined in the Code), or who is the owner of an IRA, is April
1 of the calendar year 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 this 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. EXCESS DISTRIBUTION TAX
If the aggregate distributions from all IRAs and certain other tax-qualified
retirement plans in a calendar year exceed the greater of (i) $150,000, or (ii)
$112,500 as indexed for inflation, a penalty tax of 15% is generally imposed on
the excess portion of the distribution.
4. 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 ten 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, unless
the recipient elects otherwise. 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 Section 401(a)(31) of the Code.
<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 Director Select to
me at the following address:
- ----------------------------------------------------
Name
- ------------------------------------------------------------
Address
- ------------------------------------------------------------
City/State Zip
Code
<PAGE>
PART B
<PAGE>
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: February 20, 1998
Date of Statement of Additional Information: February 20, 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 except in certain states where deferral past age 85
is not permitted. There are several alternative annuity payment options
available under the Contract (see "Optional Annuity Forms," commencing on page).
The Premium Payments under a Contract, less any applicable Premium Taxes, will
be applied to the Separate Account and/or the Fixed Account. Accordingly, the
net Premium Payment under the Contract will be applied to purchase interests in
one or more of the Hartford Bond Fund, Hartford Stock Fund, HVA Money Market
Fund (for qualified Contracts issued prior to May 1, 1987), Hartford Advisers
Fund, Hartford Capital Appreciation Fund, Inc., Hartford Dividend and Growth,
Hartford Index Fund, Hartford International Advisers Fund, Hartford
International Opportunities Fund, Hartford MidCap Fund, Hartford Mortgage
Securities Fund, and Hartford Small Company Fund Sub-Accounts.
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") in
its 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 of the Prospectus).
DESCRIPTION OF HARTFORD LIFE INSURANCE COMPANY
Hartford Life Insurance Company ("Hartford") is a stock life insurance company
engaged in the
<PAGE>
-4-
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.
HARTFORD RATINGS
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
RATING AGENCY EFFECTIVE RATING BASIS OF RATING
DATE OF RATING
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
A.M. Best and Company, 9/9/97 A+ Financial soundness and
Inc. 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 Statement of Additional Information 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. Reference is made to said report on the financial statements of
Hartford Life Insurance Company (the Depositor), which includes an explanatory
paragraph with respect to the change in method of accounting for debt and equity
securities as of January 1, 1994, as discussed in Note 2 of Notes to
Consolidated Financial Statements. 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
<PAGE>
-5-
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 HVA MONEY MARKET FUND SUB-ACCOUNT. As summarized in the Prospectus
under the heading "Performance Related Information," the yield of the HVA Money
Market Fund Sub-Account for a seven day period (the "base period") will be
computed by determining the "net change in value" (calculated as set forth
below) of a hypothetical account having a balance of one accumulation unit of
the Sub-Account at the beginning of the period, subtracting a hypothetical
charge reflecting deductions from Contract Owner accounts, and dividing the
difference by the value of the account at the beginning of the base period to
obtain the base period return, and then multiplying the base period return by
365/7 with the resulting yield figure carried to the nearest hundredth of one
percent. Net changes in value of a hypothetical account will include net
investment income of the account (accrued daily dividends as declared by the
underlying funds, less daily expense charges of the account) for the period, but
will not include realized gains or losses or unrealized appreciation or
depreciation on the underlying fund shares.
The effective yield is calculated by compounding the base period return by
adding 1, raising the sum to a power equal to 365/7 and subtracting 1 from the
result, according to the following formula:
365/7
Effective Yield = [(Base Period Return + 1) ] - 1
The HVA Money Market Fund Sub-Account's yield and effective yield will vary in
response to fluctuations in interest rates and in the expenses of the
Sub-Account.
THE CURRENT YIELD AND EFFECTIVE YIELD REFLECT RECURRING CHARGES ON THE SEPARATE
ACCOUNT LEVEL, INCLUDING THE MAXIMUM ANNUAL POLICY FEE.
HVA MONEY MARKET FUND SUB-ACCOUNT
The yield and effective yield for the seven day period ending December 31, 1996
for the HVA Money Market Fund Sub-Account was as follows:
<PAGE>
-6-
<TABLE>
<CAPTION>
($30 annual policy fee)
<S> <C>
Yield 3.85%
Effective Yield 3.93%
</TABLE>
YIELDS OF HARTFORD BOND FUND AND HARTFORD MORTGAGE SECURITIES FUND SUB-ACCOUNTS.
As summarized in the Prospectus under the heading "Performance Related
Information," yields of these two Sub-Accounts will be computed by annualizing a
recent month's net investment income, divided by a Fund share's net asset value
on the last trading day of that month. Net changes in the value of a
hypothetical account will assume the change in the underlying mutual fund's "net
asset value per share" for the same period in addition to the daily expense
charge assessed, at the sub-account level for the respective period. The
Hartford Bond Fund and Hartford Mortgage Securities Fund Sub-Accounts' yields
will vary from time to time depending upon market conditions and, the
composition of the underlying funds' portfolios. Yield should also be
considered relative to changes in the value of the Sub-Accounts' shares and to
the relative risks associated with the investment objectives and policies of the
Hartford Bond Fund and Hartford Mortgage Securities Fund.
The yield reflects recurring charges on the Separate Account level, including
the annual policy fee.
HARTFORD BOND FUND AND
HARTFORD MORTGAGE SECURITIES FUND SUB-ACCOUNTS
Yield calculations of the Sub-Accounts used for illustration purposes reflect
the interest earned by the Sub-Accounts, less applicable asset charges assessed
against a Contract Owner's account over the base period. Yield quotations based
on a 30 day period ended December 31, 1996 were computed by dividing the
dividends and interests earned during the period by the maximum offering price
per unit on the last day of the period, according to the following formula:
Example:
6
Current Yield Formula for the Sub-Account 2[((A-B)/(CD) + 1) - 1]
Where A = Dividends and interest earned during the period.
B = Expenses accrued for the period (net of reimbursements).
C = The average daily number of units outstanding during the period
that were entitled to receive dividends.
D = The maximum offering price per unit on the last day of the period.
Hartford Bond Fund
Yield = 4.94%
<PAGE>
-7-
Hartford Mortgage Securities Fund
Yield = 5.35%
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.
The method of calculating yields described above for these Sub-Accounts differs
from the method used by the Sub-Accounts prior to May 1, 1988. The denominator
of the fraction used to calculate yield was previously the average unit value
for the period calculated. That denominator will hereafter be the unit value of
the Sub-Accounts on the last trading day of the period calculated.
CALCULATION OF TOTAL RETURN. As summarized in the Prospectus under the heading
"Performance Related Information," total return is a measure of the change in
value of an investment in a Sub-Account over the period covered. The formula
for total return used herein includes three steps: (1) calculating the value of
the hypothetical initial investment of $1,000 as of the end of the period by
multiplying the total number of units owned at the end of the period by the unit
value per unit on the last trading day of the period; (2) assuming redemption at
the end of the period and deducting any applicable contingent deferred sales
charge and (3) dividing this account value for the hypothetical investor by the
initial $1,000 investment and annualizing the result for periods of less than
one year. Total return will be calculated for one year, five years and ten
years or some other relevant periods if a Sub-Account has not been in existence
for at least ten years.
The following are the standardized average annual total return quotations for
the Sub-Accounts for the fiscal year ended December 31, 1996. No information
is included for the Mentor VIP Perpetual International Portfolio, Mentor VIP
Capital Growth Portfolio, Mentor VIP Growth Portfolio, and Hartford MidCap
Fund because as of December 31, 1996, the Sub-Accounts have not commenced
operations.
<TABLE>
<CAPTION>
Since
Sub-Accounts Inception 1 Year 5 Year 10 Year
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Hartford Advisers Fund 9.12% 6.14% 7.34% 8.62%
Hartford Bond Fund 5.57% (6.76)% 1.55% 3.68%
Hartford Capital Appreciation Fund 14.42% 10.20% 13.53% 13.14%
Hartford Dividend and Growth Fund 15.07% 12.39% n/a n/a
Hartford Index Fund 8.88% 11.58% 9.68% n/a
Hartford International Advisers
Fund 7.57% 1.41% n/a n/a
Hartford International
Opportunities Fund 2.68% 2.53% 5.21% n/a
<PAGE>
-8-
<CAPTION>
Since
Sub-Accounts Inception 1 Year 5 Year 10 Year
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Hartford Mortgage Securities Fund 5.60% (5.23)% 0.93% 3.90%
Hartford Small Company Fund (5.58)% n/a n/a n/a
Hartford Stock Fund 11.74% 13.83% 10.91% 11.02%
</TABLE>
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.
The following are the non-standardized annualized total return quotations for
the Sub-Accounts for the fiscal year ended December 31, 1996. No information
is included for the Mentor VIP Perpetual International Portfolio, Mentor VIP
Capital Growth Portfolio, Mentor VIP Growth Portfolio, and Hartford MidCap
Fund because as of December 31, 1996, the Sub-Accounts have not commenced
operations.
<TABLE>
<CAPTION>
Since
Sub-Accounts Inception 1 Year 5 Year 10 Year
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Hartford Advisers Fund 11.06% 15.14% 10.7% 10.86%
Hartford Bond Fund 7.63% 2.24% 5.19% 6.3%
Hartford Capital Appreciation Fund 15.97% 19.2% 16.44% 15.26%
Hartford Dividend and Growth Fund 19.33% 21.39% n/a n/a
Hartford Index Fund 11.42% 20.58% 13.01% n/a
Hartford International Advisers
Fund 13.71% 10.41% n/a n/a
Hartford International
Opportunities Fund 6.24% 11.53% 8.66% n/
Hartford Mortgage Securities Fund 7.73% 3.77% 4.65% 6.45%
Hartford Small Company Fund 16.67% n/a n/a n/a
Hartford Stock Fund 13.15% 22.83% 14.1% 13.15%
</TABLE>
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
<PAGE>
-9-
Sub-Account may from time to time include its yield and total return in
advertisements or information furnished to present or prospective shareholders.
Each Sub-Account may from time to time include in advertisements its total
return (and yield in the case of certain Sub-Accounts) the ranking of those
performance figures relative to such figures for groups of other annuities
analyzed by Lipper Analytical Services and Morningstar, Inc. as having the same
investment objectives.
The total return and yield may also be used to compare the performance of the
Sub-Accounts against certain widely acknowledged outside standards or indices
for stock and bond market performance. The Standard & Poor's Composite Index of
500 Stocks (the "S&P 500") is a market value-weighted and unmanaged index
showing the changes in the aggregate market value of 500 stocks relative to the
base period 1941-43. The S&P 500 is composed almost entirely of common stocks
of companies listed on the New York Stock Exchange, although the common stocks
of a few companies listed on the American Stock Exchange or traded
over-the-counter are included. The 500 companies represented include 400
industrial, 60 transportation and 40 financial services concerns. The S&P 500
represents about 80% of the market value of all issues traded on the New York
Stock Exchange.
The NASDAQ-OTC Composite Price Index (The "NASDAQ Index") is a market
value-weighted and unmanaged index showing the changes in the aggregate market
value of approximately 3,500 stocks relative to the base measure of 100.00 on
February 5, 1971. The NASDAQ Index is composed entirely of common stocks of
companies traded over-the-counter and often through the National Association of
Securities Dealers Automated Quotations ("NASDAQ") system. Only those
over-the-counter stocks having only one market maker or traded on exchanges are
excluded.
The Morgan Stanley Capital International EAFE Index (the "EAFE Index") is an
unmanaged index, which includes over 1,000 companies representing the stock
markets of Europe, Australia, New Zealand, and the Far East. The EAFE Index is
weighted by market capitalization, and therefore, it has a heavy representation
in countries with large stock markets, such as Japan.
The Shearson Lehman Government Bond Index (the "SL Government Index") is a
measure of the market value of all public obligations of the U.S. Treasury; all
publicly issued debt of all 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.
<PAGE>
-10-
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>
HARTFORD LIFE INSURANCE COMPANY AND SUBSIDIARIES
- --------------------------------------------------------------------------------
PART I. FINANCIAL INFORMATION
ITEM 1.
FINANCIAL STATEMENTS
The following unaudited condensed consolidated financial statements of
Hartford Life Insurance Company and its subsidiaries (the "Company") have been
prepared in accordance with generally accepted accounting principles and
reflect, in the opinion of management, all adjustments which are of normal
recurring nature necessary to present fairly the financial position, the results
of operations and the cash flows for the periods presented. Certain
reclassifications of prior year results were made to conform to current
presentation. Interim results are not indicative of the results which may be
expected for any other interim period or the full year. Certain statements
contained in this discussion, other than statements of historical fact, are
forward-looking statements. These statements are made pursuant to the safe
harbor provisions of the Private Securities Litigation Reform Act of 1995. The
forward-looking statements are made based upon management's expectations and
beliefs concerning future developments and their potential effect on the
Company. There can be no assurance that future developments will be in
accordance with management's expectations or that the effect of these future
developments on the Company will be those anticipated by management. Actual
results could differ materially from those expected by the Company, depending on
the outcome of certain factors, including those described with the
forward-looking statements. For a description of accounting policies, see Note 1
to Consolidated Financial Statements in the 1996 Form 10-K. The Company is an
indirect subsidiary of Hartford Life, Inc. ("HLI"). Accordingly, the financial
statements presented below are a partial disclosure of HLI's financial
statements. For a full disclosure of HLI's operations, refer to the HLI Form
10-Q, as filed with the Securities and Exchange Commission, for the quarter
ended September 30, 1997.
<PAGE>
HARTFORD LIFE INSURANCE COMPANY AND SUBSIDIARIES
- --------------------------------------------------------------------------------
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(IN MILLIONS)
<TABLE>
<CAPTION>
QUARTER
ENDED SIX MONTHS
SEPTEMBER ENDED
30, SEPTEMBER 30,
----------- ---------------
1997 1996 1997 1996
---- ---- ------ ------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Revenues
Premiums and other considerations............... $360 $319 $ 993 $1,262
Net investment income........................... 319 355 978 1,006
Net realized capital gains (losses)............. -- (202) 4 (203)
---- ---- ------ ------
Total Revenues................................ 679 472 1,975 2,065
---- ---- ------ ------
Benefits, Claims and Expenses
Benefits, claims and claim adjustment
expenses....................................... 318 447 970 1,235
Amortization of deferred policy acquisition
costs.......................................... 80 68 252 197
Dividends to policyholders...................... 47 63 119 410
Other insurance expenses........................ 105 58 295 256
---- ---- ------ ------
Total benefits, claims and expenses........... 550 636 1,636 2,098
---- ---- ------ ------
Income (loss) before income tax expense......... 129 (164) 339 (33)
Income tax expense (benefit).................... 48 (58) 121 (13)
---- ---- ------ ------
Net income (loss)................................. $ 81 $(106) $ 218 $ (20)
---- ---- ------ ------
---- ---- ------ ------
</TABLE>
<PAGE>
HARTFORD LIFE INSURANCE COMPANY AND SUBSIDIARIES
- --------------------------------------------------------------------------------
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN MILLIONS EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
SEPTEMBER
30, DECEMBER 31,
1997 1996
----------- ------------
(UNAUDITED)
<S> <C> <C>
Assets
Investments:
Fixed maturities, available for sale, at fair
value (amortized cost $13,849 and $13,579)..... $14,046 $13,624
Equity securities, available for sale, at fair
value.......................................... 155 119
Mortgage loans, at outstanding balance.......... -- 2
Policy loans, at outstanding balance............ 3,747 3,836
Other investments, at cost...................... 48 54
----------- ------------
Total investments............................. 17,996 17,635
Cash............................................ 53 43
Premiums and amounts receivable................. 134 137
Reinsurance recoverable......................... 6,356 6,259
Accrued investment income....................... 359 407
Deferred policy acquisition costs............... 3,156 2,760
Deferred income tax............................. 431 474
Other assets.................................... 246 357
Separate account assets......................... 64,020 49,690
----------- ------------
Total assets.................................. $92,751 $77,762
----------- ------------
----------- ------------
Liabilities and Stockholders' Equity
Future policy benefits.......................... $ 3,124 $ 2,474
Other policyholder funds........................ 21,168 22,134
Other liabilities............................... 2,224 1,572
Separate account liabilities.................... 64,020 49,690
----------- ------------
Total liabilities............................. 90,536 75,870
----------- ------------
----------- ------------
Common stock--authorized 1,000 shares, $5,690
par value, issued and outstanding 1,000
shares......................................... 6 6
Additional paid-in capital...................... 1,045 1,045
Unrealized gain on securities, net of tax....... 135 30
Retained earnings............................... 1,029 811
----------- ------------
Total stockholders' equity.................... 2,215 1,892
----------- ------------
Total liabilities and stockholders' equity...... $92,751 $77,762
----------- ------------
----------- ------------
</TABLE>
<PAGE>
HARTFORD LIFE INSURANCE COMPANY AND SUBSIDIARIES
- --------------------------------------------------------------------------------
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN MILLIONS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
--------------------
1997 1996
-------- --------
(UNAUDITED)
<S> <C> <C>
Operating Activities:
Net income (loss)..................... $ 218 $ (20)
Adjustments to net income (loss):
Net realized capital (gains)
losses............................. (4) 203
Net increase in deferred policy
acquisition costs.................. (396) (399)
Net amortization of premium on fixed
maturities......................... 5 6
Increase in deferred income tax
benefit............................ (14) (188)
Decrease in premiums and amounts
receivable......................... 3 75
Decrease in other assets............ 169 15
Increase in reinsurance
recoverable........................ (310) (254)
Increase in liability for future
policy benefits.................... 650 278
Increase in other liabilities....... 131 116
Decrease in accrued investment
income............................. 48 --
-------- --------
Cash provided by (used for)
operating activities.............. 500 (168)
-------- --------
Investing Activities:
Purchases of fixed maturities
investments.......................... (4,628) (4,111)
Sales of fixed maturities
investments.......................... 3,039 2,450
Maturities and principal paydowns of
fixed maturities investments......... 1,643 2,124
Net sales (purchases) of other
investments.......................... 32 (339)
Net (purchases) sales of short-term
investments.......................... (70) 328
-------- --------
Cash provided by investing
activities........................ 16 452
-------- --------
Financing Activities:
Net disbursements for investment and
universal life-type contracts charged
from policyholder accounts........... (506) (316)
Capital contribution.................. -- 38
-------- --------
Cash used for financing
activities........................ (506) (278)
-------- --------
Net increase in cash.................. 10 6
Cash at beginning of period........... 43 46
-------- --------
Cash at end of period................... $ 53 $ 52
-------- --------
-------- --------
</TABLE>
<PAGE>
HARTFORD LIFE INSURANCE COMPANY AND SUBSIDIARIES
- --------------------------------------------------------------------------------
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1. HARTFORD LIFE INC. INITIAL PUBLIC OFFERING
On February 10, 1997, HLI, an indirect parent of the Company, filed a
registration statement with the Securities and Exchange Commission, as amended,
relating to the Initial Public Offering ("IPO") of up to 20% of HLI's Class A
common stock. Pursuant to the IPO on May 22, 1997, HLI 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 HLI's promissory notes
outstanding and the line of credit discussed in the note below with the
remaining $160 contributed to HLI's insurance subsidiaries to be used for
working capital and other general corporate purposes.
The 26 million shares sold from the IPO represent approximately 18.6% of the
equity ownership in HLI and approximately 4.4% of the combined voting power of
HLI's Class A and Class B Common Stock. The Hartford Financial Services Group,
Inc. ("The Hartford"), an indirect parent of HLI, owns all of the 114 million
outstanding shares of Class B Common Stock of HLI, representing 81.4% of the
equity ownership in HLI and approximately 95.6% of the combined voting power of
HLI'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 the HLI stockholders.
NOTE 2. HARTFORD LIFE INC. DEBT OFFERING
On February 7, 1997, HLI declared a dividend of $1,184 payable to its direct
parent, Hartford Accident and Indemnity Company ("HA&I"). As a result, HLI
borrowed $1,084 on February 18, 1997, pursuant to a $1,300 line of credit, with
interest payable at the two-month Eurodollar rate plus 15 basis points, which,
together with a promissory note in the amount of $100, was paid as a dividend to
HA&I on February 20, 1997. Of the $1,184 dividend, $893 constituted a repayment
of the portion of HLI's third party indebtedness internally allocated, for
financial reporting purposes, to HLI's insurance subsidiaries (the "Allocated
Advances"). In addition, on April 4, 1997, HLI declared and paid a dividend of
$25 to its parent in the form of a promissory note. Subsequently, $12 of this
note was forgiven in the form of a capital contribution from HA&I.
On February 14, 1997, HLI filed a shelf registration statement for the
issuance and sale of up to $1.0 billion in the aggregate of senior debt
securities, subordinated debt securities and preferred stock. On June 17, 1997,
HLI issued $650 of unsecured redeemable long-term debt in the form of notes and
debentures. Of this amount, $200 was in the form of 6.90% notes due June 15,
2004, $200 of 7.10% notes due June 15, 2007, and $250 of 7.65% debentures due
June 15, 2027. Interest on each of the notes and debentures is payable
semi-annually on June 15 and December 15, of each year, commencing December 15,
1997. HLI also issued $50 of short-term debt in the form of commercial paper. Of
the proceeds from this issuance, $670 was used to retire the remaining balance
on the $1,300 line of credit with the remainder being used for working capital
and other general corporate purposes. Subsequently, HLI reduced the capacity of
the line of credit from $1,300 to $250, which will be primarily used to support
the commercial paper program.
NOTE 3. CONTINGENCIES
(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.
<PAGE>
HARTFORD LIFE INSURANCE COMPANY AND SUBSIDIARIES
- --------------------------------------------------------------------------------
ITEM 2. MANAGEMENT'S NARRATIVE ANALYSIS
OF RESULTS OF OPERATIONS
(IN MILLIONS)
QUARTER AND NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
SEGMENT RESULTS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
QUARTER ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------------- --------------------
1997 1996 1997 1996
----- --------- --------- ---------
<S> <C> <C> <C> <C>
Annuity........................ $ 56 $ 40 $ 148 $ 110
Individual Life Insurance...... 15 11 38 30
Employee Benefits.............. 8 8 23 22
Guaranteed Investment
Contracts.................... -- (184) -- (214)
Corporate Operation............ 2 19 9 32
--- --------- --------- ---------
Net Income (Loss).............. $ 81 $ (106) $ 218 $ (20)
--- --------- --------- ---------
--- --------- --------- ---------
</TABLE>
Net income was $81 and $218 for the third quarter and nine months ended
September 30, 1997, as compared to a loss of $106 and $20 for the same periods
in 1996. Included in the results for the third quarter and nine months ended
September 30, 1996, are after-tax losses, primarily related to Closed Book GRC,
of $179 and $210. Excluding these after-tax losses, operating income increased
$8, or 11%, and $28, or 15%, for the third quarter and nine months ended
September 30, 1997, compared to the same periods in 1996. Net income in the
Annuity segment increased due to higher fee income on growing account values as
well as strong new business sales. Net income in the Individual Life Insurance
segment increased due to cost of insurance charges and other fee income on a
growing block of life insurance in-force. Guaranteed Investment Contracts
reported no net income in the third quarter of 1997 consistent with management's
expectations that net income (loss) subsequent to 1996 will be immaterial.
ANNUITY
<TABLE>
<CAPTION>
QUARTER ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------- --------------------
1997 1996 1997 1996
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenues........................ $ 336 $ 241 $ 924 $ 707
Expenses........................ 280 201 776 597
--------- --------- --------- ---------
Net Income...................... $ 56 $ 40 $ 148 $ 110
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
Revenues, which are primarily comprised of investment income and fees earned
on assets under management, grew $95 or 39%, to $336 in the third quarter of
1997 and $217 or 31%, to $924 for the nine months ended September 30, 1997,
compared to the same periods in 1996. This growth resulted from an increase in
the average account value, primarily driven by individual variable annuities, of
$15.4 billion, or 36%, to $57.9 billion as of September 30, 1997 from $42.5
billion as of September 30, 1996, as a result of strong sales and market
appreciation in the separate account assets. Individual annuity sales were
approximately $2.6 billion and $7.6 billion for the third quarter and nine
months ended September 30, 1997, respectively, as compared to sales of $2.4
billion and $7.4 billion, respectively, for the same periods in 1996. Growth in
the assets under management by this segment also resulted in increased expenses
related to other insurance expenses, amortization of deferred policy acquisition
costs and taxes. Expenses increased $79, or 39%, to $280 in the third quarter of
1997 and $179, or 30%, to $776 for the nine months ended September 30, 1997,
compared to the same periods in 1996. Net income increased $16, or 40%, to $56
in the third quarter of 1997 and $38, or 35%, to $148 for the nine months ended
September 30, 1997, compared to the same periods in 1996.
INDIVIDUAL LIFE INSURANCE
<TABLE>
<CAPTION>
QUARTER ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------- --------------------
1997 1996 1997 1996
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenues........................ $ 122 $ 107 $ 358 $ 323
Expenses........................ 107 96 320 293
--------- --------- --------- ---------
Net Income...................... $ 15 $ 11 $ 38 $ 30
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
Revenues increased $15, or 14%, to $122 in the third quarter of 1997 and
$35, or 11%, to $358 for the nine months ended September 30, 1997, over the
comparable periods in 1996. In the first quarter of 1996, a block of business
was assumed from Investors Equity which increased 1996 revenues by $9. Excluding
this transaction, year to date revenues increased $44, or 14% over prior year.
This growth was driven by increased cost of insurance charges and other fee
income earned on this growing block of business. Life insurance in-force grew
approximately $3 billion, or 6%, for September 30, 1997 over the prior period,
primarily due to sales of variable life products. Expenses in this segment
increased $11 or 11%, and $27 or 9%, for the third quarter and nine months ended
September 30, 1997, over the same periods in 1996, consistent with this growing
block of business. As a result, net income increased $4, or 36%, to $15 in the
third quarter of 1997 and $8, or 27%, to $38 for the nine months ended September
30, 1997, compared to the same periods in 1996.
<PAGE>
HARTFORD LIFE INSURANCE COMPANY AND SUBSIDIARIES
- --------------------------------------------------------------------------------
EMPLOYEE BENEFITS
<TABLE>
<CAPTION>
QUARTER ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------- --------------------
1997 1996 1997 1996
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenues........................ $ 150 $ 223 $ 471 $ 976
Expenses........................ 142 215 448 954
--------- --------- --------- ---------
Net Income...................... $ 8 $ 8 $ 23 $ 22
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
Revenues declined $73, or 33%, to $150 in the third quarter of 1997 and
$505, or 52%, for the nine months ended September 30, 1997, as compared to the
same periods in 1996. This decline is mainly related to the passage of the
Health Insurance Portability and Accountability Act of 1996, which effectively
eliminated all future sales of leveraged COLI due to the phase out of the
interest deduction on policy loans by 1998. The Company continues to write
variable COLI. Expenses declined $73, or 34%, in the third quarter of 1997 and
$506, or 53%, for the nine months ended September 30, 1997, as compared to the
same periods in 1996. Significant declines in benefits, claims and claim
adjustment expenses and policyholder dividends are the result of the decline of
the block of COLI business. As a result, net income was unchanged for the third
quarter of 1997, as compared to the same periods in 1996 and increased $1, or
5%, for the nine months ended September 30, 1997, as compared to the same
periods in 1996.
GUARANTEED INVESTMENT CONTRACTS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
QUARTER ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------------- --------------------
1997 1996 1997 1996
----- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenues....................... $ 62 $ (163) $ 196 $ (23)
Expenses....................... 62 21 196 191
--- --------- --------- ---------
Net Income (Loss).............. $ 0 $ (184) $ 0 $ (214)
--- --------- --------- ---------
--- --------- --------- ---------
</TABLE>
This segment reported no net income for the nine months ended September 30,
1997, as compared to losses of $184 and $214 for the same periods last year.
Exclusive of after-tax realized losses and other charges taken in the third
quarter of 1996 related to Closed Book GRC, this segment had an operating loss
of $15 and $45 for the third quarter and nine months ended September 30, 1996.
These results are consistent with management's expectations that net income
(loss) from Closed Book GRC in the years subsequent to 1996 will be immaterial
based on the Company's current projections for the performance of the assets and
liabilities associated with Closed Book GRC due to actions taken in the third
quarter of 1996. However, no assurance can be given that, under certain
unanticipated economic circumstances which results in the Company's assumptions
being proven inaccurate, further losses in respect of Closed Book GRC will not
occur in the future.
<PAGE>
HARTFORD LIFE INSURANCE COMPANY AND SUBSIDIARIES
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Hartford Life Insurance Company and Subsidiaries:
We have audited the accompanying consolidated balance sheets of Hartford Life
Insurance Company (a Connecticut corporation and wholly-owned subsidiary of
Hartford Life and Accident Insurance Company) and subsidiaries as of December
31, 1996 and 1995, 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, 1996. These consolidated financial statements and the
schedules referred to below are the responsibility of Hartford Life Insurance
Company's management. Our responsibility is to express an opinion on these
consolidated 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 consolidated financial position of
Hartford Life Insurance Company and subsidiaries as of December 31, 1996 and
1995, and the results of their operations and their cash flows for each of the
three years in the period ended December 31, 1996 in conformity with generally
accepted accounting principles.
As discussed in Note 2 of Notes to Consolidated Financial Statements, Hartford
Life Insurance Company adopted a new accounting standard promulgated by the
Financial Accounting Standards Board, changing its method of accounting, as of
January 1, 1994, for debt and equity securities.
Our audits were made for the purpose of forming an opinion on the basic
consolidated financial statements taken as a whole. The schedules listed in the
Index to Consolidated Financial Statements and Schedules are presented for
purposes of complying with the Securities and Exchange Commission's rules and
are not a required part of the basic consolidated financial statements. These
schedules have been subjected to the auditing procedures applied in the audits
of the basic consolidated 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 consolidated financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Hartford, Connecticut
February 10, 1997
<PAGE>
HARTFORD LIFE INSURANCE COMPANY AND SUBSIDIARIES
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
------------------------
1996 1995 1994
------ ------ ------
($000)
<S> <C> <C> <C>
Revenues
Premiums and other considerations............... $1,705 $1,487 $1,100
Net investment income........................... 1,397 1,328 1,292
Net realized capital (losses) gains............. (213) (11) 7
------ ------ ------
Total Revenues................................ 2,889 2,804 2,399
------ ------ ------
Benefits, Claims and Expenses
Benefits, claims and claim adjustment
expenses....................................... 1,535 1,422 1,405
Amortization of deferred policy acquisition
costs.......................................... 234 199 145
Dividends to policyholders...................... 635 675 419
Other insurance expenses........................ 427 317 227
------ ------ ------
Total Benefits, Claims and Expenses........... 2,831 2,613 2,196
------ ------ ------
Income before income tax expense................ 58 191 203
Income tax expense.............................. 20 62 65
------ ------ ------
Net income........................................ $ 38 $ 129 $ 138
------ ------ ------
------ ------ ------
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of the above statements.
<PAGE>
HARTFORD LIFE INSURANCE COMPANY AND SUBSIDIARIES
- --------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
AS OF DECEMBER
31,
-----------------
1996 1995
------- -------
<S> <C> <C>
(IN MILLIONS
EXCEPT SHARE
DATA)
Assets
Investments
Fixed maturities, available for sale, at fair
value (amortized cost $13,579 and $14,440)..... $13,624 $14,400
Equity securities, available for sale, at fair
value.......................................... 119 63
Policy loans, at outstanding balance............ 3,836 3,381
Mortgage loans, at outstanding balance.......... 2 265
Other investments, at cost...................... 54 156
------- -------
Total investments............................. 17,635 18,265
Cash............................................ 43 46
Premiums and amounts receivable................. 137 165
Accrued investment income....................... 407 394
Reinsurance recoverable......................... 6,066 6,221
Deferred policy acquisition costs............... 2,760 2,188
Deferred income tax............................. 474 420
Other assets.................................... 357 234
Separate account assets......................... 49,690 36,264
------- -------
Total assets.................................. $77,569 $64,197
------- -------
------- -------
Liabilities
Future policy benefits.......................... $ 2,281 $ 2,373
Other policyholder funds........................ 22,134 22,598
Other liabilities............................... 1,572 1,233
Separate account liabilities.................... 49,690 36,264
------- -------
Total liabilities............................. 75,677 62,468
------- -------
Stockholder's Equity
Common stock, $5,690 par value, 1,000 shares
authorized, issued and outstanding............. 6 6
Capital surplus................................. 1,045 1,007
Net unrealized capital gain (loss) on
investments, net of tax........................ 30 (57)
Retained earnings............................... 811 773
------- -------
Total stockholder's equity.................... 1,892 1,729
------- -------
Total liabilities and stockholder's equity...... $77,569 $64,197
------- -------
------- -------
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of the above statements.
<PAGE>
HARTFORD LIFE INSURANCE COMPANY AND SUBSIDIARIES
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
<TABLE>
<CAPTION>
NET UNREALIZED
CAPITAL GAIN
(LOSS) ON TOTAL
COMMON CAPITAL INVESTMENTS, RETAINED STOCKHOLDER'S
STOCK SURPLUS NET OF TAX EARNINGS EQUITY
------ -------------- -------------- -------- -------------
<S> <C> <C> <C> <C> <C>
(IN MILLIONS)
Balance, December 31, 1993.............. $6 $ 676 $ (5) $516 $1,193
Net income............................ -- -- -- 138 138
Dividends declared on common stock.... -- -- -- (10) (10)
Capital contribution.................. -- 150 -- -- 150
Change in net unrealized capital loss
on investments, net of tax(1)........ -- -- (649) -- (649)
--
------ ------ -------- ------
Balance, December 31, 1994.............. 6 826 (654) 644 822
Net income............................ -- -- -- 129 129
Capital contribution.................. -- 181 -- -- 181
Change in net unrealized capital gain
on investments, 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 gain
on investments, net of tax........... -- -- 87 -- 87
--
------ ------ -------- ------
Balance, December 31, 1996.............. $6 $1,045 $ 30 $811 $1,892
--
--
------ ------ -------- ------
------ ------ -------- ------
</TABLE>
- ------------------------
(1) The 1994 change in net unrealized capital loss on investments, net of tax,
includes a gain of $91 due to the adoption of SFAS No. 115 as discussed in
Note 2(b) of Notes to Consolidated Financial Statements.
The accompanying notes to consolidated financial statements are an integral part
of the above statements.
<PAGE>
HARTFORD LIFE INSURANCE COMPANY AND SUBSIDIARIES
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
(IN MILLIONS)
Operating Activities
Net income............................ $ 38 $ 129 $ 138
Adjustments to net income:
Net realized capital losses (gains) on
sale of investments.................. 213 11 (7)
Net amortization of premium on fixed
maturities........................... 14 21 41
Increase in deferred income taxes..... (102) (172) (128)
Increase in deferred policy
acquisition costs.................... (572) (379) (441)
Decrease (increase) in premiums and
amounts receivable................... 10 (81) 10
Increase in accrued investment
income............................... (13) (16) (106)
(Increase) decrease in other assets... (132) (177) 101
Decrease (increase) in reinsurance
recoverable.......................... 179 (35) 75
(Decrease) increase in liability for
future policy benefits............... (92) 483 224
Increase in other liabilities......... 477 281 191
-------- -------- --------
Cash provided by operating
activities......................... 20 65 98
-------- -------- --------
Investing Activities
Purchases of fixed maturity
investments.......................... (5,747) (6,228) (9,127)
Sales of fixed maturity investments... 3,459 4,845 5,713
Maturities and principal paydowns of
fixed maturity investments........... 2,693 1,741 1,931
Net purchase of other investments..... (107) (871) (1,338)
Net sales (purchases) of short-term
investments.......................... 84 (24) 135
-------- -------- --------
Cash provided by (used for)
investing activities............... 382 (537) (2,686)
-------- -------- --------
Financing Activities
Capital contribution.................. 38 -- 150
Dividends paid........................ -- -- (10)
Net (disbursements for) receipts from
investment and universal life-type
contracts (charged from) credited to
policyholder accounts................ (443) 498 2,467
-------- -------- --------
Cash (used for) provided by
financing activities............... (405) 498 2,607
-------- -------- --------
Net (decrease) increase in cash....... (3) 26 19
Cash--beginning of year............... 46 20 1
-------- -------- --------
Cash--end of year....................... $ 43 $ 46 $ 20
-------- -------- --------
-------- -------- --------
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of the above statements.
<PAGE>
HARTFORD LIFE INSURANCE COMPANY AND SUBSIDIARIES
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
(IN MILLIONS)
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"), a direct subsidiary of Hartford Accident and Indemnity
Company, an indirect subsidiary of ITT Hartford Group, Inc. ("The Hartford").
Hartford Life was formed on December 13, 1996 and capitalized on December 16,
1996 with the contribution of all the outstanding common stock of HLA. On
February 10, 1997, The Hartford, the ultimate parent of Hartford Life, announced
its intention to sell up to 20% of Hartford Life during the second quarter of
1997. Management believes that this transaction will not have a material impact
on the operations of the Company (See Note 11).
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 (the transactions relating to such
distribution are referred to herein as the "ITT Spin-off"). As a result of the
ITT Spin-off, The Hartford became an independent, publicly traded company.
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 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
corporate owned life insurance.
2. SIGNIFICANT ACCOUNTING POLICIES
(A) BASIS OF PRESENTATION
These financial statements present the financial position, results of
operations and cash flows of the Company, and all material intercompany
transactions and balances between Hartford Life Insurance Company and its
subsidiaries have been eliminated. The consolidated financial statements are
prepared on a basis of generally accepted accounting principles which differ
materially from the statutory accounting 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.
(B) CHANGES IN ACCOUNTING PRINCIPLES
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 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".
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.
In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation", which is effective in 1996. As permitted by SFAS No. 123, the
Company continues to measure compensation costs of employee stock option plans
(relating to options on common stock of The Hartford) using the intrinsic value
method prescribed by Accounting Principles Board Opinion No. 25. As of February
10, 1997, the Company had not adopted an employee stock compensation plan.
Certain officers of the Company participate in The Hartford's stock option plan.
Compensation costs allocated by The Hartford to the Company, as well as pro
forma compensation costs as determined under SFAS No. 123, were immaterial to
the results of operations for 1996 and 1995.
<PAGE>
HARTFORD LIFE INSURANCE COMPANY AND SUBSIDIARIES
- --------------------------------------------------------------------------------
Effective January 1, 1994, the Company adopted SFAS No. 115, "Accounting for
Certain Investments in Debt and Equity Securities". The new standard requires,
among other things, that securities be classified as "held-to-maturity",
"available-for-sale" or "trading" based on the Company's intentions with respect
to the ultimate disposition of the security and its ability to effect those
intentions. The classification determines the appropriate accounting carrying
value (cost basis or fair value) and, in the case of fair value, whether the
fair value difference from cost, net of tax, impacts stockholder's equity
directly or is reflected in the Consolidated Statements of Income. Investments
in equity securities had previously been and continue to be recorded at fair
value with the corresponding after-tax impact included in stockholder's equity.
Under SFAS No. 115, the Company's fixed maturity investments are classified as
"available-for-sale" and, accordingly, these investments are reflected at fair
value with the corresponding impact included as a component of stockholder's
equity designated as "Net unrealized capital gain (loss) on investments, net of
tax." As with the underlying investment security, unrealized capital gains and
losses on derivative financial instruments are considered in determining the
fair value of the portfolios. The impact of adoption was an increase to
stockholder's equity of $91 million. The Company's cash flows were not impacted
by this change in accounting principle.
(C) REVENUE RECOGNITION
Revenues for universal life 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 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.
Liabilities for universal life-type and investment contracts are stated at
policyholder account values before surrender charges.
(E) DEFERRED POLICY ACQUISITION COSTS
Policy acquisition costs, including 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 for the books of business are
reestimated and readjusted by a cumulative charge or credit to income.
(F) 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, 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.
(G) FOREIGN CURRENCY TRANSLATION
Foreign currency translation gains and losses are reflected in stockholder's
equity. Balance sheet accounts are translated at the exchange rates in effect at
each year end and income statement accounts are translated at the average rates
of exchange prevailing during the year. The national currencies of international
operations are generally their functional currencies.
(H) INVESTMENTS
The Company's investments in fixed maturities include bonds, redeemable
preferred stock and commercial paper which are classified as
"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 as "Net unrealized capital gain (loss) on investments, net of tax".
Equity securities, which include common and non-redeemable preferred stocks, are
carried at fair value with the after-tax difference from cost reflected in
stockholder's equity. Policy and mortgage loans are each carried at their
outstanding balance which approximates fair value. Investments in partnerships
and trusts are carried at cost. Net realized capital gains (losses), after
deducting the policyholders' share, are reported as a component of revenue and
are determined on a specific identification basis.
The Company's accounting policy for impairment recognition 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, the Company has
established specific criteria to be used in the impairment evaluation of an
individual portfolio of assets. Specifically, if the asset portfolio is
supporting a runoff operation, is forced to be liquidated prior to maturity to
meet liability commitments, and has fair value below amortized cost, which will
not materially fluctuate as a result of future
<PAGE>
HARTFORD LIFE INSURANCE COMPANY AND SUBSIDIARIES
- --------------------------------------------------------------------------------
interest rate changes, then an other than temporary impairment condition has
been determined to have occurred. Each individual security within that portfolio
is evaluated to determine whether or not it is impaired. Once an impairment
charge has been recorded, the Company then continues to review the individual
impaired securities for appropriate valuation on an ongoing basis.
During 1996, it was determined that certain individual securities within the
investment portfolio supporting the Company's closed block of guaranteed rate
contracts ("Closed Book GRC") were impaired. With the initiation of certain
hedge transactions, which eliminated the possibility that the fair value of the
Closed Book GRC investments would recover to their current amortized cost, an
other than temporary impairment loss of $88 after tax was determined to have
occurred and was recorded.
(I) DERIVATIVE FINANCIAL INSTRUMENTS
The Company uses a variety of derivative financial 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 anticipated investment purchases or existing assets and liabilities. The
Company does not hold or issue derivative financial instruments for trading
purposes. The Company's accounting for derivative financial 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",
American Institute of Certified Public Accountants Statement of Position 86-2,
"Accounting for Options", and various EITF pronouncements. Written options are,
in all cases, used in conjunction with other assets and derivatives as part of
the Company's asset/liability management strategies. Derivative instruments are
carried at values consistent with the asset or liability being hedged.
Derivatives used to hedge fixed maturities or equities are carried at fair value
with the after-tax difference from cost reflected in stockholder's equity.
Derivatives used to hedge other invested assets or liabilities are carried at
cost.
Derivatives must be designated at inception as a hedge and measured for
effectiveness both at inception and on an ongoing 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. Derivatives 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. Interest rate swaps are the primary type of derivatives used
to convert London interbank offered quotations for U.S. dollar deposits
("LIBOR") based variable rate instruments to fixed rate instruments. Synthetic
instrument accounting, consistent with industry practice, provides that the
synthetic asset is accounted for like the financial instrument it is intended to
replicate. Derivatives which fail to meet risk management criteria 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 future receipt of product cash flows are deferred and, at the time of the
ultimate 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 futures
contracts are closed, except for futures used in duration hedging which are
deferred and are adjusted into the cost basis on a quarterly basis. The
adjustments to the cost basis are amortized into investment income over the
remaining asset life.
Open forward commitment contracts are marked to market through stockholder's
equity. Such contracts are recorded at settlement by recording the purchase of
the specified securities at the previously committed price. Gains or losses
resulting from the termination of the 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 purchased options and/or premiums received on covered written
options, entered into as part of an asset/liability management strategy, is/are
adjusted into the cost basis of the underlying asset or liability and amortized
over the remaining life of the hedge. Gains or losses on expiration or
termination of the hedge are adjusted into the basis of the underlying asset or
liability and amortized over the remaining asset life. The Company had no
written options as of December 31, 1996 and 1995.
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 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 earnings.
Interest rate swaps purchased in anticipation of an asset purchase (an
"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 gain or loss.
Premiums paid on purchased floor or cap agreements and the premium received
on issued floor or cap agreements (used for risk management) are adjusted into
the
<PAGE>
HARTFORD LIFE INSURANCE COMPANY AND SUBSIDIARIES
- --------------------------------------------------------------------------------
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.
(J) RELATED PARTY TRANSACTIONS
Transactions of the Company with HLA and its affiliates relate principally
to tax settlements, reinsurance, insurance coverage, rental and service fees and
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 Hartford Fire Insurance Company, an
indirect subsidiary of The Hartford ("Hartford Fire"). 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, depending on the type, are allocated based on either
a percentage of direct expenses or on utilization. Indirect expenses allocated
to the Company by Hartford Fire were $40, $45 and $41 in 1996, 1995 and 1994,
respectively. Management of the Company believes that the methods used are
reasonable. In addition, the Company was charged its share of costs allocated to
The Hartford by ITT prior to the ITT Spin-off, which were immaterial in 1995 and
1994. The Company had a receivable from The Hartford of $1 and a payable to The
Hartford of $2 at December 31, 1996 and 1995, respectively.
In 1996, the Company ceded approximately $33.3 billion of group life
insurance in force and $318 million of disability premium to HLA and assumed
$8.5 billion of individual life insurance in force from HLA.
On June 30, 1995, the ownership of ITT Lyndon Insurance Company was
transferred to the Company via a capital contribution of $181 million,
representing the net assets of the company. Also, in 1996, the Company received
a capital contribution of $37.5 million from its parent HLA.
(K) 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
44%, 41%, and 43% in 1996, 1995, and 1994, respectively, of total life insurance
in force.
3. INVESTMENTS
(A) COMPONENTS OF NET INVESTMENT INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Interest income................ $ 1,452 $ 1,338 $ 1,247
(Losses) income from other
investments................... (42) 1 54
--------- --------- ---------
Gross investment income........ 1,410 1,339 1,301
Less: Investment expenses...... 13 11 9
--------- --------- ---------
Net investment income.......... $ 1,397 $ 1,328 $ 1,292
--------- --------- ---------
--------- --------- ---------
</TABLE>
(B) COMPONENTS OF NET REALIZED CAPITAL GAINS (LOSSES)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Fixed maturities............... $ (201) $ 23 $ (34)
Equity securities.............. 2 (6) (11)
Real estate and other.......... (4) (25) 47
Less: (Increase) decrease in
liability to policyholders for
realized capital gains
(losses)...................... (10) (3) 5
--------- --------- ---------
Net realized capital (losses)
gains......................... $ (213) $ (11) $ 7
--------- --------- ---------
--------- --------- ---------
</TABLE>
(C) NET UNREALIZED CAPITAL GAINS (LOSSES) ON EQUITY SECURITIES
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------
1996 1995 1994
----- ----- ---------
<S> <C> <C> <C>
Gross unrealized gains........... $ 13 $ 4 $ 2
Gross unrealized losses.......... (1) (2) (11)
--- --- ---------
Net unrealized capital gains
(losses)........................ 12 2 (9)
Deferred income tax liability
(asset)......................... 4 1 (3)
--- --- ---------
Net unrealized capital gains
(losses), after tax............. 8 1 (6)
Balance beginning of year........ 1 (6) (5)
--- --- ---------
Change in net unrealized capital
gains (losses) on investments... $ 7 $ 7 $ (1)
--- --- ---------
--- --- ---------
</TABLE>
<PAGE>
HARTFORD LIFE INSURANCE COMPANY AND SUBSIDIARIES
- --------------------------------------------------------------------------------
(D) NET UNREALIZED CAPITAL GAINS (LOSSES) ON FIXED MATURITIES
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1996 1995 1994
------ ------ --------
<S> <C> <C> <C>
Gross unrealized gains................................. $ 386 $ 529 $ 150
Gross unrealized losses................................ (341) (569) (1,185)
Unrealized (gains) losses credited to policyholders.... (11) (52) 37
------ ------ --------
Net unrealized capital gains (losses).................. 34 (92) (998)
Deferred income tax liability (asset).................. 12 (34) (350)
------ ------ --------
Net unrealized capital gains (losses), after tax....... 22 (58) (648)
Balance beginning of year.............................. (58) (648) 161
------ ------ --------
Change in net unrealized capital gains (losses) on
investments........................................... $ 80 $ 590 $ (809)
------ ------ --------
------ ------ --------
</TABLE>
(E) COMPONENTS OF FIXED MATURITIES INVESTMENTS
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1996
-------------------------------
GROSS
UNREALIZED
AMORTIZED ------------ FAIR
COST GAINS LOSSES VALUE
------- ---- ------ -------
<S> <C> <C> <C> <C>
U.S. government and government agencies and authorities
(guaranteed and sponsored)............................ $ 166 $ 12 $ (3) $ 175
U.S. government and government 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
------- ---- ------ -------
------- ---- ------ -------
<CAPTION>
AS OF DECEMBER 31, 1995
-------------------------------
GROSS
UNREALIZED
AMORTIZED ------------ FAIR
COST GAINS LOSSES VALUE
------- ---- ------ -------
<S> <C> <C> <C> <C>
U.S. government and government agencies and authorities
(guaranteed and sponsored)............................ $ 502 $ 4 $ (9) $ 497
U.S. government and government agencies and authorities
(guaranteed and sponsored)--asset-backed.............. 3,568 210 (387) 3,391
States, municipalities and political subdivisions...... 201 4 (3) 202
International governments.............................. 291 19 (4) 306
Public utilities....................................... 949 29 (2) 976
All other corporate including international............ 3,065 76 (55) 3,086
All other corporate--asset-backed...................... 5,056 187 (109) 5,134
Short-term investments................................. 808 -- -- 808
------- ---- ------ -------
Total fixed maturities............................. $14,440 $529 $ (569) $14,400
------- ---- ------ -------
------- ---- ------ -------
</TABLE>
<PAGE>
HARTFORD LIFE INSURANCE COMPANY AND SUBSIDIARIES
- --------------------------------------------------------------------------------
The amortized cost and fair value of fixed maturities at December 31, 1996,
by maturity, are shown below. Asset-backed securities, including mortgage-backed
securities and collateralized mortgage obligations, are distributed to maturity
year based on the Company's estimates of the rate of future prepayments of
principal over the remaining lives of such securities. These estimates are
developed using prepayment speeds reported in broker consensus data and can be
expected to vary from actual experience. Expected maturities differ from
contractual maturities due to call or prepayment provisions.
<TABLE>
<CAPTION>
MATURITY AMORTIZED COST FAIR VALUE
- -------------------------- -------------- -----------
<S> <C> <C>
One year or less.......... $ 2,632 $ 2,642
Over one year through five
years.................... 5,871 5,928
Over five years through
ten years................ 3,320 3,311
Over ten years............ 1,756 1,743
------- -----------
Total................. $ 13,579 $ 13,624
------- -----------
------- -----------
</TABLE>
Sales of fixed maturities excluding short-term fixed maturities for the
years ended December 31, 1996, 1995 and 1994 resulted in proceeds of $3,459,
$4,848 and $5,708, respectively, resulting in gross realized capital gains of
$87, $91 and $71, respectively, and gross realized capital losses (including
investment writedowns) of $298, $72 and $100, respectively, not including
policyholder gains and losses. Sales of equity securities for the years ended
December 31, 1996, 1995 and 1994 resulted in proceeds of $74, $64 and $159,
respectively, resulting in gross realized capital gains of $2, $28 and $3,
respectively, and gross realized capital losses of $0, $59 and $14,
respectively, not including policyholder gains and losses.
(F) CONCENTRATION OF CREDIT RISK
As of December 31, 1996, the Company had a reinsurance recoverable of $3.8
billion from Mutual Benefit Life Assurance Corporation ("Mutual Benefit"),
supported by assets in a security trust of $3.8 billion (including policy loans
of $3.3 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. Excluding investments in U.S.
government and agencies, the Company has no other significant concentrations of
credit risk in fixed maturities.
(G) DERIVATIVE INVESTMENTS
Derivatives play an important role in facilitating the management of
interest rate risk, creating opportunities to fund product obligations hedging
against indexation risks that affect the value of certain liabilities and
adjusting broad investment risk characteristics when dictated by significant
changes in market risks. As an end user of derivatives, the Company uses a
variety of derivative financial instruments, including swaps, caps, floors,
forwards and exchange traded financial futures and options in order to hedge
exposure to price, foreign currency and/or interest rate risk on anticipated
investment purchases or existing assets and liabilities. The notional amounts of
derivative contracts represent the basis upon which pay and receive amounts are
calculated and are not reflective of credit risk for derivative contracts.
Credit risk for derivative contracts is limited to the amounts calculated to be
due to the Company on such contracts. The Company believes it maintains prudent
policies regarding the financial stability and credit standing of its major
counterparties and typically requires credit enhancement provisions to further
limit its credit risk. Many of these derivative contracts are bilateral
agreements that are not assignable without the consent of the relevant
counterparty. Notional amounts pertaining to derivative financial instruments
totaled $9.9 billion and $8.8 billion at December 31, 1996 and 1995,
respectively ($7.4 billion and $7.1 billion related to life insurance
investments and $2.5 billion and $1.7 billion related to life insurance
liabilities at December 31, 1996 and 1995, respectively).
<PAGE>
HARTFORD LIFE INSURANCE COMPANY AND SUBSIDIARIES
- --------------------------------------------------------------------------------
The following table summarizes the Company's derivatives, segregated by
major categories, as of December 31, 1996 and 1995:
<TABLE>
<CAPTION>
AMOUNTS HEDGED (NOTIONAL AMOUNTS) (EXCLUDING
LIABILITY HEDGES)
--------------------------------------------------
PURCHASED
TOTAL ISSUED CAPS OPTIONS,
CARRYING & CAPS &
1996 VALUE FLOORS(C) FLOORS(D) FUTURES(E)
- ------------------------------------------------------------------------ --------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
Asset-backed securities (excluding inverse floaters and anticipatory)... $ 5,242 $ 500 $ 2,454 $ --
Inverse floaters(a)..................................................... 352 98 856 --
Anticipatory(g)......................................................... -- -- -- 132
Other bonds and notes................................................... 7,369 425 440 5
Short-term investments.................................................. 661 -- -- --
--------- ----------- ----------- -----
Total fixed maturities.............................................. 13,624 1,023 3,750 137
Equity securities, policy loans and other investments................... 4,011 -- -- --
--------- ----------- ----------- -----
Total investments................................................... $ 17,635 $ 1,023 $ 3,750 $ 137
--------- ----------- ----------- -----
--------- ----------- ----------- -----
Total derivatives-fair value(b)..................................... $ (10) $ 35 $ --
----------- ----------- -----
----------- ----------- -----
<CAPTION>
AMOUNTS HEDGED (NOTIONAL AMOUNTS) (EXCLUDING
LIABILITY HEDGES)
--------------------------------------------------
PURCHASED
TOTAL ISSUED CAPS OPTIONS,
CARRYING & CAPS &
1995 VALUE FLOORS(C) FLOORS(D) FUTURES(E)
- ------------------------------------------------------------------------ --------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
Asset-backed securities (excluding inverse floaters and anticipatory)... $ 5,764 $ 118 $ 3,133 $ 322
Inverse floaters(a)..................................................... 711 560 354 6
Anticipatory(g)......................................................... -- -- -- 213
Other bonds and notes................................................... 7,118 33 66 322
Short-term investments.................................................. 807 -- -- --
--------- ----------- ----------- -----
Total fixed maturities.............................................. 14,400 711 3,553 863
Equity securities, policy loans and other investments................... 3,865 -- -- --
--------- ----------- ----------- -----
Total investments................................................... $ 18,265 $ 711 $ 3,553 $ 863
--------- ----------- ----------- -----
--------- ----------- ----------- -----
Total derivatives-fair value(b)..................................... $ (32) $ 46 $ --
----------- ----------- -----
----------- ----------- -----
<CAPTION>
INTEREST FOREIGN TOTAL
RATE CURRENCY NOTIONAL
1996 SWAPS(H) SWAPS(F) AMOUNT
- ------------------------------------------------------------------------ ----------- ----------- -----------
<S> <C> <C> <C>
Asset-backed securities (excluding inverse floaters and anticipatory)... $ 941 $ -- $ 3,895
Inverse floaters(a)..................................................... 346 -- 1,300
Anticipatory(g)......................................................... -- -- 132
Other bonds and notes................................................... 1,079 125 2,074
Short-term investments.................................................. -- -- --
----------- ----- -----------
Total fixed maturities.............................................. 2,366 125 7,401
Equity securities, policy loans and other investments................... 19 -- 19
----------- ----- -----------
Total investments................................................... $ 2,385 $ 125 $ 7,420
----------- ----- -----------
----------- ----- -----------
Total derivatives-fair value(b)..................................... $ (25) $ (9) $ (9)
----------- ----- -----------
----------- ----- -----------
INTEREST FOREIGN TOTAL
RATE CURRENCY NOTIONAL
1995 SWAPS(H) SWAPS(F) AMOUNT
- ------------------------------------------------------------------------ ----------- ----------- -----------
<S> <C> <C> <C>
Asset-backed securities (excluding inverse floaters and anticipatory)... $ 290 $ -- $ 3,863
Inverse floaters(a)..................................................... 681 -- 1,601
Anticipatory(g)......................................................... 25 -- 238
Other bonds and notes................................................... 757 187 1,365
Short-term investments.................................................. -- -- --
----------- ----- -----------
Total fixed maturities.............................................. 1,753 187 7,067
Equity securities, policy loans and other investments................... 18 -- 18
----------- ----- -----------
Total investments................................................... $ 1,771 $ 187 $ 7,085
----------- ----- -----------
----------- ----- -----------
Total derivatives-fair value(b)..................................... $ (108) $ (24) $ (118)
----------- ----- -----------
----------- ----- -----------
</TABLE>
- ------------------------
(a) Inverse floaters are variations of collateralized mortgage obligations
("CMOs") for which the coupon rates move inversely with an index rate such
as 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 and purchased caps and floors.
(b) The fair value of derivative instruments including swaps, caps, floors,
futures, options and forward commitments, was determined using a pricing
model which is validated through quarterly comparison to dealer quoted
market prices, for 1996 and dealer quoted prices for 1995.
(c) The 1996 data includes issued caps of $433 with a weighted average strike
rate of 8.21% (ranging from 7.0% to 9.5%) and over 93% maturing in 2000
through 2005. In addition, issued floors totaled $590, had a weighted
average strike rate of 5.17% (ranging from 5.00% to 7.85%) with all of them
maturing by the end of 2005. The 1995 data includes issued caps of $475 with
a weighted average strike rate of 8.5% (ranging from 7.0% to 10.4%) and over
85% maturing in 2000 through 2004. In addition, issued floors totaled $236,
had a weighted average strike rate of 8.1% (ranging from 5.3% to 10.9%) and
mature through 2007, with 76% maturing by 2004.
(d) The 1996 data includes purchased floors of $2.4 billion and purchased caps
of $1.3 billion. The floors had a weighted average strike rate of 5.84%
(ranging from 3.70% to 7.85%) and over 87% mature in 1997 through 1999. The
options mature in 1997. The caps had a weighted average strike rate of 7.59%
(ranging from 4.40% to 10.125%) and over 76% mature in 1997 through 2001.
The 1995 data includes purchased floors of $1.8 billion and purchased caps
of $1.7 billion. The floors had a weighted average strike price of 5.8%
(ranging from 3.7% to 6.8%) and over 85% mature in 1997 through 1999. The
caps had a weighted average strike price of 7.5% (ranging from 4.5% and
10.1%) and over 82% mature in 1997 through 1999.
<PAGE>
HARTFORD LIFE INSURANCE COMPANY AND SUBSIDIARIES
- --------------------------------------------------------------------------------
(e) As of December 31, 1996 and 1995, over 39% and 95%, respectively, of the
notional futures contracts, expire within one year.
(f) As of December 31, 1996 and 1995, over 42% and 25%, respectively, of the
Company's foreign currency swaps, expire within one year; the balance mature
over the succeeding 4 to 5 years.
(g) Deferred gains and losses on anticipatory transactions are included in the
carrying value of bond investments 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, 1996, the Company had $1 million in
net deferred gains for futures, interest rate swaps and purchased options.
The Company expects to basis adjust $1 million of the deferred gains in
1997. At December 31, 1995, the Company had $5.3 million in net deferred
gains for futures, interest rate swaps and purchased options.
(h) The following table summarizes the maturities by notional value of interest
rate swaps outstanding at December 31, 1996 and 1995, and the related
weighted average interest pay rate or receive rate. The variable rates
represent spot rates (primarily 90 day LIBOR), as of December 31, 1996 and
1995. Such variable rates have been calculated assuming that the spot rates
remain unchanged throughout the life of the interest rate swaps.
<TABLE>
<CAPTION>
1996 1997 1998 1999 2000 2001
- ------------------------------------------------------------ ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
PAY FIXED/RECEIVE VARIABLE
Notional Value $-- $50 $125 $35 $125
Weighted Average Pay Rate -- 5.7 % 5.9 % 5.5 % 5.5%
Weighted Average Receive Rate -- 3.2 % -- 6.5 % 6.4%
PAY VARIABLE/RECEIVE FIXED
Notional Value $86 $25 $486 $74 $582
Weighted Average Pay Rate 7.5 % -- 6.4 % 6.7 % 7.0%
Weighted Average Receive Rate 5.6 % -- 5.6 % 5.7 % 6.2%
PAY VARIABLE/RECEIVE DIFFERENT VARIABLE
Notional Value $19 $15 $-- $200 $--
Weighted Average Pay Rate 5.9 % 5.7 % -- 6.4 % --
Weighted Average Receive Rate 3.7 % 5.5 % -- 5.0 % --
Total Interest Rate Swaps $105 $90 $611 $309 $707
Total Weighted Average Pay Rate 7.2 % 5.7 % 6.3 % 6.4 % 6.7%
Total Weighted Average Receive Rate 5.2 % 3.8 % 4.3 % 5.4 % 6.3%
<CAPTION>
1995 1996 1997 1998 1999 2000
- ------------------------------------------------------------ ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
PAY FIXED/RECEIVE VARIABLE
Notional Value $15 $50 $-- $453 $31
Weighted Average Pay Rate 5.0 % 7.2 % -- 8.1 % 7.1%
Weighted Average Receive Rate 5.8 % 5.9 % -- 5.8 % 5.7%
PAY VARIABLE/RECEIVE FIXED
Notional Value $100 $68 $25 $25 $35
Weighted Average Pay Rate 5.9 % 8.6 % 5.9 % -- 5.9%
Weighted Average Receive Rate 2.4 % 7.9 % 4.0 % -- 6.5%
PAY VARIABLE/RECEIVE DIFFERENT VARIABLE
Notional Value $50 $18 $36 $12 $200
Weighted Average Pay Rate 5.8 % -- 3.7 % 3.5 % 4.5%
Weighted Average Receive Rate 5.4 % -- 5.6 % 5.2 % 6.8%
Total Interest Rate Swaps $165 $136 $61 $490 $266
Total Weighted Average Pay Rate 5.8 % 7.8 % 4.6 % 7.6 % 5.0%
Total Weighted Average Receive Rate 3.6 % 7.2 % 4.9 % 5.4 % 6.6%
<CAPTION>
LATEST
1996 THEREAFTER TOTAL MATURITY
- ------------------------------------------------------------ ------------- ----------- -----------
<S> <C> <C> <C>
PAY FIXED/RECEIVE VARIABLE
Notional Value $170 $505 2003
Weighted Average Pay Rate 5.7 % 5.7 %
Weighted Average Receive Rate 6.9 % 4.7 %
PAY VARIABLE/RECEIVE FIXED
Notional Value $349 $1,602 2007
Weighted Average Pay Rate 6.9 % 6.8 %
Weighted Average Receive Rate 5.9 % 5.9 %
PAY VARIABLE/RECEIVE DIFFERENT VARIABLE
Notional Value $44 $278 2003
Weighted Average Pay Rate 12.9 % 7.4 %
Weighted Average Receive Rate 6.4 % 5.2 %
Total Interest Rate Swaps $563 $2,385 2007
Total Weighted Average Pay Rate 7.0 % 6.6 %
Total Weighted Average Receive Rate 6.3 % 5.5 %
LATEST
1995 THEREAFTER TOTAL MATURITY
- ------------------------------------------------------------ ------------- ----------- -----------
<S> <C> <C> <C>
PAY FIXED/RECEIVE VARIABLE
Notional Value $229 $778 2004
Weighted Average Pay Rate 7.8 % 7.8 %
Weighted Average Receive Rate 5.9 % 5.9 %
PAY VARIABLE/RECEIVE FIXED
Notional Value $190 $443 2007
Weighted Average Pay Rate 5.4 % 5.4 %
Weighted Average Receive Rate 6.9 % 6.9 %
PAY VARIABLE/RECEIVE DIFFERENT VARIABLE
Notional Value $234 $550 2004
Weighted Average Pay Rate 16.3 % 5.7 %
Weighted Average Receive Rate 5.9 % 6.4 %
Total Interest Rate Swaps $653 $1,771 2007
Total Weighted Average Pay Rate 7.3 % 6.9 %
Total Weighted Average Receive Rate 6.3 % 5.8 %
</TABLE>
In addition, interest rate sensitivity related to certain Company insurance
liabilities was altered primarily through interest rate swap agreements. The
notional amount of the liability agreements in which the Company generally pays
one variable rate in exchange for another was $2.4 billion and $1.7 billion at
December 31, 1996 and 1995, respectively. As of December 31, 1996, the weighted
average pay rate was 5.6% and the weighted average receive rate was 6.5%. These
agreements mature at various times through 2001.
<PAGE>
HARTFORD LIFE INSURANCE COMPANY AND SUBSIDIARIES
- --------------------------------------------------------------------------------
A reconciliation between notional amounts at December 31, 1995 and 1996 by
derivative type and strategy is as follows:
<TABLE>
<CAPTION>
BY DERIVATIVE TYPE
---------------------------------------------
12/31/95 MATURITIES/
NOTIONAL AMOUNT ADDITIONS TERMINATIONS
----------------- ----------- -------------
<S> <C> <C> <C>
Caps..................................................................... $ 2,184 $ 1,286 $ 1,715
Floors................................................................... 2,180 2,053 1,065
Options.................................................................. -- 10 --
Swaps/Forwards........................................................... 3,566 3,989 2,694
Futures.................................................................. 863 2,092 2,818
------ ----------- ------
Total................................................................ $ 8,793 $ 9,430 $ 8,292
------ ----------- ------
------ ----------- ------
<CAPTION>
BY STRATEGY
---------------------------------------------
12/31/95 MATURITIES/
NOTIONAL AMOUNT ADDITIONS TERMINATIONS
----------------- ----------- -------------
<S> <C> <C> <C>
Liability................................................................ $ 1,708 $ 1,940 $ 1,137
Anticipatory............................................................. 238 516 622
Asset.................................................................... 2,984 1,265 2,137
Portfolio................................................................ 3,863 5,709 4,396
------ ----------- ------
Total................................................................ $ 8,793 $ 9,430 $ 8,292
------ ----------- ------
------ ----------- ------
<CAPTION>
12/31/96
NOTIONAL AMOUNT
-----------------
<S> <C>
Caps..................................................................... $ 1,755
Floors................................................................... 3,168
Options.................................................................. 10
Swaps/Forwards........................................................... 4,861
Futures.................................................................. 137
------
Total................................................................ $ 9,931
------
------
12/31/96
NOTIONAL AMOUNT
-----------------
<S> <C>
Liability................................................................ $ 2,511
Anticipatory............................................................. 132
Asset.................................................................... 2,112
Portfolio................................................................ 5,176
------
Total................................................................ $ 9,931
------
------
</TABLE>
(H) FAIR VALUE OF FINANCIAL INSTRUMENTS
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF DECEMBER 31,
1996 1995
-------------------- --------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
ASSETS
Fixed maturities............................................................. $ 13,624 $ 13,624 $ 14,400 $ 14,400
Equity securities............................................................ 119 119 63 63
Policy loans................................................................. 3,836 3,836 3,381 3,381
Mortgage loans............................................................... 2 2 265 265
Investments in partnerships and trust........................................ 48 48 94 97
Other........................................................................ 6 56 62 62
LIABILITIES
Other policy benefits........................................................ $ 11,707 $ 11,469 $ 12,727 $ 12,767
</TABLE>
The following methods and assumptions were used to estimate the fair value
of each class of financial instrument: fair value for fixed maturities and
equity securities approximate those quotations published by applicable stock
exchanges or received from other reliable sources; policy and mortgage loan
carrying amounts approximate fair value; investments in partnerships and trusts
are based on external market valuations from partnership and trust managements;
fair value of derivative instruments, including swaps, caps, floors, futures,
and forward commitments, is determined by using a pricing model which is
validated through quarterly comparison to dealer quoted market prices; and other
policy benefits payable for investment type contracts are determined by
estimating future cash flows discounted at the year end market rate.
4. INCOME TAX
Hartford Life and The Hartford have entered into a tax sharing agreement
under which each member, including the Company, 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 Hartford Life for the Company, subject
to certain adjustments, generally will be determined as though the Company were
to file 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 consolidated group of which The Hartford is
the common parent. It is the current intention of The Hartford and its
subsidiaries to continue to file a consolidated federal income tax return. The
Company will continue to remit to (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 35%, 32% and 32% in 1996, 1995 and 1994,
respectively.
<PAGE>
HARTFORD LIFE INSURANCE COMPANY AND SUBSIDIARIES
- --------------------------------------------------------------------------------
Income tax expense was as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER
31,
-------------------------------
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Current............................. $ 122 $ 211 $ 185
Deferred........................... (102) (149) (120)
--------- --------- ---------
Total............................ $ 20 $ 62 $ 65
--------- --------- ---------
--------- --------- ---------
</TABLE>
A reconciliation of the tax provision at the U.S. federal statutory rate to
the provision for income taxes was as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER
31,
-------------------------------
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Tax provision at U.S. statutory
rate............................... $ 20 $ 67 $ 71
Tax-exempt income.................. -- (3) (3)
Foreign tax credit................. -- (4) (1)
Other.............................. -- 2 (2)
--------- --------- ---------
Total............................ $ 20 $ 62 $ 65
--------- --------- ---------
--------- --------- ---------
</TABLE>
Income taxes paid were $189, $162 and $244 in 1996, 1995 and 1994,
respectively. The current tax refund due from The Hartford to the Company was
$72 and $8 as of December 31, 1996 and 1995, respectively.
Deferred tax assets (liabilities) included the following:
<TABLE>
<CAPTION>
AS OF
DECEMBER 31,
--------------------
1996 1995
--------- ---------
<S> <C> <C>
Tax return deferred acquisition costs......... $ 514 $ 410
Financial statement deferred acquisition costs
and reserves................................. (242) 138
Employee benefits............................. 8 8
Unrealized (gain) loss on investments......... (16) 32
Investments and other......................... 210 (168)
--------- ---------
Total..................................... $ 474 $ 420
--------- ---------
--------- ---------
</TABLE>
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 such circumstances, 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,
1996 was $37.
5. REINSURANCE
The Company cedes insurance to non-affiliated insurers 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.
Life insurance net retained premiums were comprised of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Gross premiums..................... $ 1,834 $ 1,545 $ 1,316
Insurance assumed.................. 173 591 299
Insurance ceded.................... (302) (649) (515)
--------- --------- ---------
Total.......................... $ 1,705 $ 1,487 $ 1,100
--------- --------- ---------
--------- --------- ---------
</TABLE>
Life reinsurance recoveries, which reduced death and other benefits, for the
years ended December 31, 1996, 1995 and 1994 approximated $140, $220 and $164,
respectively.
In December 1994, the Company ceded to a third party $1.0 billion in
individual fixed and variable annuities on a modified coinsurance basis. In
December 1995, the Company ceded approximately $1.2 billion in individual
variable annuities on a modified coinsurance basis to a third party. These
transactions did not have a material impact on consolidated net income.
In May 1994, the Company assumed the life insurance policies and the
individual annuities of Pacific Standard with reserves and account values of
approximately $434 million. The Company received cash and investment grade
assets to support the life insurance and individual annuity contract obligations
assumed.
6. PENSION PLANS AND OTHER POSTRETIREMENT BENEFITS
The Company's employees are included in Hartford Fire'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 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, $2 and $2 in 1996, 1995 and 1994,
respectively.
The Company also provides, through Hartford Fire, 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
<PAGE>
HARTFORD LIFE INSURANCE COMPANY AND SUBSIDIARIES
- --------------------------------------------------------------------------------
expense, allocated by The Hartford, was immaterial for 1996, 1995 and 1994,
respectively.
The assumed rate of future increases in the per capita cost of health care
(the health care trend rate) was 9.3% for 1996, 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, the effect will be amortized over the
average future service of the covered employees.
7. BUSINESS SEGMENT INFORMATION
The Company sells financial products such as fixed and variable annuities,
retirement plan services, and life insurance on both an individual and a group
basis. The Company divides its core businesses into three segments: Investment
Products, Individual Life Insurance and Employee Benefits. In addition, the
Company also maintains a corporate operation and also classifies certain of its
business as Runoff operations. The Investment Products 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, and interest-sensitive whole life policies. The Employee
Benefits segment sells corporate owned life insurance. Through its corporate
operation, the Company reports net investment income on assets representing
surplus not assigned to any of its business segments and certain other revenues
and expenses not specifically allocable to any of its business segments. The
Company's Runoff operations are comprised of Closed Book GRC. With the exception
of Closed Book GRC, 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.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
REVENUES
Investment Products............... $ 1,013 $ 759 $ 594
Individual Life Insurance......... 440 383 375
Employee Benefits................. 1,366 1,273 919
Corporate Operations.............. 81 52 30
Runoff Operations................. (11) 337 481
--------- --------- ---------
Total Revenues.................. $ 2,889 $ 2,804 $ 2,399
--------- --------- ---------
--------- --------- ---------
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
INCOME BEFORE INCOME TAX EXPENSE
Investment Products............... $ 230 $ 172 $ 127
Individual Life Insurance......... 68 56 39
Employee Benefits................. 43 37 27
Corporate Operations.............. 65 16 8
Runoff Operations................. (348) (90) 2
--------- --------- ---------
Income Before Income Tax
Expense........................ $ 58 $ 191 $ 203
--------- --------- ---------
--------- --------- ---------
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
ASSETS
Investment Products............... $ 53,743 $ 40,624 $ 29,115
Individual Life Insurance......... 3,753 3,173 2,808
Employee Benefits................. 14,515 13,494 7,847
Corporate Operations.............. 1,891 1,729 822
Runoff Operations................. 3,667 5,177 7,257
--------- --------- ---------
Total Assets.................... $ 77,569 $ 64,197 $ 47,849
--------- --------- ---------
--------- --------- ---------
</TABLE>
8. STATUTORY NET INCOME AND SURPLUS
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 1997, without prior approval, is estimated to be $121 million.
Statutory net income and surplus as of and for the years ended December 31 were:
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Statutory net income...... $ 144 $ 112 $ 58
Statutory surplus......... $ 1,207 $ 1,125 $ 941
</TABLE>
The insurance subsidiaries of the Company 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.
9. SEPARATE ACCOUNTS
The Company maintained separate account assets and liabilities totaling
$49.7 billion and $36.3 billion at December 31, 1996 and 1995, respectively,
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 policyholder. Separate accounts reflect two categories of risk assumption:
non-guaranteed separate accounts totaling $39.4 billion and $25.9 billion at
December 31, 1996 and 1995, respectively, wherein the policyholder assumes the
investment risk, and
<PAGE>
HARTFORD LIFE INSURANCE COMPANY AND SUBSIDIARIES
- --------------------------------------------------------------------------------
guaranteed separate account assets totaling $10.3 billion at December 31, 1996
and 1995, wherein the Company contractually guarantees either a minimum return
or account value to the policyholder. Included in the non-guaranteed category
are policy loans totaling $2.0 billion and $1.7 billion at December 31, 1996 and
1995, respectively. Investment income (including investment 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, net of minimum guarantees, were $538, $387 and $256 in 1996, 1995 and
1994, respectively.
The guaranteed separate accounts include modified guaranteed individual
annuity and modified guaranteed life insurance. The average credited interest
rate on these contracts was 6.53% at December 31, 1996. The assets that support
these liabilities were comprised of $10.2 billion in fixed maturities at
December 31, 1996. The portfolios are segregated from other investments and are
managed so as to minimize liquidity and interest rate risk. To minimize the risk
of disintermediation associated with early withdrawals, individual 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 $0.1 billion in carrying value and $2.4
billion in notional amounts at December 31, 1996.
10. COMMITMENTS AND CONTINGENCIES
Under insurance guaranty fund laws existing 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 $11, $10 and $8 in 1996, 1995 and 1994,
respectively, of which $5, $6 and $4 were estimated to be creditable against
premium taxes.
The Company is a defendant in various lawsuits arising in the ordinary
course of business. In the opinion of management, the resolution of these
matters is not expected to have a material adverse effect on the Company's
business, financial position, or results of operations.
The rent paid to Hartford Fire for the space occupied by the Company was $3
in 1996, 1995, and 1994. The Company expects to pay annual rent of $7 in 1997,
1998, and 1999, respectively, $12 in 2000 and 2001, and $96 thereafter, over the
remaining term of the sublease, which expires on December 31, 2009. Rental
expense is recognized on a level basis over the term of the sublease and
amounted to approximately $8 in 1996, 1995 and 1994.
11. SUBSEQUENT EVENTS
On February 10, 1997, Hartford Life filed a registration statement with the
Securities and Exchange Commission relating to the U.S. and international
offerings of shares of Class A common stock (the "Equity Offerings")
representing up to 20% ownership of Hartford Life. After completion of the
Equity Offerings, The Hartford would own all of the shares of Class B Common
Stock (after reclassification of Hartford Life's common stock into Class B
Common Stock prior to March 31, 1997). Hartford Life intends to use the
estimated net proceeds of the Equity Offerings to make a capital contribution to
its insurance subsidiaries, to reduce its third-party indebtedness and for other
general corporate purposes.
The Hartford has advised the Company that its current intent is to continue
to beneficially own at least 80% of Hartford Life, but it is under no
contractual obligation to do so, except for a limited period. Provided that The
Hartford continues to beneficially own at least 80% of the combined voting power
or the value of the outstanding capital stock of Hartford Life, Hartford Life
will be included for federal income tax purposes in the controlled group of
which The Hartford is the common parent. Each member of a controlled group is
jointly and severally liable for pension funding and pension termination
liabilities of each other member of the controlled group, as well as certain
benefit plan taxes. Accordingly, the Company could be liable for pension
funding, pension termination liabilities and certain other pension related
excise taxes as well as other taxes of another member of The Hartford controlled
group in the event any such liability is incurred, and not discharged, by such
other member.
In connection with the proposed Equity Offerings, Hartford Life plans to
enter into formal agreements, including a master intercompany agreement,
investment management agreements and a new tax sharing agreement, with The
Hartford covering such matters as corporate services, approval of certain
corporate activities, registration rights, owned and leased space, allocation of
expenses, taxes and liabilities, investment advisory services, use of trademarks
and certain other corporate matters. As part of the master intercompany
agreement, Hartford Life would agree to remit to The Hartford 30% of any shared
liabilities for which The Hartford is responsible in respect of the ITT
Spin-off, 30% of any taxes which may be assessed to The Hartford relating to the
ITT Spin-off and will indemnify The
<PAGE>
HARTFORD LIFE INSURANCE COMPANY AND SUBSIDIARIES
- --------------------------------------------------------------------------------
Hartford for certain other tax liabilities. As of December 31, 1996 there was no
known liability associated with the ITT Spin-off. Such agreements are meant to
maintain the relationship between Hartford Life and The Hartford in a manner
consistent in all material respects with past practice. As a result, management
believes these agreements should not have a material impact on the results of
operations of the Company.
In addition, under insurance company holding laws, agreements between
Hartford Life's insurance subsidiaries and The Hartford must be fair and
reasonable and may be subject to the approval of applicable insurance
commissioners. The agreements will be intended to maintain the relationship
between Hartford Life and The Hartford in a manner generally consistent with
past practices. However, none of these arrangements will result from
arm's-length negotiations and, therefore, the prices charged to Hartford Life
and its subsidiaries for services provided under these arrangements may be
higher or lower than prices that may be charged by third parties.
<PAGE>
HARTFORD LIFE INSURANCE COMPANY AND SUBSIDIARIES
- --------------------------------------------------------------------------------
HARTFORD LIFE INSURANCE COMPANY AND SUBSIDIARIES
SCHEDULE I -- SUMMARY OF INVESTMENTS (OTHER THAN INVESTMENTS IN AFFILIATES)
AS OF DECEMBER 31, 1996
(IN MILLIONS)
<TABLE>
<CAPTION>
ESTIMATED
FAIR
TYPE OF INVESTMENT COST VALUE
- ------------------------------------------------------------------------------------------------- --------- -----------
<S> <C> <C>
Fixed Maturities
Bonds and Notes
U.S. Government and government agencies and authorities
(guaranteed sponsored)........................................................................ $ 166 $ 175
U.S. Government and government agencies and authorities
(guaranteed sponsored)--asset-backed.......................................................... 1,970 2,003
States, municipalities and political subdivisions................................................ 373 368
International governments........................................................................ 281 289
Public utilities................................................................................. 877 881
All other corporate including international...................................................... 4,656 4,669
All other corporate--asset-backed................................................................ 3,601 3,591
Short-term investments........................................................................... 1,655 1,648
--------- -----------
Total Fixed Maturities........................................................................... $ 13,579 $ 13,624
Equity Securities
Common Stocks--industrial, miscellaneous, and all other.......................................... 110 119
Total Fixed Maturities and Equity Securities..................................................... $ 13,689 $ 13,743
Other Investments
Policy Loans..................................................................................... 3,836 3,836
Mortgage Loans................................................................................... 2 2
Investments in partnerships and trusts........................................................... 48 48
Futures, options, and miscellaneous.............................................................. 6 56
Total Other Investments.......................................................................... 3,892 3,942
--------- -----------
Total Investments................................................................................ $ 17,581 $ 17,685
--------- -----------
--------- -----------
<CAPTION>
AMOUNT AT
WHICH SHOWN
ON
TYPE OF INVESTMENT BALANCE SHEET
- ------------------------------------------------------------------------------------------------- -------------
<S> <C>
Fixed Maturities
Bonds and Notes
U.S. Government and government agencies and authorities
(guaranteed sponsored)........................................................................ $ 175
U.S. Government and government agencies and authorities
(guaranteed sponsored)--asset-backed.......................................................... 2,003
States, municipalities and political subdivisions................................................ 368
International governments........................................................................ 289
Public utilities................................................................................. 881
All other corporate including international...................................................... 4,669
All other corporate--asset-backed................................................................ 3,591
Short-term investments........................................................................... 1,648
-------------
Total Fixed Maturities........................................................................... $ 13,624
Equity Securities
Common Stocks--industrial, miscellaneous, and all other.......................................... 119
Total Fixed Maturities and Equity Securities..................................................... $ 13,743
Other Investments
Policy Loans..................................................................................... 3,836
Mortgage Loans................................................................................... 2
Investments in partnerships and trusts........................................................... 48
Futures, options, and miscellaneous.............................................................. 6
Total Other Investments.......................................................................... 3,892
-------------
Total Investments................................................................................ $ 17,635
-------------
-------------
</TABLE>
Note: The fair values for short-term investments approximate cost.
<PAGE>
HARTFORD LIFE INSURANCE COMPANY AND SUBSIDIARIES
- --------------------------------------------------------------------------------
HARTFORD LIFE INSURANCE COMPANY AND SUBSIDIARIES
SCHEDULE III -- SUPPLEMENTARY INSURANCE INFORMATION
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(IN MILLIONS)
<TABLE>
<CAPTION>
FUTURE POLICY
BENEFITS, UNPAID OTHER POLICY
CLAIMS AND CLAIMS AND
DEFERRED POLICY CLAIM ADJUSTMENT BENEFITS
SEGMENT ACQUISITION COSTS EXPENSES PAYABLE
- ---------------------------------------------------------------- ----------------- ------------------- ---------------
<S> <C> <C> <C>
1996
Investment Products............................................. $ 2,030 $ 1,554 $ 6,599
Individual Life Insurance....................................... 730 346 2,160
Employee Benefits............................................... -- 381 9,834
Corporate Operations............................................ -- -- --
Runoff Operations............................................... -- -- 3,541
------ ------ -------
Consolidated Operations......................................... $ 2,760 $ 2,281 $ 22,134
------ ------ -------
------ ------ -------
1995
Investment Products............................................. $ 1,561 $ 1,314 $ 6,204
Individual Life Insurance....................................... 615 706 1,932
Employee Benefits............................................... 12 325 9,285
Corporate Operations............................................ -- -- --
Runoff Operations............................................... -- 28 5,177
------ ------ -------
Consolidated Operations......................................... $ 2,188 $ 2,373 $ 22,598
------ ------ -------
------ ------ -------
1994
Investment Products............................................. $ 1,244 $ 895 $ 4,617
Individual Life Insurance....................................... 565 582 2,543
Employee Benefits............................................... -- 369 6,911
Corporate Operations............................................ -- -- --
Runoff Operations............................................... -- 44 7,257
------ ------ -------
Consolidated Operations......................................... $ 1,809 $ 1,890 $ 21,328
------ ------ -------
------ ------ -------
<CAPTION>
BENEFITS CLAIMS, AMORTIZATION OF
NET REALIZED AND CLAIM DEFERRED POLICY
CAPITAL (LOSSES) ADJUSTMENT ACQUISITION
SEGMENT GAINS EXPENSES COSTS
- ---------------------------------------------------------------- ----------------- ------------------- ---------------
<S> <C> <C> <C>
1996
Investment Products............................................. $ -- $ 451 $ 175
Individual Life Insurance....................................... -- 245 59
Employee Benefits............................................... -- 546 --
Corporate Operations............................................ 6 -- --
Runoff Operations............................................... (219) 293 --
------ ------ -------
Consolidated Operations......................................... $ (213) $ 1,535 $ 234
------ ------ -------
------ ------ -------
1995
Investment Products............................................. $ -- $ 349 $ 117
Individual Life Insurance....................................... -- 127 70
Employee Benefits............................................... -- 496 --
Corporate Operations............................................ (11) 33 --
Runoff Operations............................................... -- 417 12
------ ------ -------
Consolidated Operations......................................... $ (11) $ 1,422 $ 199
------ ------ -------
------ ------ -------
1994
Investment Products............................................. $ -- $ 383 $ 90
Individual Life Insurance....................................... -- 179 51
Employee Benefits............................................... -- 376 --
Corporate Operations............................................ 7 -- --
Runoff Operations............................................... -- 467 4
------ ------ -------
Consolidated Operations......................................... $ 7 $ 1,405 $ 145
------ ------ -------
------ ------ -------
<CAPTION>
PREMIUMS AND NET
OTHER INVESTMENT
SEGMENT CONSIDERATIONS INCOME
- ---------------------------------------------------------------- --------------- -----------
<S> <C> <C>
1996
Investment Products............................................. $ 536 $ 477
Individual Life Insurance....................................... 287 153
Employee Benefits............................................... 881 485
Corporate Operations............................................ -- 75
Runoff Operations............................................... 1 207
------ -----------
Consolidated Operations......................................... $ 1,705 $ 1,397
------ -----------
------ -----------
1995
Investment Products............................................. $ 319 $ 436
Individual Life Insurance....................................... 246 137
Employee Benefits............................................... 922 351
Corporate Operations............................................ -- 67
Runoff Operations............................................... -- 337
------ -----------
Consolidated Operations......................................... $ 1,487 $ 1,328
------ -----------
------ -----------
1994
Investment Products............................................. $ 263 $ 330
Individual Life Insurance....................................... 268 108
Employee Benefits............................................... 569 350
Corporate Operations............................................ -- 23
Runoff Operations............................................... -- 481
------ -----------
Consolidated Operations......................................... $ 1,100 $ 1,292
------ -----------
------ -----------
DIVIDENDS TO OTHER
SEGMENT POLICYHOLDERS EXPENSES
- ---------------------------------------------------------------- --------------- -----------
<S> <C> <C>
1996
Investment Products............................................. $ -- $ 156
Individual Life Insurance....................................... -- 68
Employee Benefits............................................... 635 143
Corporate Operations............................................ -- 16
Runoff Operations............................................... -- 44
------ -----------
Consolidated Operations......................................... $ 635 $ 427
------ -----------
------ -----------
1995
Investment Products............................................. $ -- $ 115
Individual Life Insurance....................................... -- 55
Employee Benefits............................................... 675 138
Corporate Operations............................................ -- 11
Runoff Operations............................................... -- (2)
------ -----------
Consolidated Operations......................................... $ 675 $ 317
------ -----------
------ -----------
1994
Investment Products............................................. $ -- $ (31)
Individual Life Insurance....................................... -- 107
Employee Benefits............................................... 419 100
Corporate Operations............................................ -- 43
Runoff Operations............................................... -- 8
------ -----------
Consolidated Operations......................................... $ 419 $ 227
------ -----------
------ -----------
</TABLE>
<PAGE>
HARTFORD LIFE INSURANCE COMPANY AND SUBSIDIARIES
- --------------------------------------------------------------------------------
HARTFORD LIFE INSURANCE COMPANY AND SUBSIDIARIES
SCHEDULE IV -- REINSURANCE
(IN MILLIONS)
<TABLE>
<CAPTION>
PERCENTAGE
ASSUMED OF
CEDED TO FROM AMOUNT
GROSS OTHER OTHER NET ASSUMED
AMOUNT COMPANIES COMPANIES AMOUNT TO NET
-------- -------- ------- -------- ------
<S> <C> <C> <C> <C> <C>
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.............. 33 4 4 33 12.1%
-------- -------- ------- --------
Total........................................ $ 1,834 $ 302 $ 173 $ 1,705 10.1%
-------- -------- ------- --------
-------- -------- ------- --------
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........................................ $ 1,545 $ 649 $ 591 $ 1,487 39.7%
-------- -------- ------- --------
-------- -------- ------- --------
For the Year Ended December 31, 1994
Life Insurance in Force...................... $136,929 $87,553 $35,016 $ 84,392 41.5%
-------- -------- ------- --------
Insurance Revenues
Life Insurance and Annuities............... $ 1,008 $ 211 $ 294 $ 1,091 26.9%
Accident and Health Insurance.............. 308 304 5 9 55.6%
-------- -------- ------- --------
Total........................................ $ 1,316 $ 515 $ 299 $ 1,100 27.2%
-------- -------- ------- --------
-------- -------- ------- --------
</TABLE>
<PAGE>
SEPARATE ACCOUNT TWO
HARTFORD LIFE INSURANCE COMPANY
STATEMENT OF ASSETS & LIABILITIES
DECEMBER 31, 1997
(unaudited)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
CAPITAL
BOND STOCK MONEY MARKET ADVISERS APPRECIATION
FUND FUND FUND FUND FUND
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
Investments:
Hartford Bond Fund, Inc.
Shares 247,499,723
Cost $ 253,083,385
Market Value . . . . . . . . . . . . . . . . . $ 259,813,825 - - - -
Hartford Stock Fund, Inc.
Shares 374,857,245
Cost $1,173,736,795
Market Value . . . . . . . . . . . . . . . . . - $1,920,516,246 - - -
HVA Money Market Fund, Inc.
Shares 272,966,390
Cost $ 272,966,390
Market Value . . . . . . . . . . . . . . . . . - - $ 272,966,391 - -
Hartford Advisers Fund, Inc.
Shares 1,491,552,528
Cost $2,591,402,860
Market Value . . . . . . . . . . . . . . . . . . - - - $3,768,774,383 -
Hartford Capital Appreciation
Fund, Inc.
Shares 415,593,994
Cost $1,257,699,390
Market Value . . . . . . . . . . . . . . . . . - - - - $1,832,651,898
Hartford Mortgage Securities
Fund, Inc.
Shares 179,511,713
Cost $ 193,568,873
Market Value . . . . . . . . . . . . . . . . . - - - - -
Hartford Index Fund, Inc.
Shares 151,557,359
Cost $ 287,142,719
Market Value . . . . . . . . . . . . . . . . . - - - - -
Hartford International
Opportunities Fund, Inc.
Shares 311,169,612
Cost $ 361,503,992
Market Value . . . . . . . . . . . . . . . . . - - - - -
Hartford Dividend and Growth
Fund, Inc.
Shares 350,043,844
Cost $ 514,135,894
Market Value . . . . . . . . . . . . . . . . . - - - - -
Calvert Responsibly Invested
Balanced Fund
Shares 1,696,915
Cost $ 2,797,362
Market Value . . . . . . . . . . . . . . . . . - - - - -
Due From Hartford Life
Insurance Company 518,403 112,566 34,154,974 676,279 125,009
Receivable from fund shares sold 1985 13,427,572 4 549 13,688,014
----------- ------------- ----------- ------------- -------------
Total Assets 260,334,213 1,934,056,384 307,121,369 3,769,451,211 1,846,464,921
----------- ------------- ----------- ------------- -------------
----------- ------------- ----------- ------------- -------------
LIABILITIES:
Due to Hartford Life Insurance
Company . . . . . . . . . . . . . . . . . . . . 1986 13,427,494 74 434 13,688,077
Payable for fund shares purchased . . . . . . . 518,529 112,502 34,149,813 682895 124,245
----------- ------------- ----------- ------------- -------------
Total Liabilities . . . . . . . . . . . . . . . 520,515 13,539,996 34,149,887 683,329 13,812,322
----------- ------------- ----------- ------------- ------------
Net Assets (variable annuity
contract liabilities) . . . . . . . . . . . . . 259,813,698 1,920,516,388 272,971,482 3,768,767,882 1,832,652,599
----------- ------------- ----------- ------------- -------------
----------- ------------- ----------- ------------- -------------
DEFERRED ANNUITY CONTRACTS IN THE
ACCUMULATION PERIOD:
GROUP SUB-ACCOUNTS:
Units Owned by Participants . . . . . . . . . . 117,246,799 390,370,165 156,707,359 1,042,209,184 369,306,028
Unit Values* . . . . . . . . . . . . . . . . . . $ 2.215956 $ 4.919731 $ 1.741919 $ 3.616134 $ 4.962423
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
CALVERT
MORTGAGE INTERNATIONAL DIVIDEND RESPONSIBLY INVESTED
SECURITIES INDEX OPPORTUNITES AND GROWTH BALANCED
PORTFOLIO FUND FUND FUND FUND FUND
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
ASSETS:
Investments:
Hartford Bond Fund, Inc.
Shares 247,499,723
Cost $ 253,083,385
Market Value . . . . . . . . . . . . . . . . . - - - - -
Hartford Stock Fund, Inc.
Shares 374,857,245
Cost $1,173,736,795
Market Value . . . . . . . . . . . . . . . . . - - - - -
HVA Money Market Fund, Inc.
Shares 272,966,390
Cost $ 272,966,390
Market Value . . . . . . . . . . . . . . . . . - - - - -
Hartford Advisers Fund, Inc.
Shares 1,491,552,528
Cost $2,591,402,860
Market Value . . . . . . . . . . . . . . . . . - - - - -
Hartford Capital Appreciation
Fund, Inc.
Shares 415,593,994
Cost $1,257,699,390
Market Value . . . . . . . . . . . . . . . . . - - - - -
Hartford Mortgage Securities
Fund, Inc.
Shares 179,511,713
Cost $ 193,568,873
Market Value . . . . . . . . . . . . . . . . . $ 194,551,382 - - - -
Hartford Index Fund, Inc.
Shares 151,557,359
Cost $ 287,142,719
Market Value . . . . . . . . . . . . . . . . . - $ 436,137,978 - - -
Hartford International
Opportunities Fund, Inc.
Shares 311,169,612
Cost $ 361,503,992
Market Value . . . . . . . . . . . . . . . . . - - $ 402,795,681 - -
Hartford Dividend and Growth
Fund, Inc.
Shares 350,043,844
Cost $ 514,135,894
Market Value . . . . . . . . . . . . . . . . . - - - $ 683,400,396 -
Calvert Responsibly Invested
Balanced Fund
Shares 1,696,915
Cost $2,797,362
Market Value . . . . . . . . . . . . . . . . . - - - - $ 3,363,286
Due From Hartford Life Insurance Company . . . . 99,558 51,061 34,677 1,066,302 2,763
Receivable from fund shares sold . . . . . . . . 142,887 6870325 108,721 182 -
------------ ----------- ----------- ----------- ---------
Total Assets. . . . . . . . . . . . . . . . . . 194,793,827 443,059,364 402,939,079 684,466,880 3,366,049
------------ ----------- ----------- ----------- ---------
LIABILITIES:
Due to Hartford Life Insurance Company . . . . 144,327 6872618 109,361 147 -
Payable for fund shares purchased . . . . . . . 93,705 51,032 34,705 1,067,308 2,139
------------ ----------- ----------- ----------- ---------
Total Liabilities . . . . . . . . . . . . . . . 238,032 6,923,650 144,066 1,067,455 2,139
------------ ----------- ----------- ----------- ---------
Net Assets (variable annuity contract liabilities) 194,555,795 436,135,714 402,795,013 683,399,425 3,363,910
------------ ----------- ----------- ----------- ---------
------------ ----------- ----------- ----------- ---------
DEFERRED ANNUITY CONTRACTS IN THE ACCUMULATION PERIOD:
GROUP SUB-ACCOUNTS:
Units Owned by Participants . . . . . . . . . . 90,231,729 117,445,076 274,035,560 318,689,851 1,403,902
Unit Values . . . . . . . . . . . . . . . . . . $ 2.156179 $ 3.713529 $ 1.469864 $ 2.144403 $ 2.396115
</TABLE>
* Unit value amounts represent an average of individual unit values, which
differ within each sub-account
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
<PAGE>
SEPARATE ACCOUNT TWO
HARTFORD LIFE INSURANCE COMPANY
STATEMENT OF ASSETS & LIABILITIES
DECEMBER 31, 1997
(unaudited)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
INTERNATIONAL SMALL SMITH BARNEY SMITH BARNEY
ADVISERS COMPANY MID CAP DAILY DIVIDEND APPRECIATION
FUND FUND FUND FUND FUND
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
ASSETS:
Investments:
International Advisers Fund.
Shares 48,879,214
Cost $ 56,417,985
Market Value. . . . . . . . . . . . . . . . . $ 57,422,859 - - - -
Small Company Fund
Shares 59,385,385
Cost $ 69,986,701
Market Value. . . . . . . . . . . . . . . . . - $ 71,393,763 - - -
Mid Cap Fund
Shares 8,067,718
Cost $ 8,836,979
Market Value. . . . . . . . . . . . . . . . . - - $ 9,173,875 - -
Smith Barney Daily Dividend
Fund
Shares 507,910
Cost $ 507,910
Market Value. . . . . . . . . . . . . . . . . - - - $ 507,912 -
Smith Barney Appreciation Fund
Shares 12,256
Cost $ 87,371
Market Value. . . . . . . . . . . . . . . . . - - - - $ 170,562
Shares 37,076
Cost $ 37,076
Market Value. . . . . . . . . . . . . . . . . - - - - -
TCI Advantage Fund, Inc.
Shares 37,657
Cost $ 232,898
Market Value. . . . . . . . . . . . . . . . . - - - - -
TCI Growth Fund, Inc.
Shares 153,878
Cost $ 1,711,391
Market Value. . . . . . . . . . . . . . . . . - - - - -
Fidelity VIP Overseas Fund,
Fund
Shares 103,298
Cost $ 1,861,058
Market Value. . . . . . . . . . . . . . . . . - - - - -
Fidelity VIP II Asset Manager
Fund
Shares 176,732
Cost $ 2,826,562
Market Value. . . . . . . . . . . . . . . . . - - - 1,205 -
Due From Hartford Life Insurance
Company . . . . . . . . . . . . . . . . . . . 25,458 175,566 48,940 26,690 -
Receivable from fund shares sold . . . . . . . 9 16 1 162 120
---------- ---------- --------- ------- --------
Total Assets. . . . . . . . . . . . . . . . . . 57,448,326 71,569,345 9,222,816 535,969 170,682
---------- ---------- --------- ------- --------
LIABILITIES:
Due to Hartford Life Insurance Company. . . . . 8 19 1 200 109
Payable for fund shares purchased . . . . . . . 25,945 175,691 48,925 26757 -
----------- ---------- --------- ---------- ----------
Total Liabilities . . . . . . . . . . . . . . . 25,953 175,710 48,926 26,957 109
----------- ---------- --------- ---------- ----------
Net Assets (variable annuity contract
liabilities) . . . . . . . . . . . . . . . . . 57,422,373 71,393,635 9,173,890 509,012 170,573
----------- ---------- --------- ---------- ----------
----------- ---------- --------- ---------- ----------
DEFERRED ANNUITY CONTRACTS IN THE ACCUMULATION PERIOD:
GROUP SUB-ACCOUNTS:
Units Owned by Participants . . . . . . . . . . 43,536,336 57,266,927 8,363,890 178,904 18,335
Unit Values* . . . . . . . . . . . . . . . . . $ 1.318953 $ 1.246682 $ 1.096845 $ 2.845168 $ 9.303319
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
SMITH BARNEY FIDELITY FIDELITY
GOVERNMENT TCI TCI VIP VIP II
AND AGENCIES ADVANTAGE GROWTH OVERSEAS ASSET MANAGER
FUND FUND FUND FUND FUND
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
ASSETS:
Investments:
International Advisers Fund.
Shares 48,879,214
Cost $ 56,417,985
Market Value . . . . . . . . . . . . . . . . . - - - - -
Small Company Fund
Shares 59,385,385
Cost $ 69,986,701
Market Value . . . . . . . . . . . . . . . . . - - - - -
Mid Cap Fund
Shares 8,067,718
Cost $ 8,836,979
Market Value . . . . . . . . . . . . . . . . . - - - - -
Smith Barney Daily Dividend Fund
Shares 507,910
Cost $ 507,910
Market Value . . . . . . . . . . . . . . . . . - - - - -
Smith Barney Appreciation Fund
Shares 12,256
Cost $ 87,371
Market Value . . . . . . . . . . . . . . . . . - - - - -
Smith Barney Government & Agencies
Fund, Inc.
Shares 37,076
Cost $ 37,076
Market Value . . . . . . . . . . . . . . . . . $ 37,076 - - - -
TCI Advantage Fund, Inc.
Shares 37,657
Cost $ 232,898
Market Value . . . . . . . . . . . . . . . . . - $ 248,536 - - -
TCI Growth Fund, Inc.
Shares 153,878
Cost $ 1,711,391
Market Value . . . . . . . . . . . . . . . . . - - $ 1,489,538 - -
Fidelity VIP Overseas Fund, Inc.
Shares 103,298
Cost $ 1,861,058
Market Value . . . . . . . . . . . . . . . . . - - - $ 1,983,322 -
Fidelity VIP II Asset Manager Fund
Shares 176,732
Cost 2,826,562
Market Value . . . . . . . . . . . . . . . . . - - - - $ 3,182,950
Dividends . . . . . . . . . . . . . . . . . . . . 96 - - - -
Due From Hartford Life Insurance Company . . . . . 0 283 0 22,788 -
Receivable from fund shares sold . . . . . . . . . 24 0 1,383 0 7,523
----------- ---------- --------- ---------- ----------
Total Assets . . . . . . . . . . . . . . . . . . . 37,196 248,819 1,490,921 2,006,110 3,190,473
----------- ---------- --------- ---------- ----------
LIABILITIES:
Due to Hartford Life Insurance Company . . . . . . 32 0 1,366 0 -
Payable for fund shares purchased . . . . . . . . - 283 0 22,827 7,110
Total Liabilities . . . . . . . . . . . . . . . . 32 283 1,366 22,827 7,110
----------- ---------- --------- ---------- ----------
Net Assets (variable annuity contract liabilities) 37,164 248,536 1,489,555 1,983,283 3,183,363
----------- ---------- --------- ---------- ----------
----------- ---------- --------- ---------- ----------
DEFERRED ANNUITY CONTRACTS IN THE ACCUMULATION PERIOD:
GROUP SUB-ACCOUNTS:
Units Owned by Participants . . . . . . . . . . . 14,846 196,632 1,526,713 1,562,891 2,172,118
Unit Values* . . . . . . . . . . . . . . . . . . . $ 2.503304 $ 1.263965 $ 0.975662 $ 1.268984 $ 1.465557
</TABLE>
* Unit value amounts represent an average of individual unit values, which
differ within each sub-account
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
<PAGE>
SEPARATE ACCOUNT TWO
HARTFORD LIFE INSURANCE COMPANY
STATEMENT OF ASSETS & LIABILITIES
DECEMBER 31, 1997
(unaudited)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
FIDELITY FIDELITY
VIP II VIP BB&T
CONTRAFUND GROWTH GROWTH & AM SOUTH
FUND FUND INCOME FUND FUND
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
----------- ------------ ------------- ------------
<S> <C> <C> <C> <C>
ASSETS:
Investments:
Fidelity VIP II Contrafund Fund
Shares 599,344
Cost $9,253,467
Market Value . . . . . . . . . . . . . . . . . $ 11,950,919 - - -
Fidelity VIP Growth Fund
Shares 295,397
Cost $9,068,124
Market Value . . . . . . . . . . . . . . . . . - $ 10,959,230 - -
B&T Growth & Income Fund
Shares 545,238
Cost $ 6,067,937
Market Value . . . . . . . . . . . . . . . . . - - $ 6,477,421 -
AM South Fund
Shares 233,814
Cost $2,359,717
Market Value . . . . . . . . . . . . . . . . . - - - $ 2,391,912
Due From Hartford Life Insurance Company . . . . 57,573 3,133 11,400 6464
Receivable from fund shares sold . . . . . . . . 0 0 0 0
----------- ---------- --------- ----------
Total Assets . . . . . . . . . . . . . . . . . . 12,008,492 10,962,363 6,488,821 2,398,376
----------- ---------- --------- ----------
LIABILITIES:
Due to Hartford Life Insurance Company . . . . . 0 0 0 0
Payable for fund shares purchased. . . . . . . . 57,479 3,071 11,401 6460
----------- ---------- --------- ----------
Total Liabilities . . . . . . . . . . . . . . . 57,479 3,071 11,401 6,460
----------- ---------- --------- ----------
Net Assets (variable annuity contract liabilities) 11,951,013 10,959,292 6,477,420 2,391,916
----------- ---------- --------- ----------
----------- ---------- --------- ----------
DEFERRED ANNUITY CONTRACTS IN THE ACCUMULATION PERIOD:
GROUP SUB-ACCOUNTS:
Units Owned by Participants . . . . . . . . . . 7,406,970 7,394,900 5,443,658 2,337,620
Unit Values* . . . . . . . . . . . . . . . . . . $ 1.613482 $ 1.482007 $ 1.189902 $ 1.023227
</TABLE>
* Unit value amounts represent an average of individual unit values, which
differ within each sub-account
<PAGE>
SEPARATE ACCOUNT TWO
HARTFORD LIFE INSURANCE COMPANY
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1997
(unaudited)
<TABLE>
<CAPTION>
U.S.
GOVERNMENT CAPITAL
BOND STOCK MONEY MARKET ADVISERS MONEY MARKET APPRECIATION
FUND FUND FUND FUND FUND FUND
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment income (loss) . . . . . $ 11,019,416 $ (2,935,865) $ 10,784,226 $ 37,143,572 $ 25,629 $ (11,455,350)
Capital gains income - 71,973,235 810 132,116,765 - 109,478,655
Net realized gain (loss) on security
transactions . . . . . . . . . . . . 255 7,289,586 - 2,139,465 - 7,182
Net unrealized appreciation
(depreciation) of investments
during the period . . . . . . . . . 10,817,750 342,122,986 - 509,939,322 - 201,258,352
----------- ----------- ----------- ----------- ----------- -----------
Net increase (decrease) in net assets
resulting from operations . . . . . 21,837,421 418,449,942 10,785,036 681,339,124 25,629
---------- ----------- ---------- ----------- ----------- -----------
UNIT TRANSACTIONS:
Purchases . . . . . . . . . . . . . . 29,620,926 214,221,897 57,315,563 369,427,771 67,056 203,909,621
Net transfers . . . . . . . . . . . . 18,685,422 45,818,250 (8,931,051) 30,381,568 (1,191,242) (8,505,640)
Surrenders . . . . . . . . . . . . . . (20,401,234) (105,286,896) (69,314,784) (214,356,706) (226,996) (98,367,491)
Net annuity transactions . . . . . . . 341,131 602,328 283,150 1,269,040 (266,968) 526,848
----------- ------------ ----------- ----------- ----------- -----------
Net increase (decrease) in net assets
resulting from unit transactions . . 28,246,245 155,355,579 (20,647,122) 186,721,673 (1,618,150) 97,563,338
----------- ----------- ------------ ----------- ---------- -----------
Total increase (decrease) in net assets 50,083,666 573,805,521 (9,862,086) 868,060,797 (1,592,521) 396,852,177
----------- ----------- ------------ ----------- ---------- ------------
NET ASSETS:
Beginning of period . . . . . . . . . 209,730,032 1,346,710,867 282,833,568 2,900,707,085 1,592,521 1,435,800,422
------------ ------------- ------------ -------------- ---------- -------------
End of period . . . . . . . . . . . . $259,813,698 $1,920,516,388 $272,971,482 $3,768,767,882 $ - $1,832,652,599
------------ -------------- ------------ -------------- ---------- -------------
------------ -------------- ------------ -------------- ---------- -------------
</TABLE>
HARTFORD LIFE INSURANCE COMPANY
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1997
(unaudited)
<TABLE>
<CAPTION>
CALVERT
RESPONSIBLY
MORTGAGE INTERNATIONAL DIVIDEND INVESTED
SECURITIES INDEX OPPORTUNITES AND GROWTH BALANCED
FUND FUND FUND FUND FUND
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
------------- -------------- -------------- -------------- ------------
<S> <C> <C> <C>
OPERATIONS:
Net investment income (loss) . . . . . $ 9,178,166 $ 617,136 $ (1,558,192) $ 3,305,556 $ 36,766
Capital gains income . . . . . . . . . - 22,884,800 30,519,853 10,150,532 160,014
Net realized gain(loss) on security
transactions . . . . . . . . . . . . 33,272 192,233 19,827 (9,109) (2,131)
Net unrealized appreciation
(depreciation) of investments
during the period . . . . . . . . . 5,151,655 68,857,136 (32,942,919) 113,231,881 296,021
------------- -------------- -------------- -------------- ------------
Net increase (decrease) in net assets
resulting from operations . . . . . 14,363,093 92,551,305 (3,961,431) 126,678,860 490,670
------------- -------------- -------------- -------------- ------------
UNIT TRANSACTIONS:
Purchases . . . . . . . . . . . . . . 8,252,990 67,939,985 39,878,947 160,676,150 470,443
Net transfers . . . . . . . . . . . . (9,849,182) 30,489,344 (16,048,004) 92,104,698 39,186
Surrenders . . . . . . . . . . . . . . (17,981,550) (20,933,709) (28,055,392) (21,203,713) (273,570)
Net annuity transactions . . . . . . . (20,961) 1,285,769 184,899 809,657 (24,048)
Net increase (decrease) in net assets
resulting from unit transactions . . (19,598,703) 78,781,389 (4,039,550) 232,386,792 212,011
------------- -------------- -------------- -------------- ------------
Total increase (decrease) in net assets (5,235,610) 171,332,694 (8,000,981) 359,065,652 702,681
------------- -------------- -------------- -------------- ------------
NET ASSETS:
Beginning of period . . . . . . . . . 199,791,405 264,803,020 410,795,994 324,333,920 2,661,229
End of period . . . . . . . . . . . . $ 194,555,795 $ 436,135,714 $ 402,795,013 $ 683,399,572 $ 3,363,910
------------- -------------- -------------- -------------- ------------
------------- -------------- -------------- -------------- ------------
</TABLE>
<PAGE>
HARTFORD LIFE INSURANCE COMPANY
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1996
(unaudited)
<TABLE>
<CAPTION>
U.S.
GOVERNMENT CAPITAL
BOND STOCK MONEY MARKET ADVISERS MONEY MARKET APPRECIATION
FUND FUND FUND FUND FUND FUND
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
----------- ----------- ------------ ----------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment income (loss) . . . . $ 10,412,614 $ 4,107,642 $ 9,440,440 $ 43,421,909 $ 55,409 $ (6,751,158)
Capital gains income . . . . . . . . 41,100,004 53,115,059 70,324,118
Net realized gain(loss) on
security transactions . . . . . . (262,277) 3,161,056 1,874,522 2,065,427
Net unrealized appreciation
(depreciation) of investments
during the period . . . . . . . . (5,517,884) 189,613,138 276,364,776 154,074,827
------------- -------------- -------------- -------------- ----------- ------------
Net increase (decrease) in net
assets resulting from operations . 4,632,453 237,981,840 9,440,440 374,776,266 55,409 219,713,214
------------- -------------- -------------- -------------- ----------- ------------
UNIT TRANSACTIONS:
Purchases . . . . . . . . . . . . . 27,446,873 174,128,189 70,557,174 322,583,889 216,658 200,411,434
Net transfers . . . . . . . . . . . (16,819,459) 27,816,288 67,229,895 (3,947,049) (124,960) 495,679
Surrenders . . . . . . . . . . . . . (16,860,465) (57,921,128) (52,794,253) (150,653,853) (77,729) (60,449,676)
Net annuity transactions . . . . . . (32,192) (176,096) (239,109) 730,038 (18,734) 658,118
Net increase (decrease) in net
assets resulting from unit
transactions . . . . . . . . . . . (6,265,243) 143,847,253 84,753,707 168,713,025 (4,765)
------------- -------------- ------------ -------------- ----------- ---------------
Total increase (decrease) in
net assets . . . . . . . . . . . . (1,632,790) 381,829,093 94,194,147 543,489,291 50,644 360,828,769
------------- -------------- ------------ -------------- ----------- ---------------
NET ASSETS:
Beginning of period . . . . . . . . 211,362,822 964,881,773 188,639,420 2,357,217,792 1,541,877 1,074,971,652
------------- -------------- ------------ -------------- ----------- ---------------
End of period $209,730,032 $1,346,710,866 $282,833,567 $2,900,707,083 $1,592,521 $1,435,800,421
------------- -------------- ------------- -------------- ----------- ---------------
------------- -------------- ------------- -------------- ----------- ---------------
</TABLE>
HARTFORD LIFE INSURANCE COMPANY
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1996
(unaudited)
<TABLE>
<CAPTION>
CALVERT
RESPONSIBLY
MORTGAGE INTERNATIONAL DIVIDEND INVESTED
SECURITIES INDEX OPPORTUNITES AND GROWTH BALANCED
FUND FUND FUND FUND FUND
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
------------ ------------- ------------ ------------- --------------
<S> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment income (loss). . . . . $ 10,767,099 $ 1,795,519 $ 2,571,271 $ 2,667,791 $ 29,407
Capital gains income . . . . . . . . 3,292,866 9,589,596 2,810,352 140,994
Net realized gain(loss) on
security transactions . . . . . . . (435,741) 140,503 91,466 (3,931) 6,518
Net unrealized appreciation
(depreciation) of investments
during the period . . . . . . . . . (2,844,443) 36,167,970 28,439,913 38,471,770 78,661
------------- ------------ ------------- ------------ --------------
Net increase (decrease) in net
assets resulting from operations . 7,486,915 41,396,858 40,692,246 43,945,982 255,580
------------- ------------ ------------- ------------ --------------
UNIT TRANSACTIONS:
Purchases . . . . . . . . . . . . . . 9,051,920 47,675,352 43,044,896 99,649,393 501,957
Net transfers . . . . . . . . . . . . (19,016,015) 21,152,822 20,223,935 73,409,821 86,346
Surrenders . . . . . . . . . . . . . (19,091,976) (10,892,469) (21,614,763) (8,580,693) (81,242)
Net annuity transactions . . . . . . (55,176) 75,085 141,714 330,214 135,085
------------- ------------ ------------- ------------ --------------
Net increase (decrease) in net
assets resulting from unit
transactions . . . . . . . . . . . (29,111,247) 58,010,790 41,795,782 164,808,735 642,146
------------- ------------ ------------- ------------ --------------
Total increase (decrease) in
net assets . . . . . . . . . . . . (21,624,332) 99,407,648 82,488,028 208,754,717 897,726
NET ASSETS:
Beginning of period . . . . . . . . . 221,415,737 165,395,371 328,307,966 115,579,204 1,763,503
------------- ------------ ------------- ------------ --------------
End of period . . . . . . . . . . . . $ 199,791,405 $ 264,803,019 $ 410,795,994 $ 324,333,921 $ 2,661,229
------------- ------------ ------------- ------------ --------------
------------- ------------ ------------- ------------ --------------
</TABLE>
<PAGE>
SEPARATE ACCOUNT TWO
HARTFORD LIFE INSURANCE COMPANY
STATEMENT OF CHANGES IN ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1997
(unaudited)
<TABLE>
<CAPTION>
SMITH BARNEY SMITH BARNEY
INTERNATIONAL SMALL DAILY SMITH BARNEY GOVERNMENT
ADVISERS COMPANY MID CAP DIVIDEND APPRECIATION AND AGENCIES
FUND FUND FUND FUND FUND FUND
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
----------- ------------ ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment income (loss). . . . . $ 1,035,994 $ (457,120) $ (12,661) $ 21,390 $ 687 $ 1,594
Capital gains income . . . . . . . . 110,732 3,307,195 - - 2,341 -
Net realized gain(loss) on
security transactions . . . . . . . 13,808 (36,223) (2,185) - 6,810 -
Net unrealized appreciation
(depreciation) of investments
during the period . . . . . . . . . 118,913 1,332,603 336,895 - 8,816 -
------------ ------------- ------------ ---------- ---------- -----------
Net increase (decrease) in net
assets resulting from operations . 1,279,447 4,146,455 322,049 21,390 38,654 1,594
------------ ------------- ------------ ---------- ---------- -----------
UNIT TRANSACTIONS:
Purchases . . . . . . . . . . . . . . 18,887,741 24,742,079 2,088,623 - - -
Net transfers . . . . . . . . . . . . 9,531,179 30,544,670 6,774,154 - - -
Surrenders . . . . . . . . . . . . . (2,110,213) (1,630,264) (10,936) (93,309) (40,942) (4,272)
Net annuity transactions . . . . . . 25,045 44,603 - - - -
------------ ------------- ------------ ---------- ---------- -----------
Net increase (decrease) in net assets
resulting from unit transactions . 26,333,752 53,701,088 8,851,841 (93,309) (40,942) (4,272)
------------ ------------- ------------ ---------- ---------- -----------
Total increase (decrease) in
net assets . . . . . . . . . . . . 27,613,199 57,847,543 9,173,890 (71,919) (2,288) (2,678)
NET ASSETS:
Beginning of period . . . . . . . . . 29,809,174 13,546,092 - 580,931 172,861 39,842
------------ ------------- ------------ ---------- ---------- -----------
End of period . . . . . . . . . . . . $ 57,422,373 $ 71,393,635 $ 9,173,890 $ 509,012 $ 170,573 $ 37,164
------------ ------------- ------------ ----------- ---------- -----------
------------ ------------- ------------ ----------- ---------- -----------
</TABLE>
<TABLE>
<CAPTION>
FIDELITY FIDELITY FIDELITY
TCI TCI VIP VIP II VIP II
ADVANTAGE GROWTH OVERSEAS ASSET MANAGER CONTRAFUND
FUND FUND FUND FUND FUND
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
-------------- ------------- ------------- ---------------- --------------
<S> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment income (loss) . . . . . $ 294 $ (16,454) $ 1,193 $ 35,331 $ (56,464)
Capital gains income . . . . . . . . . 10,139 22,619 84,101 165,196 160,741
Net realized gain(loss) on
security transactions . . . . . . . 86 (3,879) (12) 45 14,539
Net unrealized appreciation
(depreciation) of investments
during the period . . . . . . . . . 9,915 (72,938) 40,887 211,417 1,769,331
----------- ---------- ---------- ---------- ----------
Net increase (decrease) in net
assets resulting from operations . . 20,434 (70,652) 126,169 411,989 1,888,147
----------- ---------- ---------- ---------- ----------
UNIT TRANSACTIONS:
Purchases . . . . . . . . . . . . . . 58,061 288,638 250,279 414,106 1,500,382
Net transfers . . . . . . . . . . . . 10,557 172,057 574,420 661,341 2,277,620
Surrenders . . . . . . . . . . . . . . (12,377) (38,911) (28,174) (138,088) (387,184)
Net annuity transactions . . . . . . . (735) (568) - - 453
----------- ---------- ---------- ---------- ----------
Net increase (decrease) in net
assets resulting from unit
transactions . . . . . . . . . . . . 55,506 421,216 796,525 937,359 3,391,271
----------- ---------- ---------- ---------- ----------
Total increase (decrease) in net assets 75,940 350,564 922,694 1,349,348 5,279,418
NET ASSETS:
Beginning of period . . . . . . . . . 172,596 1,138,991 1,060,589 1,834,015 6,671,595
----------- ---------- ---------- ---------- ----------
End of period . . . . . . . . . . . . $ 248,536 $ 1,489,555 $ 1,983,283 $ 3,183,363 $11,951,013
----------- ---------- ---------- ---------- ----------
----------- ---------- ---------- ---------- ----------
</TABLE>
<TABLE>
SMITH BARNEY
INTERNATIONAL SMALL DAILY SMITH BARNEY SMITH BARNEY GOVERNMENT
ADVISERS COMPANY MID CAP DIVIDEND APPRECIATION AND AGENCIES
FUND FUND FUND FUND FUND FUND
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
------------- ----------- ----------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment income (loss) . . . . . $ 644,546 $ (17,678) $ - $ 22,053 $ 15,035 $ 1,646
Capital gains income . . . . . . . . . 595,787 - - - - -
Net realized gain(loss) on
security transactions . . . . . . . (3,562) 922 - - 174 -
Net unrealized appreciation
(depreciation) of investments
during the period . . . . . . . . . 708,119 74,459 - - 11,776 -
------------- ------------ ------------ ---------- ---------- ---------
Net increase (decrease) in net
assets resulting from operations . . 1,944,890 57,703 - 22,053 26,985 1,646
------------- ------------ ------------ ---------- ---------- ---------
UNIT TRANSACTIONS:
Purchases . . . . . . . . . . . . . . 10,618,419 4,333,960 - 25 - -
Net transfers . . . . . . . . . . . . 10,257,798 9,203,248 - - - -
Surrenders . . . . . . . . . . . . . . (609,471) (48,819) - (10,494) (2,558) (4,273)
Net annuity transactions . . . . . . . - - - - - -
Net increase (decrease) in net assets
resulting from unit transactions . . 20,266,746 13,488,389 - (10,469) (2,558) (4,273)
------------- ------------ ------------ ---------- ---------- ---------
Total increase (decrease) in
net assets . . . . . . . . . . . . . 22,211,636 13,546,092 - 11,584 24,427 (2,627)
NET ASSETS:
Beginning of period . . . . . . . . . 7,597,538 - - 569,347 148,434 42,469
------------- ------------ ------------ ---------- ---------- ---------
End of period . . . . . . . . . . . . $ 29,809,174 $ 13,546,092 $ - $ 580,931 $ 172,861 $ 39,842
------------- ------------ ------------ ---------- ---------- ---------
------------- ------------ ------------ ---------- ---------- ---------
</TABLE>
<TABLE>
<CAPTION>
FIDELITY FIDELITY FIDELITY
TCI TCI VIP VIP II VIP II
ADVANTAGE GROWTH OVERSEAS ASSET MANAGER CONTRAFUND
FUND FUND FUND FUND FUND
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
------------- ------------- ------------- --------------- -------------
<S> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment income (loss) . . . . . $ 5,374 $ 86,878 $ (4,777) $ 14,241 $ (35,654)
Capital gains income . . . . . . . . . - - 4,080 - -
Net realized gain(loss) on
security transactions . . . . . . . (110) 527 985 (71) (377)
Net unrealized appreciation
(depreciation) of investments
during the period . . . . . . . . . 4,528 (155,560) 77,918 126,112 910,896
---------- ----------- --------- ---------- ----------
Net increase (decrease) in net
assets resulting from operations . . . 9,792 (68,155) 78,206 140,282 874,865
---------- ----------- --------- ---------- ----------
UNIT TRANSACTIONS:
Purchases . . . . . . . . . . . . . . 52,991 278,606 196,292 268,755 928,554
63,519 248,714 626,400 1,181,511 3,162,455
Surrenders . . . . . . . . . . . . . . (218) (13,223) (27,202) (95,811) (279,972)
Net annuity transactions . . . . . . . (410) (374) - - -
---------- ----------- --------- ---------- ----------
Net increase (decrease) in net
assets resulting from unit transactions 115,882 513,723 795,490 1,354,455 3,811,037
---------- ----------- --------- ---------- ----------
Total increase (decrease) in net assets 125,674 445,568 873,696 1,494,737 4,685,902
NET ASSETS:
Beginning of period . . . . . . . . . 46,922 693,422 186,893 339,278 1,985,693
---------- ----------- --------- ---------- ----------
End of period . . . . . . . . . . . . $ 172,596 $ 1,138,990 $ 1,060,589 $ 1,834,015 $ 6,671,595
---------- ----------- --------- ---------- ----------
---------- ----------- --------- ---------- ----------
</TABLE>
<PAGE>
SEPARATE ACCOUNT TWO
HARTFORD LIFE INSURANCE COMPANY
STATEMENT OF CHANGES IN ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1997
(unaudited)
<TABLE>
<CAPTION>
FIDELITY BB&T
VIP GROWTH
GROWTH & INCOME AM SOUTH
FUND FUND FUND
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
----------- ----------- ------------
<S> <C> <C> <C>
OPERATIONS:
Net investment income (loss) . . . . . $ (61,783) $ 22,704 $ 1,732
Capital gains income . . . . . . . . . 217,749 662 -
Net realized gain(loss) on
security transactions . . . . . . . 10,890 - (1)
Net unrealized appreciation
(depreciation) of investments
during the period . . . . . . . . . 1,505,289 409,485 32,196
----------- ---------- ---------
Net increase (decrease) in net
assets resulting from operations . . 1,672,145 432,851 33,927
----------- ---------- ---------
UNIT TRANSACTIONS:
Purchases . . . . . . . . . . . . . . 1,531,624 5,104,417 2,100,608
Net transfers . . . . . . . . . . . . 1,162,806 1,006,220 259,438
Surrenders . . . . . . . . . . . . . . (425,385) (66,068) (2,057)
Net annuity transactions . . . . . . . 2,237 - -
----------- ---------- ---------
Net increase (decrease) in net
assets resulting from unit transactions 2,271,282 6,044,569 2,357,989
----------- ---------- ---------
Total increase (decrease) in net assets 3,943,427 6,477,420 2,391,916
NET ASSETS:
Beginning of period . . . . . . . . . 7,015,865 - -
----------- ---------- ---------
End of period . . . . . . . . . . . . $ 10,959,292 $ 6,477,420 $ 2,391,916
----------- ---------- ---------
----------- ---------- ---------
</TABLE>
- -------------------------------------------------------------------------------
HARTFORD LIFE INSURANCE COMPANY
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1997
(unaudited)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FIDELITY BB&T
VIP GROWTH
GROWTH & INCOME AM SOUTH
FUND FUND FUND
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
------------- ------------- -------------
<S> <C> <C> <C>
OPERATIONS:
Net investment income (loss) . . . . . $ 10,178 $ - $ -
Capital gains income . . . . . . . . . 115,329 - -
Net realized gain(loss) on
security transactions . . . . . . . (6,795) - -
Net unrealized appreciation
(depreciation) of investments
during the period . . . . . . . . . 420,263 - -
----------- --------- --------
Net increase (decrease) in net
assets resulting from operations . . 538,975 - -
----------- --------- --------
UNIT TRANSACTIONS:
Purchases . . . . . . . . . . . . . . 1,249,738 - -
Net transfers . . . . . . . . . . . . 3,357,091 - -
Surrenders . . . . . . . . . . . . . . (334,425) - -
Net annuity transactions . . . . . . . - - -
Net increase (decrease) in net
assets resulting from unit transactions 4,272,404 - -
----------- --------- --------
Total increase (decrease) in net assets 4,811,379 - -
NET ASSETS:
Beginning of period . . . . . . . . . 2,204,486 - -
----------- --------- --------
End of period . . . . . . . . . . . . $ 7,015,865 $ - $ -
----------- --------- --------
----------- --------- --------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
SEPARATE ACCOUNT TWO
- ---------------------------------------------------------------------------------------------------------------------------------
HARTFORD LIFE INSURANCE COMPANY
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1997
(unaudited)
- ---------------------------------------------------------------------------------------------------------------------------------
U.S.
GOVERNMENT CAPITAL
BOND STOCK MONEY MARKET ADVISERS MONEY MARKET APPRECIATION
FUND FUND FUND FUND FUND FUND
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends . . . . . . . . . . . . $ 13,782,574 $ 17,650,510 $ 14,080,473 $ 79,142,050 $ 33,636 $ 9,029,656
EXPENSES:
Mortality and expense
undertakings . . . . . . . . . . . (2,763,158) (20,586,375) (3,296,247) (41,998,478) (8,007) (20,485,006)
------------- ------------- ------------- ------------- --------- ------------
Net investment income (loss) . . 11,019,416 (2,935,865) 10,784,226 37,143,572 25,629 (11,455,350)
------------- ------------- ------------- ------------- --------- ------------
CAPITAL GAINS INCOME - 71,973,235 810 132,116,765 - 109,478,655
------------- ------------- ------------- ------------- --------- ------------
NET REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS:
Net realized gain (loss) on
security transactions . . . . . 255 7,289,586 - 2,139,465 - 7,182
Net unrealized appreciation
(depreciation) of investments
during the period . . . . . . . 10,817,750 342,122,986 - 509,939,322 - 201,258,352
------------- ------------- ------------- ------------- --------- ------------
Net gain (loss) on investments . . 10,818,005 349,412,572 - 512,078,787 - 201,265,534
------------- ------------- ------------- ------------- --------- ------------
Net increase (decrease) in net
assets resulting
from operations . . . . . . . . $ 21,837,421 $ 418,449,942 $ 10,785,036 $ 681,339,124 $ 25,629 $ 299,288,839
------------- ------------- ------------- ------------- --------- ------------
------------- ------------- ------------- ------------- --------- ------------
</TABLE>
<TABLE>
<CAPTION>
CALVERT
RESPONSIBLY
MORTGAGE INTERNATIONAL DIVIDEND INVESTED
SECURITIES INDEX OPPORTUNITES AND GROWTH BALANCED PORTFOLIO
FUND FUND FUND FUND FUND
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
------------- ------------- -------------- ------------- --------------------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends . . . . . . . . . . . . $ 11,550,014 $ 5,032,537 $ 3,742,107 $ 9,602,065 $ 73,766
EXPENSES:
Mortality and expense
undertakings . . . . . . . . . . . (2,371,848) (4,415,401) (5,300,299) (6,296,509) (37,000)
------------- ------------ ------------ ------------ ---------
Net investment income (loss) . . 9,178,166 617,136 (1,558,192) 3,305,556 36,766
------------- ------------ ------------ ------------ ---------
CAPITAL GAINS INCOME - 22,884,800 30,519,853 10,150,532 160,014
------------- ------------ ------------ ------------ ---------
NET REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS:
Net realized gain (loss) on
security transactions . . . . . 33,272 192,233 19,827 (9,109) (2,131)
Net unrealized appreciation
(depreciation) of investments
during the period . . . . . . . 5,151,655 68,857,136 (32,942,919) 113,231,881 296,021
------------- ------------ ------------ ------------ ---------
Net gain (loss) on investments . . 5,184,927 69,049,369 (32,923,092) 113,222,772 293,890
------------- ------------ ------------ ------------ ---------
Net increase (decrease) in net
assets resulting
from operations . . . . . . . . $ 14,363,093 $ 92,551,305 $ (3,961,431) $ 126,678,860 $ 490,670
------------- ------------ ------------ ------------ ---------
------------- ------------ ------------ ------------ ---------
</TABLE>
<PAGE>
SEPARATE ACCOUNT TWO
HARTFORD LIFE INSURANCE COMPANY
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(unaudited)
<TABLE>
<CAPTION>
SMITH BARNEY SMITH BARNEY
INTERNATIONAL SMALL DAILY SMITH BARNEY GOVERNMENT
ADVISERS COMPANY MID CAP DIVIDEND APPRECIATION & AGENCIES
FUND FUND FUND FUND FUND FUND
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUN SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
------------ ------------ ------------ ------------ ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends . . . . . . . . . . . . $ 1,605,717 $ 32,487 $ 8,146 $ 26,755 $ 2,394 $ 1,998
EXPENSES:
Mortality and expense
undertakings . . . . . . . . . . . (569,723) (489,607) (20,807) (5,365) (1,707) (404)
----------- ---------- --------- -------- --------
Net investment income (loss) . . . 1,035,994 (457,120) (12,661) 21,390 687 1,594
----------- ---------- --------- --------- --------
CAPITAL GAINS INCOME 110,732 3,307,195 0 0 22,341 0
----------- ---------- --------- --------- -------- ---------
NET REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS:
Net realized gain (loss) on
security transactions . . . . . 13,808 (36,223) (2,185) 0 6,810 0
Net unrealized appreciation
(depreciation) of investments
during the period . . . . . . . 118,913 1,332,603 336,895 0 8,816 0
-------- --------- -------- ---------- ------- ---------
Net gain (loss) on investments . . 132,721 1,296,380 334,710 0 15,626 0
-------- --------- -------- ---------- ------- ---------
Net increase (decrease) in net
assets resulting from operations $ 1,279,447 $ 4,146,455 $ 322,049 $ 21,390 $ 38,654 $ 1,594
------------ ------------ ----------- ---------- ---------- ---------
------------ ------------ ----------- ---------- ---------- ---------
</TABLE>
HARTFORD LIFE INSURANCE COMPANY
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(unaudited)
<TABLE>
<CAPTION>
FIDELITY FIDELITY FIDELITY
TCI TCI VIP VIP II VIP II
ADVANTAGE GROWTH OVERSEAS ASSET MANGER CONTRAFUND
FUND FUND FUND FUND FUND
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
------------ ------------ ------------ ------------ -----------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends . . . . . . . . . . . . . . $ 2,818 $ - $ 21,186 $ 65,855 $ 60,821
EXPENSES:
Mortality and expense undertakings . . (2,524) (16,454) (19,993) (30,524) (117,285)
--------- -------- -------- -------- ---------
Net investment income (loss) . . . . . 294 (16,454) 1,193 35,331 (56,464)
--------- -------- -------- -------- ---------
CAPITAL GAINS INCOME 10,139 22,619 84,101 165,196 160,741
--------- -------- -------- -------- ---------
NET REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS:
Net realized gain (loss)
on security transactions . . . . . . 86 (3,879) (12) 45 14,539
Net unrealized appreciation
(depreciation) of investments
during the period . . . . . . . . . 9,915 (72,938) 40,887 211,417 1,769,331
--------- -------- -------- -------- ---------
Net gain (loss) on investments . . . . 10,001 (76,817) 40,875 211,462 1,783,870
--------- -------- -------- -------- ---------
Net increase (decrease) in net
assets resulting from operations . . $ 20,434 $ (70,652) $ 126,169 $ 411,989 $ 1,888,147
--------- -------- -------- -------- ---------
--------- -------- -------- -------- ---------
</TABLE>
<PAGE>
SEPARATE ACCOUNT TWO
HARTFORD LIFE INSURANCE COMPANY
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(unaudited)
<TABLE>
<CAPTION>
FIDELITY BB&T
VIP GROWTH
GROWTH AND INCOME AM SOUTH
FUND FUND FUND
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
----------- ------------ -----------
<S> <C> <C> <C>
INVESTMENT INCOME:
Dividends . . . . . . . . . . . . . . $ 48,646 $ 43,938 $ 4,389
EXPENSES:
Mortality and expense undertakings . . (110,429) (21,234) (2,657)
---------- --------- ---------
Net investment income (loss) . . . . (61,783) 22,704 1,732
---------- --------- ---------
CAPITAL GAINS INCOME 217,749 662 0
---------- --------- ---------
NET REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS:
Net realized gain (loss) on
security transactions . . . . . . . 10,890 0 (1)
Net unrealized appreciation
(depreciation) of investments
during the period . . . . . . . . . 1,505,289 409,485 32,196
---------- --------- ---------
Net gain (loss) on investments . . . . 1,516,179 409,485 32,195
---------- --------- ---------
Net increase (decrease) in net
assets resulting from operations . . $ 1,672,145 $ 432,851 $ 33,927
---------- --------- ---------
---------- --------- ---------
</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 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>
HARTFORD LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
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,
1996, 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, 1996, 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 14, 1997
<PAGE>
HARTFORD LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Separate Account Two
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1996
<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 209,901,213
Cost $213,818,503
Market Value......... $209,731,192 -- --
Hartford Stock Fund,
Inc.
Shares 325,077,171
Cost $942,043,980
Market Value......... -- $1,346,700,441 --
HVA Money Market Fund,
Inc.
Shares 282,828,485
Cost $282,828,485
Market Value......... -- -- $282,828,485
Hartford Advisers Fund,
Inc.
Shares 1,337,021,547
Cost $2,233,276,156
Market Value......... -- -- --
Hartford U.S.
Government Money
Market Fund, Inc.
Shares 1,592,137
Cost $1,592,137
Market Value......... -- -- --
Hartford Capital
Appreciation Fund,
Inc.
Shares 366,806,192
Cost $1,062,106,327
Market Value......... -- -- --
Hartford Mortgage
Securities Fund, Inc.
Shares 189,233,708
Cost $203,956,416
Market Value......... -- -- --
Hartford Index Fund,
Inc.
Shares 111,179,449
Cost $184,665,755
Market Value......... -- -- --
Hartford International
Opportunities Fund,
Inc.
Shares 291,990,802
Cost $336,561,408
Market Value......... -- -- --
Hartford Dividend and
Growth Fund, Inc.
Shares 209,596,491
Cost $268,301,179
Market Value......... -- -- --
Due from Hartford Life
Insurance Company..... 389,971 -- 1,275,023
Receivable from fund
shares sold........... -- 1,214,364 --
------------ -------------- ------------
Total Assets........... 210,121,163 1,347,914,805 284,103,508
------------ -------------- ------------
LIABILITIES:
Due to Hartford Life
Insurance Company..... -- 1,203,942 --
Payable for fund shares
purchased............. 391,131 -- 1,269,939
------------ -------------- ------------
Total Liabilities...... 391,131 1,203,942 1,269,939
------------ -------------- ------------
Net Assets (variable
annuity contract
liabilities).......... $209,730,032 $1,346,710,863 $282,833,569
------------ -------------- ------------
------------ -------------- ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
HARTFORD LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MORTGAGE INTERNATIONAL
U.S. GOVERNMENT CAPITAL SECURITIES OPPORTUNITIES
ADVISERS FUND MONEY MARKET FUND APPRECIATION FUND FUND INDEX FUND FUND
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
--------------- ------------------- ----------------- ------------- ------------ -----------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
Investments:
Hartford Bond Fund,
Inc.
Shares 209,901,213
Cost $213,818,503
Market Value......... -- -- -- -- -- --
Hartford Stock Fund,
Inc.
Shares 325,077,171
Cost $942,043,980
Market Value......... -- -- -- -- -- --
HVA Money Market Fund,
Inc.
Shares 282,828,485
Cost $282,828,485
Market Value......... -- -- -- -- -- --
Hartford Advisers Fund,
Inc.
Shares 1,337,021,547
Cost $2,233,276,156
Market Value......... $2,900,708,354 -- -- -- -- --
Hartford U.S.
Government Money
Market Fund, Inc.
Shares 1,592,137
Cost $1,592,137
Market Value......... -- $1,592,137 -- -- -- --
Hartford Capital
Appreciation Fund,
Inc.
Shares 366,806,192
Cost $1,062,106,327
Market Value......... -- -- $1,435,800,482 -- -- --
Hartford Mortgage
Securities Fund, Inc.
Shares 189,233,708
Cost $203,956,416
Market Value......... -- -- -- $199,787,272 -- --
Hartford Index Fund,
Inc.
Shares 111,179,449
Cost $184,665,755
Market Value......... -- -- -- -- $264,803,879 --
Hartford International
Opportunities Fund,
Inc.
Shares 291,990,802
Cost $336,561,408
Market Value......... -- -- -- -- -- $410,796,017
Hartford Dividend and
Growth Fund, Inc.
Shares 209,596,491
Cost $268,301,179
Market Value......... -- -- -- -- -- --
Due from Hartford Life
Insurance Company..... -- -- -- -- -- --
Receivable from fund
shares sold........... 7,791 3,686 505,615 6,461 195,459 294,275
--------------- ------------------- ----------------- ------------- ------------ -----------------
Total Assets........... 2,900,716,145 1,595,823 1,436,306,097 199,793,733 264,999,338 411,090,292
--------------- ------------------- ----------------- ------------- ------------ -----------------
LIABILITIES:
Due to Hartford Life
Insurance Company..... 9,064 3,303 505,676 2,327 196,318 294,299
Payable for fund shares
purchased............. -- -- -- -- -- --
--------------- ------------------- ----------------- ------------- ------------ -----------------
Total Liabilities...... 9,064 3,303 505,676 2,327 196,318 294,299
--------------- ------------------- ----------------- ------------- ------------ -----------------
Net Assets (variable
annuity contract
liabilities).......... $2,900,707,081 $1,592,520 $1,435,800,421 $199,791,406 $264,803,020 $410,795,993
--------------- ------------------- ----------------- ------------- ------------ -----------------
--------------- ------------------- ----------------- ------------- ------------ -----------------
<CAPTION>
DIVIDEND AND
GROWTH FUND
SUB-ACCOUNT
------------
<S> <C>
ASSETS:
Investments:
Hartford Bond Fund,
Inc.
Shares
Cost
Market Value......... --
Hartford Stock Fund,
Inc.
Shares
Cost
Market Value......... --
HVA Money Market Fund,
Inc.
Shares
Cost
Market Value......... --
Hartford Advisers Fund,
Inc.
Shares
Cost
Market Value......... --
Hartford U.S.
Government Money
Market Fund, Inc.
Shares
Cost
Market Value......... --
Hartford Capital
Appreciation Fund,
Inc.
Shares
Cost
Market Value......... --
Hartford Mortgage
Securities Fund, Inc.
Shares
Cost
Market Value......... --
Hartford Index Fund,
Inc.
Shares
Cost
Market Value......... --
Hartford International
Opportunities Fund,
Inc.
Shares
Cost
Market Value......... --
Hartford Dividend and
Growth Fund, Inc.
Shares
Cost
Market Value......... $324,333,800
Due from Hartford Life
Insurance Company..... 278,410
Receivable from fund
shares sold........... --
------------
Total Assets........... 324,612,210
------------
LIABILITIES:
Due to Hartford Life
Insurance Company..... --
Payable for fund shares
purchased............. 278,289
------------
Total Liabilities...... 278,289
------------
Net Assets (variable
annuity contract
liabilities).......... $324,333,921
------------
------------
</TABLE>
<PAGE>
HARTFORD LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SEPARATE ACCOUNT TWO
STATEMENT OF ASSETS AND LIABILITIES -- (CONTINUED)
DECEMBER 31, 1996
<TABLE>
<CAPTION>
CALVERT
RESPONSIBLY
INVESTED
BALANCED INTERNATIONAL SMALL SMITH BARNEY
PORTFOLIO ADVISERS FUND COMPANY FUND CASH PORTFOLIO CLASS A
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
--------------- ------------- ------------- ----------------------
<S> <C> <C> <C> <C>
ASSETS:
Investments:
Calvert Responsibly
Invested Balanced
Portfolio
Shares 1,499,952
Cost $ 2,391,011
Market Value......... $2,660,914 -- -- --
Hartford International
Advisers Fund, Inc.
Shares 25,549,431
Cost $28,919,492
Market Value......... -- $29,805,457 -- --
Hartford Small Company
Fund, Inc.
Shares 12,669,842
Cost $13,471,629
Market Value......... -- -- $13,546,087 --
Smith Barney Cash
Portfolio Class A
Shares 580,242
Cost $ 580,242
Market Value......... -- -- -- $580,243
Smith Barney
Appreciation Fund,
Inc.
Shares 13,454
Cost $ 98,474
Market Value......... -- -- -- --
Smith Barney Government
Portfolio Class A
Shares 39,801
Cost $ 39,801
Market Value......... -- -- -- --
TCI Advantage Fund
Shares 27,440
Cost $ 166,872
Market Value......... -- -- -- --
TCI Growth Fund
Shares 111,230
Cost $ 1,287,905
Market Value......... -- -- -- --
Fidelity VIP Overseas
Portfolio
Shares 56,298
Cost $ 979,269
Market Value......... -- -- -- --
Fidelity VIP II Asset
Manager Portfolio
Shares 108,305
Cost $ 1,688,636
Market Value......... -- -- -- --
Fidelity VIP II
Contrafund Portfolio
Shares 402,873
Cost $ 5,743,454
Market Value......... -- -- -- --
Fidelity VIP Growth
Portfolio
Shares 225,301
Cost $ 6,630,047
Market Value......... -- -- -- --
Dividends receivable... -- -- -- 689
Due from Hartford Life
Insurance Company..... 20,342 233,723 306,594 --
Receivable from fund
shares sold........... -- -- -- 1,097
--------------- ------------- ------------- --------
Total Assets........... 2,681,256 30,039,180 13,852,681 582,029
--------------- ------------- ------------- --------
LIABILITIES:
Due to Hartford Life
Insurance Company..... -- -- -- 1,098
Payable for fund shares
purchased............. 20,027 230,006 306,589 --
--------------- ------------- ------------- --------
Total Liabilities...... 20,027 230,006 306,589 1,098
--------------- ------------- ------------- --------
Net Assets (variable
annuity contract
liabilities).......... $2,661,229 $29,809,174 $13,546,092 $580,931
--------------- ------------- ------------- --------
--------------- ------------- ------------- --------
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
HARTFORD LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SMITH BARNEY SMITH BARNEY FIDELITY VIP
APPRECIATION GOVERNMENT PORTFOLIO TCI TCI OVERSEAS
FUND CLASS A ADVANTAGE FUND GROWTH FUND PORTFOLIO
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
--------------- -------------------- ------------------ --------------- ------------
<S> <C> <C> <C> <C> <C>
ASSETS:
Investments:
Calvert Responsibly
Invested Balanced
Portfolio
Shares 1,499,952
Cost $ 2,391,011
Market Value......... -- -- -- -- --
Hartford International
Advisers Fund, Inc.
Shares 25,549,431
Cost $28,919,492
Market Value......... -- -- -- -- --
Hartford Small Company
Fund, Inc.
Shares 12,669,842
Cost $13,471,629
Market Value......... -- -- -- -- --
Smith Barney Cash
Portfolio Class A
Shares 580,242
Cost $ 580,242
Market Value......... -- -- -- -- --
Smith Barney
Appreciation Fund,
Inc.
Shares 13,454
Cost $ 98,474
Market Value......... $ 172,850 -- -- -- --
Smith Barney Government
Portfolio Class A
Shares 39,801
Cost $ 39,801
Market Value......... -- $ 39,801 -- -- --
TCI Advantage Fund
Shares 27,440
Cost $ 166,872
Market Value......... -- -- $ 172,596 -- --
TCI Growth Fund
Shares 111,230
Cost $ 1,287,905
Market Value......... -- -- -- $ 1,138,990 --
Fidelity VIP Overseas
Portfolio
Shares 56,298
Cost $ 979,269
Market Value......... -- -- -- -- $1,060,645
Fidelity VIP II Asset
Manager Portfolio
Shares 108,305
Cost $ 1,688,636
Market Value......... -- -- -- -- --
Fidelity VIP II
Contrafund Portfolio
Shares 402,873
Cost $ 5,743,454
Market Value......... -- -- -- -- --
Fidelity VIP Growth
Portfolio
Shares 225,301
Cost $ 6,630,047
Market Value......... -- -- -- -- --
Dividends receivable... -- 56 -- -- --
Due from Hartford Life
Insurance Company..... -- -- 113 1,084 318
Receivable from fund
shares sold........... 123 17 -- -- --
--------------- ------- -------- --------------- ------------
Total Assets........... 172,973 39,874 172,709 1,140,074 1,060,963
--------------- ------- -------- --------------- ------------
LIABILITIES:
Due to Hartford Life
Insurance Company..... 112 32 -- -- --
Payable for fund shares
purchased............. -- -- 114 1,084 374
--------------- ------- -------- --------------- ------------
Total Liabilities...... 112 32 114 1,084 374
--------------- ------- -------- --------------- ------------
Net Assets (variable
annuity contract
liabilities).......... $ 172,861 $ 39,842 $ 172,595 $ 1,138,990 $1,060,589
--------------- ------- -------- --------------- ------------
--------------- ------- -------- --------------- ------------
<CAPTION>
FIDELITY VIP
FIDELITY VIP II II FIDELITY VIP
ASSET MANAGER CONTRAFUND GROWTH
PORTFOLIO PORTFOLIO PORTFOLIO
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
----------------- ------------- -------------
<S> <C> <C> <C>
ASSETS:
Investments:
Calvert Responsibly
Invested Balanced
Portfolio
Shares
Cost
Market Value......... -- -- --
Hartford International
Advisers Fund, Inc.
Shares
Cost
Market Value......... -- -- --
Hartford Small Company
Fund, Inc.
Shares
Cost
Market Value......... -- -- --
Smith Barney Cash
Portfolio Class A
Shares
Cost
Market Value......... -- -- --
Smith Barney
Appreciation Fund,
Inc.
Shares
Cost
Market Value......... -- -- --
Smith Barney Government
Portfolio Class A
Shares
Cost
Market Value......... -- -- --
TCI Advantage Fund
Shares
Cost
Market Value......... -- -- --
TCI Growth Fund
Shares
Cost
Market Value......... -- -- --
Fidelity VIP Overseas
Portfolio
Shares
Cost
Market Value......... -- -- --
Fidelity VIP II Asset
Manager Portfolio
Shares
Cost
Market Value......... $ 1,833,607 -- --
Fidelity VIP II
Contrafund Portfolio
Shares
Cost
Market Value......... -- $ 6,671,576 --
Fidelity VIP Growth
Portfolio
Shares
Cost
Market Value......... -- -- $ 7,015,865
Dividends receivable... -- -- --
Due from Hartford Life
Insurance Company..... 1,331 7,363 5,867
Receivable from fund
shares sold........... -- -- --
----------------- ------------- -------------
Total Assets........... 1,834,938 6,678,939 7,021,732
----------------- ------------- -------------
LIABILITIES:
Due to Hartford Life
Insurance Company..... -- -- --
Payable for fund shares
purchased............. 923 7,344 5,867
----------------- ------------- -------------
Total Liabilities...... 923 7,344 5,867
----------------- ------------- -------------
Net Assets (variable
annuity contract
liabilities).......... $ 1,834,015 $ 6,671,595 $ 7,015,865
----------------- ------------- -------------
----------------- ------------- -------------
</TABLE>
<PAGE>
HARTFORD LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Separate Account Two
STATEMENT OF ASSETS AND LIABILITIES -- (CONTINUED)
DECEMBER 31, 1996
<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%....................... 286,137 $3.705223 $ 1,060,201
Bond Fund Non-Qualified 1.00%................... 2,004,675 3.648889 7,314,837
Bond Fund 1.25%................................. 96,857,176 1.922173 186,176,248
Bond Fund .25%.................................. 58,462 1.279841 74,822
Stock Fund Qualified 1.00%...................... 829,845 6.828860 5,666,897
Stock Fund Non-Qualified 1.00%.................. 3,406,617 6.529899 22,244,866
Stock Fund 1.25%................................ 333,175,709 3.546656 1,181,659,627
Stock Fund .25%................................. 1,094,565 1.863616 2,039,847
Money Market Fund Qualified 1.00%............... 1,361,999 2.465145 3,357,527
Money Market Fund Non-Qualified 1.00%........... 13,210,943 2.466312 32,582,307
Money Market Fund 1.25%......................... 151,978,017 1.586516 241,115,556
Money Market Fund .25%.......................... 107,272 1.177980 126,364
Advisers Fund Qualified 1.00%................... 3,530,743 4.341094 15,327,287
Advisers Fund Non-Qualified 1.00%............... 12,468,636 4.341094 54,127,522
Advisers Fund 1.25%............................. 953,997,531 2.905301 2,771,649,980
Advisers Fund .25%.............................. 1,035,316 1.620437 1,677,664
U.S. Government Money Market Fund Qualified
1.00%.......................................... 13,096 1.964748 25,730
U.S. Government Money Market Fund 1.25%......... 46,108 1.520714 70,117
Capital Appreciation Fund Qualified 1.00%....... 887,736 6.732095 5,976,324
Capital Appreciation Fund Non-Qualified 1.00%... 2,634,097 6.728893 17,724,557
Capital Appreciation Fund 1.25%................. 330,579,796 4.010163 1,325,678,867
Capital Appreciation Growth Fund .25%........... 2,393,968 1.929665 4,619,555
Mortgage Securities Fund Qualified 1.00%........ 754,527 2.494635 1,882,270
Mortgage Securities Fund Non-Qualified 1.00%.... 8,165,242 2.494635 20,369,299
Mortgage Securities Fund 1.25%.................. 89,097,727 1.948580 173,614,049
Mortgage Securities Fund .25%................... 16,088 1.259955 20,270
Index Fund 1.00%................................ 38,885 1.121353 43,604
Index Fund Non-Qualified 1.00%.................. 105,698 1.121353 118,525
Index Fund 1.25%................................ 87,611,122 2.845170 249,268,537
Index Fund .25%................................. 208,930 1.823336 380,949
International Opportunities Fund Qualified
1.00%.......................................... 374,127 1.506694 563,694
International Opportunities Fund Non-Qualified
1.00%.......................................... 1,951,162 1.506641 2,939,701
International Opportunities Fund 1.25%.......... 266,961,904 1.482397 395,743,525
International Opportunities Fund .25%........... 796,396 1.658799 1,321,061
Dividend and Growth Fund Qualified 1.00%........ 291,489 1.661695 484,366
Dividend and Growth Fund Non-Qualified 1.00%.... 1,241,381 1.661695 2,062,797
Dividend and Growth Fund 1.25%.................. 190,957,704 1.650056 315,090,906
Dividend and Growth Fund .25%................... 278,866 1.697062 473,253
International Advisers Fund 1.00%............... 18,539 1.271482 23,572
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
HARTFORD LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
UNITS
OWNED BY UNIT CONTRACT
PARTICIPANTS PRICE LIABILITY
------------ --------- --------------
INDIVIDUAL SUB-ACCOUNTS -- (CONTINUED)
<S> <C> <C> <C>
International Advisers Fund Non-Qualified
1.00%.......................................... 347,573 $1.271482 $ 441,933
International Advisers Fund 1.25%............... 23,174,203 1.265665 29,330,778
International Advisers Fund .25%................ 10,000 1.289112 12,891
Hartford Small Company Fund 1.00%............... 10,000 1.067381 10,674
Hartford Small Company Fund Non-Qualified
1.00%.......................................... 109,746 1.067381 117,140
Hartford Small Company Fund 1.25%............... 12,562,718 1.066345 13,396,192
Hartford Small Company Fund .25%................ 20,632 1.070487 22,086
Smith Barney Cash Portfolio Class A Qualified
1.00%.......................................... 78,105 2.668734 208,440
Smith Barney Cash Portfolio Class A
Non-Qualified 1.00%............................ 134,883 2.761578 372,491
Smith Barney Appreciation Fund, Inc. Qualified
1.00%.......................................... 23,313 7.414916 172,861
Smith Barney Government Portfolio Class A
Qualified 1.00%................................ 16,556 2.406571 39,842
--------------
Sub-total Individual Sub-Accounts............... 7,088,822,408
--------------
GROUP SUB-ACCOUNTS:
Bond Fund Qualified 1.00% QP.................... 1,156,525 4.339730 5,019,007
Bond Fund 1.25% DCII............................ 1,655,052 4.186875 6,929,497
Bond Fund .15% DCII............................. 305,789 3.988350 1,219,594
Stock Fund Qualified 1.00% QP................... 3,371,997 11.419696 38,507,182
Stock Fund Qualified .825% QP................... 1,236,665 9.187655 11,362,056
Stock Fund Non-Qualified 1.00% NQ............... 84,854 8.960086 760,298
Stock Fund Non-Qualified .825% NQ............... 789,689 9.203794 7,268,133
Stock Fund 1.25% DCII........................... 4,885,027 11.016763 53,817,180
Stock Fund .15% DCII............................ 873,948 8.647926 7,557,838
Money Market Fund Qualified .375% QP............ 2,493 3.094168 7,714
Money Market Fund 1.25% DCII.................... 1,332,772 2.724852 3,631,605
Money Market Fund .15% DCII..................... 321,329 2.679247 860,920
Advisers Fund 1.25% DCII........................ 10,504,581 4.201072 44,130,500
Advisers Fund .15% DCII......................... 603,382 4.875465 2,941,770
U.S. Government Money Market Fund 1.25% DCII.... 586,557 1.898594 1,113,633
U.S. Government Money Market Fund .15% DCII..... 54,540 2.211389 120,609
Capital Appreciation Fund 1.25% DCII............ 10,979,149 6.532522 71,721,533
Capital Appreciation Fund .15% DCII............. 783,105 7.500897 5,873,989
Mortgage Securities Fund 1.25% DCII............. 1,140,765 2.421049 2,761,848
Mortgage Securities Fund .15% DCII.............. 143,045 2.761199 394,976
Index Fund 1.25% DCII........................... 4,377,886 2.848016 12,468,289
Index Fund .15% DCII............................ 354,223 3.118020 1,104,474
International Opportunities Fund 1.25% DCII..... 5,995,783 1.482607 8,889,390
International Opportunities Fund .15% DCII...... 437,734 1.592168 696,947
Dividend and Growth Fund........................ 3,874,337 1.484086 5,749,849
Calvert Responsibly Invested Balanced Portfolio
1.25% DCII..................................... 1,192,706 2.020652 2,410,043
</TABLE>
<PAGE>
HARTFORD LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SEPARATE ACCOUNT TWO
STATEMENT OF ASSETS AND LIABILITIES -- (CONTINUED)
DECEMBER 31, 1996
<TABLE>
<CAPTION>
UNITS
OWNED BY UNIT CONTRACT
PARTICIPANTS PRICE LIABILITY
------------ --------- --------------
GROUP SUB-ACCOUNTS -- (CONTINUED)
<S> <C> <C> <C>
TCI Advantage Portfolio......................... 144,148 $1.134354 $ 163,515
TCI Growth Fund Portfolio....................... 1,107,888 1.021217 1,131,394
Fidelity VIP Overseas Portfolio................. 920,778 1.151840 1,060,589
Fidelity VIP II Asset Manager Portfolio......... 1,491,046 1.230019 1,834,015
Fidelity VIP II Contrafund Portfolio............ 5,069,393 1.316054 6,671,595
Fidelity VIP II Growth Portfolio................ 5,773,053 1.215278 7,015,865
--------------
Sub-total Group Sub-Accounts.................... 315,195,847
--------------
TOTAL ACCUMULATION PERIOD......................... 7,404,018,255
--------------
ANNUITY CONTRACTS IN THE ANNUITY PERIOD:
INDIVIDUAL SUB-ACCOUNTS:
Bond Fund Non-Qualified 1.00%................... 27 3.648889 99
Bond Fund 1.25%................................. 183,085 1.922173 351,921
Stock Fund Non-Qualified 1.00%.................. 9,504 6.529899 62,059
Stock Fund 1.25%................................ 305,133 3.546656 1,082,200
Money Market Fund Qualified 1.00%............... 12,037 2.465145 29,672
Money Market Fund Non-Qualified 1.00%........... 90,874 2.466312 224,124
Money Market Fund 1.25%......................... 293,556 1.586516 465,731
Advisers Fund Qualified 1.00%................... 4,038 4.341094 17,529
Advisers Fund Non-Qualified 1.00%............... 61,575 4.341094 267,305
Advisers Fund 1.25%............................. 863,489 2.905301 2,508,695
U.S. Government Money Market Fund Qualified
1.00%.......................................... 10,951 1.964748 21,515
Capital Appreciation Fund Non-Qualified 1.00%... 3,442 6.728893 23,158
Capital Appreciation Fund 1.25%................. 150,348 4.010163 602,921
Mortgage Securities Fund Non-Qualified 1.00%.... 80,072 2.494635 199,751
Mortgage Securities Fund 1.25%.................. 81,728 1.948580 159,253
Index Fund 1.25%................................ 53,288 2.845170 151,614
International Opportunities Fund 1.25%.......... 184,639 1.482397 273,708
Dividend and Growth Fund 1.25%.................. 120,079 1.650056 198,136
--------------
Sub-total Individual Sub-Accounts............... 6,639,391
--------------
GROUP SUB-ACCOUNTS:
Bond Fund Qualified 1.00% QP.................... 68,667 4.339730 297,996
Bond Fund 1.25% DCII............................ 290,717 4.186875 1,217,195
Bond Fund 1.00% DCII............................ 11,681 4.322597 50,493
Bond Fund .15% DCII............................. 4,544 3.988350 18,122
Stock Fund Qualified 1.00% QP................... 228,666 11.419696 2,611,302
Stock Fund Qualified .825% QP................... 50,529 9.187655 464,243
Stock Fund Non-Qualified 1.00% NQ............... 569 8.960086 5,099
Stock Fund Non-Qualified .825% NQ............... 50,740 9.203794 467,004
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
HARTFORD LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
UNITS
OWNED BY UNIT CONTRACT
PARTICIPANTS PRICE LIABILITY
------------ --------- --------------
GROUP SUB-ACCOUNTS -- (CONTINUED)
<S> <C> <C> <C>
Stock Fund 1.25% DCII........................... 997,034 $11.016763 $ 10,984,089
Stock Fund 1.00% DCII........................... 3,994 11.383947 45,472
Stock Fund .15% DCII............................ 12,196 8.647926 105,471
Money Market Fund 1.25% DCII.................... 158,559 2.724852 432,049
Advisers Fund 1.25% DCII........................ 1,889,915 4.201072 7,939,668
Advisers Fund .15% DCII......................... 24,441 4.875465 119,161
U.S. Government Money Market Fund 1.25% DCII.... 126,892 1.898594 240,916
Capital Appreciation Fund 1.25% DCII............ 537,157 6.532522 3,508,989
Capital Appreciation Fund .15% DCII............. 9,403 7.500897 70,528
Mortgage Securities Fund 1.25% DCII............. 160,959 2.421049 389,689
Index Fund 1.25% DCII........................... 440,396 2.848016 1,254,255
Index Fund .15% DCII............................ 4,097 3.118020 12,773
International Opportunities Fund 1.25% DCII..... 227,628 1.482607 337,483
International Opportunities Fund .15% DCII...... 19,146 1.592168 30,484
Dividend and Growth Fund........................ 185,039 1.484086 274,614
Calvert Responsibly Invested Balanced Portfolio
1.25% DCII..................................... 124,309 2.020652 251,186
TCI Advantage Fund.............................. 8,005 1.134354 9,080
TCI Growth Fund................................. 7,438 1.021217 7,596
--------------
Sub-total Group Sub-Accounts.................... 31,144,957
--------------
TOTAL ANNUITY PERIOD.............................. 37,784,348
--------------
GRAND TOTAL....................................... $7,441,802,603
--------------
--------------
</TABLE>
<PAGE>
HARTFORD LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Separate Account Two
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
MONEY
BOND FUND STOCK FUND MARKET FUND
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
------------ ------------ -----------
<S> <C> <C> <C>
INVESTMENT INCOME:
Dividends.............. $ 12,893,843 $ 18,086,005 $12,430,899
EXPENSES:
Mortality and expense
undertakings.......... (2,481,229) (13,978,363) (2,990,459)
------------ ------------ -----------
Net investment income
(loss).............. 10,412,614 4,107,642 9,440,440
------------ ------------ -----------
CAPITAL GAINS INCOME..... -- 41,100,004 --
------------ ------------ -----------
NET REALIZED AND
UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Net realized gain
(loss) on security
transactions.......... (262,277) 3,161,056 --
Net unrealized
appreciation
(depreciation) of
investments during the
period................ (5,517,884) 189,613,138 --
------------ ------------ -----------
Net realized and
unrealized gain
(loss) on
investments......... (5,780,161) 192,774,194 --
------------ ------------ -----------
Net increase
(decrease) in net
assets resulting
from operations..... $ 4,632,453 $237,981,840 $ 9,440,440
------------ ------------ -----------
------------ ------------ -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
HARTFORD LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
<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.............. $ 75,797,664 $ 73,159 $ 8,578,529 $13,309,238
EXPENSES:
Mortality and expense
undertakings.......... (32,375,755) (17,750) (15,329,687) (2,542,139)
------------- -------- ----------------- ---------------
Net investment income
(loss).............. 43,421,909 55,409 (6,751,158) 10,767,099
------------- -------- ----------------- ---------------
CAPITAL GAINS INCOME..... 53,115,059 -- 70,324,118 --
------------- -------- ----------------- ---------------
NET REALIZED AND
UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Net realized gain
(loss) on security
transactions.......... 1,874,522 -- 2,065,427 (435,741)
Net unrealized
appreciation
(depreciation) of
investments during the
period................ 276,364,776 -- 154,074,827 (2,844,443)
------------- -------- ----------------- ---------------
Net realized and
unrealized gain
(loss) on
investments......... 278,239,298 -- 156,140,254 (3,280,184)
------------- -------- ----------------- ---------------
Net increase
(decrease) in net
assets resulting
from operations..... $ 374,776,266 $ 55,409 $219,713,214 $ 7,486,915
------------- -------- ----------------- ---------------
------------- -------- ----------------- ---------------
<CAPTION>
INTERNATIONAL DIVIDEND AND
INDEX FUND OPPORTUNITIES FUND GROWTH FUND
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
------------ ------------------ ------------
<S> <C> <C> <C>
INVESTMENT INCOME:
Dividends.............. $ 4,491,244 $ 7,252,292 $ 5,391,238
EXPENSES:
Mortality and expense
undertakings.......... (2,695,725) (4,681,021) (2,723,447)
------------ ------------------ ------------
Net investment income
(loss).............. 1,795,519 2,571,271 2,667,791
------------ ------------------ ------------
CAPITAL GAINS INCOME..... 3,292,866 9,589,596 2,810,352
------------ ------------------ ------------
NET REALIZED AND
UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Net realized gain
(loss) on security
transactions.......... 140,503 91,466 (3,931)
Net unrealized
appreciation
(depreciation) of
investments during the
period................ 36,167,970 28,439,913 38,471,770
------------ ------------------ ------------
Net realized and
unrealized gain
(loss) on
investments......... 36,308,473 28,531,379 38,467,839
------------ ------------------ ------------
Net increase
(decrease) in net
assets resulting
from operations..... $ 41,396,858 $40,692,246 $ 43,945,982
------------ ------------------ ------------
------------ ------------------ ------------
</TABLE>
<PAGE>
HARTFORD LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SEPARATE ACCOUNT TWO
STATEMENT OF OPERATIONS -- (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
CALVERT SMITH BARNEY
RESPONSIBLY INVESTED INTERNATIONAL SMALL CASH PORTFOLIO
BALANCED PORTFOLIO ADVISERS FUND COMPANY FUND CLASS A
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT* SUB-ACCOUNT
-------------------- ------------- ------------------ -------------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends.............. $ 57,279 $ 879,182 $ 9,954 $27,809
EXPENSES:
Mortality and expense
undertakings.......... (27,872) (234,636) (27,632) (5,756)
-------- ------------- ------- -------
Net investment income
(loss).............. 29,407 644,546 (17,678) 22,053
-------- ------------- ------- -------
CAPITAL GAINS INCOME..... 140,994 595,787 -- --
-------- ------------- ------- -------
NET REALIZED AND
UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Net realized gain
(loss) on security
transactions.......... 6,518 (3,562) 922 --
Net unrealized
appreciation
(depreciation) of
investments during the
period................ 78,661 708,119 74,459 --
-------- ------------- ------- -------
Net realized and
unrealized gain
(loss) on
investments......... 85,179 704,557 75,381 --
-------- ------------- ------- -------
Net increase
(decrease) in net
assets resulting
from operations..... $255,580 $1,944,890 $57,703 $22,053
-------- ------------- ------- -------
-------- ------------- ------- -------
</TABLE>
* From inception, August 9, 1996, to December 31, 1996.
The accompanying notes are an integral part of these financial statements.
<PAGE>
HARTFORD LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SMITH BARNEY
GOVERNMENT FIDELITY VIP FIDELITY VIP II
SMITH BARNEY PORTFOLIO TCI TCI OVERSEAS ASSET MANAGER
APPRECIATION FUND CLASS A ADVANTAGE FUND GROWTH FUND PORTFOLIO PORTFOLIO
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
----------------- -------------- -------------- ----------- ------------- ------------------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends.............. $16,634 $2,077 $6,903 $ 100,570 $ 3,709 $ 27,849
EXPENSES:
Mortality and expense
undertakings.......... (1,599) (431) (1,529) (13,692) (8,486) (13,608)
------- ------ ------ ----------- ------------- --------
Net investment income
(loss).............. 15,035 1,646 5,374 86,878 (4,777) 14,241
------- ------ ------ ----------- ------------- --------
CAPITAL GAINS INCOME..... -- -- -- -- 4,080 --
------- ------ ------ ----------- ------------- --------
NET REALIZED AND
UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Net realized gain
(loss) on security
transactions.......... 174 -- (110) 527 985 (71)
Net unrealized
appreciation
(depreciation) of
investments during the
period................ 11,776 -- 4,528 (155,560) 77,918 126,112
------- ------ ------ ----------- ------------- --------
Net realized and
unrealized gain
(loss) on
investments......... 11,950 -- 4,418 (155,033) 78,903 126,041
------- ------ ------ ----------- ------------- --------
Net increase
(decrease) in net
assets resulting
from operations..... $26,985 $1,646 $9,792 $ (68,155) $78,206 $140,282
------- ------ ------ ----------- ------------- --------
------- ------ ------ ----------- ------------- --------
<CAPTION>
FIDELITY
FIDELITY VIP II VIP
CONTRAFUND GROWTH
PORTFOLIO PORTFOLIO
SUB-ACCOUNT SUB-ACCOUNT
--------------- -----------
<S> <C> <C>
INVESTMENT INCOME:
Dividends.............. $ 21,249 $ 73,883
EXPENSES:
Mortality and expense
undertakings.......... (56,903) (63,705)
--------------- -----------
Net investment income
(loss).............. (35,654) 10,178
--------------- -----------
CAPITAL GAINS INCOME..... -- 115,329
--------------- -----------
NET REALIZED AND
UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Net realized gain
(loss) on security
transactions.......... (377) (6,795)
Net unrealized
appreciation
(depreciation) of
investments during the
period................ 910,896 420,263
--------------- -----------
Net realized and
unrealized gain
(loss) on
investments......... 910,519 413,468
--------------- -----------
Net increase
(decrease) in net
assets resulting
from operations..... $874,865 $538,975
--------------- -----------
--------------- -----------
</TABLE>
<PAGE>
HARTFORD LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Separate Account Two
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
MONEY
BOND FUND STOCK FUND MARKET FUND
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
------------ -------------- -------------
<S> <C> <C> <C>
OPERATIONS:
Net investment income
(loss)................ $ 10,412,614 $ 4,107,642 $ 9,440,440
Capital gains income... -- 41,100,004 --
Net realized gain
(loss) on security
transactions.......... (262,277) 3,161,056 --
Net unrealized
appreciation
(depreciation) of
investments during the
period................ (5,517,884) 189,613,138 --
------------ -------------- -------------
Net increase (decrease)
in net assets
resulting from
operations............ 4,632,453 237,981,840 9,440,440
------------ -------------- -------------
UNIT TRANSACTIONS:
Purchases.............. 27,446,873 174,128,189 70,557,174
Net transfers.......... (16,819,459) 27,816,288 67,229,895
Surrenders............. (16,860,465) (57,921,128) (52,794,253)
Net annuity
transactions.......... (32,192) (176,096) (239,109)
------------ -------------- -------------
Net increase (decrease)
in net assets
resulting from unit
transactions.......... (6,265,243) 143,847,253 84,753,707
------------ -------------- -------------
Total increase
(decrease) in net
assets................ (1,632,790) 381,829,093 94,194,147
NET ASSETS:
Beginning of period.... 211,362,822 964,881,770 188,639,422
------------ -------------- -------------
End of period.......... $209,730,032 $1,346,710,863 $ 282,833,569
------------ -------------- -------------
------------ -------------- -------------
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1995
MONEY
BOND FUND STOCK FUND MARKET FUND
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
------------ -------------- -------------
OPERATIONS:
Net investment income
(loss)................ $ 9,356,706 $ 8,102,133 $ 9,540,693
Capital gains income... -- 26,305,598 --
Net realized gain
(loss) on security
transactions.......... 117,877 2,168,121 --
Net unrealized
appreciation
(depreciation) of
investments during the
period................ 18,122,724 184,154,644 --
------------ -------------- -------------
Net increase (decrease)
in net assets
resulting from
operations............ 27,597,307 220,730,496 9,540,693
------------ -------------- -------------
UNIT TRANSACTIONS:
Purchases.............. 18,860,293 101,236,958 48,515,026
Net transfers.......... 17,461,966 34,337,542 (83,703,644)
Surrenders............. (12,010,919) (38,089,217) (27,263,647)
Net annuity
transactions.......... (33,972) 563,526 (138,249)
------------ -------------- -------------
Net increase (decrease)
in net assets
resulting from unit
transactions.......... 24,277,368 98,048,809 (62,590,514)
------------ -------------- -------------
Total increase
(decrease) in net
assets................ 51,874,675 318,779,305 (53,049,821)
NET ASSETS:
Beginning of period.... 159,488,147 646,102,465 241,689,243
------------ -------------- -------------
End of period.......... $211,362,822 $ 964,881,770 $ 188,639,422
------------ -------------- -------------
------------ -------------- -------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
HARTFORD LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
U.S. GOVERNMENT CAPITAL MORTGAGE INTERNATIONAL
ADVISERS FUND MONEY MARKET FUND APPRECIATION FUND SECURITIES FUND INDEX FUND OPPORTUNITIES FUND
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
--------------- -------------------- ----------------- --------------- ------------- ------------------
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment income
(loss)................ $ 43,421,909 $ 55,409 $ (6,751,158) $ 10,767,099 $ 1,795,519 $ 2,571,271
Capital gains income... 53,115,059 -- 70,324,118 -- 3,292,866 9,589,596
Net realized gain
(loss) on security
transactions.......... 1,874,522 -- 2,065,427 (435,741) 140,503 91,466
Net unrealized
appreciation
(depreciation) of
investments during the
period................ 276,364,776 -- 154,074,827 (2,844,443) 36,167,970 28,439,913
--------------- ----------- ----------------- --------------- ------------- ------------------
Net increase (decrease)
in net assets
resulting from
operations............ 374,776,266 55,409 219,713,214 7,486,915 41,396,858 40,692,246
--------------- ----------- ----------------- --------------- ------------- ------------------
UNIT TRANSACTIONS:
Purchases.............. 322,583,889 216,658 200,411,434 9,051,920 47,675,352 43,044,896
Net transfers.......... (3,947,049) (124,960) 495,679 (19,016,015) 21,152,822 20,223,935
Surrenders............. (150,653,853) (77,729) (60,449,676) (19,091,976) (10,892,469) (21,614,763)
Net annuity
transactions.......... 730,038 (18,734) 658,118 (55,176) 75,085 141,714
--------------- ----------- ----------------- --------------- ------------- ------------------
Net increase (decrease)
in net assets
resulting from unit
transactions.......... 168,713,025 (4,765) 141,115,555 (29,111,247) 58,010,790 41,795,782
--------------- ----------- ----------------- --------------- ------------- ------------------
Total increase
(decrease) in net
assets................ 543,489,291 50,644 360,828,769 (21,624,332) 99,407,648 82,488,028
NET ASSETS:
Beginning of period.... 2,357,217,790 1,541,876 1,074,971,652 221,415,738 165,395,372 328,307,965
--------------- ----------- ----------------- --------------- ------------- ------------------
End of period.......... $ 2,900,707,081 $1,592,520 $1,435,800,421 $199,791,406 $ 264,803,020 $410,795,993
--------------- ----------- ----------------- --------------- ------------- ------------------
--------------- ----------- ----------------- --------------- ------------- ------------------
U.S. GOVERNMENT CAPITAL MORTGAGE INTERNATIONAL
ADVISERS FUND MONEY MARKET FUND APPRECIATION FUND SECURITIES FUND INDEX FUND OPPORTUNITIES FUND
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
--------------- -------------------- ----------------- --------------- ------------- ------------------
OPERATIONS:
Net investment income
(loss)................ $ 47,996,996 $ 56,945 $ (2,372,963) $ 11,548,045 $ 1,542,554 $ 1,106,594
Capital gains income... 21,614,744 -- 34,687,769 -- 38,706 2,695,768
Net realized gain
(loss) on security
transactions.......... 1,643,658 -- 2,276,572 (490,628) 969,630 (488,089)
Net unrealized
appreciation
(depreciation) of
investments during the
period................ 410,209,012 -- 168,562,628 18,815,991 34,721,169 32,521,726
--------------- ----------- ----------------- --------------- ------------- ------------------
Net increase (decrease)
in net assets
resulting from
operations............ 481,464,410 56,945 203,154,006 29,873,408 37,272,059 35,835,999
--------------- ----------- ----------------- --------------- ------------- ------------------
UNIT TRANSACTIONS:
Purchases.............. 189,985,618 247,760 164,142,420 9,787,879 22,856,837 27,669,493
Net transfers.......... (5,608,414) 17,612 104,275,366 (15,085,789) 14,885,934 (24,115,834)
Surrenders............. (110,192,361) (76,250) (29,551,158) (16,689,694) (4,088,509) (12,086,298)
Net annuity
transactions.......... 487,625 84,208 482,089 13,331 84,999 124,982
--------------- ----------- ----------------- --------------- ------------- ------------------
Net increase (decrease)
in net assets
resulting from unit
transactions.......... 74,672,468 273,330 239,348,717 (21,974,273) 33,739,261 (8,407,657)
--------------- ----------- ----------------- --------------- ------------- ------------------
Total increase
(decrease) in net
assets................ 556,136,878 330,275 442,502,723 7,899,135 71,011,320 27,428,342
NET ASSETS:
Beginning of period.... 1,801,080,912 1,211,601 632,468,929 213,516,603 94,384,052 300,879,623
--------------- ----------- ----------------- --------------- ------------- ------------------
End of period.......... $ 2,357,217,790 $1,541,876 $1,074,971,652 $221,415,738 $ 165,395,372 $328,307,965
--------------- ----------- ----------------- --------------- ------------- ------------------
--------------- ----------- ----------------- --------------- ------------- ------------------
<CAPTION>
DIVIDEND AND
GROWTH FUND
SUB-ACCOUNT
-------------
<S> <C>
OPERATIONS:
Net investment income
(loss)................ $ 2,667,791
Capital gains income... 2,810,352
Net realized gain
(loss) on security
transactions.......... (3,931)
Net unrealized
appreciation
(depreciation) of
investments during the
period................ 38,471,770
-------------
Net increase (decrease)
in net assets
resulting from
operations............ 43,945,982
-------------
UNIT TRANSACTIONS:
Purchases.............. 99,649,393
Net transfers.......... 73,409,821
Surrenders............. (8,580,693)
Net annuity
transactions.......... 330,214
-------------
Net increase (decrease)
in net assets
resulting from unit
transactions.......... 164,808,735
-------------
Total increase
(decrease) in net
assets................ 208,754,717
NET ASSETS:
Beginning of period.... 115,579,204
-------------
End of period.......... $324,333,921
-------------
-------------
DIVIDEND AND
GROWTH FUND
SUB-ACCOUNT
-------------
OPERATIONS:
Net investment income
(loss)................ $ 1,044,698
Capital gains income... --
Net realized gain
(loss) on security
transactions.......... 4,933
Net unrealized
appreciation
(depreciation) of
investments during the
period................ 18,047,295
-------------
Net increase (decrease)
in net assets
resulting from
operations............ 19,096,926
-------------
UNIT TRANSACTIONS:
Purchases.............. 37,005,986
Net transfers.......... 31,702,670
Surrenders............. (2,159,189)
Net annuity
transactions.......... 77,507
-------------
Net increase (decrease)
in net assets
resulting from unit
transactions.......... 66,626,974
-------------
Total increase
(decrease) in net
assets................ 85,723,900
NET ASSETS:
Beginning of period.... 29,855,304
-------------
End of period.......... $115,579,204
-------------
-------------
</TABLE>
<PAGE>
HARTFORD LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SEPARATE ACCOUNT TWO
STATEMENT OF CHANGES IN NET ASSETS -- (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
CALVERT
RESPONSIBLY
INVESTED
BALANCED INTERNATIONAL SMALL SMITH BARNEY
PORTFOLIO ADVISERS FUND COMPANY FUND DAILY DIVIDEND FUND
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT*** SUB-ACCOUNT
--------------- ------------- ------------------ -------------------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income
(loss)................ $ 29,407 $ 644,546 $ (17,678) $ 22,053
Capital gains income... 140,994 595,787 -- --
Net realized gain
(loss) on security
transactions.......... 6,518 (3,562) 922 --
Net unrealized
appreciation
(depreciation) of
investments during the
period................ 78,661 708,119 74,459 --
--------------- ------------- ------------------ --------
Net increase (decrease)
in net assets
resulting from
operations............ 255,580 1,944,890 57,703 22,053
--------------- ------------- ------------------ --------
UNIT TRANSACTIONS:
Purchases.............. 501,957 10,618,419 4,333,960 25
Net transfers.......... 86,346 10,257,798 9,203,248 --
Surrenders............. (81,242) (609,471) (48,819) (10,494)
Net annuity
transactions.......... 135,085 -- -- --
--------------- ------------- ------------------ --------
Net increase (decrease)
in net assets
resulting from unit
transactions.......... 642,146 20,266,746 13,488,389 (10,469)
--------------- ------------- ------------------ --------
Total increase
(decrease) in net
assets................ 897,726 22,211,636 13,546,092 11,584
NET ASSETS:
Beginning of period.... 1,763,503 7,597,538 -- 569,347
--------------- ------------- ------------------ --------
End of period.......... $ 2,661,229 $ 29,809,174 $13,546,092 $580,931
--------------- ------------- ------------------ --------
--------------- ------------- ------------------ --------
STATEMENT OF CHANGES IN NET ASSETS -- (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1995
CALVERT
RESPONSIBLY
INVESTED SMITH BARNEY
BALANCED INTERNATIONAL CASH PORTFOLIO SMITH BARNEY
PORTFOLIO ADVISERS FUND CLASS A APPRECIATION FUND
SUB-ACCOUNT SUB-ACCOUNT* SUB-ACCOUNT SUB-ACCOUNT
--------------- ------------- ------------------ -------------------
OPERATIONS:
Net investment income
(loss)................ $ 87,446 $ 164,074 $ 26,340 $ 1,041
Capital gains income... 50,438 -- -- 11,468
Net realized gain
(loss) on security
transactions.......... 1,044 6,279 -- 148
Net unrealized
appreciation
(depreciation) of
investments during the
period................ 184,034 177,844 -- 20,104
--------------- ------------- ------------------ --------
Net increase (decrease)
in net assets
resulting from
operations............ 322,962 348,197 26,340 32,761
--------------- ------------- ------------------ --------
UNIT TRANSACTIONS:
Purchases.............. 394,157 2,632,312 -- 50
Net transfers.......... 19,199 4,663,681 (10,709) --
Surrenders............. (28,010) (46,652) (92,200) (1,598)
Net annuity
transactions.......... 30,857 -- -- --
--------------- ------------- ------------------ --------
Net increase (decrease)
in net assets
resulting from unit
transactions.......... 416,203 7,249,341 (102,909) (1,548)
--------------- ------------- ------------------ --------
Total increase
(decrease) in net
assets................ 739,165 7,597,538 (76,569) 31,213
NET ASSETS:
Beginning of period.... 1,024,338 -- 645,916 117,221
--------------- ------------- ------------------ --------
End of period.......... $ 1,763,503 $ 7,597,538 $ 569,347 $148,434
--------------- ------------- ------------------ --------
--------------- ------------- ------------------ --------
</TABLE>
* From inception, March 31, 1995, to December 31, 1995.
** From inception, July 1, 1995, to December 31, 1995.
*** From inception, August 9, 1996, to December 31, 1996.
The accompanying notes are an integral part of these financial statements.
<PAGE>
HARTFORD LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SMITH BARNEY
GOVERNMENT TCI FIDELITY VIP FIDELITY VIP II
SMITH BARNEY PORTFOLIO ADVANTAGE TCI OVERSEAS ASSET MANAGER
APPRECIATION FUND CLASS A FUND GROWTH FUND PORTFOLIO PORTFOLIO
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
----------------- -------------- -------------- ----------- ------------------ ------------------
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment income
(loss)................ $ 15,035 $ 1,646 $ 5,374 $ 86,878 $ (4,777) $ 14,241
Capital gains income... -- -- -- -- 4,080 --
Net realized gain
(loss) on security
transactions.......... 174 -- (110) 527 985 (71)
Net unrealized
appreciation
(depreciation) of
investments during the
period................ 11,776 -- 4,528 (155,560) 77,918 126,112
-------- ------- -------------- ----------- ------------------ ------------------
Net increase (decrease)
in net assets
resulting from
operations............ 26,985 1,646 9,792 (68,155) 78,206 140,282
-------- ------- -------------- ----------- ------------------ ------------------
UNIT TRANSACTIONS:
Purchases.............. -- -- 52,991 278,606 196,292 268,755
Net transfers.......... -- -- 63,519 248,714 626,400 1,181,511
Surrenders............. (2,558) (4,273) (218) (13,223) (27,202) (95,811)
Net annuity
transactions.......... -- -- (410) (374) -- --
-------- ------- -------------- ----------- ------------------ ------------------
Net increase (decrease)
in net assets
resulting from unit
transactions.......... (2,558) (4,273) 115,882 513,723 795,490 1,354,455
-------- ------- -------------- ----------- ------------------ ------------------
Total increase
(decrease) in net
assets................ 24,427 (2,627) 125,674 445,568 873,696 1,494,737
NET ASSETS:
Beginning of period.... 148,434 42,469 46,921 693,422 186,893 339,278
-------- ------- -------------- ----------- ------------------ ------------------
End of period.......... $172,861 $39,842 $172,595 $1,138,990 $1,060,589 $1,834,015
-------- ------- -------------- ----------- ------------------ ------------------
-------- ------- -------------- ----------- ------------------ ------------------
SMITH BARNEY FIDELITY
GOVERNMENT VIP FIDELITY VIP II FIDELITY VIP II
PORTFOLIO TCI TCI OVERSEAS ASSET MANAGER CONTRAFUND
CLASS A ADVANTAGE FUND GROWTH FUND PORTFOLIO PORTFOLIO PORTFOLIO
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT** SUB-ACCOUNT** SUB- ACCOUNT** SUB- ACCOUNT**
----------------- -------------- -------------- ----------- ------------------ ------------------
OPERATIONS:
Net investment income
(loss)................ $ 1,938 $ 549 $ (2,133) $ (491) $ (1,491) $ 19,233
Capital gains income... -- -- -- -- -- --
Net realized gain
(loss) on security
transactions.......... -- (90) 938 (240) 456 (577)
Net unrealized
appreciation
(depreciation) of
investments during the
period................ -- 1,195 6,645 3,459 18,860 17,225
-------- ------- -------------- ----------- ------------------ ------------------
Net increase (decrease)
in net assets
resulting from
operations............ 1,938 1,654 5,450 2,728 17,825 35,881
-------- ------- -------------- ----------- ------------------ ------------------
UNIT TRANSACTIONS:
Purchases.............. -- 15,135 30,024 21,829 32,160 89,641
Net transfers.......... -- 40,646 669,352 172,761 300,031 1,871,915
Surrenders............. (7,562) (19,236) (20,127) (10,425) (10,738) (11,744)
Net annuity
transactions.......... -- 8,722 8,723 -- -- --
-------- ------- -------------- ----------- ------------------ ------------------
Net increase (decrease)
in net assets
resulting from unit
transactions.......... (7,562) 45,267 687,972 184,165 321,453 1,949,812
-------- ------- -------------- ----------- ------------------ ------------------
Total increase
(decrease) in net
assets................ (5,624) 46,921 693,422 186,893 339,278 1,985,693
NET ASSETS:
Beginning of period.... 48,093 -- -- -- -- --
-------- ------- -------------- ----------- ------------------ ------------------
End of period.......... $ 42,469 $46,921 $693,422 $ 186,893 $ 339,278 $1,985,693
-------- ------- -------------- ----------- ------------------ ------------------
-------- ------- -------------- ----------- ------------------ ------------------
<CAPTION>
FIDELITY
FIDELITY VIP II VIP
CONTRAFUND GROWTH
PORTFOLIO PORTFOLIO
SUB-ACCOUNT SUB-ACCOUNT
--------------- -----------
<S> <C> <C>
OPERATIONS:
Net investment income
(loss)................ $ (35,654) $ 10,178
Capital gains income... -- 115,329
Net realized gain
(loss) on security
transactions.......... (377) (6,795)
Net unrealized
appreciation
(depreciation) of
investments during the
period................ 910,896 420,263
--------------- -----------
Net increase (decrease)
in net assets
resulting from
operations............ 874,865 538,975
--------------- -----------
UNIT TRANSACTIONS:
Purchases.............. 928,554 1,249,738
Net transfers.......... 3,162,455 3,357,091
Surrenders............. (279,972) (334,425)
Net annuity
transactions.......... -- --
--------------- -----------
Net increase (decrease)
in net assets
resulting from unit
transactions.......... 3,811,037 4,272,404
--------------- -----------
Total increase
(decrease) in net
assets................ 4,685,902 4,811,379
NET ASSETS:
Beginning of period.... 1,985,693 2,204,486
--------------- -----------
End of period.......... $6,671,595 $7,015,865
--------------- -----------
--------------- -----------
FIDELITY VIP
GROWTH
PORTFOLIO
SUB-ACCOUNT**
---------------
OPERATIONS:
Net investment income
(loss)................ $ (6,603)
Capital gains income... --
Net realized gain
(loss) on security
transactions.......... (2,056)
Net unrealized
appreciation
(depreciation) of
investments during the
period................ (34,445)
---------------
Net increase (decrease)
in net assets
resulting from
operations............ (43,104)
---------------
UNIT TRANSACTIONS:
Purchases.............. 120,267
Net transfers.......... 2,148,417
Surrenders............. (21,094)
Net annuity
transactions.......... --
---------------
Net increase (decrease)
in net assets
resulting from unit
transactions.......... 2,247,590
---------------
Total increase
(decrease) in net
assets................ 2,204,486
NET ASSETS:
Beginning of period.... --
---------------
End of period.......... $2,204,486
---------------
---------------
</TABLE>
<PAGE>
HARTFORD LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SEPARATE ACCOUNT TWO
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
- ---------------------------------------------------
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. Dividends 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, TCI, Fidelity and Calvert Responsibily Invested Series mutual
funds are valued at the closing net asset value per share as determined
by the appropriate Fund as of December 31, 1996.
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.
<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 Individual Flexible Premium Variable Annuity Contract.(1)
(5) Form of Application.(1)
(6) (a) Articles of Incorporation of Hartford.(3)
(6) (b) Bylaws of Hartford.(1)
(7) Not applicable.
(8) Form of Fund Participation Agreement.
(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.
Item 25. Directors and Officers of the Depositor
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
NAME POSITION WITH HARTFORD
- --------------------------------------------------------------------------------
<S> <C>
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
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 Vice President
Christopher Graham Vice President
David A. Hall Vice President and Actuary
Stephen T. Joyce Vice President
Robert A. Kerzner Vice President
Steven M. Maher Vice President and Actuary
William B. Malchodi, Jr. Vice President and Director of Taxes
<PAGE>
- --------------------------------------------------------------------------------
NAME POSITION WITH HARTFORD
- --------------------------------------------------------------------------------
Thomas M. Marra Executive Vice President and Director, Individual
Life and Annuity Division, Director*
Robert F. Nolan Senior Vice President
Joseph J. Noto Vice President
Michael C. O'Halloran Vice President
Craig R. Raymond Senior Vice President and Chief Actuary
Donald A. Salama Vice President
Timothy P. Schiltz Vice President
Lowndes A. Smith President and Chief Executive Officer, Director*
Edward A. Sweeney 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
- --------------------------------------------------------------------------------
</TABLE>
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 were 155,444 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
<PAGE>
expenses incurred by him in connection with the proceeding.
The Registrant may indemnify an individual made a party to a
proceeding because he is or was a director against liability incurred
in the proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of
the Registrant, and, with respect to any criminal proceeding, had no
reason to believe his conduct was unlawful. Conn. Gen. Stat. 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:
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
ITT Hartford Life and Annuity Insurance Company - Separate Account One
ITT Hartford Life and Annuity Insurance Company - Putnam Capital
Manager Trust Separate Account Two
ITT Hartford Life and Annuity Insurance Company - Separate Account
Three
ITT Hartford Life and Annuity Insurance Company - Separate Account
Five
ITT Hartford Life and Annuity Insurance Company - Separate Account Six
American Maturity Life Insurance Company - Separate Account AMLVA
(b) Directors and Officers of HSD
Name and Principal Positions and Offices
Business Address With Underwriter
------------------ ---------------------
Lowndes A. Smith President and Chief Executive Officer,
Director
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
<PAGE>
Glen J. Kvadus Assistant Secretary
Edward M. Ryan, Jr. Assistant Secretary
Unless otherwise indicated, the principal business address of each
the above individuals is P.O. Box 2999, Hartford, CT 06104-2999.
Item 30. Location of Accounts and Records
All of the accounts, books, records or other documents required to be
kept by Section 31(a) of the Investment Company Act of 1940 and rules
thereunder, are maintained by Hartford at 200 Hopmeadow Street,
Simsbury, Connecticut 06089.
Item 31. Management Services
All management contracts are discussed in Part A and Part B of this
Registration Statement.
Item 32. Undertakings
(a) The Registrant hereby undertakes to file a post-effective
amendment to this Registration Statement as frequently as is
necessary to ensure that the audited financial statements in the
Registration Statement are never more than 16 months old so long
as payments under the variable annuity Contracts may be accepted.
(b) The Registrant hereby undertakes to include either (1) as part of
any application to purchase a Contract offered by the Prospectus,
a space that an applicant can check to request a Statement of
Additional Information, or (2) a post card or similar written
communication affixed to or included in the Prospectus that the
applicant can remove to send for a Statement of Additional
Information.
(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 has caused this Registration Statement to be signed on its
behalf, in the City of Hartford, and State of Connecticut on this 19 day of
February, 1997.
HARTFORD LIFE INSURANCE COMPANY
SEPARATE ACCOUNT TWO
(Registrant)
*By: /s/ Thomas M. Marra *By: /s/ Marianne O'Doherty
-------------------------------- --------------------------
Thomas M. Marra, Executive Vice President Marianne O'Doherty
and Director, Individual Life and Annuity Attorney-in-Fact
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/ Marianne O'Doherty
John P. Ginnetti, Executive Vice ----------------------
President and Director, Asset Management Marianne O'Doherty
Services, Director * Attorney-in-Fact
Lynda Godkin, Senior Vice President, General
Counsel and Corporate Secretary, Director* Dated: February 19, 1998
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 *
<PAGE>
EXHIBIT INDEX
(8) Form of Fund Participation Agreement.
(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) Copy of Power of Attorney.
(16) Organizational Chart.
<PAGE>
PARTICIPATION AGREEMENT
THIS AGREEMENT, made and entered into this __th day of June, 1997, by
and among Hartford Life Insurance Company, Inc., a Connecticut Corporation
(hereinafter the "Company"), on its own behalf and on behalf of each separate
account of the Company (hereinafter the "Separate Account") named in Schedule
One to this Agreement, as may be amended from time to
time,__________________, an open-end diversified management investment
company organized under the laws of the Commonwealth of Massachusetts
(hereinafter the "Fund") and ______________________________, a registered
broker-dealer and organized as a __________________ corporation,
(hereinafter the "Underwriter") and ________________________________, a
registered investment advisor and organized as a
______________________corportion (hereinafter, the "Advisor").
WHEREAS, the Fund engages in business as an open-end diversified,
management investment company and was established for the purpose of serving
as the investment vehicle for separate accounts established for variable life
insurance contracts and variable annuity contracts to be offered by insurance
companies, and;
WHEREAS, beneficial interests in the Fund are divided into several
series of shares, each representing the interest in a particular managed
portfolio of securities and other assets (the "Portfolios"); and
WHEREAS, the Fund has obtained an order from the Securities & Exchange
Commission (alternatively referred to as the "SEC" or the "Commission"),
dated__________________ (File No. _________ ), granting participating
insurance companies and variable annuity separate accounts and variable life
insurance separate accounts relief from the provisions of Sections 9(a),
13(a), 15(a), and 15(b) of the Investment Company Act of 1940, as amended,
(hereinafter the "1940 Act") and Rules 6e-2(b)(15) and 6e-3(T)(b)(15)
thereunder, to the extent necessary to permit shares of the Fund to be sold
to and held by variable annuity separate accounts and variable life insurance
separate accounts of both affiliated and unaffiliated participating insurance
companies and qualified pension and retirement plans (hereinafter the "Mixed
and Shared Funding Exemptive Order"), and ;
WHEREAS, the Fund is registered as an open-end management
investment company under the 1940 Act and its shares are registered under the
Securities Act of 1933, as amended (hereinafter the "1933 Act"), and;
WHEREAS, the Company has registered or will register certain
variable annuity contracts (the "Contracts") under the 1933 Act, and;
WHEREAS, the Separate Account is a duly organized, validly existing
segregated asset account, established by resolution of the Board of Directors
of the
<PAGE>
Company under the insurance laws of the State of Connecticut to set aside and
invest assets attributable to the Contracts, and;
WHEREAS, the Company has registered the Separate Account as a unit
investment trust under the 1940 Act, and;
WHEREAS, the Underwriter is registered as a broker-dealer with the
SEC under the Securities Exchange Act of 1934, as amended (hereinafter the
"1934 Act"), and is a member in good standing of the National Association of
Securities Dealers, Inc. (hereinafter "NASD"), and;
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Company intends to purchase shares in the portfolios named
in Schedule 2 on behalf of the Separate Account to fund the Contracts and the
Underwriter is authorized to sell such shares to unit investment trusts such
as the Separate Account at net asset value, and;
NOW, THEREFORE, in consideration of their mutual promises, the
Company, the Fund and the Underwriter agree as follows:
ARTICLE I. SALE OF FUND SHARES
1.1 The Underwriter agrees to sell to the Company those shares of the
Fund which the Company orders on behalf of the Separate Account, executing
such orders on a daily basis at the net asset value next computed after
receipt and acceptance by the Fund or its designee of the order for the
shares of the Fund. For purposes of this Section, the Company shall be the
designee of the Fund for receipt of such orders from each Separate Account
and receipt by such designee shall constitute receipt by the Fund; provided
that the Fund receives notice of such order by 10:00 a.m. Eastern Time on the
next following Business Day. "Business Day" shall mean any day on which the
New York Stock Exchange is open for trading and on which the Fund calculates
its net asset value pursuant to the rules of the SEC.
1.2 The Company shall pay for Fund shares on the next Business Day
after it places an order to purchase Fund shares in accordance with this
Section. Payment shall be in federal funds transmitted by wire.
1.3 The Fund agrees to make its shares available indefinitely for
purchase at the applicable net asset value per share by the Company on those
days on which the Fund calculates its net asset value pursuant to rules of
the SEC; provided, however, that the Board of Trustees of the Fund
(hereinafter the "Trustees") may refuse to sell shares of any Portfolio to
any person, or suspend or terminate the offering of shares of any Portfolio
if such action is required by law or by regulatory authorities having
2
<PAGE>
jurisdiction or is, in the sole discretion of the Directors, acting in good
faith and in light of their fiduciary duties under federal and any applicable
state laws, necessary in the best interests of the shareholders of any
Portfolio.
1.4 The Fund and the Underwriter agree that shares of the Fund will be
sold only to participating insurance companies and their separate accounts,
qualified pension and retirement plans or such other persons as are permitted
under applicable provision of the Internal Revenue Code of 1986, as amended,
(the "Internal Revenue Code"), and regulations promulgated thereunder, the
sale to which will not impair the tax treatment currently afforded the
contracts. No shares of any Portfolio will be sold to the general public.
1.5 The Fund and the Underwriter will not sell Fund shares to any
insurance company or separate account unless an agreement containing
provisions substantially the same as Articles I, III, V, and VII of this
Agreement are in effect to govern such sales. The Fund shall make available
upon-written request from the Company:
A. a list of all other participating insurance companies, and,
B. a copy of the Participation Agreement executed by any other
participating insurance company.
1.6 The Fund agrees to redeem for cash, upon the Company's request, any
full or fractional shares of the Fund held by the Company, executing such
requests on a daily basis at the net asset value next computed after receipt
and acceptance by the Fund or its designee of the request for redemption.
For purposes of this Section 1.6, the Company shall be the designee of the
Fund for receipt of requests for redemption from each Separate Account and
receipt by such designee shall constitute receipt by the Fund; provided the
Fund receives notice of request for redemption by 10:00 a.m. Eastern Time on
the next following Business Day. Payment shall be in federal funds
transmitted by wire to the Company's Separate Account as designated by the
Company in writing from time to time, on the same Business Day the Fund
receives notice of the redemption order from the Company.
1.7 The Company agrees to purchase and redeem the shares of the
Portfolios named in Schedule Two offered by the then current prospectus of
the Fund in accordance with the provisions of such prospectus.
1.8 Issuance and transfer of the Fund's shares will be by book entry
only. Stock certificates will not be issued to the Company or any Separate
Account. Purchase and redemption orders for Fund shares will be recorded in
an appropriate title for each Separate Account or the appropriate subaccount
of each Separate Account.
3
<PAGE>
1.9 The Fund shall furnish notice as soon as reasonably practicable to
the Company of any income, dividends or capital gain distributions payable on
the Fund's shares. The Company hereby elects to receive all such dividends
and distributions as are payable on the Portfolio shares in the form of
additional shares of that Portfolio. The Company reserves the right to
revoke this election and to receive all such dividends and distributions in
cash. The Fund shall notify the Company of the number of shares so issued as
payment of such dividends and distributions.
1.10 The Fund shall make the net asset value per share for each
Portfolio available to the Company on a daily basis as soon as reasonably
practical after the net asset value per share is calculated and shall use its
best efforts to make such net asset value per share available by 5:30 p.m.,
Eastern Time, each business day.
ARTICLE II. REPRESENTATIONS AND WARRANTIES
2.1 The Company represents and warrants that the Contracts are or will
be registered under the 1933 Act and that the Contracts will be issued and
sold in compliance with all applicable federal and state laws. The Company
further represents and warrants that it is an insurance company duly
organized and in good standing under applicable law and that it has legally
and validly established each Separate Account as a segregated asset account
under applicable state law and has registered each Separate Account as a unit
investment trust in accordance with the provisions of the 1940 Act to serve
as segregated investment accounts for the Contracts, and that it will
maintain such registration for so long as any Contracts are outstanding. The
Company shall amend the registration statement under the 1933 Act for the
Contracts and the registration statement under the 1940 Act for the Separate
Account from time to time as required in order to effect the continuous
offering of the Contracts or as may otherwise be required by applicable law.
The Company shall register and qualify the Contracts for sale in accordance
with securities laws of the various states only if and to the extent deemed
necessary by the Company.
2.2 Subject to Article VI hereof, the Company represents that it
believes that the Contracts are currently and at the time of issuance will be
treated as annuity contracts under applicable provisions of the Internal
Revenue Code that it will make every effort to maintain such treatment and
that it will notify the Fund and the Underwriter immediately upon having a
reasonable basis for believing that the Contracts have ceased to be so
treated or that they might not be so treated in the future.
2.3 The Fund represents and warrants that Fund shares sold pursuant to
this Agreement shall be registered under the 1933 Act and duly authorized for
issuance in accordance with applicable law and that the Fund is and shall
remain registered under the 1940 Act for as long as the Fund shares are sold.
The Fund shall amend the
4
<PAGE>
registration statement for its shares under the 1933 Act and the 1940 Act
from time to time as required in order to effect the continuous offering of
its shares. The Fund shall register and qualify the shares for sales in
accordance with the laws of the various states only if and to the extent
deemed advisable by the Fund or the Underwriter.
2.4 The Fund represents that it is currently qualified as a Regulated
Investment Company under Subchapter M of the Internal Revenue Code, and that
it will make every effort to maintain such qualification (under Subchapter M
or any successor or similar provision) and that it will notify the Company
immediately upon having a reasonable basis for believing that it has ceased
to so qualify or that it might not so qualify in the future.
2.5 The Fund represents that its investment objectives, policies and
restrictions comply with applicable state investment laws as they may apply
to the Fund. To the extent feasible and consistent with market conditions,
the Fund will adjust its investments to comply with the insurance and other
applicable laws of the Company's state of domicile upon written notice from
the Company of such requirements and proposed adjustments, it being agreed
and understood that in any such case the Fund shall be allowed a reasonable
period of time under the circumstances after receipt of such notice to make
any such adjustment. The Company alone shall be responsible for informing
the Fund of any additional restrictions imposed by state laws which are
applicable to the Fund.
2.6 The Fund currently does not intend to make any payments to finance
distribution expenses pursuant to Rule 12b-1 under the 1940 Act or otherwise,
although it may make such payments in the future. To the extent that it
decides to finance distribution expenses pursuant to Rule 12b-1, the Fund
undertakes to have its Board of Trustees, a majority of whom are not
interested persons of the Fund, formulate and approve any plan under Rule
12b-1 to finance distribution expenses. The Fund shall notify the Company
immediately upon determining to finance distribution expenses pursuant to
Rule 12b-1.
2.7 The Underwriter represents and warrants that it is a member in good
standing of the National Association of Securities Dealers, Inc., ("NASD")
and is registered as a broker-dealer with the SEC. The Underwriter further
represents that it will sell and distribute the Fund shares in accordance
with all applicable federal and state securities laws, including without
limitation the 1933 Act, the 1934 Act, and the 1940 Act.
2.8 The Fund represents that it is lawfully organized and validly
existing under the laws of Massachusetts and that it does and will comply
with applicable provisions of the 1940 Act.
5
<PAGE>
2.9 The Underwriter represents and warrants that the Fund's Investment
Adviser is and shall remain duly registered under all applicable federal and
state securities laws and that the adviser will perform its obligations to
the Fund in accordance with any applicable state and federal securities laws.
2.10 The Fund and Underwriter represent and warrant that all of their
directors, officers, employees, investment advisers, and other
individuals/entities having access to the funds and/or securities of the Fund
are and continue to be at all times covered by a blanket fidelity bond or
similar coverage for the benefit of the Fund in an amount not less than the
minimal coverage as required currently by Rule 17g-(1) of the 1940 Act or
related provisions as may be promulgated from time to time. The aforesaid
Bond includes coverage for larceny and embezzlement and is issued by a
reputable bonding company.
2.11 The Company represents and warrants that all of its directors,
officers, employees, investment advisers, and other individuals/entities
dealing with the money and/or securities of the Fund are covered by a blanket
fidelity bond or similar coverage in an amount not less than $5 million. The
aforesaid includes coverage for larceny and embezzlement and is issued by a
reputable bonding company. The Company agrees that any amounts received
under such bond in connection with claims that derive from arrangements
described in this Agreement will be held by the Company for the benefit of
the Fund. The Company agrees to make all reasonable efforts to see that this
bond or another bond containing these provisions is always in effect, and
agrees to notify the Fund and the Underwriter in the event that such coverage
no longer applies.
ARTICLE III. PROSPECTUSES AND PROXY STATEMENTS; VOTING
3.1 The Underwriter shall provide the Company, at the Company's
expense, with as many copies of the Fund's current prospectus describing only
those Portfolios set forth on Schedule Two, as the Company may reasonably
request for use with prospective contract owners and applicants. The
Underwriter shall print and distribute, at the Fund's or Underwriter's
expense, as many copies of said prospectus as necessary for distribution to
existing contract owners or participants. If requested by the Company in
lieu thereof, the Fund shall provide such documentation including a final
copy of a current prospectus describing only those Portfolios set forth on
Schedule Two, set in type at the Fund's expense and other assistance as is
reasonably necessary in order for the Company at least annually (or more
frequently if the Fund prospectus is amended more frequently) to have the new
prospectus for the Contracts and Fund's new prospectus printed together in
one document, in such case the Fund shall bear its share of expenses as
described above.
3.2 The Fund's prospectus shall state that the Statement of Additional
Information for the Fund is available from the Underwriter or alternatively
from the
6
<PAGE>
Company (or, in the Fund's discretion, the Prospectus shall state that such
Statement is available from the Fund), and the Underwriter (or the Fund)
shall provide such Statement, at its expense, to the Company and to any owner
of or participant under a Contract who requests such Statement or, at the
Company's expense, to any prospective contract owner and applicant who
requests such statement.
3.3 The Fund, at its expense, shall provide the Company with copies of
its proxy material, if any, reports to shareholders and other communications
to shareholders in such quantity as the Company shall reasonably require and
shall bear the costs of distributing them to existing contract owners or
participants.
3.4 If and to the extent required by law the Company shall:
A. solicit voting instructions from contract owners or
participants;
B. vote the Fund shares held in the Separate Account in
accordance with instructions received from contract owners or
participants; and
C. vote Fund shares held in the Separate Account for which no
timely instructions have been received, in the same proportion
as Fund shares of such Portfolio for which instructions have
been received from the Company's contract owners or
participants; so long as and to the extent that the SEC
continues to interpret the 1940 Act to require pass through
voting privileges for variable contract owners. The Company
reserves the right to vote Fund shares held in any segregated
asset account in its own right, to the extent permitted by
law. Other participating insurance companies shall be
responsible for assuring that each of their separate accounts
participating in the Fund calculates voting privileges in a
manner consistent with other participating insurance companies
and as required by the Mixed and Shared Funding Exemptive
Order.
3.5 The Fund will comply with all provisions of the 1940 Act requiring
voting by shareholders, and in particular as required, the Fund will either
provide for annual meetings or comply with Section 16(c) of the 1940 Act
(although the Fund is not one of the trusts described in Section 16(c) of
that Act) as well as with Sections 16(a) and, if and when applicable, 16(b).
Further, the Fund will act in accordance with the SEC interpretation of the
requirements of Section 16(a) with respect to periodic elections of directors
and with whatever rules the Commission may promulgate with respect thereto.
7
<PAGE>
ARTICLE IV. SALES MATERIAL AND INFORMATION
4.1 The Company shall furnish, or shall cause to be furnished, to the
Fund or the Underwriter, each piece of sales literature or other promotional
material in which the Fund or the Fund's adviser or the Underwriter is named,
at least fifteen business days prior to its use. No. such material shall be
used if the Fund or the Underwriter reasonably objects in writing to such use
within fifteen business days after receipt of such material.
4.2 The Company shall not give any information or make any
representations or statements on behalf of the Fund or concerning the Fund in
connection with the sale of the Contracts other than the information or
representations contained in the registration statement or prospectus for the
Fund shares, as such registration statement and prospectus may be amended or
supplemented from time to time, or in reports or proxy statements for the
Fund, or in sales literature or other promotional material approved by the
Fund or by the Underwriter, except with the permission of the Fund or the
Underwriter. The Fund and the Underwriter agree to respond to any request
for approval on a prompt and timely basis.
4.3 The Fund or the Underwriter shall furnish, or shall cause to be
furnished, to the Company or its designee, each piece of sales literature or
other promotional material in which the Company or its separate account is
named, at least fifteen business days prior to its use. No such material
shall be used if the Company reasonably objects in writing to such use within
fifteen business days after receipt of such material.
4.4 The Fund and the Underwriter shall not give any information or make
any representations on behalf of the Company or concerning the Company, each
Separate Account, or the Contracts other than the information or
representations contained in a registrations statement or prospectus for the
Contracts, as such registration statement and prospectus may be amended or
supplemented from time to time, or in published reports for each Separate
Account which are in the public domain or approved by the Company for
distribution to contract owners or participants, or in sales literature or
other promotional material approved by the Company, except with the
permission of the company. The Company agrees to respond to any request for
approval on a prompt and timely basis.
4.5 The Fund will provide to the Company at least one complete copy of
all registration statements, prospectuses, statements of additional
information, reports, proxy statements, sales literature and other
promotional materials, applications for exemptions, requests for no-action
letters, and all amendments to any of the above, that relate to the Fund or
its shares, contemporaneously with the filing of such document with the SEC
or other regulatory authorities.
8
<PAGE>
4.6 The Company will provide to the Fund at least one complete copy of
all registration statements, prospectuses, statements of additional
information, reports, solicitations for voting instructions, sales literature
and other promotional materials, applications for exemptions, requests for no
action letters, and all amendments to any of the above, that relate to the
Contracts or each Separate Account, contemporaneously with the filing of such
document with the SEC or other regulatory authorities.
4.7 For purposes of this Article IV, the phrase "sales literature or
other promotional material" includes, but is not limited to, advertisements
(such as material published, or designed for use in, a newspaper, magazine,
or other periodical, radio, television, telephone or tape recording,
videotape display, signs or billboards, motion pictures, or other public
media), sales literature (i.e., any written communication distributed or made
generally available to customers or the public, including brochures
circulars, research reports, market letters, form letters, seminar texts,
reprints or excerpts of any other advertisement, sales literature, or
published article), educational or training materials or other communications
distributed or made generally available to some or all agents or employees,
registration statements, prospectuses, statements of additional information,
shareholder reports, and proxy materials and any other material constituting
sales literature or advertising under NASD rules, 1940 Act or the 1933 Act.
4.8 The Company agrees and acknowledges that the Fund is the sole owner
of its the name and mark and that all use of any designation comprised in
whole or part or such name or mark under this Agreement shall inure to the
benefit of the Fund. Except as provided in Section 4.1, the Company shall not
use any such name or mark on its own behalf or on behalf of each Separate
Account in connection with marketing the Contracts without prior written
consent of the Fund. Upon termination of this Agreement for any reason, the
Company shall cease all use of any such name or mark.
ARTICLE V. FEES AND EXPENSES
5.1 The Fund and Underwriter shall pay no fee or other compensation to
the Company under this Agreement, except that if the Fund or any Portfolio
adopts and implements a plan pursuant to Rule 12b-1 to finance distribution
expenses, then, subject to obtaining any required exemptive orders or other
regulatory approvals, the Underwriter may make payments to the Company or to
the underwriter for the Contracts if and in amounts agreed to by the
Under-writer in writing. Currently, no such payments are contemplated.
5.2 All expenses incident to performance by the Fund of this Agreement
shall be paid by the Fund to the extent permitted by law. All Fund shares
will be duly authorized for issuance and registered in accordance with
applicable federal law and to the extent deemed advisable by the Fund, in
accordance with applicable state law, prior
9
<PAGE>
to sale. The Fund shall bear the expenses for the cost of registration and
qualification of the Fund's shares, preparation and filing of the Fund's
prospectus and registration statement, Fund proxy materials and reports,
setting type, printing and distributing the prospectuses, the proxy materials
and reports to existing shareholders and contract owners, the preparation of
all statements and notices required by any federal or state law, all taxes on
the issuance or transfer of the Fund's shares, and any expenses permitted to
be paid or assumed by the Fund pursuant to a plan, if any, under Rule 12b-1
under the 1940 Act.
ARTICLE VI. DIVERSIFICATION
6.1 The Fund will at all times invest money from the Contracts in such
a manner as to ensure that the Contracts will be treated as variable
contracts under the Internal Revenue Code and regulations issued thereunder.
Without limiting the scope of the foregoing, the Fund will comply with
Section 817(h) of the Internal Revenue Code and Treasury Regulation 1.817-5,
relating to the diversification requirements for variable annuity, endowment,
or life insurance contracts and any amendments or other modifications to such
Section or Regulations. In the event of a breach of this Article VI by the
Fund, it will take all reasonable steps:
A. to notify the Company of such breach and
B. to adequately diversify the Fund so as to achieve compliance
within the grace period afforded by Treasury Regulation
1.817-5.
ARTICLE VII. POTENTIAL CONFLICTS
7.1 The Board of Trustees of the Fund (the "Fund Board") will monitor
the Fund for the existence of any material irreconcilable conflict among the
interests of the contract owners of all separate accounts investing in the
Fund. Al irreconcilable material conflict may arise for a variety of reasons,
including:
A. an action by any state insurance regulatory authority;
B. a change in applicable federal or state insurance, tax, or
securities laws or regulations, or a public ruling, private
letter ruling, no-action or interpretative letter, or any
similar action by insurance, tax, or securities regulatory
authorities;
C. an administrative or judicial decision in any relevant
proceeding;
D. the manner in which the investments of any portfolio are being
managed;
10
<PAGE>
E. a difference in voting instructions given by participating
iInsurance companies or by variable annuity contract and
variable life insurance contract owners; or
F. a decision by an insurer to disregard the voting instructions
of contract owners. The Board shall promptly inform the
Company if it determines that an irreconcilable material
conflict exists and the implications thereof. A majority of
the Fund Board shall consist of persons who are not
"interested" persons of the Fund.
7.2 The Company has reviewed a copy of the Mixed and Shared Funding
Exemptive Order, and in particular, has reviewed the conditions to the
requested relief set forth therein. As set forth in the Mixed and Shared
Funding Exemptive Order, the Company will report any potential or existing
conflicts of which it is aware to the Fund Board. The Company agrees to
assist the Fund Board in carrying out its responsibilities under the Mixed
and Shared Funding Exemptive Order, by Providing the Fund Board with all
information reasonably necessary for the Fund Board to consider any issues
raised. This includes, but is not limited to, an obligation by the Company
to inform the Fund Board whenever contract owner voting instructions are
disregarded. The Fund Board shall record in its minutes or other appropriate
records, all reports received by it and all action with regard to a conflict.
7.3 If it is determined by a majority of the Fund Board, or a majority
of its disinterested Directors, that an irreconcilable material conflict
exists, the Company other participating insurance companies shall, at their
expense and tot he extent reasonable practicable (as determined by a majority
of the disinterested Directors), take whatever steps are necessary to remedy
or eliminate the irreconcilable material conflict, up to and including:
A. withdrawing the assets allocable to some or all of the
separate accounts from the Fund or any Portfolio and reinvesting such assets
in a different investment medium, including (but not limited to) another
Portfolio of the Fund, or submitting the question whether such segregation
should be implemented to a vote of all affected contract owners and, as
appropriate, segregating the assets of any appropriate group (i.e., variable
annuity contractowners or variable life insurance contractowners, of one or
more Participating Insurance Companies) that votes in favor of such
segregation, or offering to the affected contract owners the option of making
such a change; and
B. establishing a new registered management investment company
or managed separate account.
7.4 If the Company's disregard of voting instructions could conflict
with the majority of a contract owner voting instructions, and the Company's
judgment
11
<PAGE>
represents a minority position or would preclude a majority vote, the Company
may be required, at the Fund's election, to withdraw the Separate Account's
investment in the Fund and terminate this Agreement with respect to such
Separate Account. Any such withdrawal and termination shall take place
within six (6) months after written notice is given that this provision is
being implemented. Until such withdrawal and termination is implemented, the
Underwriter and Fund shall continue to accept and implement orders by the
Company for the purchase and redemption of shares of the Fund. Such
withdrawal and termination shall be limited to the extent required by the
foregoing material irreconcilable conflict as determined by a majority of
disinterested Directors.
7.5 If a particular state insurance regulator's decision applicable to
the Company conflicts with the majority of other state insurance regulators,
then the Company will withdraw the Separate Account's investment in the Fund
and terminate this Agreement with respect to such Separate Account within six
(6) months after the Fund informs the Company in writing that it has
determined that such decision has created an irreconcilable material
conflict. Until such withdrawal and termination is implemented, the
Underwriter and the Fund shall continue to accept and implement orders by the
company for the purchase and redemption of shares of the Fund. Such
withdrawal and termination shall be limited to the extent required by the
foregoing material irreconcilable conflict as determined by a majority of
disinterested Directors.
7.6 For purposes of Sections 7.3 through 7.6 of this Agreement, a
majority of the disinterested members of the Fund Board shall determine
whether any proposed action adequately remedies any irreconcilable material
conflict, but in no event will the Fund be required to establish a new
funding medium for the Contracts. The Company shall not be required by
Section 7.3 to establish a new funding medium for the Contracts if any offer
to do so has been declined by vote of a majority of contractowners materially
adversely affected by and the irreconcilable material conflict.
7.7 The Company shall at least annually submit to the Fund Board such
reports, materials or data as the Fund Board may reasonably request so that
the Fund Board may fully carry out the duties imposed upon it as delineated
in the Mixed and Shared Funding Exemptive Order, and said reports, materials
and data shall be submitted more frequently if deemed appropriate by the Fund
Board.
7.8 If and to the extent that Rule 6e-2 and Rule 6e-3(T) are amended, or
Rule 6e-3 is adopted, to provide exemptive relief from any provision of the Act
or the rules promulgated thereunder with respect to mixed or shared funding (as
defined in the Mixed and Shared Funding Exemptive Order) on terms and conditions
materially different from those contained in the Mixed and Shared Funding
Exemptive order, (a) the Fund and/or the Participating Insurance Companies, as
appropriate, shall take such steps as may be necessary to comply with Rules 6e-2
and 6e-3 (T), as amended, and Rule 6e-3, as adopted, to the extent such rules
are applicable; and (b) Sections 3.4,
12
<PAGE>
3.5, 7.1, 7.2, 7.3, 7.4, and 7.5 of this Agreement shall continue in effect
only to the extent that terms and conditions substantially identical to such
Sections are contained in such Rule(s) as so amended or adopted.
ARTICLE VIII. INDEMNIFICATION
8.1 Indemnification By The Company
A. The Company agrees to indemnify and hold harmless the Fund,
the Underwriter, and each of the Fund's or the Underwriter's directors,
officers, employees or agents and each person, if any, who controls the Fund
or the Underwriter within the meaning of such terms under the federal
securities laws (collectively, the "indemnified parties" for purposes of this
Section 8.1) against any and all losses, claims, damages, liabilities
(including amounts paid in settlement with the written consent of the
Company) or litigation (including reasonable legal and other expenses), to
which the indemnified parties may become subject under any statute,
regulation, at common law or otherwise, insofar as such losses, claims,
damages, liabilities or expenses (or actions in respect thereof) or
settlements:
(i) arise out of or are based upon any untrue statements or
alleged untrue statements of any material fact contained in the registration
statement, prospectus or statement of information for the Contracts or
contained in the Contracts or sales literature or other promotional material
for the Contracts (or any amendment or supplement to any of the foregoing),
or arise out of or are based upon the omission or the alleged omission to
state therein a material fact required to be stated therein or necessary to
make the statements therein not misleading in light of the circumstances in
which they were made; provided that this agreement to indemnify shall not
apply as to any indemnified party if such statement or omission or such
alleged statement or omission was made in reliance upon and in conformity
with information furnished to the Company by or on behalf of the Fund for use
in the registration statement, prospectus or statement of information for the
Contracts or in the Contracts or sales literature (or any amendment or
supplement) or otherwise for use in connection with the sale of the Contracts
or Fund shares; or
(ii) arise out of or as a result of statements or
representations by or on behalf of the Company (other than state or
representations contained in the Fund registration statement, Fund prospectus
or sales literature or other promotional material of the Fund not supplied by
the Company or persons under its control) or wrongful conduct of the Company
or persons under its control, with respect to the sale or distribution of the
Contracts or Fund shares; or
(iii) arise out of any untrue statement or alleged untrue
statement of a material fact contained in the Fund registration statement,
Fund
13
<PAGE>
prospectus, statement of additional information or sales literature or other
promotional material of the Fund or any amendment thereof or supplement
thereto or the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading in light of the circumstances in which they were made, if such a
statement or omission was made in reliance upon and in conformity with
information furnished to the Fund by or on behalf of the Company or persons
under its control; or
(iv) arise as a result of any failure by the Company to provide
the services and furnish the materials or to make any payments under the
terms of this Agreement; or
(v) arise out of any material breach of any representation
and/or warranty made by the Company in this Agreement or arise out of or
result from any other material breach by the Company of this Agreement;
except to the extent provided in Sections 8.1(b) and 8.3 hereof. This
indemnification shall be in addition to any liability which the Company may
otherwise have.
B. No party shall be entitled to indemnification if such loss,
claim, damage, liability or litigation is due to the willful misfeasance, bad
faith, gross negligence or reckless disregard of duty by the party seeking
indemnification.
C. The indemnified parties will promptly notify the Company of
the commencement of any litigation or proceedings against them in connection
with the issuance or sale of the Fund shares or the Contracts or the
operation of the Fund.
8.2 Indemnification By the Underwriter
A. The Underwriter, on its own behalf and on behalf of the Fund,
agrees to indemnify and hold harmless the Company and each of its directors,
officers, employees or agents and each person, if any, who controls the
Company within the meaning of such terms under the federal securities laws
(collectively, the "indemnified parties" for purposes of this Section 8.2)
against any and all losses, claims, damages, liabilities (including amounts
paid in settlement with the written consent of the Underwriter) or litigation
(including reasonable legal and other expenses) to which the indemnified
parties may become subject under any statute, regulation, at common law or
otherwise, insofar as such losses, claims, damages, liabilities or expenses
(or actions in respect thereof) or settlements:
(i) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in the registration
statement, prospectus or statement of additional information for the Fund or
sales literature or other promotional material of the Fund (or any amendment
or supplement to any of the
14
<PAGE>
foregoing), or arise out of or are based upon the omission or the alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading in light of the
circumstances in which they were made; provided that this agreement to
indemnify shall not apply as to any indemnified party if such statement or
omission or such alleged statement or omission was made in reliance upon and
in conformity with information furnished to the Underwriter or Fund by or on
behalf of the Company for use in the registration statement, prospectus or
statement of additional information for the Fund or in sales literature of
the Fund (or any amendment or supplement thereto) or otherwise for use in
connection with the sale of the Contracts or Fund shares; or
(ii) arise out of or as a result of statements or
representations (other than statements or representations contained in the
Contracts or in the Contract or Fund registration statement, the Contract or
Fund prospectus, statement of additional information, or sales literature or
other promotional material for the Contracts or of the Fund not supplied by
the Underwriter or the Fund or persons under the control of the Underwriter
or the Fund respectively) or wrongful conduct of the Underwriter or the Fund
or persons under the control of the Underwriter or the Fund respectively,
with respect to the sale or distribution of the Contracts or Fund shares; or
(iii) arise out of any untrue statement or alleged untrue
statement of a material fact contained in a registration statement,
prospectus, statement of additional information or sales literature or other
promotional material covering the Contracts (or any amendment thereof or
supplement thereto), or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the
statement or statements therein not misleading in light of the circumstances
in which they were made, if such statement or omission was made in reliance
upon and in conformity with information furnished to the Company by or on
behalf of the Underwriter or the Fund or persons under the control of the
Underwriter or the Fund; or
(iv) arise as a result of any failure by the Fund to provide
the services and furnish the materials under the terms of this Agreement
(including a failure, whether unintentional or in good faith or otherwise, to
comply with the diversification requirements and procedures related thereto
specified in Article VI of this Agreement); or
(v) arise out of or result from any material breach of any
representation and/or warranty made by the Underwriter or the Fund in this
Agreement or arise out of or result from any other material breach of this
Agreement by the Underwriter or the Fund; except to the extent provided in
Sections 8.2(b) and 8.3 hereof. This indemnification shall be in addition to
any liability which the Underwriter may otherwise have.
15
<PAGE>
B. No party shall be entitled to indemnification if such loss,
claim, damage, liability or litigation is due to the willful misfeasance, bad
faith, gross negligence or reckless disregard of duty by the party seeking
indemnification.
C. The indemnified parties will promptly notify the Underwriter
of the commencement of any litigation or proceedings against them in
connection with the issuance or sale of the Contracts or the operation of the
Separate Account.
8.3. Indemnification Procedure
A. Any person obligation to provide indemnification under this
Article VIII ("indemnifying party" for the purpose of this Section 8.3) shall
not be liable under the indemnification provisions of this Article VIII with
respect to any claim made against a party entitled to indemnification under
this Article VIII ("indemnified party" for the purpose of this Section 8.3)
unless such indemnified party shall have notified the indemnifying party in
writing within a reasonable time after the summons or other first legal
process giving information of the nature of the claim shall have been served
upon such indemnified party (or after such party shall have received notice
of such service on any designated agent), but failure to notify the
indemnifying party of any such claim shall not relieve the indemnifying party
from any liability which it may have to the indemnified party against whom
such action is brought under the indemnification provision of this Article
VIII, except to the extent that the failure to notify results in the failure
of actual notice to the indemnifying party and such indemnifying party is
damaged solely as a result of failure to give such notice. In case any such
action is brought against the indemnified party, the indemnifying party will
be entitled to participate, at its own expense, in the defense thereof. The
indemnifying party also shall be entitled to assume the defense thereof, with
counsel satisfactory to the party named in the action. After notice from the
indemnifying party to the indemnified party of the indemnifying party's
election to assume the defense thereof, the indemnified party shall bear the
fees and expenses of any additional counsel retained by it, and the
indemnifying party will not be liable to such party under this Agreement for
any legal or other expenses subsequently incurred by such party independently
in connection with the defense thereof other than reasonable costs of
investigation, unless:
(i) the indemnifying party and the indemnified party shall
have mutually agreed to the retention of such counsel or
(ii) the named parties to any such proceeding (including any
impleaded parties) include both the indemnifying party and the indemnified
party and representation of both parties by the same counsel would be
inappropriate due to actual or potential differing interests between them.
16
<PAGE>
The indemnifying party shall not be liable for any settlement of any
proceeding effected without its written consent but if settled with such
consent or if there be a final judgment for the plaintiff, the indemnifying
party agrees to indemnify the indemnified party from and against any loss or
liability by reason of such settlement or judgment. A successor by law of
the parties to this Agreement shall be entitled to the benefits of the
indemnification contained in this Article VIII. The indemnification
provisions contained in this Article VIII shall survive any termination of
this Agreement.
ARTICLE IX. APPLICABLE LAW
9.1 This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the State of Connecticut.
9.2 This Agreement shall be subject to the provisions of the 1933, 1934
and 1940 Acts, and the rules and regulations and rulings thereunder,
including such exemptions from those statutes, rules and regulations as the
SEC may grant (including, but not limited to the Mixed and Shared Funding
Exemptive Order) and the terms hereof shall be interpreted and construed in
accordance therewith.
ARTICLE X. TERMINATION
10.1 This Agreement shall terminate:
A. at the option of any party upon six months advance written
notice to the other parties unless otherwise agreed in a separate written
agreement among the parties; or
B. at the option of the Company if shares of the Portfolios
delineated in Schedule Two are not reasonably available to meet the
requirements of the Contracts as determined by the Company; or
C. at the option of the Fund upon institutional of formal
proceedings against the Company by the NASD, the SEC, the insurance
commission of any state or any other regulatory body regarding the Company's
duties under this Agreement or related to the sale of the Contracts, the
administration of the Contracts, the operation of the Separate Account, or
the purchase of the Fund shares, which would have a material adverse effect
on the Company's ability to perform its obligations under this Agreement; or
D. at the option of the Company upon institution of formal
proceedings against the Fund or the Underwriter by the NASD, the SEC, or any
state securities or insurance department or any other regulatory body, which
would have a material adverse effect on the Underwriter's or the Fund's
ability to perform its obligations under this Agreement; or
17
<PAGE>
E. at the option of the Company or the Fund upon receipt of any
necessary regulatory approvals or the vote of the contract owners having an
interest in the Separate Account (or any subaccount) to substitute the shares
of another investment company for the corresponding Portfolio shares of the
Fund in accordance with the terms of the Contracts for which those Portfolio
shares had been selected to serve as the underlying investment media. The
Company will give 30 days prior written notice to the Fund of the date of any
proposed vote or other action taken to replace the Fund's shares; or
F. at the option of the Company or the Fund upon a determination
by a majority of the Fund Board, or a majority of the disinterested Fund
Board members, that an irreconcilable material conflict exists among the
interests of (i) all contract owners of variable insurance products of all
separate accounts or (ii) the interests of the Participating Insurance
Companies investing in the Fund as delineated in Article VII of this
Agreement; or
G. at the option of the Company if the Fund ceases to qualify as
a Regulated Investment Company under Subchapter M of the Internal Revenue
Code, or under any successor or similar provision, or if the Company
reasonably believes that the Fund may fail to so qualify; or
H. at the option of the Company if the Fund fails to meet the
diversification requirements specified in Article VI hereof or if the Company
reasonably believes that the Fund will fail to meet such requirements; or
I. at the option of any party to this Agreement, upon another
party's material breach of any provision of this Agreement; or
J. at the option of the Company, if the Company determines in
its sole judgment exercised in good faith, that either the Fund or the
Underwriter has suffered a material adverse change in its business,
operations or financial condition since the date of this Agreement or is the
subject of material adverse publicity which is likely to have a material
adverse impact upon the business and operations of the Company; or
K. at the option of the Fund or Underwriter, if the Fund or
Underwriter respectively, shall determine in its sole judgment exercised in
good faith, that the Company has suffered a material adverse change in its
business, operations or financial condition since the date of this Agreement
or is the subject of material adverse publicity which is likely to have a
material adverse impact upon the business and operations of the Fund or
Underwriter; or
18
<PAGE>
L. subject to the Fund's compliance with Article VI hereof, at
the option of the Fund in the event any of the Contracts are not issued or
sold in accordance with applicable requirements of federal and/or state law.
Termination shall be effective immediately upon such occurrence without
notice.
10.2 Notice Requirement
A. In the event that any termination of this Agreement is based
upon the provisions of Article VII, such prior written notice shall be given
in advance of the effective date of termination as required by such
provisions.
B. In the event that any termination of this Agreement is based
upon the provisions of Sections 10.1(b)-(d) or 10.1(g)-(i), prompt written
notice of the election to terminate this Agreement for cause shall be
furnished by the party terminating the Agreement to the non-terminating
parties, with said termination to be effective upon receipt of such notice by
the non-terminating parties.
C. In the event that any termination of this Agreement is based
upon the provisions of Sections 10.1(j) or 10.1(k), prior written notice of
the election to terminate this Agreement for cause shall be furnished by the
party terminating this Agreement to the non-terminating parties. Such prior
written notice shall be given by the party terminating this Agreement to the
non-terminating parties at least 30 days before the effective date of
termination.
10.3 It is understood and agreed that the right to terminate this
Agreement pursuant to Section 10.1(a) may be exercised for any reason or for
no reason.
10.4 Effect of Termination
A. Notwithstanding any termination of this Agreement pursuant to
Section 10.1 of this Agreement and subject to Section 1.3 of this Agreement,
the Company may require the Fund and the Underwriter to, continue to make
available additional shares of the Fund for so long after the termination of
this Agreement as the Company desires pursuant to the terms and conditions of
this Agreement as provided in paragraph B below, for all Contracts in effect
on the effective date of termination of this Agreement (hereinafter referred
to as "Existing Contracts"). Specifically, without limitation, the owners of
the Existing Contracts shall be permitted to reallocate investments in the
Fund, redeem investments in the Fund and/or invest in the Fund upon the
making of additional purchase payments under the Existing Contracts. The
parties agree that this Section 10.4 shall not apply to any terminations
under Article VII and the effect of such Article VII terminations shall be
governed by Article VII of this Agreement.
19
<PAGE>
B. If shares of the Fund continue to be made available after
termination of this Agreement pursuant to this Section 10.4, the provisions
of this Agreement shall remain in effect except for Section 10.1(a) and
thereafter the Fund, the Underwriter, or the Company may terminate the
Agreement, as so continued pursuant to this Section 10.4, upon written notice
to the other party, such notice to be for a period that is reasonable under
the circumstances but need not be for more than 90 days.
10.5 Except as necessary to implement contract owner initiated or
approved transactions, or as required by state insurance laws or regulations,
the Company shall not redeem Fund Shares attributable to the Contracts (as
opposed to Fund shares attributable to the Company's assets held in the
Separate Account), and the Company shall not prevent contract owners from
allocating payments to a Portfolio that was otherwise available under the
Contracts, until 90 days after the Company shall have notified the Fund or
Underwriter of its intention to do so.
ARTICLE XI. NOTICES
A. Any notice shall be deemed duly given only if sent by hand,
evidenced by written receipt or by certified mail, return receipt requested,
to the other party at the address of such party set forth below or at such
other address as such party may from time to time specify in writing to the
other party. All notices shall be deemed given three business days after the
date received or rejected by the addressee.
If to the Fund:
If to the Company
If to the Underwriter
ARTICLE XII. MISCELLANEOUS
12.1 All persons dealing with the Fund must look solely to the property
of the Fund for the enforcement of any claims against the Fund as neither the
Directors, officers, agents or shareholders assume any personal liability for
obligations entered into on behalf of the Fund.
12.2 Subject to law and regulatory authority, each party hereto shall
treat as confidential all information reasonably identified as such in
writing by any other party hereto (including without limitation the names and
addresses of the owners of the Contracts) and, except as contemplated by this
Agreement, shall not disclose,
20
<PAGE>
disseminate or utilize such confidential information until such time as it
may come into the public domain without the express prior written consent of
the affected party.
12.3 The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof
or otherwise affect their construction or effect.
12.4 This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
12.5 If any provision of this Agreement shall be held or made invalid by
a court decision, statute, rule or otherwise, the remainder of the Agreement
shall not be affected thereby.
12.6 This Agreement shall not be assigned by any party hereto without
the prior written consent of all the parties.
12.7 Each party hereto shall cooperate with each other party and all
appropriate governmental authorities (including without limitation the SEC,
the NASD and state insurance regulators) and shall permit each other and such
authorities reasonable access to its books and records in connection with any
investigation or inquiry relating to this Agreement or the transactions
contemplated hereby.
12.8 Each party represents that the execution and delivery of this
Agreement and the consummation of the Transactions contemplated herein have
been duly authorized by all necessary corporate or trust action, as
applicable, by such party and when so executed and delivered this agreement
will be the valid and binding obligation of such party enforceable in
accordance with its terms.
12.9 The parties to this Agreement may amend the schedules to this
Agreement from time to time to reflect changes in or relating to the
Contracts, the Separate Accounts or the Portfolios of the Fund.
21
<PAGE>
February 19, 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. 33-73570
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.
<PAGE>
Board of Directors
February 19, 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 report
(and to all references to our Firm) included in or made a part of this
Registration Statement File No. 33-73570 for Hartford Life Insurance Company
Separate Account Two on Form N-4.
/s/ Arthur Andersen LLP
Hartford, Connecticut
February 20, 1998
<PAGE>
HARTFORD LIFE INSURANCE COMPANY
AND
HARTFORD LIFE AND ACCIDENT 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
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: October 9, 1997
- --------------------------------------- -------------------------
Gregory A. Boyko
/s/ John P. Ginnetti Dated: October 9, 1997
- --------------------------------------- -------------------------
John P. Ginnetti
/s/ Lynda Godkin Dated: October 9, 1997
- --------------------------------------- -------------------------
Lynda Godkin
/s/ Thomas M. Marra Dated: October 9, 1997
- --------------------------------------- -------------------------
Thomas M. Marra
/s/ Lowndes A. Smith Dated: October 9, 1997
- --------------------------------------- -------------------------
Lowndes A. Smith
/s/ Raymond P. Welnicki Dated: October 9, 1997
- --------------------------------------- -------------------------
Raymond P. Welnicki
/s/ Lizabeth H. Zlatkus Dated: October 9, 1997
- --------------------------------------- -------------------------
Lizabeth H. Zlatkus
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
THE HARTFORD
The Hartford Financial Services Group, Inc.
(Delaware)
|
- -------------------------------------------------------------------------------------------------------------
Nutmeg Insurance Company The Hartford Investment
(Connecticut) Management Company
| (Delaware)
Hartford Fire Insurance Company |
(Connecticut) Hartford Investment
| Services, Inc.
Hartford Accident and Indemnity Company (Connecticut)
(Connecticut)
|
Hartford Life, Inc.
(Delaware)
|
Hartford Life and Accident Insurance Company
(Connecticut)
|
|
|
- -------------------------------------------------------------------------------------------------------------
Alpine Life Hartford Financial Hartford Life American Maturity ITT Hartford Canada
Insurance Services Life Insurance Company Life Insurance Holdings, Inc.
Company Insurance Co. (Connecticut) Company (Canada)
(New Jersey) (Connecticut) | (Connecticut) |
| | |
| AML Financial, Inc. |
| (Connecticut) Hartford Life
| Insurance Company
| of Canada
| (Canada)
|
|
- -------------------------------------------------------------------------------------------------------------
Hartford Life and Annuity ITT Hartford International Hartford Financial Services Royal Life
Insurance Company Life Reassurance Corporation Corporation Insurance
(Connecticut) (Connecticut) (Delaware) Company of
| | America
| | (Connecticut)
| |
ITT Hartford Life, Ltd. |
(Bermuda) |
|
|
- -------------------------------------------------------------------------------------------------------------
MS Fund HL Funding HL Investment Hartford Hartford Securities Hartford-Comp. Emp.
America Company, Inc. Advisors, Inc. Equity Sales Distribution Benefit Service
1993-K, Inc. (Connecticut) (Connecticut) Company, Inc. Company, Inc. Company
(Delaware) | (Connecticut) (Connecticut) (Connecticut)
|
Hartford Investment
Financial Services
Company
(Delaware)
</TABLE>
