<PAGE>
DIRECTOR CHOICE ACCESS VARIABLE ANNUITY
SEPARATE ACCOUNT TWO
HARTFORD LIFE INSURANCE COMPANY
P.O. BOX 5085
HARTFORD, CONNECTICUT 06102-5085
Telephone: 1-800-862-6668 (Contract
Owners)
[LOGO] 1-800-862-7155 (Registered Representatives)
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This Prospectus describes information you should know before you purchase the
Director CHOICE Access variable annuity. Please read it carefully.
Director CHOICE Access variable annuity is a contract between you and Hartford
Life Insurance Company where you agree to make at least one Premium Payment to
us and we agree to make a series of Annuity Payouts at a later date. This
Annuity is a flexible premium, tax-deferred, variable annuity offered to both
individuals and groups. It is:
- Flexible, because you may add Premium Payments at any time.
- Tax-deferred, which means you don't pay taxes until you take money out or
until we start to make Annuity Payouts.
- Variable, because the value of your Annuity will fluctuate with the
performance of the underlying funds.
At the time you purchase your Annuity, you allocate your Premium Payment to
"Sub-Accounts". These are subdivisions of our Separate Account, an account that
keeps your Annuity assets separate from our company assets. The Sub-Accounts
then purchase shares of mutual funds set up exclusively for variable annuity or
variable life insurance products. These funds are not the same mutual funds that
you buy through your stockbroker or through a retail mutual fund. They may have
similar investment strategies and the same portfolio managers as retail mutual
funds. This Annuity offers you Funds with investment strategies ranging from
conservative to aggressive and you may pick those Funds that meet your
investment goals and risk tolerance. The Sub-Accounts and the Funds are listed
below:
- - Mitchell Hutchins Series Trust Growth and Income Portfolio Sub-Account which
purchases shares of Class I of Mitchell Hutchins Growth and Income Portfolio
of the Mitchell Hutchins Series Trust ("Mitchell Hutchins Series Trust Growth
and Income Portfolio")
- - Mitchell Hutchins Series Trust Strategic Income Portfolio Sub-Account which
purchases shares of Class I of Mitchell Hutchins Strategic Income Portfolio of
the Mitchell Hutchins Series Trust ("Mitchell Hutchins Series Trust Strategic
Income Portfolio")
- - Mitchell Hutchins Series Trust Tactical Allocation Portfolio Sub-Account which
purchases shares of Class I of Mitchell Hutchins Tactical Allocation Portfolio
of the Mitchell Hutchins Series Trust ("Mitchell Hutchins Series Trust
Tactical Allocation Portfolio")
- - Advisers Sub-Account which purchases shares of Class IA of Hartford Advisers
HLS Fund, Inc.
- - Bond Sub-Account which purchases shares of Class IA of Hartford Bond HLS Fund,
Inc.
- - Capital Appreciation Sub-Account which purchases shares of Class IA of
Hartford Capital Appreciation HLS Fund, Inc.
- - Dividend and Growth Sub-Account which purchases shares of Class IA of Hartford
Dividend and Growth HLS Fund, Inc.
- - Global Leaders Sub-Account which purchases shares of Class IA of Hartford
Global Leaders HLS Fund of Hartford Series Fund, Inc.
- - Growth and Income Sub-Account which purchases shares of Class IA of Hartford
Growth and Income HLS Fund of Hartford Series Fund, Inc.
- - High Yield Sub-Account which purchases shares of Class IA of Hartford High
Yield HLS Fund of Hartford Series Fund, Inc.
- - Index Sub-Account which purchases shares of Class IA of Hartford Index HLS
Fund, Inc.
- - International Advisers Sub-Account which purchases shares of Class IA of
Hartford International Advisers HLS Fund, Inc.
- - International Opportunities Sub-Account which purchases shares of Class IA of
Hartford International Opportunities HLS Fund, Inc.
- - MidCap Sub-Account which purchases shares of Class IA of Hartford MidCap HLS
Fund, Inc.
- - Money Market Sub-Account which purchases shares of Class IA of Hartford Money
Market HLS Fund, Inc.
<PAGE>
- - Mortgage Securities Sub-Account that purchases shares of Class IA of Hartford
Mortgage Securities HLS Fund, Inc.
- - Small Company Sub-Account which purchases shares of Class IA of Hartford Small
Company HLS Fund, Inc.
- - Stock Sub-Account which purchases of Class IA of Hartford Stock HLS Fund, Inc.
If you decide to buy this Annuity, you should keep this prospectus for your
records. You can also call us at 1-800-862-6668 to get a Statement of Additional
Information, free of charge. The Statement of Additional Information contains
more information about this Annuity and, like this prospectus, is filed with the
Securities and Exchange Commission ("SEC"). We have included the Table of
Contents for the Statement of Additional Information at the end of this
prospectus.
Although we file the prospectus and the Statement of Additional Information with
the SEC, the SEC doesn't approve or disapprove these securities or determine if
the information is truthful or complete. Anyone who represents that the SEC does
these things may be guilty of a criminal offense. This Prospectus and the
Statement of Additional Information can also be obtained from the SEC's website
(HTTP://WWW.SEC.GOV).
This Annuity IS NOT:
- A bank deposit or obligation
- Federally insured
- Endorsed by any bank or governmental agency
This Annuity may not be available for sale in all states.
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PROSPECTUS DATED: MAY 3, 1999
STATEMENT OF ADDITIONAL INFORMATION DATED: MAY 3, 1999
<PAGE>
HARTFORD LIFE INSURANCE COMPANY 3
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
DEFINITIONS............................................................................................. 4
FEE TABLE............................................................................................... 6
ANNUAL FUND OPERATING EXPENSES.......................................................................... 6
HIGHLIGHTS.............................................................................................. 8
GENERAL CONTRACT INFORMATION............................................................................ 9
Hartford Life Insurance Company....................................................................... 9
The Separate Account.................................................................................. 9
The Funds............................................................................................. 9
PERFORMANCE RELATED INFORMATION......................................................................... 11
THE CONTRACT............................................................................................ 12
Purchases and Contract Value.......................................................................... 12
Charges and Fees...................................................................................... 14
Death Benefit......................................................................................... 15
Surrenders............................................................................................ 16
ANNUITY PAYOUTS......................................................................................... 17
OTHER PROGRAMS AVAILABLE................................................................................ 20
OTHER INFORMATION....................................................................................... 20
Year 2000............................................................................................. 21
Legal Matters and Experts............................................................................. 22
More Information...................................................................................... 22
FEDERAL TAX CONSIDERATIONS.............................................................................. 23
APPENDIX I -- INFORMATION REGARDING TAX-QUALIFIED RETIREMENT PLANS...................................... 27
TABLE OF CONTENTS TO STATEMENT OF ADDITIONAL INFORMATION................................................ 30
</TABLE>
<PAGE>
4 HARTFORD LIFE INSURANCE COMPANY
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DEFINITIONS
These terms are capitalized when used throughout this prospectus. Please
refer to these defined terms if you have any questions as you read your
prospectus.
ACCOUNT: Any of the Sub-Accounts.
ACCUMULATION UNITS: If you allocate your Premium Payment to any of the
Sub-Accounts, we will convert those payments into Accumulation Units in the
selected Sub-Accounts. Accumulation Units are valued at the end of each
Valuation Day and are used to calculate the value of your Contract prior to
Annuitization.
ACCUMULATION UNIT VALUE: The daily price of Accumulation Units on any Valuation
Day.
ADMINISTRATIVE OFFICE OF THE COMPANY: Our location and overnight mailing address
is: 200 Hopmeadow Street, Simsbury, Connecticut 06089. Our standard mailing
address is: Investment Product Services, P.O. Box 5085, Hartford, CT 06102-5085.
ANNIVERSARY VALUE: The value equal to the Contract Value as of 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.
ANNUAL MAINTENANCE FEE: An annual $30 charge deducted on a Contract Anniversary
or upon full Surrender if the Contract Value at either of those times is less
than $50,000. The charge is deducted proportionately from each Account in which
you are invested.
ANNUITANT: The person on whose life the Contract is based. The Annuitant may not
be changed after your Contract is issued.
ANNUITY CALCULATION DATE: The date we calculate the first Annuity Payout.
ANNUITY PAYOUT: The money we pay out after the Annuity Commencement Date for the
duration and frequency you select.
ANNUITY PAYOUT OPTION: Any of the options available for payout after the Annuity
Commencement Date or death of the Contract Owner or Annuitant.
ANNUITY UNIT: The unit of measure we use to calculate the value of your Annuity
Payouts under a variable dollar amount Annuity Payout Option.
ANNUITY UNIT VALUE: The daily price of Annuity Units on any Valuation Day.
BENEFICIARY: The person(s) entitled to receive a Death Benefit upon the death of
the Contract Owner or Annuitant.
CHARITABLE REMAINDER TRUST: An irrevocable trust, where an individual donor
makes a gift to the trust, and in return receives an income tax deduction. In
addition, the individual donor has the right to receive a percentage of the
trust earnings for a specified period of time.
CODE: The Internal Revenue Code of 1986, as amended.
COMMUTED VALUE: The present value of any remaining guaranteed Annuity Payouts.
CONTINGENT ANNUITANT: The person you may designate to become the Annuitant if
the original Annuitant dies before the Annuity Commencement Date. You must name
a Contingent Annuitant before the original Annuitant's death.
CONTRACT ANNIVERSARY: The anniversary of the date we issued your Contract. If
the Contract Anniversary falls on a Non-Valuation Day, then the Contract
Anniversary will be the next Valuation Day.
CONTRACT OWNER OR YOU: The owner or holder of this Annuity. We do not capitalize
"you" in the prospectus.
CONTRACT VALUE: The total value of the Accounts on any Valuation Day.
CONTRACT YEAR: Any 12 month period between Contract Anniversaries, beginning
with the date the Contract was issued.
DEATH BENEFIT: The amount payable after the Contract Owner or the Annuitant
dies.
DOLLAR COST AVERAGING: A program that allows you to systematically make
transfers between Accounts available in your Contract.
GENERAL ACCOUNT: This account holds our company assets and any assets not
allocated to a Separate Account. The assets in this account are available to the
creditors of Hartford.
HARTFORD, WE OR OUR: Hartford Life Insurance Company. Only Hartford is a
capitalized term in the prospectus.
JOINT ANNUITANT: The person on whose life Annuity Payouts are based if the
Annuitant dies after Annuitization. You may name a Joint Annuitant only if your
Annuity Payout Option provides for a survivor. The Joint Annuitant may not be
changed.
MAXIMUM ANNIVERSARY VALUE: This is the highest Anniversary Value prior to the
deceased's 81st birthday or the date of death, if earlier.
NET INVESTMENT FACTOR: This is used to measure the investment performance of a
Sub-Account from one Valuation Day to the next, and is also used to calculate
your Annuity Payout amount.
NON-QUALIFIED CONTRACT: A Contract that is not defined as a tax-qualified
retirement plan by the Code.
<PAGE>
HARTFORD LIFE INSURANCE COMPANY 5
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NON-VALUATION DAY: Any day the New York Stock Exchange is not open for trading.
PAYEE: The person or party you designate to receive Annuity Payouts.
PREMIUM PAYMENT: Money sent to us to be invested in your Annuity.
PREMIUM TAX: A tax charged by a state or municipality on Premium Payments.
QUALIFIED CONTRACT: A Contract that is defined as a tax-qualified retirement
plan in the Code.
REQUIRED MINIMUM DISTRIBUTION: A federal requirement that individuals age 70 1/2
and older must take a distribution from their tax-qualified retirement account
by December 31, each year. For employer sponsored Qualified Contracts, the
individual must begin taking distributions at the age of 70 1/2 or upon
retirement, whichever comes later.
SUB-ACCOUNT VALUE: The value on or before the Annuity Calculation Date, which is
determined on any day by multiplying the number of Accumulation Units by the
Accumulation Unit Value for that Sub-Account.
SURRENDER: A complete or partial withdrawal from your Contract.
SURRENDER VALUE: The amount we pay you if you terminate your Contract before the
Annuity Commencement Date. The Surrender Value is equal to the Contract Value
minus any applicable charges.
VALUATION DAY: Every day the New York Stock Exchange is open for trading. Values
of the Separate Account are determined as of the close of the New York Stock
Exchange, generally 4:00 p.m. Eastern Time.
VALUATION PERIOD: The time span between the close of trading on the New York
Stock Exchange from one Valuation Day to the next.
<PAGE>
6 HARTFORD LIFE INSURANCE COMPANY
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FEE TABLE
Contract Owner Transaction Expenses
<TABLE>
<S> <C>
Sales Load Imposed on Purchases (as a percentage of Premium
Payments)....................................................... None
Deferred Sales Charge (as a percentage of amounts Surrendered).... None
Annual Maintenance Fee (1)........................................ $30
Separate Account Annual Expenses (as a percentage of average
Sub-Account Value)
Mortality and Expense Risk Charge (Contract Years 1-7)........ 1.50%
Mortality and Expense Risk Charge (Contract Years 8 +)........ 1.25%
</TABLE>
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(1) An annual $30 charge deducted on a Contract Anniversary or upon full
Surrender if the Contract Value at either of those times is less than
$50,000. The charge is deducted proportionately from each Account in which
you are invested.
The purpose of this table is to assist you in understanding various fees and
charges you will pay directly or indirectly. The table reflects expenses of the
Separate Account and underlying Funds. Premium Taxes, if any, have been taken
into account. The Example should not be considered a representation of past or
future expenses and actual expenses may be greater or less than those shown. The
Annual Maintenance Fee has been reflected in the Example by a method intended to
show the "average" impact of the Annual Maintenance Fee on an investment in the
Separate Account. We do this by approximating an "average" 0.08% annual charge.
Annual Fund Operating Expenses
(as a percentage of average net assets)
<TABLE>
<CAPTION>
TOTAL FUND
MANAGEMENT OPERATING
FEES 12b-1 DISTRIBUTION EXPENSES
(INCLUDING AND/OR SERVICING FEES OTHER (INCLUDING
WAIVERS) (WITH WAIVERS) EXPENSES WAIVERS)
-------------- --------------------- -------- --------------
<S> <C> <C> <C> <C>
Mitchell Hutchins Series Trust Growth and Income
Portfolio (1)(2).............................. 0.700% -0- 0.340% 1.040%
Mitchell Hutchins Series Trust Strategic Income
Portfolio (1)(2).............................. 0.750% -0- 0.690% 1.440%
Mitchell Hutchins Series Trust Tactical
Allocation Portfolio (1)(2)................... 0.500% -0- 0.450% 0.950%
Hartford Bond HLS Fund.......................... 0.482% -0- 0.021% 0.503%
Hartford Stock HLS Fund......................... 0.439% -0- 0.018% 0.457%
Hartford Money Market HLS Fund.................. 0.433% -0- 0.015% 0.448%
Hartford Advisers HLS Fund...................... 0.616% -0- 0.018% 0.634%
Hartford Capital Appreciation HLS Fund.......... 0.623% -0- 0.019% 0.642%
Hartford Mortgage Securities HLS Fund........... 0.432% -0- 0.030% 0.462%
Hartford Index HLS Fund......................... 0.382% -0- 0.019% 0.401%
Hartford International Opportunities HLS Fund... 0.681% -0- 0.090% 0.771%
Hartford Dividend & Growth HLS Fund............. 0.641% -0- 0.018% 0.659%
Hartford International Advisers HLS Fund........ 0.755% -0- 0.108% 0.863%
Hartford MidCap HLS Fund........................ 0.759% -0- 0.034% 0.793%
Hartford Small Company HLS Fund................. 0.753% -0- 0.019% 0.772%
Hartford Growth and Income HLS Fund............. 0.767% -0- 0.040% 0.807%
Hartford Global Leaders HLS Fund(3)............. 0.487% -0- 0.120% 0.607%
Hartford High Yield HLS Fund(3)................. 0.487% -0- 0.035% 0.522%
</TABLE>
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(1) The Class I shares of the Portfolios sponsored by Mitchell Hutchins are
subject to fees imposed under a distribution plan ("Distribution Plan")
adopted by the Portfolios pursuant to Rule 12b-1 under the 1940 Act. The
Distribution Plan provides that each Portfolio may pay a distribution fee at
the annual rate of up to 0.25% of its average daily net assets attributable
to its Class I shares to certain distributors with respect to activities
primarily intended to result in the sale of the Class I shares. Mitchell
Hutchins has voluntarily and temporarily waived the fees associated with the
Distribution Plan. Absent such waiver, the 12b-1 fees would be 0.250% and
the total fund operating expenses would be as follows: Mitchell Hutchins
Growth and Income Portfolio -- 1.290%; Mitchell Hutchins Strategic Income
Portfolio -- 1.690%; and Mitchell Hutchins Tactical Allocation Portfolio --
1.200%. Mitchell Hutchins reserves the right to discontinue the waiver at
any time upon notice to shareholders.
(2) The annual "Other Expenses" are estimated.
<PAGE>
HARTFORD LIFE INSURANCE COMPANY 7
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(3) Hartford Global Leaders HLS Fund and Hartford High Yield HLS Fund are new
Funds. "Total Fund Operating Expenses" are based on annualized estimates of
such expenses to be incurred in the current fiscal year. HL Investment
Advisors, LLC has agreed to waive its fees for these until the assets of the
Funds (excluding assets contributed by companies affiliated with HL
Investment Advisors, LLC) reach $20 million. Absent this waiver, the
Management Fee and Total Fund Operating Expenses would be:
<TABLE>
<CAPTION>
TOTAL FUND
MANAGEMENT FEES OTHER EXPENSES OPERATING EXPENSES
--------------- -------------- ------------------
<S> <C> <C> <C>
Hartford Global Leaders HLS Fund... 0.775% 0.120% 0.895%
Hartford High Yield HLS Fund....... 0.775% 0.035% 0.810%
</TABLE>
EXAMPLE
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
If you Surrender your Contract at the end of the If you annuitize your Contract at the
applicable time period you would pay the following end of the applicable time period you
expenses on a $1,000 investment, assuming a 5% would pay the following expenses on a
annual return on assets: $1,000 investment, assuming a 5%
annual return on assets:
<CAPTION>
SUB-ACCOUNT 1 YEAR 3 YEARS 5 YEARS 10 YEARS 1 YEAR 3 YEARS 5 YEARS
----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Mitchell Hutchins Series Trust Growth
and Income Portfolio................. $ 27 $ 82 $ 140 $ 287 $ 26 $ 81 $ 139
Mitchell Hutchins Series Trust
Strategic Income Portfolio........... 31 94 160 327 30 93 159
Mitchell Hutchins Tactical Allocation
Portfolio............................ 26 79 135 278 25 78 134
Bond................................... 21 65 112 232 21 65 111
Stock.................................. 21 64 110 227 20 63 109
Money Market........................... 21 64 109 226 20 63 108
Advisers............................... 22 69 119 246 22 69 118
Capital Appreciation................... 23 70 119 246 22 69 119
Mortgage Securities.................... 21 64 110 227 20 63 109
Index.................................. 20 62 107 221 19 61 106
International Opportunities............ 24 74 126 260 23 73 125
Dividend & Growth...................... 77 115 156 248 22 69 119
International Advisers................. 25 76 131 269 24 76 130
Small Company.......................... 24 74 126 260 23 73 125
MidCap................................. 24 74 127 262 24 74 126
Growth and Income...................... 24 75 128 264 24 74 127
High Yield............................. 21 66 n/a n/a 21 65 n/a
Global Leaders......................... 22 69 n/a n/a 22 68 n/a
<CAPTION>
If you do not Surrender your Contract, you would
pay the following expenses on a $1,000 investment,
assuming a 5% annual return on assets:
SUB-ACCOUNT 10 YEARS 1 YEAR 3 YEARS 5 YEARS 10 YEARS
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Mitchell Hutchins Series Trust Growth
and Income Portfolio................. 287 $ 27 $ 82 $ 140 287
Mitchell Hutchins Series Trust
Strategic Income Portfolio........... 326 31 94 160 327
Mitchell Hutchins Tactical Allocation
Portfolio............................ 277 26 79 135 278
Bond................................... 231 21 65 112 232
Stock.................................. 226 21 64 110 227
Money Market........................... 225 21 64 109 226
Advisers............................... 245 22 69 119 246
Capital Appreciation................... 246 23 70 119 246
Mortgage Securities.................... 226 21 64 110 227
Index.................................. 220 20 62 107 221
International Opportunities............ 259 24 74 126 260
Dividend & Growth...................... 247 23 70 120 248
International Advisers................. 269 25 76 131 269
Small Company.......................... 259 24 74 126 260
MidCap................................. 261 24 74 127 262
Growth and Income...................... 263 24 75 128 264
High Yield............................. n/a 21 66 n/a n/a
Global Leaders......................... n/a 22 69 n/a n/a
</TABLE>
<PAGE>
8 HARTFORD LIFE INSURANCE COMPANY
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HIGHLIGHTS
HOW DO I PURCHASE THIS ANNUITY?
You must complete our application or order request and submit it to us for
approval with your first Premium Payment. Your first Premium Payment must be at
least $10,000 and subsequent Premium Payments must be at least $500, unless you
take advantage of our InvestEase Program-Registered Trademark- or are part of
certain retirement plans.
- For a limited time, usually within ten days after you receive your Contract,
you may cancel your Annuity. You may bear the investment risk for your
Premium Payment prior to our receipt of your request for cancellation.
WHAT TYPE OF SALES CHARGE WILL I PAY?
You don't pay a sales charge when you purchase your Annuity.
IS THERE AN ANNUAL MAINTENANCE FEE?
We deduct this $30.00 fee each year on your Contract Anniversary or when you
fully Surrender your Annuity, if, on either of those dates, the value of your
Annuity is less than $50,000.
WHAT CHARGES WILL I PAY ON AN ANNUAL BASIS?
In addition to the Annual Maintenance Fee, you pay two different types of
charges each year. The first type of charge is the fee you pay for insurance.
This charge is:
During Contract Years 1-7, a mortality and expense risk charge is subtracted
daily and is equal to an annual charge of 1.50% of your Contract Value invested
in the Funds. In Contract Year 8, or at the Annuity Commencement Date, whichever
comes sooner, the mortality and expense risk charge drops to 1.25% of your
Contract Value invested in the Funds.
The second type of charge is the fee you pay for the Funds.
Currently, Fund charges range from 0.40% to 1.44% annually of the average
daily value of the amount you have invested in the Funds. See the Annual Fund
Operating Expenses table for more complete information and the Funds'
prospectuses accompanying this prospectus.
CAN I TAKE OUT ANY OF MY MONEY?
You may Surrender all or part of the amounts you have invested at any time
before we start making Annuity Payouts, or after Annuity Payouts begin under the
Payment for a Period Certain Annuity Payout Option.
- You may have to pay income tax on the money you take out and, if you
Surrender before you are age 59 1/2, you may have to pay an income tax
penalty.
WILL HARTFORD PAY A DEATH BENEFIT?
There is a Death Benefit if the Contract Owner, joint owner or the Annuitant die
before we begin to make Annuity Payouts. The Death Benefit will be calculated as
of the date we receive a certified death certificate or other legal document
acceptable to us and will be the greater of:
- - The total Premium Payments you have made to us minus any amounts you have
Surrendered, or
- - The Contract Value of your Annuity, or
- - Your Maximum Anniversary Value, which is described below.
The Maximum Anniversary Value is based on a series of calculations on
Contract Anniversaries of Contract Values, Premium Payments and partial
Surrenders. We will calculate an Anniversary Value for each Contract Anniversary
prior to the deceased's 81st birthday or date of death, whichever is earlier.
The Anniversary Value is equal to the Contract Value as of 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. The Maximum Anniversary Value is equal to the greatest
Anniversary Value attained from this series of calculations.
This Death Benefit amount will remain invested in the Sub-Accounts according
to your last instructions and will fluctuate with the performance of the
underlying Funds.
WHAT ANNUITY PAYOUT OPTIONS ARE AVAILABLE?
When it comes time for us to make payouts, you may choose one of the following
Annuity Payout Options: Option 1 -- Life Annuity, Option 2 -- Life Annuity with
a Cash Refund, Option 3 -- Life Annuity with Payments for a Period Certain,
Option 4 -- Joint and Last Survivor Life Annuity, Option 5 -- Joint and Last
Survivor Life Annuity with Payments for Period Certain and Option 6 -- Payments
For a Period Certain. We may make other Annuity Payout Options available at any
time.
You must begin to take payouts by the Annuitant's 90th birthday or the end
of the 10th Contract Year, whichever is later. If you do not tell us what
Annuity Payout Option you want before that time, we will make payments under
Option 3 -- Life Annuity with Payments for Period Certain using a ten year
period certain.
<PAGE>
HARTFORD LIFE INSURANCE COMPANY 9
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GENERAL CONTRACT INFORMATION
HARTFORD LIFE INSURANCE COMPANY
Hartford Life Insurance Company is a stock life insurance company engaged in
the business of writing life insurance, both individual and group, in all states
of the United States as well as the District of Columbia. We were originally
incorporated under the laws of Massachusetts on June 5, 1902, and subsequently
redomiciled to Connecticut. Our offices are located in Simsbury, Connecticut;
however, our mailing address is P.O. Box 2999, Hartford, CT 06104-2999. We are
ultimately controlled by The Hartford Financial Services Group, Inc., one of the
largest financial service providers in the United States.
HARTFORD'S RATINGS
<TABLE>
<CAPTION>
EFFECTIVE DATE
RATING AGENCY OF RATING RATING BASIS OF RATING
- ----------------------------------- -------------- ------ -----------------------------------
<S> <C> <C> <C>
A.M. Best and Company, Inc......... 1/1/99 A+ Financial performance
Standard & Poor's.................. 6/1/98 AA Insurer financial strength
Duff & Phelps...................... 12/21/98 AA+ Claims paying ability
</TABLE>
THE SEPARATE ACCOUNT
The Separate Account is where we set aside and invest the assets of some of
our annuity contracts, including this Contract. The Separate Account was
established on June 2, 1986 and is registered as a unit investment trust under
the Investment Company Act of 1940. This registration does not involve
supervision by the SEC of the management or the investment practices of the
Separate Account or Hartford. The Separate Account meets the definition of
"Separate Account" under federal securities law. This Separate Account holds
only assets for variable annuity contracts. The Separate Account:
- - Holds assets for your benefit and the benefit of other Contract Owners, and
the persons entitled to the payouts described in the Contract.
- - Is not subject to the liabilities arising out of any other business Hartford
may conduct.
- - Is not affected by the rate of return of Hartford's General Account or by the
investment performance of any of Hartford's other Separate Accounts.
- - May be subject to liabilities from a Sub-Account of the Separate Account that
holds assets of other variable annuity contracts offered by the Separate
Account, which are not described in this Prospectus.
- - Is credited with income and gains, and takes losses, whether or not realized,
from the assets it holds.
We do not guarantee the investment results of the Separate Account. There is
no assurance that the value of your Annuity will equal the total of the payments
you make to us.
THE FUNDS
All of the Hartford Funds are sponsored and administered by Hartford Life
Insurance Company. HL Investment Advisors, LLC ("HL Advisors") serves as the
investment adviser to each of the Funds. Wellington Management Company, LLP
("Wellington Management") and The Hartford Investment Management Company
("HIMCO") serve as sub-investment advisors and provide day to day investment
services.
Each Hartford Fund, except for the Hartford Global Leaders HLS Fund, the
Hartford Growth and Income HLS Fund and the Hartford High Yield HLS Fund, is a
separate Maryland corporation registered with the Securities and Exchange
Commission as an open-end management investment company. The Hartford Global
Leaders HLS Fund, the Hartford Growth and Income HLS Fund and the Hartford High
Yield HLS Fund are diversified series of Hartford Series Fund, Inc., a Maryland
corporation, also registered with the Securities and Exchange Commission as an
open-end management investment company. The shares of each Fund have been
divided into Class IA and Class IB. Only Class IA shares are available in this
Annuity.
Mitchell Hutchins Asset Management Inc. is a wholly-owned asset management
subsidiary of PaineWebber Incorporated. PaineWebber provides investment advisory
and administrative services to the Mitchell Hutchins Series Trust Growth and
Income Portfolio, Mitchell Hutchins Series Trust Strategic Income Portfolio and
the Mitchell Hutchins Series Trust Tactical Allocation Portfolio.
We do not guarantee the investment results of any of the underlying Funds.
Since each underlying Fund has different investment objectives, each is subject
to different risks. These risks and the Funds' expenses, policies and procedures
are more fully described in the accompanying Funds' prospectus and Statement of
Additional Information, which you may order from us. The Funds' prospectus
should be read in conjunction with this prospectus before investing.
The Funds may not be available in all states.
The investment goals of each of the Funds are as follows:
MITCHELL HUTCHINS SERIES TRUST GROWTH AND INCOME PORTFOLIO -- Seeks current
income and capital growth by investing primarily in dividend-paying equity
securities of companies believed to have the potential for rapid earnings
growth.
<PAGE>
10 HARTFORD LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
MITCHELL HUTCHINS SERIES TRUST STRATEGIC INCOME PORTFOLIO -- Has a primary
investment objective of high current income and a secondary objective of capital
appreciation. This Fund strategically allocates its investments among three bond
market sectors: U.S. Government and investment grade bonds; U. S. high yield
bonds (sometimes called "junk bonds"); and foreign and emerging market bonds.
MITCHELL HUTCHINS SERIES TRUST TACTICAL ALLOCATION PORTFOLIO -- Seeks total
return, consisting of long-term capital appreciation and current income, by
using the Tactical Allocation Model, a systematic investment strategy that
allocates its investments between an equity portion designed to track the S&P
500 Composite Price Index and a fixed income portion that generally will be
comprised of either five-year U.S. Treasury notes or 30 day U.S. Treasury Bills.
HARTFORD ADVISERS HLS FUND -- Seeks maximum long-term total rate of return
by investing in common stocks and other equity securities, bonds and other debt
securities, and money market instruments. Sub-advised by Wellington Management.
HARTFORD BOND HLS FUND -- Seeks maximum current income consistent with
preservation of capital by investing primarily in investment grade fixed-income
securities. Up to 20% of the total assets of this Fund may be invested in debt
securities rated in the highest category below investment grade ("Ba" by Moody's
Investor Services, Inc. or "BB" by Standard & Poor's) or, if unrated, are
determined to be of comparable quality by the Fund's investment adviser.
Securities rated below investment grade are commonly referred to as "high
yield-high risk securities" or "junk bonds." For more information concerning the
risks associated with investing in such securities, please refer to the section
in the accompanying prospectus for the Funds entitled "Hartford Bond HLS Fund,
Inc. - Investment Policies." Sub-advised by HIMCO.
HARTFORD CAPITAL APPRECIATION HLS FUND -- Seeks growth of capital by
investing in equity securities selected solely on the basis of potential for
capital appreciation. Sub-advised by Wellington Management.
HARTFORD DIVIDEND AND GROWTH HLS FUND -- Seeks a high level of current
income consistent with growth of capital by investing primarily in dividend
paying equity securities. Sub-advised by Wellington Management.
HARTFORD GLOBAL LEADERS HLS FUND -- Seeks growth of capital by investing
primarily in equity securities issued by U.S. and non-U.S. high quality growth
companies worldwide that, in the opinion of Wellington Management, are leaders
within their respective industries as indicated by an established market
presence and strong competitive position on a global, regional or country basis.
Sub-advised by Wellington Management.
HARTFORD GROWTH AND INCOME HLS FUND -- Seeks growth of capital and current
income by investing primarily in equity securities with earnings growth
potential and steady or rising dividends. Sub-advised by Wellington Management.
HARTFORD HIGH YIELD HLS FUND -- Seeks high current income by investing in
non-investment grade fixed-income securities. Growth of capital is a secondary
objective. Securities rated below investment grade are commonly referred to as
"high yield-high risk securities" or "junk bonds." For more information
concerning the risks associated with investing in such securities, please refer
to the section in the accompanying prospectus for the Funds entitled "Hartford
High Yield HLS Fund." Sub-advised by HIMCO.
HARTFORD INDEX HLS FUND -- Seeks to provide investment results that
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.* Sub-advised by HIMCO.
HARTFORD INTERNATIONAL ADVISERS HLS FUND -- Seeks maximum long-term total
return 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. Sub-advised by Wellington
Management.
HARTFORD INTERNATIONAL OPPORTUNITIES HLS FUND -- Seeks growth of capital by
investing primarily in equity securities issued by non-U.S. companies.
Sub-advised by Wellington Management.
HARTFORD MIDCAP HLS FUND -- Seeks to achieve long-term capital growth
through capital appreciation by investing primarily in equity securities of
companies with market capitalizations within the range represented by the
Standard & Poor's MidCap 400 Index. Sub-advised by Wellington Management.
HARTFORD MORTGAGE SECURITIES HLS FUND -- Seeks maximum current income
consistent with safety of principal and maintenance of liquidity by investing
primarily in mortgage-related securities, including securities issued by the
Government National Mortgage Association. Sub-advised by HIMCO.
HARTFORD SMALL COMPANY HLS FUND -- Seeks growth of capital by investing
primarily in equity securities selected on the basis of potential for capital
appreciation. Sub-advised by Wellington Management.
* "STANDARD & POOR'S," "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 STOCK HLS FUND -- Seeks long-term growth by investing primarily in
equity securities within the range represented by the Russell 2000 Index.
Sub-advised by Wellington Management.
HARTFORD MONEY MARKET HLS FUND -- Seeks maximum current income consistent
with liquidity and preservation of capital. Sub-advised by HIMCO.
MIXED AND SHARED FUNDING -- Shares of the Funds may be sold to our other
separate accounts and our insurance company affiliates or other unaffiliated
insurance companies to serve as the underlying investment for both variable
annuity contracts and variable life insurance policies, a practice known as
"mixed and shared funding." As a result, there is a possibility that a material
conflict may arise between the interests of Contract Owners, and of owners of
other contracts whose contract values are allocated to one or more of these
other separate accounts investing in any one of the Funds. In the event of any
such material conflicts, we will consider what action may be appropriate,
including removing the Fund from the Separate Account or replacing the Fund with
another underlying fund. There are certain risks associated with mixed and
shared funding, as disclosed in the Funds' prospectus.
VOTING RIGHTS -- We are the legal owners of all Fund shares held in the
Separate Account and we have the right to vote at the Fund's shareholder
meetings. To the extent required by federal securities laws or regulations, we
will:
- - Notify you of any Fund shareholders' meeting if the shares held for your
Contract may be voted.
- - Send proxy materials and a form of instructions that you can use to tell us
how to vote the Fund shares held for your Contract.
- - Arrange for the handling and tallying of proxies received from Contract
Owners.
- - Vote all Fund shares attributable to your Contract according to instructions
received from you, and
- - Vote all Fund shares for which no voting instructions are received in the same
proportion as shares for which instructions have been received.
If any federal securities laws or regulations, or their present
interpretation, change to permit us to vote Fund shares on our own, we may
decide to do so. You may attend any Shareholder Meeting at which shares held for
your Contract may be voted. After we begin to make Annuity Payouts to you, the
number of votes you have will decrease.
SUBSTITUTIONS, ADDITIONS, OR DELETIONS OF FUNDS -- We reserve the right,
subject to any applicable law, to make certain changes to the Funds offered
under Your Contract. We may, in our sole discretion, establish new Funds. New
Funds will be made available to existing Contract Owners as we determine
appropriate. We may also close one or more Funds to additional Payments or
transfers from existing Sub-Accounts.
We reserve the right to eliminate the shares of any of the Funds for any
reason and to substitute shares of another registered investment company for the
shares of any Fund already purchased or to be purchased in the future by the
Separate Account. To the extent required by the Investment Company Act of 1940
(the "1940 Act"), substitutions of shares attributable to your interest in a
Fund will not be made until we have the approval of the Commission and we have
notified you of the change.
In the event of any substitution or change, we may, by appropriate
endorsement, make any changes in the Contract necessary or appropriate to
reflect the substitution or change. If we decide that it is in the best interest
of Contract Owners, the Separate Account may be operated as a management company
under the 1940 Act or any other form permitted by law, may be de-registered
under the 1940 Act in the event such registration is no longer required, or may
be combined with one or more other Separate Accounts.
PERFORMANCE RELATED INFORMATION
The Separate Account may advertise certain performance-related information
concerning the 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.
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.
In addition to the standardized total return, the Sub-Account may advertise
a NON-STANDARDIZED TOTAL RETURN that pre-date the inception of the Separate
Account. 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
Annual Maintenance Fee is not deducted. Therefore, non-standardized total return
for a Sub-Account is higher than standardized total return for a Sub-Account.
These non-standardized returns must be accompanied by standardized total
returns.
If applicable, the 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
<PAGE>
12 HARTFORD LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
earned during a recent one month period is divided by the unit value on the last
day of the period. This figure includes the recurring charges at the Separate
Account level including the Annual Maintenance Fee.
The Money Market Fund Sub-Account may advertise YIELD AND EFFECTIVE YIELD.
The yield of 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 include the recurring charges at the Separate Account
level including the Annual Maintenance Fee.
The Separate Account may also disclose YIELD for periods prior to the date
the Separate Account commenced operations. For these periods, 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. No yield disclosure
for periods prior to the date of the Separate Account will be used without the
yield dislosure for periods as of the inception of the Separate Account.
We 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 systematic investing, Dollar Cost Averaging
and asset allocation), the advantages and disadvantages of investing in tax-
deferred and taxable instruments, customer profiles and hypothetical purchase
scenarios, financial management and tax and retirement planning, and other
investment alternatives, including comparisons between the Contract and the
characteristics of and market for such alternatives.
THE CONTRACT
PURCHASES AND CONTRACT VALUE
WHAT TYPES OF CONTRACTS ARE AVAILABLE?
The Contract is an individual or group tax-deferred variable annuity contract.
It is 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 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.
The examples above represent Qualified Contracts, as defined by the Code. In
addition, individuals and trusts can also purchase Contracts that are not part
of a tax qualified retirement plan. These are known as Non-Qualified Contracts.
HOW DO I PURCHASE A CONTRACT?
You may purchase a Contract by completing and submitting an application or
an order request along with an initial Premium Payment. For most Contracts, the
minimum Premium Payment is $10,000. For additional Premium Payments, the minimum
Premium Payment is $500. Under certain situations, we may allow smaller Premium
Payments, for example, if you enroll in our InvestEase-Registered Trademark-
Program or are part of certain tax qualified retirement plans. Prior approval is
required for Premium Payments of $1,000,000 or more.
You and your Annuitant must not be older than age 90 on the date that your
Contract is issued, or age 85, if your Contract is issued in New York. You must
be of legal age in the state where the Contract is being purchased or a guardian
must act on your behalf.
HOW ARE PREMIUM PAYMENTS APPLIED TO MY CONTRACT?
Your initial Premium Payment will be invested within two Valuation Days of our
receipt of a properly completed application or an order request and the Premium
Payment. If we receive your subsequent Premium Payment before the close of the
New York Stock Exchange, it will be priced on the same Valuation Day. If we
receive your Premium Payment after the close of the New York Stock Exchange, it
will be processed on the next Valuation Day. If we receive your Premium Payment
on a Non-Valuation Day, the amount will be invested on the next Valuation Day.
Unless we receive new instructions, we will invest the Premium Payment based on
your last allocation instructions. We will send you a confirmation when we
invest your Premium Payment.
If the request or other information accompanying the Premium Payment is
incomplete when received, we will hold the money in a non-interest bearing
account for up to five Valuation Days while we try to obtain complete
information. If we cannot obtain the information within five Valuation Days, we
will either return the Premium Payment and explain why the Premium Payment could
not be
<PAGE>
HARTFORD LIFE INSURANCE COMPANY 13
- --------------------------------------------------------------------------------
processed or keep the Premium Payment if you authorize us to keep it until your
provide the necessary information.
CAN I CANCEL MY CONTRACT AFTER I PURCHASE IT?
We want you to be satisfied with the Contract you have purchased. We urge you to
closely examine its provisions. If for any reason you are not satisfied with
your Contract, simply return it within ten days after you receive it with a
written request for cancellation that indicates your tax-withholding
instructions. In some states, you may be allowed more time to cancel your
Contract. We may require additional information, including a signature
guarantee, before we can cancel your Contract.
You bear the investment risk from the time the Contract is issued until we
receive your complete cancellation request.
The amount we pay you upon cancellation depends on the requirements of the
state where you purchased your Contract, the method of purchase, the type of
Contract you purchased and your age.
HOW IS THE VALUE OF MY CONTRACT CALCULATED BEFORE THE ANNUITY COMMENCEMENT DATE?
The Contract Value is the sum of all Accounts. There are two things that affect
your Sub-Account value: (1) the number of Accumulation Units and (2) the
Accumulation Unit Value. The Sub-Account value is determined by multiplying the
number of Accumulation Units by the Accumulation Unit Value. Therefore, on any
Valuation Day your Contract Value reflects the investment performance of the
Sub-Accounts and will fluctuate with the performance of the underlying Funds.
When Premium Payments are credited to your Sub-Accounts, they are converted
into Accumulation Units by dividing the amount of your Premium Payments, minus
any Premium Taxes, by the Accumulation Unit Value for that day. The more Premium
Payments you put into your Contract, the more Accumulation Units you will own.
You decrease the number of Accumulation Units you have by requesting Surrenders,
transferring money out of an Account, settling a Death Benefit claim or by
annuitizing your Contract.
To determine the current Accumulation Unit Value, we take the prior
Valuation Day's Accumulation Unit Value and multiply it by the Net Investment
Factor for the current Valuation Day.
The Net Investment Factor is used to measure the investment performance of a
Sub-Account from one Valuation Day to the next. The Net Investment Factor for
each Sub-Account equals:
- - The net asset value per share of each Fund held in the Sub-Account at the end
of the current Valuation Day divided by
- - The net asset value per share of each Fund held in the Sub-Account at the end
of the prior Valuation Day; minus
- - The daily mortality and expense risk charge adjusted for the number of days in
the period, and any other applicable charge.
We will send you a statement in each calendar quarter, which tells you how
many Accumulation Units you have, their value and your total Contract Value.
CAN I TRANSFER FROM ONE SUB-ACCOUNT TO ANOTHER?
TRANSFERS BETWEEN SUB-ACCOUNTS -- You may transfer from one Sub-Account to
another before and after the Annuity Commencement Date at no extra charge. Your
transfer request will be processed on the day that it is received as long as it
is received on a Valuation Day before the close of the New York Stock Exchange.
Otherwise, your request will be processed on the following Valuation Day. We
will send you a confirmation when we process your transfer. You are responsible
for verifying transfer confirmations and promptly advising us of any errors
within 30 days of receiving the confirmation.
SUB-ACCOUNT TRANSFER RESTRICTIONS -- We reserve the right to limit the
number of transfers to 12 per Contract Year, with no transfers occurring on
consecutive Valuation Days. We also have the right to restrict transfers if we
believe that the transfers could have an adverse effect on other Contract
Owners. In all states except New York, Florida, Maryland and Oregon, we may:
- - Require a minimum time period between each transfer,
- - Limit the dollar amount that may be transferred on any one Valuation Day, and
- - Not accept transfer requests from an agent acting under a power of attorney
for more than one Contract Owner.
We also have a restriction in place that involves individuals who act under
a power of attorney for multiple Contract Owners. If the value of the Contract
Owner's Accounts add up to more than $2 million, we will not accept transfer
instructions from the power of attorney unless the power of attorney has entered
into a Third Party Transfer Services Agreement with us.
Some states may have different restrictions.
TELEPHONE TRANSFERS -- In most states, you can make transfers by calling us
at (800) 862-6668. Hartford, our
<PAGE>
14 HARTFORD LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
agents or our affiliates are NOT responsible for losses resulting from telephone
requests that we believe are genuine. We will use reasonable procedures to
confirm that telephone instructions are genuine, including requiring that
callers provide certain identification information and recording all telephone
transfer instructions.
POWER OF ATTORNEY -- You may authorize another person to make transfers on
your behalf by submitting a completed Power of Attorney form. Once we have the
completed form on file, we will accept transfer instructions from your
designated third party, subject to any transfer restrictions in place, until we
receive new instructions in writing from you. You will not be able to make
transfers or other changes to your Contract if you have authorized someone else
to act under a Power of Attorney.
CHARGES AND FEES
There are 4 charges and fees associated with the Contract:
1. MORTALITY AND EXPENSE RISK CHARGE
For assuming risks under the Contract during Contract Years 1-7, we will
deduct a daily charge at the rate of 1.50 % per year of Contract Value
(estimated at .95% for mortality and .55% for expenses). After Contract Year 7
or at the Annuity Commencement Date, whichever comes sooner, we will deduct a
daily charge totaling 1.25% per year of Contract Value (estimated at .90% for
mortality and .35% for expense).
- - MORTALITY RISK -- There are two types of mortality risks that we assume, those
made while your Premium Payments are accumulating and those made once Annuity
Payouts have begun
During the period your Premium Payments are accumulating, we are required to
cover any difference between the Death Benefit paid and the Surrender Value.
These differences may occur during periods of declining value. The risk that we
bear during this period is that actual mortality rates may be lower than
anticipated.
Once Annuity Payouts have begun, we may be required to make Annuity Payouts
as long as the Annuitant is living, regardless of how long the Annuitant lives.
We would be required to make these payments if the Payout Option chosen is the
Life Annuity, Life Annuity With Payments for a Period Certain or Joint and Last
Survivor Life Annuity Payout Option. The risk that we bear during this period is
that the actual mortality rates, in aggregate, may be lower than the expected
mortality rates.
- - EXPENSE RISK -- We also bear an expense risk that the Annual Maintenance Fee
collected before the Annuity Commencement Date may not be enough to cover the
actual cost of selling, distributing and administering the Contract.
Although variable Annuity Payouts will fluctuate with the performance of the
underlying Fund selected, your Annuity Payouts will not be affected by (a) the
actual mortality experience of our Annuitants, or (b) our actual expenses if
they are greater than the deductions stated in the Contract. Because we cannot
be certain how long our Annuitants will live, we charge this percentage fee
based on the mortality tables currently in use. The mortality and expense risk
charge enables us to keep our commitments and to pay you as planned.
2. ANNUAL MAINTENANCE FEE
The Annual Maintenance Fee is a flat fee that is deducted from your Contract
Value to reimburse us for expenses relating to the administrative maintenance of
the Contract and the Accounts. The annual $30 charge is deducted on a Contract
Anniversary or when the Contract is fully Surrendered if the Contract Value at
either of those times is less than $50,000. The charge is deducted
proportionately from each Account in which you are invested.
WHEN IS THE ANNUAL MAINTENANCE FEE WAIVED?
We will waive the Annual Maintenance Fee if your Contract Value is $50,000
or more on your Contract Anniversary or when you fully Surrender your Contract.
In addition, we will waive one Annual Maintenance Fee for Contract Owners who
own more than one Contract with a combined Contract Value between $50,000 and
$100,000. If you have multiple Contracts with a combined Contract Value of
$100,000 or greater, we will waive the Annual Maintenance Fee on all Contracts.
However, we reserve the right to limit the number of waivers to a total of six
Contracts. We also reserve the right to waive the Annual Maintenance Fee under
certain other conditions.
3. PREMIUM TAXES
We deduct Premium Taxes, if required, by a state or other government agency.
Some states collect the taxes when Premium Payments are made; others collect at
Annuitization. Since we pay Premium Taxes when they are required by applicable
law, we may deduct them from your Contract when we pay the taxes, upon
Surrender, or on the Annuity Commencement Date. The Premium Tax rate varies by
state or municipality. Currently, the maximum rate charged by any state is 3.5%
and 4% in Puerto Rico.
4. CHARGES AGAINST THE FUNDS
The Separate Account purchases shares of the Funds at net asset value. The
net asset value of the Fund shares reflects investment advisory fees and
administrative expenses already deducted from the assets of the Funds. These
charges are described in the Funds' prospectuses accompanying this Prospectus.
<PAGE>
HARTFORD LIFE INSURANCE COMPANY 15
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WE MAY OFFER, IN OUR DISCRETION, REDUCED FEES AND CHARGES INCLUDING, BUT NOT
LIMITED TO THE MORTALITY AND EXPENSE RISK CHARGE, AND THE ANNUAL MAINTENANCE
FEE, FOR CERTAIN CONTRACTS (INCLUDING EMPLOYER SPONSORED SAVINGS PLANS) WHICH
MAY RESULT IN DECREASED COSTS AND EXPENSES. REDUCTIONS IN THESE FEES AND CHARGES
WILL NOT BE UNFAIRLY DISCRIMINATORY AGAINST ANY CONTRACT OWNER.
DEATH BENEFIT
WHAT IS THE DEATH BENEFIT AND HOW IS IT CALCULATED?
The Death Benefit is the amount we will pay upon the death of the Contract Owner
or the Annuitant. The Death Benefit is calculated when we receive a certified
death certificate or other legal document acceptable to us.
The calculated Death Benefit will remain invested in the same Accounts,
according to the Contract Owner's last instructions until we receive complete
written settlement instructions from the Beneficiary. Therefore, the Death
Benefit amount will fluctuate with the performance of the underlying Funds. When
there is more than one Beneficiary, we will calculate the Accumulation Units for
each Sub-account for each Beneficiary's portion of the proceeds.
If death occurs before the Annuity Commencement Date, the Death Benefit is
the greatest of:
- - The Contract Value on the date the death certificate or other legal document
acceptable to us is received; or
- - 100% of all Premium Payments paid into the Contract minus any partial
Surrenders; or
- - The Maximum Anniversary Value, which is described below.
The Maximum Anniversary Value is based on a series of calculations on
Contract Anniversaries of Contract Values, Premium Payments and partial
Surrenders. We will calculate an Anniversary Value for each Contract Anniversary
prior to the deceased's 81st birthday or date of death, whichever is earlier.
The Anniversary Value is equal to the Contract Value as of 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. The Maximum Anniversary Value is equal to the greatest
Anniversary Value resulting from this series of calculations.
HOW IS THE DEATH BENEFIT PAID?
The Death Benefit may be taken in one lump sum or under any of the Annuity
Payout Options then being offered by us. On the date we receive complete
instructions from the Beneficiary, we will compute the Death Benefit amount to
be paid out or applied to a selected Annuity Payout Option. When there is more
than one Beneficiary, we will calculate the Death Benefit amount for each
Beneficiary's portion of the proceeds and then pay it out or apply it to a
selected Annuity Payout Option according to each Beneficiary's instructions. If
we receive the complete instructions on a Non-Valuation Day, computations will
take place on the next Valuation Day.
The Beneficiary may elect, under the Annuity Proceeds Settlement Option, to
leave proceeds from the Death Benefit with us for up to five years from the date
of the Contract Owner's death if the Contract Owner died before the Annuity
Commencement Date. Once we receive a certified death certificate or other legal
document acceptable to us, the Beneficiary can: (a) make Sub-Account transfers
and (b) take Surrenders.
REQUIRED DISTRIBUTIONS -- If the Contract Owner dies before the Annuity
Commencement Date, the Death Benefit must be distributed within five years after
death. The Beneficiary can choose any Annuity Payout Option that results in
complete Annuity Payout within five years.
If the Contract Owner dies on or after the Annuity Commencement Date under
an Annuity Payout Option with a Death Benefit, any remaining value must be
distributed at least as rapidly as under the payment method being used as of the
Contract Owner's death.
If the Contract Owner is not an individual (e.g. a trust), then the original
Annuitant will be treated as the Contract Owner in the situations described
above and any change in the original Annuitant will be treated as the death of
the Contract Owner.
WHO WILL RECEIVE THE DEATH BENEFIT?
The distribution of the Death Benefit is based on whether death is before, on or
after the Annuity Commencement Date.
<PAGE>
16 HARTFORD LIFE INSURANCE COMPANY
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IF DEATH OCCURS BEFORE THE ANNUITY COMMENCEMENT DATE:
<TABLE>
<CAPTION>
IF THE
DECEASED IS
THE... AND... AND... THEN THE...
- ----------------------------------------------------------
<S> <C> <C> <C>
Contract There is a The Annuitant Joint
Owner surviving is living or Contract
joint deceased Owner
Contract receives the
Owner Death
Benefit.
- ----------------------------------------------------------
Contract There is no The Annuitant Designated
Owner surviving is living or Beneficiary
joint deceased receives the
Contract Death
Owner Benefit.
- ----------------------------------------------------------
Contract There is no The Annuitant Contract
Owner surviving is living or Owner's
joint deceased estate
Contract receives the
Owner and the Death
Beneficiary Benefit.
predeceases
the Contract
Owner
- ----------------------------------------------------------
Annuitant The Contract There is no Death Benefit
Owner is named is paid to
living Contingent the Contract
Annuitant Owner(s) and
not the
designated
Beneficiary.
- ----------------------------------------------------------
Annuitant The Contract The Contingent
Owner is Contingent Annuitant
living Annuitant is becomes the
living Annuitant,
and the
Contract
continues.
</TABLE>
IF DEATH OCCURS ON OR AFTER THE ANNUITY COMMENCEMENT DATE:
<TABLE>
<CAPTION>
IF THE
DECEASED IS
THE... AND... THEN THE...
- -------------------------------------------------
<S> <C> <C>
Contract The Annuitant is Designated
Owner living Beneficiary
becomes the
Contract Owner
- -------------------------------------------------
Annuitant The Contract Contract Owner
Owner is living receives the
Death Benefit.
- -------------------------------------------------
Annuitant The Annuitant is Designated
also the Beneficiary
Contract Owner receives the
Death Benefit.
</TABLE>
THESE ARE THE MOST COMMON DEATH BENEFIT SCENARIOS, HOWEVER, THERE ARE
OTHERS. SOME OF THE ANNUITY PAYOUT OPTIONS MAY NOT RESULT IN A DEATH BENEFIT
PAYOUT. IF YOU HAVE QUESTIONS ABOUT THESE AND ANY OTHER SCENARIOS, PLEASE
CONTACT YOUR REGISTERED REPRESENTATIVE OR US.
WHAT SHOULD THE BENEFICIARY CONSIDER?
ALTERNATIVES TO THE REQUIRED DISTRIBUTIONS -- The selection of an Annuity
Payout Option and the timing of the selection will have an impact on the tax
treatment of the Death Benefit. To receive favorable tax treatment, the Annuity
Payout Option selected: (a) cannot extend beyond the Beneficiary's life or life
expectancy, and (b) must begin within one year of the date of death.
If these conditions are not met, the Death Benefit will be treated as a lump
sum payment for tax purposes. This sum will be taxable in the year in which it
is considered received.
SPOUSAL CONTRACT CONTINUATION -- If the Beneficiary is the Contract Owner's
spouse, the Beneficiary may elect to continue the Contract as the contract
owner, receive the death benefit in one lump sum payment or elect an Annuity
Payout Option. This spousal continuation is available only once for each
Contract.
SURRENDERS
WHAT KINDS OF SURRENDERS ARE AVAILABLE?
FULL SURRENDERS BEFORE THE ANNUITY COMMENCEMENT DATE -- When you Surrender
your Contract before the Annuity Commencement Date, the Surrender Value of the
Contract will be made in a lump sum payment. The Surrender Value is the Contract
Value minus any applicable Premium Taxes and the Annual Maintenance Fee. The
Surrender Value may be more or less than the amount of the Premium Payments made
to a Contract.
PARTIAL SURRENDERS BEFORE THE ANNUITY COMMENCEMENT DATE -- You may request a
partial Surrender of Contract Values at any time before the Annuity Commencement
Date. There are two restrictions:
- - The partial Surrender amount must be at least equal to $100, our current
minimum for partial Surrenders, and
- - The Contract must have a minimum Contract Value of $500 after the Surrender.
The minimum Contract Value in New York must be $1000 after the Surrender. We
reserve the right to close your Contract and pay the full Surrender Value if
the Contract Value is under the minimum after the Surrender. If your Contract
was issued in Texas, a remaining value of $500 is not required to continue the
Contract if Premium Payments were made in the last two Contract Years.
FULL SURRENDERS AFTER THE ANNUITY COMMENCEMENT DATE -- You may Surrender
your Contract on or after the Annuity Commencement Date only if you selected the
Payment For a Period Certain Annuity Payout Option. Under this option, we pay
you the Commuted Value of your Contract. The Commuted Value is determined on the
day we receive your written request for Surrender.
PARTIAL SURRENDERS AFTER THE ANNUITY COMMENCEMENT DATE -- Partial Surrenders
are permitted after the Annuity Commencement Date if you elect the Payments for
a Period Certain Annuity Payout Option, but check with your tax advisor because
there may be adverse tax consequences.
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HOW DO I REQUEST A SURRENDER?
Requests for full Surrenders must be in writing. Requests for partial Surrenders
can be made in writing or by telephone. We will send your money within seven
days of receiving complete instructions. However, we may postpone payment of
Surrenders whenever: (a) the New York Stock Exchange is closed, (b) trading on
the New York Stock Exchange is restricted by the SEC, (c) the SEC permits and
orders postponement, or (d) the SEC determines that an emergency exists to
restrict valuation.
WRITTEN REQUESTS -- To request a full or partial Surrender, complete a
Surrender Form or send us a letter, signed by you, stating:
- - the dollar amount that you want to receive, either before or after we withhold
taxes and deduct for any applicable charges,
- - your tax withholding amount or percentage, if any, and
- - your mailing address.
If there are joint Contract Owners, both must authorize all Surrenders. For
a partial Surrender, specify the Accounts that you want your Surrender to come
from, otherwise, the Surrender will be taken in proportion to the value in each
Account.
TELEPHONE REQUESTS -- To request a partial Surrender by telephone, we must
have received your completed Telephone Redemption Program Enrollment Form. If
there are joint Contract Owners, both must sign this form. By signing the form,
you authorize us to accept telephone instructions for partial Surrenders from
either Contract Owner. Telephone authorization will remain in effect until we
receive a written cancellation notice from you or your joint Contract Owner, we
discontinue the program; or you are no longer the owner of the Contract. There
are some restrictions on telephone surrenders, please call us with any
questions.
We may record telephone calls and use other procedures to verify information
and confirm that instructions are genuine. We will not be liable for losses or
expenses arising from telephone instructions reasonably believed to be genuine.
WE MAY MODIFY THE REQUIREMENTS FOR TELEPHONE REDEMPTIONS AT ANY TIME.
Telephone Surrender instructions received before the close of the New York
Stock Exchange will be processed on that Valuation Day. Otherwise, your request
will be processed on the next Valuation Day.
COMPLETING A POWER OF ATTORNEY FORM FOR ANOTHER PERSON TO ACT ON YOUR BEHALF
MAY PREVENT YOU FROM MAKING SURRENDERS VIA TELEPHONE.
WHAT SHOULD BE CONSIDERED ABOUT TAXES?
There are certain tax consequences associated with Surrenders:
PRIOR TO AGE 59 1/2 -- If you make a Surrender prior to age 59 1/2, there
may be adverse tax consequences including a 10% federal income tax penalty on
the taxable portion of the Surrender payment. Surrendering before age 59 1/2 may
also affect the continuing tax-qualified status of some Contracts.
WE DO NOT MONITOR SURRENDER REQUESTS. TO DETERMINE WHETHER A SURRENDER IS
PERMISSIBLE, WITH OR WITHOUT FEDERAL INCOME TAX PENALTY, PLEASE CONSULT YOUR
PERSONAL TAX ADVISER.
MORE THAN ONE CONTRACT ISSUED IN THE SAME CALENDAR YEAR -- If you own more
than one contract issued by us or our affiliates in the same calendar year, then
these contracts may be treated as one contract for the purpose of determining
the taxation of distributions prior to the Annuity Commencement Date. Please
consult your tax adviser for additional information.
INTERNAL REVENUE CODE SECTION 403(B) ANNUITIES -- As of December 31, 1988,
all section 403(b) annuities have limits on full and partial Surrenders.
Contributions to your Contract made after December 31, 1988 and any increases in
cash value after December 31, 1988 may not be distributed unless you are: (a)
age 59 1/2, (b) no longer employed, (c) deceased, (d) disabled, or (e)
experiencing a financial hardship (cash value increases may not be distributed
for hardships prior to age 59 1/2). Distributions prior to age 59 1/2 due to
financial hardship; unemployment or retirement may still be subject to a penalty
tax of 10%.
WE ENCOURAGE YOU TO CONSULT WITH YOUR TAX ADVISER BEFORE MAKING ANY
SURRENDERS. PLEASE SEE THE "FEDERAL TAX CONSIDERATIONS" SECTION FOR MORE
INFORMATION.
ANNUITY PAYOUTS
THIS SECTION DESCRIBES WHAT HAPPENS WHEN WE BEGIN TO MAKE REGULAR ANNUITY
PAYOUTS FROM YOUR CONTRACT. YOU, AS THE CONTRACT OWNER, SHOULD ANSWER FIVE
QUESTIONS:
1. When do you want Annuity Payouts to begin?
2. Which Annuity Payout Option do you want to use?
3. How often do you want to receive Annuity Payouts?
4. What level of Assumed Investment Return should you choose?
5. Do you want Annuity Payouts to be fixed or variable or a combination?
Please check with your financial advisor to select the Annuity Payout Option
that best meets your income needs.
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18 HARTFORD LIFE INSURANCE COMPANY
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1. When do you want Annuity Payouts to begin?
You select an Annuity Commencement Date when you purchase your Contract or
at any time before you begin receiving Annuity Payouts. You may change the
Annuity Commencement Date by notifying us within thirty days prior to the date.
The Annuity Commencement Date cannot be deferred beyond the Annuitant's 90th
birthday or the end of the 10th Contract Year, whichever is earlier. If your
Contract is issued in New York, you cannot defer beyond the Annuitant's 90th
birthday. If this Contract is issued to the trustee of a Charitable Remainder
Trust, the Annuity Commencement Date may be deferred to the Annuitant's 100th
birthday.
The Annuity Calculation Date is when the amount of your Annuity Payout is
determined. This occurs within five Valuation Days before your selected Annuity
Commencement Date.
All Annuity Payouts, regardless of frequency, will occur on the same day of
the month as the Annuity Commencement Date. After the initial payout, if an
Annuity Payout date falls on a Non-Valuation Day, the Annuity Payout is computed
on the prior Valuation Day. If the Annuity Payout date does not occur in a given
month due to a leap year or months with only 28 days (i.e. the 31st), the
Annuity Payout will be computed on the last Valuation Day of the month.
2. Which Annuity Payout Option do you want to use?
Your Contract contains the Annuity Payout Options described below. The
Annuity Proceeds Settlement Option is an option that can be elected by the
Beneficiary after the death of the Contract Owner and is described in the "Death
Benefit" section. We may at times offer other Annuity Payout Options.
OPTION 1 -- LIFE ANNUITY -- We make Annuity Payouts as long as the Annuitant
is living. When the Annuitant dies, we stop making Annuity Payouts. A Payee
would receive only one Annuity Payout if the Annuitant dies after the first
payout, two Annuity Payouts if the Annuitant dies after the second payout, and
so forth.
OPTION 2 -- LIFE ANNUITY WITH A CASH REFUND -- We will make Annuity Payouts
as long as the Annuitant is living. When the Annuitant dies, if the Annuity
Payouts already made are less than the Contract Value minus any Premium Tax, the
remaining value will be paid to the Beneficiary. The remaining value is equal to
the Contract Value minus any Premium Tax minus the Annuity Payouts already made.
This option is only available for Annuity Payouts using the 5% Assumed
Investment Return.
OPTION 3 -- LIFE ANNUITY WITH PAYMENTS FOR A PERIOD CERTAIN -- We will make
Annuity Payouts as long as the Annuitant is living, but we at least guarantee to
make Annuity Payouts for a time period you select, between 5 years and 100 years
minus the Annuitant's age. If the Annuitant dies before the guaranteed number of
years have passed, then the Beneficiary may elect to (a) continue Annuity
Payouts for the remainder of the guaranteed number of years or (b) receive the
Commuted Value in one sum.
For Qualified Contracts, the guaranteed number of years must be less than
the life expectancy of the Annuitant at the time the Annuity Payouts begin. We
compute life expectancy using the IRS mortality tables.
OPTION 4 -- JOINT AND LAST SURVIVOR LIFE ANNUITY -- We will make Annuity
Payouts as long as the Annuitant and Joint Annuitant are living. When one
Annuitant dies, we continue to make Annuity Payouts to the other Annuitant until
that second Annuitant dies. When choosing this option, you must decide what will
happen to the Annuity Payout after the first Annuitant dies. You must select
Annuity Payouts that:
- - Remain the same at 100%, or
- - Decrease to 66.67%, or
- - Decrease to 50%.
For variable-dollar amount Annuity Payouts, these percentages represent
Annuity Units. For fixed-dollar amount Annuity Payouts, the percentages
represent actual dollar amounts. The percentage will also impact the Annuity
Payout amount we pay while both Annuitants are living. If you pick a lower
percentage, your original Annuity Payouts will be higher while both Annuitants
are alive.
OPTION 5 -- JOINT AND LAST SURVIVOR LIFE ANNUITY WITH PAYMENTS FOR A PERIOD
CERTAIN -- We will make Annuity Payouts as long as either the Annuitant or Joint
Annuitant are living, but we at least guarantee to make Annuity Payouts for a
time period you select, between 5 years and 100 years minus the Annuitant's age.
If the Annuitant and the Joint Annuitant both die before the guaranteed number
of years have passed, then the Beneficiary has two options, (a) continue Annuity
Payouts for the remainder of the guaranteed number of years or (b) receive the
Commuted Value in one sum.
When choosing this option, you must decide what will happen to the Annuity
Payouts after the first Annuitant dies. You must select Annuity Payouts that:
- - Remain the same at 100%, or
- - Decrease to 66.67%, or
- - Decrease to 50%.
For variable dollar amount Annuity Payouts, these percentages represent
Annuity Units. For fixed-dollar amount Annuity Payouts, these percentages
represent actual dollar amounts. The percentage will also impact the
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HARTFORD LIFE INSURANCE COMPANY 19
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Annuity Payout amount we pay while both Annuitants are living. If you pick a
lower percentage, your original Annuity Payouts will be higher while both
Annuitants are alive.
OPTION 6 -- PAYMENTS FOR A PERIOD CERTAIN -- We will make Annuity Payouts
for the number of years that you select. You can select between 5 years and 30
years.
IMPORTANT INFORMATION:
- - You cannot Surrender your Contract once Annuity Payouts begin, unless you have
selected the Payments for a Period Certain Annuity Payout Option.
- - For Non-Qualified Contracts, if you do not elect an Annuity Payout Option,
fixed Annuity Payouts will automatically begin on the Annuity Commencement
Date under the Payments for a Period Certain Annuity Payout Option using a ten
year period certain.
- - For Qualified Contracts and Contracts issued in Texas, if you do not elect an
Annuity Payout Option, fixed Annuity Payouts will begin automatically on the
Annuity Commencement Date, under the Annuity Payout Option 1 -- Life Annuity.
3. How often do you want the Payee to receive Annuity Payouts?
In addition to selecting an Annuity Commencement Date and an Annuity Payout
Option, you must also decide how often you want the Payee to receive Annuity
Payouts. You may choose to receive Annuity Payouts:
- - monthly,
- - quarterly,
- - semi-annually, or
- - annually.
Once you select a frequency, it cannot be changed. If you do not make a
selection, the Payee will receive monthly Annuity Payouts. You must select a
frequency that results in an Annuity Payout of at least $50. If the amount falls
below $50, we have the right to change the frequency to bring the Annuity Payout
up to at least $50. For Contracts issued in New York, the minimum monthly
Annuity Payout is $20.
4. What level of Assumed Investment Return do you prefer?
The Assumed Investment Return ("AIR") is the investment return you select
before we start to make Annuity Payouts. It is a critical assumption for
calculating variable dollar amount Annuity Payouts. The first Annuity Payout
will be based upon the AIR. The remaining Annuity Payouts will fluctuate based
on the performance of the underlying Funds.
Subject to the approval of your State, you can select one of three AIRs: 3%,
5% or 6%. The greater the AIR, the greater the initial Annuity Payout. A higher
AIR may result in smaller potential growth in the Annuity Payouts. On the other
hand, a lower AIR results in a lower initial Annuity Payout, but future Annuity
Payouts have the potential to be greater.
For example, if the second monthly Annuity Payout is the same as the first,
the sub-accounts earned exactly the same return as the AIR. If the second
monthly Annuity Payout is more than the first, the sub-accounts earned more than
the AIR. If the second Annuity Payout is less than the first, the sub-account
earned less than the AIR.
Level variable dollar amount Annuity Payouts would be produced if the
investment returns remained constant and equal to the AIR. In fact, Annuity
Payouts will vary up or down as the investment rate varies up or down from the
AIR.
5. Do you want fixed-dollar amount or variable dollar amount Annuity Payouts or
a combination of both?
You may choose an Annuity Payout Option with fixed-dollar amounts,
variable-dollar amounts or a combination depending on your income needs.
FIXED-DOLLAR AMOUNT ANNUITY PAYOUTS -- Once a fixed-dollar amount Annuity
Payout begins, you cannot change your selection to receive variable-dollar
amount Annuity Payout. You will receive equal fixed-dollar amount Annuity
Payouts throughout the Annuity Payout period. Fixed-dollar amount Annuity Payout
amounts are determined by multiplying the Contract Value, minus any applicable
Premium Taxes, by an Annuity rate. The annuity rate is set by us and is not less
than the rate specified in the fixed-dollar amount Annuity Payout Option tables
in your Contract.
VARIABLE-DOLLAR AMOUNT ANNUITY PAYOUTS -- A variable-dollar amount Annuity
Payout is based on the investment performance of the Sub-Accounts. The
variable-dollar amount Annuity Payouts may fluctuate with the performance of the
underlying Funds. To begin making variable-dollar amount Annuity Payouts, we
convert the first Annuity Payout amount to a set number of Annuity Units and
then price those units to determine the Annuity Payout amount. The number of
Annuity Units that determines the Annuity Payout amount remains fixed unless you
transfer units between Sub-Accounts.
The dollar amount of the first variable Annuity Payout depends on:
- - the Annuity Payout Option chosen,
- - the Annuitant's attained age and gender (if applicable), and,
- - the applicable annuity purchase rates based on the 1983a Individual Annuity
Mortality table
- - the Assumed Investment Return
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20 HARTFORD LIFE INSURANCE COMPANY
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The total amount of the first variable-dollar amount Annuity Payout is
determined by dividing the Contract Value minus any applicable Premium Taxes, by
$1,000 and multiplying the result by the payment factor defined in the Contract
for the selected Annuity Payout Option.
The dollar amount of each subsequent variable-dollar amount Annuity Payout
is equal to the total of:
Annuity Units for each Sub-Account multiplied by Annuity Unit Value for each
Sub-Account.
The Annuity Unit Value of each Sub-Account for any Valuation Period is equal
to the Accumulation Unit Value Net Investment Factor for the current Valuation
Period multiplied by the Annuity Unit factor, multiplied by the Annuity Unit
Value for the preceding Valuation Period.
COMBINATION ANNUITY PAYOUTS -- You may choose to receive a combination of
fixed-dollar amount and variable-dollar amount annuity payouts as long as they
total 100% of your Annuity Payout. For example, you may choose to receive 40%
fixed-dollar amount and 60% variable-dollar amount to meet your income needs.
TRANSFER OF ANNUITY UNITS -- After the Annuity Calculation Date, you may
transfer dollar amounts of Annuity Units from one Sub-Account to another. On the
day you make a transfer, the dollar amounts are equal for both Sub-Accounts and
the number of Annuity Units will be different. We will transfer the dollar
amount of your Annuity Units the day we receive your written request if received
before the close of the New York Stock Exchange. Otherwise, the transfer will be
made on the next Valuation Day.
OTHER PROGRAMS AVAILABLE
INVESTEASE-REGISTERED TRADEMARK- -- InvestEase is an electronic transfer
program that allows you to have money automatically transferred from your
checking or savings account, and invested in your Contract. It is available for
Premium Payments made after your initial Premium Payment. The minimum amount for
each transfer is $50. You can elect to have transfers occur either monthly or
quarterly, and they can be made into any Account available in your Contract.
AUTOMATIC INCOME PROGRAM -- The Automatic Income Program allows you to
Surrender up to 10% of your total Premium Payments each Contract Year. We can
Surrender from the Accounts you select systematically on a monthly, quarterly,
semiannual, or annual basis. The Automatic Income Program may change based on
your instructions after your seventh Contract Year.
ASSET ALLOCATION PROGRAM -- Asset Allocation is a program that allows you to
choose a customized allocation for your Sub-Accounts to help you reach your
investment goals. Over time, Sub-Account performance may cause your Contract's
allocation percentages to change, but under the Asset Allocation Program, your
Sub-Account allocations are rebalanced to the percentages you have chosen. You
can only participate in one asset allocation model at a time.
ASSET REBALANCING -- Asset Rebalancing is another type of asset allocation
program in which you customize your Sub-Accounts to meet your investment needs.
You select the Sub-Accounts and the percentages you want allocated to each
Sub-Account. Based on the frequency you select, your model will automatically
rebalance to the original percentages chosen. You can transfer freely between
models up to twelve times per year. You can also allocate a portion of your
investment to Sub-Accounts that are not part of the model. You can only
participate in one asset rebalancing model at a time.
OTHER INFORMATION
ASSIGNMENT -- Ownership of this Contract is generally assignable. However,
if the Contract is issued to a tax qualified retirement plan, it is possible
that the ownership of the Contract may not be transferred or assigned. An
assignment of a Non-Qualified Contract may subject the Contract Values or
Surrender Value to income taxes and certain penalty taxes.
CONTRACT MODIFICATION -- The Annuitant may not be changed. However, if the
Annuitant is still living, the Contingent Annuitant may be changed at any time
prior to the Annuity Commencement Date by sending us written notice. We may
modify the Contract, but no modification will affect the amount or term of any
Contract unless a modification is required to conform the Contract to applicable
Federal or State law. No modification will effect the method by which Contract
Values are determined.
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 registered with the Securities and Exchange
Commission under the Securities Exchange Act of 1934 as a Broker-Dealer and is a
member of the National Association of Securities Dealers, Inc. HSD is an
affiliate of ours. Both HSD and Hartford are ultimately controlled by The
Hartford Financial Services Group, Inc. The principal business address of HSD is
the same as ours. The securities will be sold by individuals who represent us as
insurance agents and who are registered representatives of Broker-Dealers that
have entered into distribution agreements with HSD.
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.
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HARTFORD LIFE INSURANCE COMPANY 21
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Broker-dealers or financial institutions are compensated according to a
schedule set forth by HSD and any applicable rules or regulations for variable
insurance compensation. Compensation is generally based on Premium Payments made
by policyholders or Contract Owners. This compensation is usually paid from the
sales charges described in this Prospectus.
In addition, a broker-dealer or financial institution may also receive
additional compensation for, among other things, training, marketing or other
services provided. HSD, its affiliates or Hartford may also make compensation
arrangements with certain broker-dealers or financial institutions based on
total sales by the broker-dealer or financial institution of insurance products.
These payments, which may be different for different broker-dealers or financial
institutions, will be made by HSD, its affiliates or Hartford out of their own
assets and will not affect the amounts paid by the policyholders or Contract
Owners to purchase, hold or Surrender variable insurance products.
The Contract may be sold directly to certain individuals under certain
circumstances that do not involve payment of any sales compensation to a
registered representative. In such case, Hartford will credit the Contract with
an additional 5.0% of the Premium Payment. This additional percentage of Premium
Payment in no way affects present or future charges, rights, benefits or current
values of other Contract Owners. The following class of individuals are eligible
for this feature: (1) current or retired officers, directors, trustees and
employees (and their families) of the ultimate parent and affiliates of
Hartford; and (2) employees and registered representatives (and their families)
of registered broker-dealers (or their financial institutions) that have a sales
agreement with Hartford and its principal underwriter to sell the Contracts.
YEAR 2000
IN GENERAL -- The Year 2000 issue relates to the ability or inability of
computer hardware, software and other information technology (IT) systems, as
well as non-IT systems, such as equipment and machinery with imbedded chips and
microprocessors, to properly process information and data containing or related
to dates beginning with the year 2000 and beyond. The Year 2000 issue exists
because, historically, many IT and non-IT systems that are in use today were
developed years ago when a year was identified using a two-digit date field
rather than a four-digit date field. As information and data containing or
related to the century date are introduced to date sensitive systems, these
systems may recognize the year 2000 as "1900", or not at all, which may result
in systems processing information incorrectly. This, in turn, may significantly
and adversely affect the integrity and reliability of information databases of
IT systems, may cause the malfunctioning of certain non-IT systems, and may
result in a wide variety of adverse consequences to a company. In addition, Year
2000 problems that occur with third parties with which a company does business,
such as suppliers, computer vendors, distributors and others, may also adversely
affect any given company.
The integrity and reliability of Hartford's IT systems, as well as the
reliability of its non-IT systems, are integral aspects of Hartford's business.
Hartford issues insurance policies, annuities, mutual funds and other financial
products to individual and business customers, nearly all of which contain date
sensitive data, such as policy expiration dates, birth dates and premium payment
dates. In addition, various IT systems support communications and other systems
that integrate Hartford's various business segments and field offices. Hartford
also has business relationships with numerous third parties that affect
virtually all aspects of Hartford's business, including, without limitation,
suppliers, computer hardware and software vendors, insurance agents and brokers,
securities broker-dealers and other distributors of financial products, many of
which provide date sensitive data to Hartford, and whose operations are
important to Hartford's business.
INTERNAL YEAR 2000 EFFORTS AND TIMETABLE -- Beginning in 1990, Hartford
began working on making its IT systems Year 2000 ready, either through
installing new programs or replacing systems. Since January 1998, Hartford's
Year 2000 efforts have focused on the remaining Year 2000 issues related to IT
and non-IT systems in all of Hartford's business segments. These Year 2000
efforts include the following five main initiatives: (1) identifying and
assessing Year 2000 issues; (2) taking actions to remediate IT and non-IT
systems so that they are Year 2000 ready; (3) testing IT and non-IT systems for
Year 2000 readiness; (4) deploying such remediated and tested systems back into
their respective production environments; and (5) conducting internal and
external integrated testing of such systems. As of December 31, 1998, Hartford
substantially completed initiatives (1) through (4) of its internal Year 2000
efforts. Hartford has begun initiative (5) and management currently anticipates
that such activity will continue into the fourth quarter of 1999.
THIRD PARTY YEAR 2000 EFFORTS AND TIMETABLE -- Hartford's Year 2000 efforts
include assessing the potential impact on Hartford of third parties' Year 2000
readiness. Hartford's third party Year 2000 efforts include the following three
main initiatives: (1) identifying third parties which have significant business
relationships with Hartford, including, without limitation, insurance agents,
brokers, third party administrators, banks and other distributors and servicers
of financial products, and inquiring of such third parties regarding their Year
2000 readiness; (2) evaluating such third parties' responses to Hartford's
inquiries; and (3) based on the evaluation of third party responses (or a third
party's failure to respond) and the significance of the business relationship,
conducting additional activities with respect to third parties as determined to
be necessary in
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22 HARTFORD LIFE INSURANCE COMPANY
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each case. These activities may include conducting additional inquiries, more
in-depth evaluations of Year 2000 readiness and plans, and integrated IT systems
testing. Hartford has completed the first third party initiative and, as of
early 1999, had substantially completed evaluating third party responses
received. Hartford has begun conducting the additional activities described in
initiative (3) and management currently anticipates that it will continue to do
so through the end of 1999. However, notwithstanding these third party Year 2000
efforts, Hartford does not have control over these third parties and, as a
result, Hartford cannot currently determine to what extent future operating
results may be adversely affected by the failure of these third parties to
adequately address their Year 2000 issues.
YEAR 2000 COSTS -- The costs of Hartford's Year 2000 program that were
incurred through the year ended December 31, 1997 were not material to
Hartford's financial condition or results of operations. The after-tax costs of
Hartford's Year 2000 efforts for the year ended December 31, 1998 were
approximately $3 million. Management currently estimates that after-tax costs
related to the Year 2000 program to be incurred in 1999 will be less than $10
million. These costs are being expensed as incurred.
RISKS AND CONTINGENCY PLANS -- If significant Year 2000 problems arise,
including problems arising with third parties, failures of IT and non-IT systems
could occur, which in turn could result in substantial interruptions in
Hartford's business. In addition, Hartford's investing activities are an
important aspect of its business and Hartford may be exposed to the risk that
issuers of investments held by it will be adversely impacted by Year 2000
issues. Given the uncertain nature of Year 2000 problems that may arise,
especially those related to the readiness of third parties discussed above,
management cannot determine at this time whether the consequences of Year 2000
related problems that could arise will have a material impact on Hartford's
financial condition or results of operations.
Hartford is in the process of developing certain contingency plans so that
if, despite its Year 2000 efforts, Year 2000 problems ultimately arise, the
impact of such problems may be avoided or minimized. These contingency plans are
being developed based on, among other things, known or reasonably anticipated
circumstances and potential vulnerabilities. The contingency planning also
includes assessing the dependency of Hartford's business on third parties and
their Year 2000 readiness. Hartford currently anticipates that internal and
external contingency plans will be substantially complete by the end of the
second quarter of 1999. However, in many contexts, Year 2000 issues are dynamic,
and ongoing assessments of business functions, vulnerabilities and risks must be
made. As such, new contingency plans may be needed in the future and/or existing
plans may need to be modified as circumstances warrant.
LEGAL MATTERS AND EXPERTS
There are no material legal proceedings pending to which the Separate
Account is a party.
Counsel with respect to federal laws and regulations applicable to the issue
and sale of the Contracts and with respect to Connecticut law is Lynda Godkin,
Senior Vice President, General Counsel and Corporate Secretary, Hartford Life
Insurance Company, P.O. Box 2999, Hartford, Connecticut 06104-2999.
The audited financial statements and financial statement schedules included
in this registration statement have been audited by Arthur Andersen LLP,
independent public accountants, as indicated in their reports with respect
thereto, and are included herein in reliance upon the authority of said firm as
experts in giving said reports. The principal business address of Arthur
Andersen LLP is One Financial Plaza, Hartford, Connecticut 06103.
MORE INFORMATION
You may call your Representative if you have any questions or write or call
us at the address below:
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 (Registered Representatives)
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HARTFORD LIFE INSURANCE COMPANY 23
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FEDERAL TAX CONSIDERATIONS
What are some of the federal tax consequences which affect these Contracts?
A. GENERAL
Since federal tax law is complex, the tax consequences of purchasing this
contract will vary depending on your situation. You may need tax or legal advice
to help you determine whether purchasing this contract is right for you.
Our general discussion of the tax treatment of this contract is based on our
understanding of federal income tax laws as they are currently interpreted. A
detailed description of all federal income tax consequences regarding the
purchase of this contract cannot be made in the prospectus. We also do not
discuss state, municipal or other tax laws that may apply to this contract. For
detailed information, you should consult with a qualified tax adviser familiar
with your situation.
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 "Value of Accumulation Units"). As a
result, such investment income and realized capital gains are automatically
applied to increase reserves under the Contract.
No taxes are due on interest, dividends and short-term or long-term capital
gains earned by the Separate Account with respect to Qualified or Non-Qualified
Contracts.
C. TAXATION OF ANNUITIES -- GENERAL
PROVISIONS AFFECTING PURCHASERS OTHER
THAN QUALIFIED RETIREMENT PLANS
Section 72 of the Code governs the taxation of annuities in general.
1. NON-NATURAL PERSONS, CORPORATIONS, ETC.
Code Section 72 contains provisions for contract owners which are not
natural persons. Non-natural persons include corporations, trusts, limited
liability companies, partnerships and other types of legal entities. The tax
rules for contracts owned by non-natural persons are different from the rules
for contracts owned by individuals. For example, the annual net increase in the
value of the contract is currently includible in the gross income of a non-
natural person, unless the non-natural person holds the contract as an agent for
a natural person. There are additional exceptions from current inclusion for:
- - certain annuities held by structured settlement companies,
- - certain annuities held by an employer with respect to a terminated 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.
If the contract owner is a non-natural person, the primary annuitant is
treated as the contract owner in applying mandatory distribution rules. These
rules require that certain distributions be made upon the death of the contract
owner. A change in the primary annuitant is also 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
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24 HARTFORD LIFE INSURANCE COMPANY
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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 Prospectus, there are no
regulations interpreting this provision.
D. 10% PENALTY TAX -- APPLICABLE TO CERTAIN WITHDRAWALS AND ANNUITY
PAYMENTS.
i. If any amount is received or deemed received on the Contract (before or
after the Annuity Commencement Date), the Code applies a penalty tax equal
to ten percent of the portion of the amount includable in gross income,
unless an exception applies.
ii. The 10% penalty tax will not apply to the following distributions
(exceptions vary based upon the precise plan involved):
1. Distributions made on or after the date the recipient has attained the
age of 59 1/2.
2. Distributions made on or after the death of the holder or where the
holder is not an individual, the death of the primary annuitant.
3. Distributions attributable to a recipient's becoming disabled.
4. A distribution that is part of a scheduled series of substantially equal
periodic payments (not less frequently than annually) for the life (or
life expectancy) of the recipient (or the joint lives or life
expectancies of the recipient and the recipient's designated
Beneficiary).
5. Distributions of amounts 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
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HARTFORD LIFE INSURANCE COMPANY 25
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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
must be made 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. This spousal continuation shall apply only
once for this contract.
3. DIVERSIFICATION REQUIREMENTS.
The Code requires that investments supporting your contract be adequately
diversified. Code Section 817 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.
If a contract is not treated as an annuity contract, the contract owner will be
subject to income tax on annual increases in cash value.
The Treasury Department's diversification regulations 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 the
case of government securities, each government agency or instrumentality is
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 still 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.
We monitor the diversification of investments in the separate accounts and
test for diversification as required by the Code. We intend to administer all
contracts subject to the diversification requirements in a manner that will
maintain adequate diversification.
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26 HARTFORD LIFE INSURANCE COMPANY
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4. OWNERSHIP OF THE ASSETS IN THE SEPARATE ACCOUNT.
In order for a variable annuity contract to qualify for tax deferral, assets
in the separate accounts supporting the contract must be considered to be owned
by the insurance company and not by the contract owner. It is unclear under what
circumstances an investor is considered to have enough control over the assets
in the separate account to be considered the owner of the assets for tax
purposes.
The IRS has issued several rulings discussing investor control. These
rulings say that certain incidents of ownership by the contract owner, such as
the ability to select and control investments in a separate account, will cause
the contract owner to be treated as the owner of the assets for tax purposes.
In its explanation of the diversification regulations, the Treasury
Department recognized 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, guidance has
yet to be issued. We do not know if additional guidance will be issued. If
guidance is issued, we do not know if it will have a retroactive effect.
Due to the lack of specific guidance on investor control, there is some
uncertainty about when a contract owner is considered the owner of the assets
for tax purposes. We reserve the right to modify the contract, as necessary, to
prevent you from being considered the owner of assets in the separate account.
D. FEDERAL INCOME TAX WITHHOLDING
The portion of a distribution which is taxable income to the recipient will
be subject to federal income tax withholding, pursuant to Section 3405 of the
Code. The application of this provision is summarized below:
1. NON-PERIODIC DISTRIBUTIONS.
The portion of a non-periodic distribution which constitutes taxable income
will be subject to federal income tax withholding unless the recipient elects
not to have taxes withheld. If there is no election to waive withholding, 10% of
the taxable distribution will be withheld as federal income tax. Election forms
will be provided at the time distributions are requested. If the necessary
election forms are not submitted to Hartford, Hartford will automatically
withhold 10% of the taxable distribution.
2. PERIODIC DISTRIBUTIONS (DISTRIBUTIONS PAYABLE OVER A PERIOD GREATER THAN ONE
YEAR).
The portion of a periodic distribution which constitutes taxable income will
be subject to federal income tax withholding as if the recipient were married
claiming three exemptions. A recipient may elect not to have income taxes
withheld or have income taxes withheld at a different rate by providing a
completed election form. Election forms will be provided at the time
distributions are requested.
E. GENERAL PROVISIONS AFFECTING
QUALIFIED RETIREMENT PLANS
The Contract may be used for a number of qualified retirement plans. If the
Contract is being purchased with respect to some form of qualified retirement
plan, please refer to Appendix I for information relative to the types of plans
for which it may be used and the general explanation of the tax features of such
plans.
F. ANNUITY PURCHASES BY NONRESIDENT
ALIENS AND FOREIGN CORPORATIONS
The discussion above provides general information regarding U.S. federal
income tax consequences to annuity purchasers that are U.S. citizens or
residents. Purchasers that are not U.S. citizens or residents will generally be
subject to U.S. federal income tax and withholding on annuity distributions at a
30% rate, unless a lower treaty rate applies. In addition, purchasers may be
subject to state premium tax, other state and/or municipal taxes, and taxes that
may be imposed by the purchaser's country of citizenship or residence.
Prospective purchasers are advised to consult with a qualified tax adviser
regarding U.S., state, and foreign taxation with respect to an annuity purchase.
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HARTFORD LIFE INSURANCE COMPANY 27
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APPENDIX I -- INFORMATION REGARDING
TAX-QUALIFIED RETIREMENT PLANS
This summary does not attempt to provide more than general information about
the federal income tax rules associated with use of a Contract by a
tax-qualified retirement plan. Because of the complexity of the federal tax
rules, owners, participants and beneficiaries are encouraged to consult their
own tax advisors as to specific tax consequences.
The federal tax rules applicable to owners of Contracts under tax-qualified
retirement plans vary according to the type of plan as well as the terms and
conditions of the plan itself. Contract owners, plan participants and
beneficiaries are cautioned that the rights and benefits of any person may be
controlled by the terms and conditions of the tax-qualified retirement plan
itself, regardless of the terms and conditions of a Contract. We are not bound
by the terms and conditions of such plans to the extent such terms conflict with
a Contract, unless we specifically consent to be bound.
Some tax-qualified retirement plans are subject to distribution and other
requirements that are not incorporated into our administrative procedures.
Contract owners, participants and beneficiaries are responsible for determining
that contributions, distributions and other transactions comply with applicable
law. Tax penalties may apply to transactions with respect to tax-qualified
retirement plans if applicable federal income tax rules and restrictions are not
carefully observed.
We do not currently offer the Contracts in connection with all of the types
of tax-qualified retirement plans discussed below and may not offer the
Contracts for all types of tax-qualified retirement plans in the future.
1. TAX-QUALIFIED PENSION OR PROFIT-SHARING PLANS -- Eligible employers can
establish certain tax-qualified pension and profit-sharing plans under section
401 of the Code. Rules under section 401(k) of the Code govern certain "cash or
deferred arrangements" under such plans. Rules under section 408(k) govern
"simplified employee pensions". Tax-qualified pension and profit-sharing plans
are subject to limitations on the amount that may be contributed, the persons
who may be eligible to participate and the time when distributions must
commence. Employers intending to use the Contracts in connection with
tax-qualified pension or profit-sharing plans should seek competent tax and
other legal advice.
2. TAX SHELTERED ANNUITIES UNDER SECTION 403(B) -- Public schools and
certain types of charitable, educational and scientific organizations, as
specified in section 501(c)(3) of the Code, can purchase tax-sheltered annuity
contracts for their employees. Tax-deferred contributions can be made to
tax-sheltered annuity contracts under section 403(b) of the Code, subject to
certain limitations. Generally, such contributions may not exceed the lesser of
$10,000 (indexed) or 20% of the employee's "includable compensation" for such
employee's most recent full year of employment, subject to other adjustments.
Special provisions under the Code may allow some employees to elect a different
overall limitation.
Tax-sheltered annuity programs under section 403(b) are subject to a
PROHIBITION AGAINST DISTRIBUTIONS FROM THE CONTRACT ATTRIBUTABLE TO
CONTRIBUTIONS MADE PURSUANT TO A SALARY REDUCTION AGREEMENT, unless such
distribution is made:
- - after the participating employee attains age 59 1/2;
- - upon separation from service;
- - upon death or disability; or
- - 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.
3. DEFERRED COMPENSATION PLANS UNDER SECTION 457 -- A governmental employer
or a tax-exempt employer other than a governmental unit can establish a Deferred
Compensation Plan under section 457 of the Code. For these purposes, a
"governmental employer" is a State, a political subdivision of a State, or an
agency or an instrumentality of a State or political subdivision of a State.
Employees and independent contractors performing services for a governmental or
tax-exempt employer can elect to have contributions made to a Deferred
Compensation Plan of their employer in accordance with the employer's plan and
section 457 of the Code.
Deferred Compensation Plans that meet the requirements of section 457(b) of
the Code are called "eligible" Deferred Compensation Plans. section 457(b)
limits the amount of contributions that can be made to an eligible Deferred
Compensation Plan on behalf of a participant. Generally, the limitation on
contributions is 33 1/3% of a participant's includable compensation (typically
25% of gross compensation) or, for 1999, $8,000 (indexed), whichever is less.
The plan may provide for additional "catch-up" contributions during the three
taxable years ending before the year in which the participant attains normal
retirement age.
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28 HARTFORD LIFE INSURANCE COMPANY
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All of the assets and income of an eligible Deferred Compensation Plan
established by a governmental employer after August 20, 1996, must be held in
trust for the exclusive benefit of participants and their beneficiaries. For
this purpose, custodial accounts and certain annuity contracts are treated as
trusts. Eligible Deferred Compensation Plans that were in existence on August
20, 1996 may be amended to satisfy the trust and exclusive benefit requirements
any time prior to January 1, 1999, and must be amended not later than that date
to continue to receive favorable tax treatment. The requirement of a trust does
not apply to amounts under a Deferred Compensation Plan of a tax-exempt
(non-governmental) employer. In addition, the requirement of a trust does not
apply to amounts under a Deferred Compensation Plan of a governmental employer
if the Deferred Compensation Plan is not an eligible plan within the meaning of
section 457(b) of the Code. In the absence of such a trust, amounts under the
plan will be subject to the claims of the 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 as defined in the Code.
Under present federal tax law, amounts accumulated in a Deferred
Compensation Plan under section 457 of the Code cannot be transferred or rolled
over on a tax-deferred basis except for certain transfers to other Deferred
Compensation Plans under section 457 in limited cases.
4. INDIVIDUAL RETIREMENT ANNUITIES ("IRAS") UNDER SECTION 408
TRADITIONAL IRAS -- Eligible individuals can establish individual retirement
programs under section 408 of the Code through the purchase of an IRA. Section
408 imposes limits with respect to IRAs, including limits on the amount that may
be contributed to an IRA, the amount of such contributions that may be deducted
from taxable income, the persons who may be eligible to contribute to an IRA,
and the time when distributions commence from an IRA. Distributions from certain
tax-qualified retirement plans may be "rolled-over" to an IRA on a tax-deferred
basis.
SIMPLE IRAS -- Eligible employees may establish SIMPLE IRAs in connection
with a SIMPLE IRA plan of an employer under section 408(p) of the Code. 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 Traditional IRA only after two years have expired since the employee first
commenced participation in the employer's SIMPLE IRA plan. Amounts cannot be
rolled over to a SIMPLE IRA from a qualified plan or a Traditional IRA. Hartford
is a non-designated financial institution for purposes of the SIMPLE IRA rules.
ROTH IRAS -- Eligible individuals may establish Roth IRAs under section 408A
of the Code. Contributions to a Roth IRA are not deductible. Subject to special
limitations, a Traditional IRA may be converted into a Roth IRA or a
distribution from a Traditional IRA may be rolled over to a Roth IRA. However, a
conversion or a rollover from a Traditional IRA to a Roth IRA is not excludable
from gross income. If certain conditions are met, qualified distributions from a
Roth IRA are tax-free.
5. FEDERAL TAX PENALTIES AND WITHHOLDING -- Distributions from tax-qualified
retirement plans are generally taxed as ordinary income under section 72 of the
Code. Under these rules, a portion of each distribution may be excludable from
income. The excludable amount is the portion of the distribution that bears the
same ratio as the after-tax contributions bear to the expected return.
(A) PENALTY TAX ON EARLY DISTRIBUTIONS
Section 72(t) of the Code imposes an additional penalty tax equal to 10% of
the taxable portion of a distribution from certain tax-qualified retirement
plans. However, the 10% penalty tax does not apply to a distributions that is:
- - Made on or after the date on which the employee reaches age 59 1/2;
- - Made to a beneficiary (or to the estate of the employee) on or after the death
of the employee;
- - Attributable to the employee's becoming disabled (as defined in the Code);
- - Part of a series of substantially equal periodic payments (not less frequently
than annually) made for the life (or life expectancy) of the employee or the
joint lives (or joint life expectancies) of the employee and his or her
designated beneficiary;
- - Except in the case of an IRA, made to an employee after separation from
service after reaching age 55; or
- - Not greater than the amount allowable as a deduction to the employee for
eligible medical expenses during the taxable year.
In addition, the 10% penalty tax does not apply to a distribution from an
IRA that is:
- - Made after separation from employment to an unemployed IRA owner for health
insurance premiums, if certain conditions are met;
- - Not in excess of the amount of certain qualifying higher education expenses,
as defined by section 72(t)(7) of the Code; or
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HARTFORD LIFE INSURANCE COMPANY 29
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- - A qualified first-time homebuyer distribution meeting the requirements
specified at 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 is increased to 25% with respect to non-exempt early
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.
(B) MINIMUM DISTRIBUTION PENALTY TAX
If the amount distributed is less than the minimum required distribution for
the year, the Participant is subject to a 50% penalty tax on the amount that was
not properly distributed.
An individual's interest in a tax-qualified retirement plan generally must
be distributed, or begin to be distributed, not later than the Required
Beginning Date. Generally, the Required Beginning Date is April 1 of the
calendar year following the later of:
- - the calendar year in which the individual attains age 70 1/2; or
- - the calendar year in which the individual retires from service with the
employer sponsoring the plan.
The Required Beginning Date for an individual who is a five (5) percent
owner (as defined in the Code), or who is the owner of an IRA, is April 1 of the
calendar year following the calendar year in which the individual attains age
70 1/2.
The entire interest of the Participant must be distributed beginning no
later than the Required Beginning Date over:
- - the life of the Participant or the lives of the Participant and the
Participant's designated beneficiary, or
- - over a period not extending beyond the life expectancy of the Participant or
the joint life expectancy of the Participant and the Participant's 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 and distribution is over the life
of such 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.
(C) WITHHOLDING
In general, regular wage withholding rules apply to distributions from IRAs
and plans described in section 457 of the Code. Periodic distributions from
other tax-qualified retirement plans that are made for a specified period of 10
or more years or for the life or life expectancy of the participant (or the
joint lives or life expectancies of the participant and beneficiary) are
generally subject to federal income tax withholding as if the recipient were
married claiming three exemptions. The recipient of periodic distributions may
generally elect not to have withholding apply or to have income taxes withheld
at a different rate by providing a completed election form.
Mandatory federal income tax withholding at a flat rate of 20% will
generally apply to other distributions from such other tax-qualified retirement
plans unless such distributions are:
- - the non-taxable portion of the distribution;
- - required minimum distributions; or
- - direct transfer distributions.
Direct transfer distributions are direct payments to an IRA or to another
eligible retirement plan under Code section 401(a)(31).
Certain states require withholding of state taxes when federal income tax is
withheld.
<PAGE>
30 HARTFORD LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
TABLE OF CONTENTS TO STATEMENT OF ADDITIONAL INFORMATION
<TABLE>
<CAPTION>
SECTION PAGE
- --------------------------------------------- -----
<S> <C>
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 that you have recently purchased is
subject to certain restrictions imposed by the Tax Reform Act of 1986.
Contributions to the Contract after December 31, 1988 and any increases in cash
value after December 31, 1988 may not be distributed to you unless you have:
a. Attained age 59 1/2,
b. Separated from service,
c. Died, or
d. Become disabled.
Distributions of post December 31, 1988 contributions (excluding any income
thereon) may also be made if you have experienced a financial hardship.
Also, there may be a 10% penalty tax for distributions made prior to age 59 1/2
because of financial hardship or separation from service.
Also, please be aware that your 403(b) Plan may also offer other financial
alternatives other than the 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 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
THE DIRECTOR CHOICE ACCESS
This Statement of Additional Information is not a prospectus. The information
contained herein should be read in conjunction with the Prospectus.
To obtain a Prospectus, send a written request to Hartford Life Insurance
Company
Attn: Individual Annuity Services, P.O. Box 5085, Hartford, CT 06102-5085.
Date of Prospectus: May 3, 1999
Date of Statement of Additional Information: May 3, 1999
Director Access (HL)
<PAGE>
-2-
TABLE OF CONTENTS
SECTION PAGE
- ------- ----
DESCRIPTION OF HARTFORD LIFE INSURANCE COMPANY. . . . . . . . . . . . . . 3
SAFEKEEPING OF ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . 3
INDEPENDENT PUBLIC ACCOUNTANTS . . . . . . . . . . . . . . . . . . . . . 3
DISTRIBUTION OF CONTRACTS . . . . . . . . . . . . . . . . . . . . . . . . 4
CALCULATION OF YIELD AND RETURN . . . . . . . . . . . . . . . . . . . . . 4
PERFORMANCE COMPARISONS . . . . . . . . . . . . . . . . . . . . . . . . . 8
FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . F-1
<PAGE>
-3-
DESCRIPTION OF HARTFORD LIFE INSURANCE COMPANY
Hartford Life Insurance Company is a stock life insurance company engaged in the
business of writing life insurance, both individual and group, in all states of
the United States and the District of Columbia. We were originally incorporated
under the laws of Massachusetts on June 5, 1902, and subsequently redomiciled to
Connecticut. Our offices are located in Simsbury, Connecticut; however, our
mailing address is P.O. Box 2999, Hartford, CT 06104-2999. We are ultimately
controlled by The Hartford Financial Services Group, Inc., one of the largest
financial service providers in the United States.
HARTFORD'S RATINGS
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Rating Agency Effective Rating Basis of Rating
Date of Rating
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
A.M. Best and Company, Inc. 1/1/99 A+ Financial performance
- --------------------------------------------------------------------------------
Standard & Poor's 6/1/98 AA Insurer financial
strength
- --------------------------------------------------------------------------------
Duff & Phelps 12/21/98 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 registration statement have been audited by Arthur Andersen LLP,
independent public accountants, as indicated in their reports with respect
thereto, and are included herein in reliance upon the authority of said firm as
experts in giving said reports. The principal business address of Arthur
Andersen LLP is One Financial Plaza, Hartford, Connecticut 06103.
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.
<PAGE>
-4-
HSD is an affiliate of Hartford. Hartford's parent company indirectly owns 100%
of HSD. The principal business address of HSD is the same as that of Hartford.
The securities will be sold by salespersons of HSD, who represent Hartford as
insurance and Variable Annuity agents and who are registered representatives of
Broker-Dealers who have entered into distribution agreements with HSD.
HSD is registered with the Securities and Exchange Commission under the
Securities Exchange Act of 1934 as a Broker-Dealer and is a member of the
National Association of Securities Dealers, Inc. ("NASD").
Hartford currently pays HSD underwriting commissions for its role as principal
underwriter for all variable annuities associated with this Separate Account.
For the past three years, the aggregate dollar amount of underwriting
commissions paid to HSD in its role as principal underwriter has
been: 1998: $61,629,500; 1997: $64,851,026; and 1996: $59,896,541. HSD has
retained none of these commissions.
CALCULATION OF YIELD AND RETURN
YIELD OF THE MONEY MARKET SUB-ACCOUNT. As summarized in the Prospectus under
the heading "Performance Related Information," the yield of the Money Market
Sub-Account for a seven-day period (the "base period") will be computed by
determining the "net change in value" (calculated as set forth below) of a
hypothetical account having a balance of one accumulation unit of the
Sub-Account at the beginning of the period, subtracting a hypothetical charge
reflecting deductions from Contract Owner accounts, and dividing the difference
by the value of the account at the beginning of the base period to obtain the
base period return, and then multiplying the base period return by (365/7) with
the resulting yield figure carried to the nearest hundredth of one percent. Net
changes in value of a hypothetical account will include net investment income of
the account (accrued daily dividends as declared by the underlying funds, less
daily expense charges of the account) for the period, but will not include
realized gains or losses or unrealized appreciation or depreciation on the
underlying fund shares.
The effective yield is calculated by compounding the base period return by
adding 1, raising the sum to a power equal to 365 divided by 7 and subtracting 1
from the result, according to the following formula:
365/7
Effective Yield = [(Base Period Return + 1) ] - 1
<PAGE>
-5-
The yield and effective yield for the seven-day period ending December 31, 1998
for the Money Market Sub-Account is as follows ($30 Annual Maintenance Fee):
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
SUB-ACCOUNT YIELD EFFECTIVE YIELD
- --------------------------------------------------------------------------------
<S> <C> <C>
Money Market * 3.27% 3.32%
- --------------------------------------------------------------------------------
</TABLE>
*Yield and effective yield for the seven-day period ending December 31, 1998.
THE MONEY MARKET SUB-ACCOUNT'S YIELD AND EFFECTIVE YIELD WILL VARY IN RESPONSE
TO FLUCTUATIONS IN INTEREST RATES AND IN THE EXPENSES OF THE SUB-ACCOUNT. THE
CURRENT YIELD AND EFFECTIVE YIELD REFLECT RECURRING CHARGES ON THE SEPARATE
ACCOUNT LEVEL, INCLUDING THE MAXIMUM ANNUAL MAINTENANCE FEE.
YIELDS OF BOND, MITCHELL HUTCHINS STRATEGIC INCOME, MORTGAGE SECURITIES, AND
HIGH YIELD SUB-ACCOUNTS. As summarized in the Prospectus under the heading
"Performance Related Information," yields of these 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 fund's "net
asset value per share" for the same period in addition to the daily expense
charge assessed at the sub-account level for the respective period. The
Sub-Accounts' yields will vary from time to time depending upon market
conditions and the composition of the underlying funds' portfolios. Yield
should also be considered relative to changes in the value of the Sub-Accounts'
shares and to the relative risks associated with the investment objectives and
policies of the Funds.
THE YIELD REFLECTS RECURRING CHARGES ON THE SEPARATE ACCOUNT LEVEL, INCLUDING
THE ANNUAL MAINTENANCE FEE.
Yield calculations of the Sub-Accounts used for illustration purposes reflect
the interest earned by the Sub-Accounts, less applicable asset based charges
assessed under the Contract over the base period. Yield quotations based on a
30-day period ended December 31, 1998 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.
<PAGE>
-6-
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------
SUB-ACCOUNT YIELD
- -----------------------------------------------------------------------
<S> <C>
Bond ** 4.35%
- -----------------------------------------------------------------------
High Yield ** 7.29%
- -----------------------------------------------------------------------
Mortgage Securities ** 4.58%
- -----------------------------------------------------------------------
</TABLE>
**Yield quotation based on a 30-day period ended December 31, 1998.
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 1, 5, and 10-year periods ended December 31, 1998.
(These returns assume a mortality and risk expense charge of 1.50% and an Annual
Maintenance Fee of $30.)
<TABLE>
<CAPTION>
STANDARDIZED AVERAGE ANNUAL TOTAL RETURN FOR YEAR ENDED
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
SUB-ACCOUNT S/A 1 YEAR 5 YEAR 10 YEAR SINCE
INCEPTION INCEPTION
DATE
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Mitchell Hutchins
Growth and Income 1/2/92 11.64% 12.24% N/A 6.87%
- --------------------------------------------------------------------------------
Mitchell Hutchins
Strategic Income 9/29/98 N/A N/A N/A -0.52%
- --------------------------------------------------------------------------------
Mitchell Hutchins
Tactical Allocation 9/29/98 N/A N/A N/A 21.54%
- --------------------------------------------------------------------------------
Advisers 6/2/86 19.81% 13.29% 11.30% N/A
- --------------------------------------------------------------------------------
Bond 6/2/86 3.54% 2.69% 4.92% N/A
- --------------------------------------------------------------------------------
Capital Appreciation 6/2/86 10.78% 13.65% 15.05% N/A
- --------------------------------------------------------------------------------
Dividend and Growth 6/2/86 11.71% N/A N/A 17.98%
- --------------------------------------------------------------------------------
Global Leaders 9/30/98 N/A N/A N/A 28.39%
- --------------------------------------------------------------------------------
Growth and Income 5/29/98 N/A N/A N/A 15.01%
- --------------------------------------------------------------------------------
High Yield 9/30/98 N/A N/A N/A 0.42%
- --------------------------------------------------------------------------------
Index 5/1/87 23.21% 19.09% 14.70% N/A
- --------------------------------------------------------------------------------
International Advisers 3/1/95 8.67% N/A N/A 6.79%
- --------------------------------------------------------------------------------
International 7/2/90 8.48% 2.92% N/A 2.71%
Opportunities
- --------------------------------------------------------------------------------
MidCap 7/30/97 21.70% N/A N/A 20.51%
- --------------------------------------------------------------------------------
Money Market 6/2/86 0.70% 0.55% 1.24% N/A
- --------------------------------------------------------------------------------
Mortgage Securities 6/2/86 2.13% 2.39% 4.32% N/A
- --------------------------------------------------------------------------------
Small Company 8/9/96 6.71% N/A N/A 10.39%
- --------------------------------------------------------------------------------
Stock 6/2/86 28.51% 19.10% 14.74% N/A
- --------------------------------------------------------------------------------
</TABLE>
<PAGE>
-7-
In addition to the standardized total return, the Sub-Accounts may advertise a
non-standardized total return. This figure will usually be calculated for one
year, five years, and ten years or other periods. Non-standardized total return
is measured in the same manner as the standardized total return described above,
except that the Annual Maintenance Fee is not deducted and the time periods used
to calculate return are based on the inception date of the underlying Funds.
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 1, 5, and 10-year periods ended December 31, 1998.
(These returns assume a mortality and risk expense charge of 1.50%.)
<TABLE>
<CAPTION>
NON-STANDARDIZED ANNUALIZED TOTAL RETURN THAT PRE-DATE THE
INCEPTION DATE OF THE SEPARATE ACCOUNT FOR YEAR ENDED
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
SUB-ACCOUNT FUND 1 YEAR 5 YEAR 10 YEAR SINCE
INCEPTION INCEPTION
DATE
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Mitchell Hutchins
Growth and Income 1/2/92 14.64% 16.51% N/A 11.27%
- --------------------------------------------------------------------------------
Mitchell Hutchins
Strategic Income 9/29/98 N/A N/A N/A 2.48%
- --------------------------------------------------------------------------------
Mitchell Hutchins
Tactical Allocation 9/29/98 N/A N/A N/A 24.54%
- --------------------------------------------------------------------------------
Advisers 3/31/83 22.81% 15.95% 13.46% N/A
- --------------------------------------------------------------------------------
Bond 8/31/77 6.54% 5.65% 7.32% N/A
- --------------------------------------------------------------------------------
Capital Appreciation 4/2/84 13.78% 16.14% 16.88% N/A
- --------------------------------------------------------------------------------
Dividend and Growth 3/8/94 14.71% N/A N/A 20.34%
- --------------------------------------------------------------------------------
Global Leaders 9/30/98 N/A N/A N/A 31.39%
- --------------------------------------------------------------------------------
Growth and Income 5/29/98 N/A N/A N/A 18.01%
- --------------------------------------------------------------------------------
High Yield 9/30/98 N/A N/A N/A 3.42%
- --------------------------------------------------------------------------------
Index 5/1/87 26.21% 21.54% 16.69% N/A
- --------------------------------------------------------------------------------
International Advisers 3/1/95 11.67% N/A N/A 10.41%
- --------------------------------------------------------------------------------
International 7/2/90 11.48% 5.86% N/A 5.78%
Opportunities
- --------------------------------------------------------------------------------
MidCap 7/30/97 24.70% N/A N/A 24.55%
- --------------------------------------------------------------------------------
Money Market 6/30/80 3.70% 3.53% 4.02% N/A
- --------------------------------------------------------------------------------
Mortgage Securities 1/1/85 5.13% 5.33% 6.74% N/A
- --------------------------------------------------------------------------------
Small Company 8/9/96 9.71% N/A N/A 13.79%
- --------------------------------------------------------------------------------
Stock 8/31/77 31.51% 21.63% 16.81% N/A
- --------------------------------------------------------------------------------
</TABLE>
<PAGE>
-8-
PERFORMANCE COMPARISONS
YIELD AND TOTAL RETURN. Each Sub-Account may from time-to-time include its
total return in advertisements or in information furnished to present or
prospective shareholders. Each Sub-Account may from time-to-time include its
yield and total return in advertisements or information furnished to present or
prospective shareholders. Each Sub-Account may from time-to-time include in
advertisements its total return (and yield in the case of certain Sub-Accounts)
the ranking of those performance figures relative to such figures for groups of
other annuities analyzed by Lipper Analytical Services and Morningstar, Inc. as
having the same investment objectives.
The total return and yield may also be used to compare the performance of the
Sub-Accounts against certain widely acknowledged outside standards or indices
for stock and bond market performance. The Standard & Poor's Composite Index of
500 Stocks (the "S&P 500") is a market value-weighted and unmanaged index
showing the changes in the aggregate market value of 500 stocks relative to the
base period 1941-43. The S&P 500 is composed almost entirely of common stocks
of companies listed on the New York Stock Exchange, although the common stocks
of a few companies listed on the American Stock Exchange or traded
over-the-counter are included. The 500 companies represented include about 400
industrial, 60 transportation and 40 financial services concerns. The S&P 500
represents about 80% of the market value of all issues traded on the New York
Stock Exchange.
The NASDAQ-OTC Composite Price Index (The "NASDAQ Index") is a market
value-weighted and unmanaged index showing the changes in the aggregate
market value of approximately 3,500 stocks relative to the base measure of
100.00 on February 5, 1971. The NASDAQ Index is composed entirely of common
stocks of companies traded over-the-counter and often through the National
Association of Securities Dealers Automated Quotations ("NASDAQ") system.
Only those over-the-counter stocks having only one market maker or traded on
exchanges are excluded.
The Morgan Stanley Capital International EAFE Index (the "EAFE Index") is an
unmanaged index, which includes over 1,000 companies representing the stock
markets of Europe, Australia, New Zealand, and the Far East. The EAFE Index is
weighted by market capitalization, and therefore, it has a heavy representation
in countries with large stock markets, such as Japan.
The Shearson Lehman Government Bond Index (the "SL Government Index") is a
measure of the market value of all public obligations of the U.S. Treasury; all
publicly issued debt of all agencies of the U.S. Government and all
quasi-federal corporations; and all corporate debt guaranteed by the U.S.
Government. Mortgage-backed securities, flower bonds and foreign targeted
issues are not included in the SL Government Index.
The Shearson Lehman Government/Corporate Bond Index (the "SL
Government/Corporate Index") is a measure of the market value of approximately
5,300 bonds with a face value currently in excess of $1.3 trillion. To be
included in the SL Government/Corporate Index, an issue must have amounts
outstanding in excess of $1 million, have at least one year to maturity and be
rated "Baa" or higher ("investment grade") by a nationally recognized rating
agency.
The Composite Index for Hartford Advisers HLS 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 SA-1
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
- --------------------------------------------------------------------------------
TO HARTFORD LIFE INSURANCE COMPANY
SEPARATE ACCOUNT TWO AND TO THE
OWNERS OF UNITS OF INTEREST THEREIN:
We have audited the accompanying statements of assets and liabilities of
Hartford Life Insurance Company Separate Account Two (Bond Fund, Stock Fund,
Money Market Fund, Advisers Fund, Capital Appreciation Fund, Mortgage Securities
Fund, Index Fund, International Opportunities Fund, Dividend and Growth Fund,
International Advisers Fund, Small Company Fund, MidCap Fund, Smith Barney Cash
Portfolio, Smith Barney Appreciation Fund, Smith Barney Government Portfolio,
BB&T Growth & Income Fund, AmSouth Equity Income Fund, Mentor VIP Capital Growth
Fund, Mentor VIP Perpetual International Fund, and Mentor VIP Growth Fund)
(collectively, the Account) as of December 31, 1998, and the related statements
of operations and the statements of changes in net assets for the periods
presented. These financial statements are the responsibility of the Account's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the Account as of December 31,
1998, and the results of their operations and the changes in their net assets
for the periods presented in conformity with generally accepted accounting
principles.
Hartford, Connecticut
February 16, 1999 ARTHUR ANDERSEN LLP
<PAGE>
SA-2 HARTFORD LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
SEPARATE ACCOUNT TWO
- --------------------------------------------------------------------------------
STATEMENTS OF ASSETS AND LIABILITIES
DECEMBER 31, 1998
<TABLE>
<CAPTION>
BOND FUND STOCK FUND
SUB-ACCOUNT SUB-ACCOUNT
------------ --------------
<S> <C> <C>
ASSETS:
Investments:
Hartford Bond HLS
Fund, Inc. - Class
IA
Shares 349,618,159
Cost $365,928,024
Market Value....... $377,820,108 --
Hartford Stock HLS
Fund, Inc. - Class
IA
Shares 380,740,509
Cost $1,321,699,321
Market Value....... -- $2,498,292,052
Hartford Money Market
HLS Fund, Inc. -
Class IA
Shares 342,816,331
Cost $342,816,331
Market Value....... -- --
Hartford Advisers HLS
Fund, Inc. - Class
IA
Shares
1,646,987,741
Cost $3,054,571,935
Market Value....... -- --
Hartford Capital
Appreciation HLS
Fund, Inc. - Class
IA
Shares 417,240,558
Cost $1,302,905,756
Market Value....... -- --
Hartford Mortgage
Securities HLS Fund,
Inc. - Class IA
Shares 175,411,395
Cost $189,578,583
Market Value....... -- --
Hartford Index HLS
Fund, Inc. - Class
IA
Shares 174,516,110
Cost $371,361,315
Market Value....... -- --
Hartford
International
Opportunities HLS
Fund, Inc. - Class
IA
Shares 294,203,798
Cost $340,518,189
Market Value....... -- --
Hartford Dividend and
Growth HLS Fund,
Inc. - Class IA
Shares 451,028,566
Cost $725,280,325
Market Value....... -- --
Due from Hartford Life
Insurance Company..... 204,248 389,733
Receivable from fund
shares sold........... -- --
------------ --------------
Total Assets........... 378,024,356 2,498,681,785
------------ --------------
LIABILITIES:
Due to Hartford Life
Insurance Company..... -- --
Payable for fund shares
purchased............. 204,309 389,945
------------ --------------
Total Liabilities...... 204,309 389,945
------------ --------------
Net Assets (variable
annuity contract
liabilities).......... $377,820,047 $2,498,291,840
------------ --------------
------------ --------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
<PAGE>
HARTFORD LIFE INSURANCE COMPANY SA-3
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MONEY CAPITAL MORTGAGE
MARKET FUND ADVISERS FUND APPRECIATION FUND SECURITIES FUND INDEX FUND
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
------------ -------------- ------------------ ---------------- --------------
<S> <C> <C> <C> <C> <C>
ASSETS:
Investments:
Hartford Bond HLS
Fund, Inc. - Class
IA
Shares 349,618,159
Cost $365,928,024
Market Value....... -- -- -- -- --
Hartford Stock HLS
Fund, Inc. - Class
IA
Shares 380,740,509
Cost $1,321,699,321
Market Value....... -- -- -- -- --
Hartford Money Market
HLS Fund, Inc. -
Class IA
Shares 342,816,331
Cost $342,816,331
Market Value....... $342,816,331 -- -- -- --
Hartford Advisers HLS
Fund, Inc. - Class
IA
Shares
1,646,987,741
Cost $3,054,571,935
Market Value....... -- $4,916,675,095 -- -- --
Hartford Capital
Appreciation HLS
Fund, Inc. - Class
IA
Shares 417,240,558
Cost $1,302,905,756
Market Value....... -- -- $1,985,681,614 -- --
Hartford Mortgage
Securities HLS Fund,
Inc. - Class IA
Shares 175,411,395
Cost $189,578,583
Market Value....... -- -- -- $190,242,955 --
Hartford Index HLS
Fund, Inc. - Class
IA
Shares 174,516,110
Cost $371,361,315
Market Value....... -- -- -- -- $ 623,101,394
Hartford
International
Opportunities HLS
Fund, Inc. - Class
IA
Shares 294,203,798
Cost $340,518,189
Market Value....... -- -- -- -- --
Hartford Dividend and
Growth HLS Fund,
Inc. - Class IA
Shares 451,028,566
Cost $725,280,325
Market Value....... -- -- -- -- --
Due from Hartford Life
Insurance Company..... -- 662,986 10,643,121 -- 267,176
Receivable from fund
shares sold........... 19,488,693 -- -- 412,430 --
------------ -------------- ------------------ ---------------- --------------
Total Assets........... 362,305,024 4,917,338,081 1,996,324,735 190,655,385 623,368,570
------------ -------------- ------------------ ---------------- --------------
LIABILITIES:
Due to Hartford Life
Insurance Company..... 19,483,630 -- -- 408,162 --
Payable for fund shares
purchased............. -- 664,510 10,643,361 -- 267,984
------------ -------------- ------------------ ---------------- --------------
Total Liabilities...... 19,483,630 664,510 10,643,361 408,162 267,984
------------ -------------- ------------------ ---------------- --------------
Net Assets (variable
annuity contract
liabilities).......... $342,821,394 $4,916,673,571 $1,985,681,374 $190,247,223 $ 623,100,586
------------ -------------- ------------------ ---------------- --------------
------------ -------------- ------------------ ---------------- --------------
<CAPTION>
INTERNATIONAL DIVIDEND AND
OPPORTUNITIES FUND GROWTH FUND
SUB-ACCOUNT SUB-ACCOUNT
------------------- ---------------
<S> <C> <C>
ASSETS:
Investments:
Hartford Bond HLS
Fund, Inc. - Class
IA
Shares 349,618,159
Cost $365,928,024
Market Value....... -- --
Hartford Stock HLS
Fund, Inc. - Class
IA
Shares 380,740,509
Cost $1,321,699,321
Market Value....... -- --
Hartford Money Market
HLS Fund, Inc. -
Class IA
Shares 342,816,331
Cost $342,816,331
Market Value....... -- --
Hartford Advisers HLS
Fund, Inc. - Class
IA
Shares
1,646,987,741
Cost $3,054,571,935
Market Value....... -- --
Hartford Capital
Appreciation HLS
Fund, Inc. - Class
IA
Shares 417,240,558
Cost $1,302,905,756
Market Value....... -- --
Hartford Mortgage
Securities HLS Fund,
Inc. - Class IA
Shares 175,411,395
Cost $189,578,583
Market Value....... -- --
Hartford Index HLS
Fund, Inc. - Class
IA
Shares 174,516,110
Cost $371,361,315
Market Value....... -- --
Hartford
International
Opportunities HLS
Fund, Inc. - Class
IA
Shares 294,203,798
Cost $340,518,189
Market Value....... $398,604,075 --
Hartford Dividend and
Growth HLS Fund,
Inc. - Class IA
Shares 451,028,566
Cost $725,280,325
Market Value....... -- $974,440,901
Due from Hartford Life
Insurance Company..... -- 122,495
Receivable from fund
shares sold........... 364,279 --
------------------- ---------------
Total Assets........... 398,968,354 974,563,396
------------------- ---------------
LIABILITIES:
Due to Hartford Life
Insurance Company..... 364,240 --
Payable for fund shares
purchased............. -- 122,730
------------------- ---------------
Total Liabilities...... 364,240 122,730
------------------- ---------------
Net Assets (variable
annuity contract
liabilities).......... $398,604,114 $974,440,666
------------------- ---------------
------------------- ---------------
</TABLE>
<PAGE>
SA-4 HARTFORD LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
SEPARATE ACCOUNT TWO
- --------------------------------------------------------------------------------
STATEMENTS OF ASSETS AND LIABILITIES -- (CONTINUED)
DECEMBER 31, 1998
<TABLE>
<CAPTION>
INTERNATIONAL SMALL MIDCAP SMITH BARNEY
ADVISERS FUND COMPANY FUND FUND CASH PORTFOLIO
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
-------------- ------------- ------------ ---------------
<S> <C> <C> <C> <C>
ASSETS:
Investments:
International
Advisers HLS Fund,
Inc. - Class IA
Shares 65,678,237
Cost $75,055,437
Market Value....... $75,837,939 -- -- --
Small Company HLS
Fund, Inc. - Class
IA
Shares 93,203,695
Cost $112,102,718
Market Value....... -- $123,132,800 -- --
MidCap HLS Fund, Inc.
- Class IA
Shares 32,171,652
Cost $39,368,682
Market Value....... -- -- $46,303,243 --
Smith Barney Cash
Portfolio
Shares 486,806
Cost $486,806
Market Value....... -- -- -- $486,808
Smith Barney
Appreciation Fund
Shares 13,052
Cost $99,509
Market Value....... -- -- -- --
Smith Barney
Government Portfolio
Shares 34,357
Cost $34,357
Market Value....... -- -- -- --
BB&T Growth & Income
Fund
Shares 1,782,787
Cost $21,373,783
Market Value....... -- -- -- --
AmSouth Equity Income
Fund
Shares 1,999,203
Cost $21,507,113
Market Value....... -- -- -- --
Mentor VIP Capital
Growth Portfolio
Shares 1,375,385
Cost $16,981,499
Market Value....... -- -- -- --
Mentor VIP Perpetual
International
Portfolio
Shares 771,760
Cost $10,211,028
Market Value....... -- -- -- --
Mentor VIP Growth
Portfolio
Shares 913,633
Cost $9,860,193
Market Value....... -- -- -- --
Due from Hartford Life
Insurance Company..... 37,942 8,326,029 197,604 26,345
Receivable from fund
shares sold........... -- -- -- --
-------------- ------------- ------------ ---------------
Total Assets........... 75,875,881 131,458,829 46,500,847 513,153
-------------- ------------- ------------ ---------------
LIABILITIES:
Due to Hartford Life
Insurance Company..... -- -- -- --
Payable for fund shares
purchased............. 37,943 8,325,756 198,464 26,450
-------------- ------------- ------------ ---------------
Total Liabilities...... 37,943 8,325,756 198,464 26,450
-------------- ------------- ------------ ---------------
Net Assets (variable
annuity contract
liabilities).......... $75,837,938 $123,133,073 $46,302,383 $486,703
-------------- ------------- ------------ ---------------
-------------- ------------- ------------ ---------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
<PAGE>
HARTFORD LIFE INSURANCE COMPANY SA-5
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SMITH BARNEY SMITH BARNEY BB&T GROWTH & AMSOUTH EQUITY MENTOR
APPRECIATION FUND GOVERNMENT PORTFOLIO INCOME FUND INCOME FUND CAPITAL GROWTH
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
------------------ --------------------- ----------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
ASSETS:
Investments:
International
Advisers HLS Fund,
Inc. - Class IA
Shares 65,678,237
Cost $75,055,437
Market Value....... -- -- -- -- --
Small Company HLS
Fund, Inc. - Class
IA
Shares 93,203,695
Cost $112,102,718
Market Value....... -- -- -- -- --
MidCap HLS Fund, Inc.
- Class IA
Shares 32,171,652
Cost $39,368,682
Market Value....... -- -- -- -- --
Smith Barney Cash
Portfolio
Shares 486,806
Cost $486,806
Market Value....... -- -- -- -- --
Smith Barney
Appreciation Fund
Shares 13,052
Cost $99,509
Market Value....... $199,776 -- -- -- --
Smith Barney
Government Portfolio
Shares 34,357
Cost $34,357
Market Value....... -- $34,356 -- -- --
BB&T Growth & Income
Fund
Shares 1,782,787
Cost $21,373,783
Market Value....... -- -- $23,711,070 -- --
AmSouth Equity Income
Fund
Shares 1,999,203
Cost $21,507,113
Market Value....... -- -- -- $22,511,025 --
Mentor VIP Capital
Growth Portfolio
Shares 1,375,385
Cost $16,981,499
Market Value....... -- -- -- -- $18,677,728
Mentor VIP Perpetual
International
Portfolio
Shares 771,760
Cost $10,211,028
Market Value....... -- -- -- -- --
Mentor VIP Growth
Portfolio
Shares 913,633
Cost $9,860,193
Market Value....... -- -- -- -- --
Due from Hartford Life
Insurance Company..... -- -- 29,049 -- 11,902
Receivable from fund
shares sold........... 117 31 -- 30,849 --
-------- ------- ----------------- --------------- ---------------
Total Assets........... 199,893 34,387 23,740,119 22,541,874 18,689,630
-------- ------- ----------------- --------------- ---------------
LIABILITIES:
Due to Hartford Life
Insurance Company..... 106 30 -- 30,853 --
Payable for fund shares
purchased............. -- -- 29,053 -- 11,898
-------- ------- ----------------- --------------- ---------------
Total Liabilities...... 106 30 29,053 30,853 11,898
-------- ------- ----------------- --------------- ---------------
Net Assets (variable
annuity contract
liabilities).......... $199,787 $34,357 $23,711,066 $22,511,021 $18,677,732
-------- ------- ----------------- --------------- ---------------
-------- ------- ----------------- --------------- ---------------
<CAPTION>
MENTOR PERPETUAL MENTOR
INTERNATIONAL GROWTH
SUB-ACCOUNT SUB-ACCOUNT
----------------- --------------
<S> <C> <C>
ASSETS:
Investments:
International
Advisers HLS Fund,
Inc. - Class IA
Shares 65,678,237
Cost $75,055,437
Market Value....... -- --
Small Company HLS
Fund, Inc. - Class
IA
Shares 93,203,695
Cost $112,102,718
Market Value....... -- --
MidCap HLS Fund, Inc.
- Class IA
Shares 32,171,652
Cost $39,368,682
Market Value....... -- --
Smith Barney Cash
Portfolio
Shares 486,806
Cost $486,806
Market Value....... -- --
Smith Barney
Appreciation Fund
Shares 13,052
Cost $99,509
Market Value....... -- --
Smith Barney
Government Portfolio
Shares 34,357
Cost $34,357
Market Value....... -- --
BB&T Growth & Income
Fund
Shares 1,782,787
Cost $21,373,783
Market Value....... -- --
AmSouth Equity Income
Fund
Shares 1,999,203
Cost $21,507,113
Market Value....... -- --
Mentor VIP Capital
Growth Portfolio
Shares 1,375,385
Cost $16,981,499
Market Value....... -- --
Mentor VIP Perpetual
International
Portfolio
Shares 771,760
Cost $10,211,028
Market Value....... $10,812,357 --
Mentor VIP Growth
Portfolio
Shares 913,633
Cost $9,860,193
Market Value....... -- $10,470,235
Due from Hartford Life
Insurance Company..... 15,306 67,722
Receivable from fund
shares sold........... -- --
----------------- --------------
Total Assets........... 10,827,663 10,537,957
----------------- --------------
LIABILITIES:
Due to Hartford Life
Insurance Company..... -- --
Payable for fund shares
purchased............. 15,308 67,727
----------------- --------------
Total Liabilities...... 15,308 67,727
----------------- --------------
Net Assets (variable
annuity contract
liabilities).......... $10,812,355 $10,470,230
----------------- --------------
----------------- --------------
</TABLE>
<PAGE>
SA-6 HARTFORD LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
SEPARATE ACCOUNT TWO
- --------------------------------------------------------------------------------
STATEMENTS OF ASSETS AND LIABILITIES -- (CONTINUED)
DECEMBER 31, 1998
<TABLE>
<CAPTION>
GROWTH AND
INCOME FUND
SUB-ACCOUNT
------------
<S> <C>
ASSETS:
Investments:
Hartford Growth and
Income HLS Fund -
Class IA
Shares 5,269,425
Cost $5,509,163
Market Value....... $6,249,337
Hartford High Yield
HLS Fund - Class IA
Shares 1,911,536
Cost $1,953,422
Market Value....... --
Hartford Global
Leaders HLS Fund -
Class IA
Shares 466,167
Cost $588,674
Market Value....... --
Mitchell Hutchins
Growth & Income
Portfolio
Shares 673
Cost $9,994
Market Value....... --
Mitchell Hutchins
Strategic Income
Portfolio
Shares 808
Cost $9,994
Market Value....... --
Mitchell Hutchins
Tactical Allocation
Portfolio
Shares 705
Cost $9,995
Market Value....... --
Investment Income
Receivable............ --
Due from Hartford Life
Insurance Company..... --
Receivable from fund
shares sold........... 67,470
------------
Total Assets........... 6,316,807
------------
LIABILITIES:
Due to Hartford Life
Insurance Company..... 67,470
Payable for fund shares
purchased............. --
------------
Total Liabilities...... 67,470
------------
Net Assets (variable
annuity contract
liabilities).......... $6,249,337
------------
------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
<PAGE>
HARTFORD LIFE INSURANCE COMPANY SA-7
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
HIGH GLOBAL MITCHELL HUTCHINS GROWTH MITCHELL HUTCHINS STRATEGIC
YIELD FUND LEADERS FUND AND INCOME PORTFOLIO INCOME PORTFOLIO
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
------------ ------------- ------------------------- ----------------------------
<S> <C> <C> <C> <C>
ASSETS:
Investments:
Hartford Growth and
Income HLS Fund -
Class IA
Shares 5,269,425
Cost $5,509,163
Market Value....... -- -- -- --
Hartford High Yield
HLS Fund - Class IA
Shares 1,911,536
Cost $1,953,422
Market Value....... $1,943,548 -- -- --
Hartford Global
Leaders HLS Fund -
Class IA
Shares 466,167
Cost $588,674
Market Value....... -- $599,110 -- --
Mitchell Hutchins
Growth & Income
Portfolio
Shares 673
Cost $9,994
Market Value....... -- -- $ 9,973 --
Mitchell Hutchins
Strategic Income
Portfolio
Shares 808
Cost $9,994
Market Value....... -- -- -- $9,849
Mitchell Hutchins
Tactical Allocation
Portfolio
Shares 705
Cost $9,995
Market Value....... -- -- -- --
Investment Income
Receivable............ -- -- 746 122
Due from Hartford Life
Insurance Company..... 47,113 -- -- --
Receivable from fund
shares sold........... -- 73,610 6 5
------------ ------------- ------- ------
Total Assets........... 1,990,661 672,720 10,725 9,976
------------ ------------- ------- ------
LIABILITIES:
Due to Hartford Life
Insurance Company..... -- 73,610 6 5
Payable for fund shares
purchased............. 47,114 -- -- --
------------ ------------- ------- ------
Total Liabilities...... 47,114 73,610 6 5
------------ ------------- ------- ------
Net Assets (variable
annuity contract
liabilities).......... $1,943,547 $599,110 $10,719 $9,971
------------ ------------- ------- ------
------------ ------------- ------- ------
<CAPTION>
MITCHELL HUTCHINS TACTICAL
ALLOCATION PORTFOLIO
SUB-ACCOUNT
---------------------------
<S> <C>
ASSETS:
Investments:
Hartford Growth and
Income HLS Fund -
Class IA
Shares 5,269,425
Cost $5,509,163
Market Value....... --
Hartford High Yield
HLS Fund - Class IA
Shares 1,911,536
Cost $1,953,422
Market Value....... --
Hartford Global
Leaders HLS Fund -
Class IA
Shares 466,167
Cost $588,674
Market Value....... --
Mitchell Hutchins
Growth & Income
Portfolio
Shares 673
Cost $9,994
Market Value....... --
Mitchell Hutchins
Strategic Income
Portfolio
Shares 808
Cost $9,994
Market Value....... --
Mitchell Hutchins
Tactical Allocation
Portfolio
Shares 705
Cost $9,995
Market Value....... $10,502
Investment Income
Receivable............ 69
Due from Hartford Life
Insurance Company..... --
Receivable from fund
shares sold........... 6
-------
Total Assets........... 10,577
-------
LIABILITIES:
Due to Hartford Life
Insurance Company..... 6
Payable for fund shares
purchased............. --
-------
Total Liabilities...... 6
-------
Net Assets (variable
annuity contract
liabilities).......... $10,571
-------
-------
</TABLE>
<PAGE>
SA-8 HARTFORD LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
SEPARATE ACCOUNT TWO
- --------------------------------------------------------------------------------
STATEMENTS OF ASSETS AND LIABILITIES -- (CONTINUED)
DECEMBER 31, 1998
<TABLE>
<CAPTION>
UNITS
OWNED BY UNIT CONTRACT
PARTICIPANTS PRICE LIABILITY
------------- ---------- ---------------
<S> <C> <C> <C>
DEFERRED ANNUITY CONTRACTS IN THE
ACCUMULATION PERIOD:
INDIVIDUAL SUB-ACCOUNTS:
Bond Fund Qualified 1.00%........ 232,939 $ 4.373600 $ 1,018,782
Bond Fund Non-Qualified 1.00%.... 1,961,849 4.307093 8,449,866
Bond Fund 1.25%.................. 162,500,684 2.257591 366,860,082
Bond Fund .25%................... 55,518 1.533539 85,139
Bond Fund........................ 306,878 1.030758 316,317
Stock Fund Qualified 1.00%....... 802,936 11.737647 9,424,579
Stock Fund Non-Qualified 1.00%... 2,912,842 11.223740 32,692,982
Stock Fund 1.25%................. 403,629,126 6.065754 2,448,314,988
Stock Fund .25%.................. 1,056,753 3.251658 3,436,199
Stock Fund....................... 849,480 1.036706 880,661
Money Market Fund Qualified
1.00%........................... 612,050 2.679268 1,639,846
Money Market Fund Non-Qualified
1.00%........................... 9,019,394 2.680536 24,176,811
Money Market Fund 1.25%.......... 183,614,324 1.715714 315,029,666
Money Market Fund .25%........... 373,199 1.299644 485,026
Money Market Fund................ 725,403 1.016497 737,370
Advisers Fund Qualified 1.00%.... 3,191,360 6.604239 21,076,505
Advisers Fund Non-Qualified
1.00%........................... 9,942,207 6.604240 65,660,718
Advisers Fund 1.25%.............. 1,095,048,448 4.397886 4,815,898,238
Advisers Fund .25%............... 1,220,271 2.502440 3,053,655
Advisers Fund.................... 1,915,141 1.035292 1,982,730
Capital Appreciation Fund
Qualified 1.00%................. 774,553 9.322862 7,221,051
Capital Appreciation Fund
Non-Qualified 1.00%............. 2,433,361 9.318523 22,675,331
Capital Appreciation Fund
1.25%........................... 352,482,012 5.525767 1,947,733,468
Capital Appreciation Fund .25%... 2,264,988 2.712640 6,144,097
Capital Appreciation Fund........ 271,922 0.984021 267,577
Mortgage Securities Fund
Qualified 1.00%................. 484,096 2.844764 1,377,139
Mortgage Securities Fund
Non-Qualified 1.00%............. 5,584,466 2.844767 15,886,504
Mortgage Securities Fund 1.25%... 78,025,873 2.210954 172,511,615
Mortgage Securities Fund .25%.... 14,431 1.458457 21,047
Mortgage Securities Fund......... 10,000 1.022300 10,223
Index Fund 1.00%................. 146,209 1.866581 272,911
Index Fund Non-Qualified 1.00%... 569,781 1.866580 1,063,542
Index Fund 1.25%................. 131,578,849 4.712432 620,056,376
Index Fund .25%.................. 212,284 3.080896 654,025
Index Fund....................... 249,634 1.044934 260,851
International Opportunities Fund
Qualified 1.00%................. 197,097 1.676915 330,515
International Opportunities Fund
Non-Qualified 1.00%............. 1,314,169 1.676023 2,202,578
International Opportunities Fund
1.25%........................... 240,089,691 1.641190 394,032,800
International Opportunities Fund
.25%............................ 681,620 1.874113 1,277,433
International Opportunities
Fund............................ 140,095 0.924280 129,487
Dividend and Growth Fund
Qualified 1.00%................. 417,549 2.500875 1,044,238
Dividend and Growth Fund
Non-Qualified 1.00%............. 1,616,066 2.500878 4,041,584
Dividend and Growth Fund 1.25%... 391,151,359 2.470981 966,527,576
Dividend and Growth Fund .25%.... 250,697 2.592664 649,973
Dividend and Growth Fund......... 523,054 1.008273 527,381
International Advisers Fund
Sub-Account 1.00%............... 23,172 1.490549 34,539
International Advisers Fund
Non-Qualified 1.00%............. 201,485 1.490538 300,321
International Advisers Fund
1.25%........................... 50,971,459 1.476317 75,250,031
International Advisers Fund
.25%............................ 39,807 1.534052 61,066
International Advisers Fund...... 80,466 0.971292 78,156
Small Company Fund 1.00%......... 227,701 1.382431 314,781
Small Company Fund Non-Qualified
1.00%........................... 3,669,917 1.382433 5,073,414
Small Company Fund 1.25%......... 85,431,351 1.374218 117,401,300
Small Company Fund .25%.......... 61,838 1.407436 87,033
Small Company Fund............... 100,223 0.975195 97,737
MidCap Fund Sub-Account 1.00%
Qualified....................... 89,724 1.375964 123,457
MidCap Fund Sub-Account 1.00%
Non-Qualified................... 242,882 1.375969 334,198
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
<PAGE>
HARTFORD LIFE INSURANCE COMPANY SA-9
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
UNITS
OWNED BY UNIT CONTRACT
PARTICIPANTS PRICE LIABILITY
------------- ---------- ---------------
<S> <C> <C> <C>
INDIVIDUAL SUB-ACCOUNTS --
(CONTINUED)
MidCap Fund 1.25%................ 33,348,056 $ 1.371074 $ 45,722,653
MidCap Fund 1.00% Qualified...... 29,907 1.390711 41,592
MidCap Fund...................... 79,150 1.016841 80,483
Smith Barney Cash Portfolio
Qualified 1.00%................. 52,115 2.889398 150,581
Smith Barney Cash Portfolio
Non-Qualified 1.00%............. 112,418 2.989930 336,122
Smith Barney Appreciation
Qualified 1.00%................. 18,002 11.098045 199,787
Smith Barney Government Portfolio
Qualified 1.00%................. 13,202 2.602409 34,357
BB&T Growth and Income Fund...... 17,799,083 1.332151 23,711,066
AMSouth Equity Income Fund 1.00%
Qualified....................... 19,801,638 1.135502 22,484,800
Mentor Capital Growth Fund....... 17,370,611 1.075249 18,677,732
Mentor Perpetual International
Fund............................ 9,747,833 1.109206 10,812,355
Mentor Growth Fund............... 11,540,088 0.907292 10,470,230
Growth and Income Fund........... 181,057 1.183528 214,286
Growth and Income Fund........... 10,000 1.183500 11,835
Growth and Income Fund........... 4,982,306 1.181798 5,888,079
Growth and Income Fund........... 16,550 1.188761 19,674
Growth and Income Fund........... 105,902 1.090282 115,463
High Yield Fund.................. 15,798 1.035511 16,359
High Yield Fund.................. 10,000 1.035500 10,355
High Yield Fund.................. 1,832,207 1.034881 1,896,116
High Yield Fund.................. 10,000 1.037462 10,375
High Yield Fund.................. 10,000 1.034245 10,342
Global Leaders Fund.............. 10,000 1.315500 13,155
Global Leaders Fund.............. 10,000 1.315500 13,155
Global Leaders Fund.............. 415,660 1.314733 546,482
Global Leaders Fund.............. 10,000 1.317944 13,179
Global Leaders Fund.............. 10,000 1.313892 13,139
Mitchell Hutchins Growth and
Income Portfolio................ 10,000 1.071942 10,719
Mitchell Hutchins Strategic
Income Portfolio................ 10,000 0.997127 9,971
Mitchell Hutchins Tactical
Allocation Portfolio............ 10,000 1.057099 10,571
---------------
SUB-TOTAL INDIVIDUAL
SUB-ACCOUNTS.................... 12,628,840,528
---------------
ANNUITY CONTRACTS IN THE ANNUITY
PERIOD:
INDIVIDUAL SUB-ACCOUNTS:
Bond Fund Non-Qualified 1.00%.... 19,762 4.307092 85,115
Bond Fund 1.25%.................. 445,052 2.257591 1,004,746
Stock Fund Non-Qualified 1.00%... 25,544 11.223888 286,703
Stock Fund 1.25%................. 536,739 6.065754 3,255,728
Money Market Fund Qualified
1.00%........................... 648 2.679268 1,736
Money Market Fund Non-Qualified
1.00%........................... 85,788 2.680536 229,959
Money Market Fund 1.25%.......... 303,652 1.715714 520,980
Advisers Fund Qualified 1.00%.... 2,600 6.604240 17,172
Advisers Fund Non-Qualified
1.00%........................... 74,716 6.604240 493,441
Advisers Fund 1.25%.............. 1,930,726 4.397886 8,491,112
Capital Appreciation Fund
Non-Qualified 1.00%............. 18,217 9.318439 169,754
Capital Appreciation Fund
1.25%........................... 266,044 5.525767 1,470,096
Mortgage Securities Fund
Non-Qualified 1.00%............. 58,753 2.844767 167,139
Mortgage Securities Fund 1.25%... 123,728 2.210954 273,556
Index Fund 1.25%................. 168,253 4.712432 792,881
International Opportunities Fund
Non-Qualified 1.00%............. 6,240 1.676024 10,459
International Opportunities Fund
1.25%........................... 378,288 1.641190 620,842
Dividend and Growth Fund 1.25%... 667,716 2.470981 1,649,914
International Advisers Fund
1.25%........................... 77,101 1.476317 113,825
Small Company Fund 1.25%......... 115,562 1.374218 158,808
AMSouth Equity Income Fund....... 23,092 1.135502 26,221
---------------
SUB-TOTAL INDIVIDUAL
SUB-ACCOUNTS.................... 19,840,187
---------------
GRAND TOTAL........................ $12,648,680,715
---------------
---------------
</TABLE>
<PAGE>
SA-10 HARTFORD LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
SEPARATE ACCOUNT TWO
- --------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
BOND FUND STOCK FUND
SUB-ACCOUNT SUB-ACCOUNT
----------- ------------
<S> <C> <C>
INVESTMENT INCOME:
Dividends.............. $17,912,357 $ 18,915,114
EXPENSES:
Mortality and expense
undertakings.......... (3,795,666) (26,197,986)
----------- ------------
Net investment income
(loss).............. 14,116,691 (7,282,872)
----------- ------------
CAPITAL GAINS INCOME..... -- 63,980,079
----------- ------------
NET REALIZED AND
UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Net realized gain
(loss) on security
transactions.......... (17,730) (1,720,391)
Net unrealized
appreciation
(depreciation) of
investments during the
period................ 5,723,478 522,612,064
----------- ------------
Net gain (loss) on
investments......... 5,705,748 520,891,673
----------- ------------
Net increase
(decrease) in net
assets resulting
from operations..... $19,822,439 $577,588,880
----------- ------------
----------- ------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
<PAGE>
HARTFORD LIFE INSURANCE COMPANY SA-11
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MONEY CAPITAL MORTGAGE
MARKET FUND ADVISERS FUND APPRECIATION FUND SECURITIES FUND INDEX FUND
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
----------- -------------- ------------------ ---------------- --------------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends.............. $15,550,709 $ 97,214,065 $ 10,528,844 $11,949,822 $ 5,084,024
EXPENSES:
Mortality and expense
undertakings.......... (3,714,561) (53,193,739) (22,767,506) (2,304,989) (6,407,798)
----------- -------------- ------------------ ---------------- --------------
Net investment income
(loss).............. 11,836,148 44,020,326 (12,238,662) 9,644,833 (1,323,774)
----------- -------------- ------------------ ---------------- --------------
CAPITAL GAINS INCOME..... -- 130,914,844 114,733,928 -- 10,662,058
----------- -------------- ------------------ ---------------- --------------
NET REALIZED AND
UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Net realized gain
(loss) on security
transactions.......... -- 1,826,471 (4,786,085) 473,273 (704,518)
Net unrealized
appreciation
(depreciation) of
investments during the
period................ -- 709,363,622 140,386,292 (228,914) 110,953,813
----------- -------------- ------------------ ---------------- --------------
Net gain (loss) on
investments......... -- 711,190,093 135,600,207 244,359 110,249,295
----------- -------------- ------------------ ---------------- --------------
Net increase
(decrease) in net
assets resulting
from operations..... $11,836,148 $ 886,125,263 $238,095,473 $ 9,889,192 $ 119,587,579
----------- -------------- ------------------ ---------------- --------------
----------- -------------- ------------------ ---------------- --------------
<CAPTION>
INTERNATIONAL DIVIDEND AND
OPPORTUNITIES FUND GROWTH FUND
SUB-ACCOUNT SUB-ACCOUNT
------------------- ----------------
<S> <C> <C>
INVESTMENT INCOME:
Dividends.............. $ 5,223,310 $ 15,429,535
EXPENSES:
Mortality and expense
undertakings.......... (5,034,289) (10,513,724)
------------------- ----------------
Net investment income
(loss).............. 189,021 4,915,811
------------------- ----------------
CAPITAL GAINS INCOME..... 25,347,181 25,624,259
------------------- ----------------
NET REALIZED AND
UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Net realized gain
(loss) on security
transactions.......... 1,455,876 (465,941)
Net unrealized
appreciation
(depreciation) of
investments during the
period................ 17,463,831 82,775,505
------------------- ----------------
Net gain (loss) on
investments......... 18,919,707 82,309,564
------------------- ----------------
Net increase
(decrease) in net
assets resulting
from operations..... $44,455,909 $ 112,849,634
------------------- ----------------
------------------- ----------------
</TABLE>
<PAGE>
SA-12 HARTFORD LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
SEPARATE ACCOUNT TWO
- --------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS -- (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
INTERNATIONAL SMALL MIDCAP SMITH BARNEY
ADVISERS FUND COMPANY FUND FUND CASH PORTFOLIO
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
-------------- ------------- ------------ ---------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends.............. $6,551,901 $ -- $ 330 $24,990
EXPENSES:
Mortality and expense
undertakings.......... (840,602) (1,090,110) (320,350) (5,044)
-------------- ------------- ------------ -------
Net investment income
(loss).............. 5,711,299 (1,090,110) (320,020) 19,946
-------------- ------------- ------------ -------
CAPITAL GAINS INCOME..... 1,559,601 1,255,431 -- --
-------------- ------------- ------------ -------
NET REALIZED AND
UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Net realized gain
(loss) on security
transactions.......... (62,176) 1,445,433 (3,698) --
Net unrealized
appreciation
(depreciation) of
investments during the
period................ (222,372) 9,623,019 6,597,665 --
-------------- ------------- ------------ -------
Net gain (loss) on
investments......... (284,548) 11,068,452 6,593,967 --
-------------- ------------- ------------ -------
Net increase
(decrease) in net
assets resulting
from operations..... $6,986,352 $11,233,773 $ 6,273,947 $19,946
-------------- ------------- ------------ -------
-------------- ------------- ------------ -------
</TABLE>
* From inception, March 2, 1998 to December 31, 1998.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
<PAGE>
HARTFORD LIFE INSURANCE COMPANY SA-13
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SMITH BARNEY SMITH BARNEY BB&T GROWTH & AMSOUTH EQUITY MENTOR
APPRECIATION FUND GOVERNMENT PORTFOLIO INCOME FUND INCOME FUND CAPITAL GROWTH
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT*
------------------ --------------------- ----------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends.............. $ 2,368 $1,842 $ 218,179 $ 313,398 $ --
EXPENSES:
Mortality and expense
undertakings.......... (1,842) (377) (189,383) (178,806) (85,499)
------- ------ ----------------- --------------- ---------------
Net investment income
(loss).............. 526 1,465 28,796 134,592 (85,499)
------- ------ ----------------- --------------- ---------------
CAPITAL GAINS INCOME..... 15,116 -- -- -- --
------- ------ ----------------- --------------- ---------------
NET REALIZED AND
UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Net realized gain
(loss) on security
transactions.......... 51 -- 1,013 4,124 (4,500)
Net unrealized
appreciation
(depreciation) of
investments during the
period................ 17,076 -- 1,927,801 971,715 1,696,228
------- ------ ----------------- --------------- ---------------
Net gain (loss) on
investments......... 17,127 -- 1,928,814 975,839 1,691,728
------- ------ ----------------- --------------- ---------------
Net increase
(decrease) in net
assets resulting
from operations..... $32,769 $1,465 $1,957,610 $1,110,431 $1,606,229
------- ------ ----------------- --------------- ---------------
------- ------ ----------------- --------------- ---------------
<CAPTION>
MENTOR PERPETUAL MENTOR
INTERNATIONAL GROWTH
SUB-ACCOUNT* SUB-ACCOUNT*
----------------- -------------
<S> <C> <C>
INVESTMENT INCOME:
Dividends.............. $-- $--
EXPENSES:
Mortality and expense
undertakings.......... (51,799) (44,785)
-------- -------------
Net investment income
(loss).............. (51,799) (44,785)
-------- -------------
CAPITAL GAINS INCOME..... -- --
-------- -------------
NET REALIZED AND
UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Net realized gain
(loss) on security
transactions.......... 1,684 (1,365)
Net unrealized
appreciation
(depreciation) of
investments during the
period................ 601,328 610,042
-------- -------------
Net gain (loss) on
investments......... 603,012 608,677
-------- -------------
Net increase
(decrease) in net
assets resulting
from operations..... $551,213 $563,892
-------- -------------
-------- -------------
</TABLE>
* From inception, March 2, 1998 to December 31, 1998.
<PAGE>
SA-14 HARTFORD LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
SEPARATE ACCOUNT TWO
- --------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS -- (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
GROWTH AND
INCOME FUND
SUB-ACCOUNT**
--------------
<S> <C>
INVESTMENT INCOME:
Dividends.............. $ 23,830
EXPENSES:
Mortality and expense
undertakings.......... (17,863)
--------------
Net investment income
(loss).............. 5,967
--------------
CAPITAL GAINS INCOME..... --
--------------
NET REALIZED AND
UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Net realized gain
(loss) on security
transactions.......... (2,267)
Net unrealized
appreciation
(depreciation) of
investments during the
period................ 740,175
--------------
Net gain (loss) on
investments......... 737,908
--------------
Net increase
(decrease) in net
assets resulting
from operations..... $743,875
--------------
--------------
</TABLE>
** From inception, June 1, 1998 to December 31, 1998.
*** From inception, September 30, 1998 to December 31, 1998.
**** From inception, December 16, 1998 to December 31, 1998.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
<PAGE>
HARTFORD LIFE INSURANCE COMPANY SA-15
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
HIGH GLOBAL MITCHELL HUTCHINS GROWTH MITCHELL HUTCHINS STRATEGIC
YIELD FUND LEADERS FUND AND INCOME PORTFOLIO INCOME PORTFOLIO
SUB-ACCOUNT*** SUB-ACCOUNT*** SUB-ACCOUNT**** SUB-ACCOUNT****
--------------- --------------- ------------------------- ----------------------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends.............. $ 34,816 $ 789 $ 44 $ 116
EXPENSES:
Mortality and expense
undertakings.......... (2,794) (317) (6) (5)
--------------- ------- ----- -----
Net investment income
(loss).............. 32,022 472 38 111
--------------- ------- ----- -----
CAPITAL GAINS INCOME..... -- 16,340 702 6
--------------- ------- ----- -----
NET REALIZED AND
UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Net realized gain
(loss) on security
transactions.......... (287) 1,084 -- --
Net unrealized
appreciation
(depreciation) of
investments during the
period................ (9,874) 10,436 (20) (145)
--------------- ------- ----- -----
Net gain (loss) on
investments......... (10,161) 11,520 (20) (145)
--------------- ------- ----- -----
Net increase
(decrease) in net
assets resulting
from operations..... $ 21,861 $28,332 $720 $ (28)
--------------- ------- ----- -----
--------------- ------- ----- -----
<CAPTION>
MITCHELL HUTCHINS TACTICAL
ALLOCATION PORTFOLIO
SUB-ACCOUNT****
---------------------------
<S> <C>
INVESTMENT INCOME:
Dividends.............. $ 13
EXPENSES:
Mortality and expense
undertakings.......... (6)
-----
Net investment income
(loss).............. 7
-----
CAPITAL GAINS INCOME..... 56
-----
NET REALIZED AND
UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Net realized gain
(loss) on security
transactions.......... --
Net unrealized
appreciation
(depreciation) of
investments during the
period................ 507
-----
Net gain (loss) on
investments......... 507
-----
Net increase
(decrease) in net
assets resulting
from operations..... $570
-----
-----
</TABLE>
** From inception, June 1, 1998 to December 31, 1998.
*** From inception, September 30, 1998 to December 31, 1998.
**** From inception, December 16, 1998 to December 31, 1998.
<PAGE>
SA-16 HARTFORD LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
SEPARATE ACCOUNT TWO
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
BOND FUND STOCK FUND
SUB-ACCOUNT SUB-ACCOUNT
------------ --------------
<S> <C> <C>
OPERATIONS:
Net investment income
(loss)................ $ 14,116,691 $ (7,282,872)
Capital gains income... -- 63,980,079
Net realized gain
(loss) on security
transactions.......... (17,730) (1,720,391)
Net unrealized
appreciation
(depreciation) of
investments during the
period................ 5,723,478 522,612,064
------------ --------------
Net increase (decrease)
in net assets
resulting from
operations............ 19,822,439 577,588,880
------------ --------------
UNIT TRANSACTIONS:
Purchases.............. 41,906,997 201,628,213
Net transfers.......... 95,280,889 107,789,657
Surrenders for benefit
payments and fees..... (24,892,187) (143,970,482)
Net annuity
transactions.......... 321,142 560,255
------------ --------------
Net increase (decrease)
in net assets
resulting from unit
transactions.......... 112,616,841 166,007,643
------------ --------------
Net increase (decrease)
in net assets......... 132,439,280 743,596,523
NET ASSETS:
Beginning of period.... 245,380,767 1,754,695,317
------------ --------------
End of period.......... $377,820,047 $2,498,291,840
------------ --------------
------------ --------------
</TABLE>
HARTFORD LIFE INSURANCE COMPANY
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
BOND FUND STOCK FUND
SUB-ACCOUNT SUB-ACCOUNT
------------ --------------
<S> <C> <C>
OPERATIONS:
Net investment income
(loss)................ $ 10,349,134 $ (2,890,041)
Capital gains income... -- 64,909,605
Net realized gain
(loss) on security
transactions.......... 17,262 1,176,996
Net unrealized
appreciation
(depreciation) of
investments during the
period................ 10,119,718 315,737,284
------------ --------------
Net increase (decrease)
in net assets
resulting from
operations............ 20,486,114 378,933,844
------------ --------------
UNIT TRANSACTIONS:
Purchases.............. 28,788,526 208,829,884
Net transfers.......... 19,102,654 45,780,800
Surrenders for benefit
payments and fees..... (18,300,042) (92,238,226)
Net annuity
transactions.......... 325,387 633,517
------------ --------------
Net increase (decrease)
in net assets
resulting from unit
transactions.......... 29,916,525 163,005,975
------------ --------------
Net increase (decrease)
in net assets......... 50,402,639 541,939,819
NET ASSETS:
Beginning of period.... 194,978,128 1,212,755,498
------------ --------------
End of period.......... $245,380,767 $1,754,695,317
------------ --------------
------------ --------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
<PAGE>
HARTFORD LIFE INSURANCE COMPANY SA-17
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MONEY CAPITAL MORTGAGE
MARKET FUND ADVISERS FUND APPRECIATION FUND SECURITIES FUND INDEX FUND
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
------------ -------------- ------------------ ---------------- --------------
<S> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment income
(loss)................ $ 11,836,148 $ 44,020,326 $ (12,238,662) $ 9,644,833 $ (1,323,774)
Capital gains income... -- 130,914,844 114,733,928 -- 10,662,058
Net realized gain
(loss) on security
transactions.......... -- 1,826,471 (4,786,085) 473,273 (704,518)
Net unrealized
appreciation
(depreciation) of
investments during the
period................ -- 709,363,622 140,386,292 (228,914) 110,953,813
------------ -------------- ------------------ ---------------- --------------
Net increase (decrease)
in net assets
resulting from
operations............ 11,836,148 886,125,263 238,095,473 9,889,192 119,587,579
------------ -------------- ------------------ ---------------- --------------
UNIT TRANSACTIONS:
Purchases.............. 34,983,693 374,759,005 143,597,572 9,146,977 67,409,255
Net transfers.......... 123,126,442 280,406,929 (12,597,119) 8,722,639 58,996,655
Surrenders for benefit
payments and fees..... (94,130,526) (329,416,389) (117,626,736) (28,665,195) (34,320,175)
Net annuity
transactions.......... (32,392) 3,527,169 304,016 39,959 271,456
------------ -------------- ------------------ ---------------- --------------
Net increase (decrease)
in net assets
resulting from unit
transactions.......... 63,947,217 329,276,714 13,677,733 (10,755,620) 92,357,191
------------ -------------- ------------------ ---------------- --------------
Net increase (decrease)
in net assets......... 75,783,365 1,215,401,977 251,773,206 (866,428) 211,944,770
NET ASSETS:
Beginning of period.... 267,038,029 3,701,271,594 1,733,908,168 191,113,651 411,155,816
------------ -------------- ------------------ ---------------- --------------
End of period.......... $342,821,394 $4,916,673,571 $1,985,681,374 $190,247,223 $ 623,100,586
------------ -------------- ------------------ ---------------- --------------
------------ -------------- ------------------ ---------------- --------------
<CAPTION>
INTERNATIONAL DIVIDEND AND
OPPORTUNITIES FUND GROWTH FUND
SUB-ACCOUNT SUB-ACCOUNT
------------------- ---------------
<S> <C> <C>
OPERATIONS:
Net investment income
(loss)................ $ 189,021 $ 4,915,811
Capital gains income... 25,347,181 25,624,259
Net realized gain
(loss) on security
transactions.......... 1,455,876 (465,941)
Net unrealized
appreciation
(depreciation) of
investments during the
period................ 17,463,831 82,775,505
------------------- ---------------
Net increase (decrease)
in net assets
resulting from
operations............ 44,455,909 112,849,634
------------------- ---------------
UNIT TRANSACTIONS:
Purchases.............. 16,804,591 141,279,121
Net transfers.......... (27,399,853) 99,305,048
Surrenders for benefit
payments and fees..... (28,546,428) (49,052,200)
Net annuity
transactions.......... 244,437 835,197
------------------- ---------------
Net increase (decrease)
in net assets
resulting from unit
transactions.......... (38,897,253) 192,367,166
------------------- ---------------
Net increase (decrease)
in net assets......... 5,558,656 305,216,800
NET ASSETS:
Beginning of period.... 393,045,458 669,223,866
------------------- ---------------
End of period.......... $398,604,114 $ 974,440,666
------------------- ---------------
------------------- ---------------
</TABLE>
<TABLE>
<CAPTION>
MONEY CAPITAL MORTGAGE
MARKET FUND ADVISERS FUND APPRECIATION FUND SECURITIES FUND INDEX FUND
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
------------ -------------- ------------------ ---------------- --------------
<S> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment income
(loss)................ $ 10,558,627 $ 36,403,121 $ (10,930,508) $ 9,013,463 $ 492,907
Capital gains income... 792 129,600,221 103,244,397 -- 21,612,566
Net realized gain
(loss) on security
transactions.......... -- 2,159,454 413,746 28,917 243,148
Net unrealized
appreciation
(depreciation) of
investments during the
period................ -- 501,068,905 190,913,008 5,074,541 65,120,869
------------ -------------- ------------------ ---------------- --------------
Net increase (decrease)
in net assets
resulting from
operations............ 10,559,419 669,231,701 283,640,643 14,116,921 87,469,490
------------ -------------- ------------------ ---------------- --------------
UNIT TRANSACTIONS:
Purchases.............. 56,766,167 364,832,050 194,562,087 7,925,304 65,766,703
Net transfers.......... (9,782,834) 27,406,992 (11,521,643) (9,594,437) 26,458,731
Surrenders for benefit
payments and fees..... (68,418,264) (206,501,208) (87,759,430) (17,575,723) (18,692,668)
Net annuity
transactions.......... 12,261 725,608 361,130 (3,307) 190,331
------------ -------------- ------------------ ---------------- --------------
Net increase (decrease)
in net assets
resulting from unit
transactions.......... (21,422,670) 186,463,442 95,642,144 (19,248,163) 73,723,097
------------ -------------- ------------------ ---------------- --------------
Net increase (decrease)
in net assets......... (10,863,251) 855,695,143 379,282,787 (5,131,242) 161,192,587
NET ASSETS:
Beginning of period.... 277,901,280 2,845,576,451 1,354,625,381 196,244,893 249,963,229
------------ -------------- ------------------ ---------------- --------------
End of period.......... $267,038,029 $3,701,271,594 $1,733,908,168 $191,113,651 $ 411,155,816
------------ -------------- ------------------ ---------------- --------------
------------ -------------- ------------------ ---------------- --------------
<CAPTION>
INTERNATIONAL DIVIDEND AND
OPPORTUNITIES FUND GROWTH FUND
SUB-ACCOUNT SUB-ACCOUNT
------------------- ---------------
<S> <C> <C>
OPERATIONS:
Net investment income
(loss)................ $ (1,529,162) $ 3,234,554
Capital gains income... 29,748,890 9,959,170
Net realized gain
(loss) on security
transactions.......... 29,653 (4,003)
Net unrealized
appreciation
(depreciation) of
investments during the
period................ (32,127,237) 111,067,791
------------------- ---------------
Net increase (decrease)
in net assets
resulting from
operations............ (3,877,856) 124,257,512
------------------- ---------------
UNIT TRANSACTIONS:
Purchases.............. 38,595,370 159,109,767
Net transfers.......... (16,075,692) 87,528,713
Surrenders for benefit
payments and fees..... (26,504,799) (20,331,098)
Net annuity
transactions.......... 66,746 349,515
------------------- ---------------
Net increase (decrease)
in net assets
resulting from unit
transactions.......... (3,918,375) 226,656,897
------------------- ---------------
Net increase (decrease)
in net assets......... (7,796,231) 350,914,409
NET ASSETS:
Beginning of period.... 400,841,689 318,309,457
------------------- ---------------
End of period.......... $393,045,458 $ 669,223,866
------------------- ---------------
------------------- ---------------
</TABLE>
<PAGE>
SA-18 HARTFORD LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
SEPARATE ACCOUNT TWO
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS -- (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
INTERNATIONAL SMALL MIDCAP SMITH BARNEY
ADVISERS FUND COMPANY FUND FUND CASH PORTFOLIO
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
-------------- ------------- ------------ ---------------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income
(loss)................ $ 5,711,299 $ (1,090,110) $ (320,020) $ 19,946
Capital gains income... 1,559,601 1,255,431 -- --
Net realized gain
(loss) on security
transactions.......... (62,176) 1,445,433 (3,698) --
Net unrealized
appreciation
(depreciation) of
investments during the
period................ (222,372) 9,623,019 6,597,665 --
-------------- ------------- ------------ ---------------
Net increase (decrease)
in net assets
resulting from
operations............ 6,986,352 11,233,773 6,273,947 19,946
-------------- ------------- ------------ ---------------
UNIT TRANSACTIONS:
Purchases.............. 9,244,144 17,606,410 13,468,482 --
Net transfers.......... 5,996,311 27,369,558 18,368,378 --
Surrenders for benefit
payments and fees..... (3,894,672) (4,568,343) (982,314) (42,255)
Net annuity
transactions.......... 83,430 98,040 -- --
-------------- ------------- ------------ ---------------
Net increase (decrease)
in net assets
resulting from unit
transactions.......... 11,429,213 40,505,665 30,854,546 (42,255)
-------------- ------------- ------------ ---------------
Net increase (decrease)
in net assets......... 18,415,565 51,739,438 37,128,493 (22,309)
NET ASSETS:
Beginning of period.... 57,422,373 71,393,635 9,173,890 509,012
-------------- ------------- ------------ ---------------
End of period.......... $75,837,938 $123,133,073 $ 46,302,383 $486,703
-------------- ------------- ------------ ---------------
-------------- ------------- ------------ ---------------
</TABLE>
* From inception, March 2, 1998 to December 31, 1998.
HARTFORD LIFE INSURANCE COMPANY
STATEMENTS OF CHANGES IN NET ASSETS -- (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
INTERNATIONAL SMALL MIDCAP SMITH BARNEY
ADVISERS FUND COMPANY FUND FUND CASH PORTFOLIO
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT* SUB-ACCOUNT
-------------- ------------- ------------- ---------------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income
(loss)................ $ 1,035,994 $ (457,120) $ (12,661) $ 21,390
Capital gains income... 110,732 3,307,195 -- --
Net realized gain
(loss) on security
transactions.......... 13,808 (36,223) (2,185) --
Net unrealized
appreciation
(depreciation) of
investments during the
period................ 118,913 1,332,603 336,895 --
-------------- ------------- ------------- ---------------
Net increase (decrease)
in net assets
resulting from
operations............ 1,279,447 4,146,455 322,049 21,390
-------------- ------------- ------------- ---------------
UNIT TRANSACTIONS:
Purchases.............. 18,887,741 24,742,079 2,088,623 --
Net transfers.......... 9,531,179 30,544,670 6,774,154 --
Surrenders for benefit
payments and fees..... (2,110,213) (1,630,264) (10,936) (93,309)
Net annuity
transactions.......... 25,045 44,603 -- --
-------------- ------------- ------------- ---------------
Net increase (decrease)
in net assets
resulting from unit
transactions.......... 26,333,752 53,701,088 8,851,841 (93,309)
-------------- ------------- ------------- ---------------
Net increase (decrease)
in net assets......... 27,613,199 57,847,543 9,173,890 (71,919)
NET ASSETS:
Beginning of period.... 29,809,174 13,546,092 -- 580,931
-------------- ------------- ------------- ---------------
End of period.......... $57,422,373 $71,393,635 $ 9,173,890 $509,012
-------------- ------------- ------------- ---------------
-------------- ------------- ------------- ---------------
</TABLE>
* From inception, July 15, 1997 to December 31, 1997.
** From inception, June 3, 1997 to December 31, 1997.
*** From inception, October 23, 1997 to December 31, 1997.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
<PAGE>
HARTFORD LIFE INSURANCE COMPANY SA-19
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SMITH BARNEY SMITH BARNEY BB&T GROWTH & AMSOUTH EQUITY MENTOR
APPRECIATION FUND GOVERNMENT PORTFOLIO INCOME FUND INCOME FUND CAPITAL GROWTH
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT*
------------------ --------------------- ----------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment income
(loss)................ $ 526 $ 1,465 $ 28,796 $ 134,592 $ (85,499)
Capital gains income... 15,116 -- -- -- --
Net realized gain
(loss) on security
transactions.......... 51 -- 1,013 4,124 (4,500)
Net unrealized
appreciation
(depreciation) of
investments during the
period................ 17,076 -- 1,927,801 971,715 1,696,228
-------- ------- ----------------- --------------- ---------------
Net increase (decrease)
in net assets
resulting from
operations............ 32,769 1,465 1,957,610 1,110,431 1,606,229
-------- ------- ----------------- --------------- ---------------
UNIT TRANSACTIONS:
Purchases.............. -- -- 9,760,778 14,622,450 11,672,774
Net transfers.......... -- -- 6,090,057 5,094,816 5,647,677
Surrenders for benefit
payments and fees..... (3,555) (4,272) (574,799) (733,985) (248,948)
Net annuity
transactions.......... -- -- -- 25,393 --
-------- ------- ----------------- --------------- ---------------
Net increase (decrease)
in net assets
resulting from unit
transactions.......... (3,555) (4,272) 15,276,036 19,008,674 17,071,503
-------- ------- ----------------- --------------- ---------------
Net increase (decrease)
in net assets......... 29,214 (2,807) 17,233,646 20,119,105 18,677,732
NET ASSETS:
Beginning of period.... 170,573 37,164 6,477,420 2,391,916 --
-------- ------- ----------------- --------------- ---------------
End of period.......... $199,787 $34,357 $23,711,066 $22,511,021 $18,677,732
-------- ------- ----------------- --------------- ---------------
-------- ------- ----------------- --------------- ---------------
<CAPTION>
MENTOR PERPETUAL MENTOR
INTERNATIONAL GROWTH
SUB-ACCOUNT* SUB-ACCOUNT*
----------------- -------------
<S> <C> <C>
OPERATIONS:
Net investment income
(loss)................ $ (51,799) $ (44,785)
Capital gains income... -- --
Net realized gain
(loss) on security
transactions.......... 1,684 (1,365)
Net unrealized
appreciation
(depreciation) of
investments during the
period................ 601,328 610,042
----------------- -------------
Net increase (decrease)
in net assets
resulting from
operations............ 551,213 563,892
----------------- -------------
UNIT TRANSACTIONS:
Purchases.............. 6,236,230 6,771,031
Net transfers.......... 4,185,922 3,215,967
Surrenders for benefit
payments and fees..... (161,010) (80,660)
Net annuity
transactions.......... -- --
----------------- -------------
Net increase (decrease)
in net assets
resulting from unit
transactions.......... 10,261,142 9,906,338
----------------- -------------
Net increase (decrease)
in net assets......... 10,812,355 10,470,230
NET ASSETS:
Beginning of period.... -- --
----------------- -------------
End of period.......... $10,812,355 $10,470,230
----------------- -------------
----------------- -------------
</TABLE>
<TABLE>
<CAPTION>
SMITH BARNEY SMITH BARNEY BB&T GROWTH & AMSOUTH EQUITY U.S. GOVERNMENT
APPRECIATION FUND GOVERNMENT PORTFOLIO INCOME FUND INCOME FUND MONEY MARKET FUND
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT** SUB-ACCOUNT*** SUB-ACCOUNT
------------------ --------------------- ----------------- --------------- ------------------
<S> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment income
(loss)................ $ 687 $ 1,594 $ 22,704 $ 1,732 $ 2,019
Capital gains income... 22,341 -- 662 -- --
Net realized gain
(loss) on security
transactions.......... 6,810 -- -- -- --
Net unrealized
appreciation
(depreciation) of
investments during the
period................ 8,816 -- 409,485 32,195 --
-------- ------- ----------------- --------------- ----------
Net increase (decrease)
in net assets
resulting from
operations............ 38,654 1,594 432,851 33,927 2,019
-------- ------- ----------------- --------------- ----------
UNIT TRANSACTIONS:
Purchases.............. -- -- 5,104,417 2,100,608 --
Net transfers.......... -- -- 1,006,220 259,438 (88,379)
Surrenders for benefit
payments and fees..... (40,942) (4,272) (66,068) (2,057) (9,133)
Net annuity
transactions.......... -- -- -- -- (21,870)
-------- ------- ----------------- --------------- ----------
Net increase (decrease)
in net assets
resulting from unit
transactions.......... (40,942) (4,272) 6,044,569 2,357,989 (119,382)
-------- ------- ----------------- --------------- ----------
Net increase (decrease)
in net assets......... (2,288) (2,678) 6,477,420 2,391,916 (117,363)
NET ASSETS:
Beginning of period.... 172,861 39,842 -- -- 117,363
-------- ------- ----------------- --------------- ----------
End of period.......... $170,573 $37,164 $ 6,477,420 $ 2,391,916 $--
-------- ------- ----------------- --------------- ----------
-------- ------- ----------------- --------------- ----------
</TABLE>
* From inception, July 15, 1997 to December 31, 1997.
** From inception, June 3, 1997 to December 31, 1997.
*** From inception, October 23, 1997 to December 31, 1997.
<PAGE>
SA-20 HARTFORD LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
SEPARATE ACCOUNT TWO
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS -- (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
GROWTH AND
INCOME FUND
SUB-ACCOUNT**
--------------
<S> <C>
OPERATIONS:
Net investment income
(loss)................ $ 5,967
Capital gains income... --
Net realized gain
(loss) on security
transactions.......... (2,267)
Net unrealized
appreciation
(depreciation) of
investments during the
period................ 740,175
--------------
Net increase (decrease)
in net assets
resulting from
operations............ 743,875
--------------
UNIT TRANSACTIONS:
Purchases.............. 1,325,581
Net transfers.......... 4,236,085
Surrenders for benefit
payments and fees..... (56,204)
Net annuity
transactions.......... --
--------------
Net increase (decrease)
in net assets
resulting from unit
transactions.......... 5,505,462
--------------
Net increase (decrease)
in net assets......... 6,249,337
NET ASSETS:
Beginning of period.... --
--------------
End of period.......... $6,249,337
--------------
--------------
</TABLE>
** From inception, June 1, 1998 to December 31, 1998.
*** From inception, September 30, 1998 to December 31, 1998.
**** From inception, December 16, 1998 to December 31, 1998.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
<PAGE>
HARTFORD LIFE INSURANCE COMPANY SA-21
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
HIGH GLOBAL MITCHELL HUTCHINS GROWTH MITCHELL HUTCHINS STRATEGIC
YIELD FUND LEADERS FUND AND INCOME PORTFOLIO INCOME PORTFOLIO
SUB-ACCOUNT*** SUB-ACCOUNT*** SUB-ACCOUNT**** SUB-ACCOUNT****
--------------- --------------- ------------------------- ----------------------------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income
(loss)................ $ 32,022 $ 472 $ 38 $ 111
Capital gains income... -- 16,340 702 6
Net realized gain
(loss) on security
transactions.......... (287) 1,084 -- --
Net unrealized
appreciation
(depreciation) of
investments during the
period................ (9,874) 10,436 (20) (145)
--------------- --------------- ------- ------
Net increase (decrease)
in net assets
resulting from
operations............ 21,861 28,332 720 (28)
--------------- --------------- ------- ------
UNIT TRANSACTIONS:
Purchases.............. 226,463 114,768 10,000 10,000
Net transfers.......... 1,697,571 456,296 -- --
Surrenders for benefit
payments and fees..... (2,348) (286) (1) (1)
Net annuity
transactions.......... -- -- -- --
--------------- --------------- ------- ------
Net increase (decrease)
in net assets
resulting from unit
transactions.......... 1,921,686 570,778 9,999 9,999
--------------- --------------- ------- ------
Net increase (decrease)
in net assets......... 1,943,547 599,110 10,719 9,971
NET ASSETS:
Beginning of period.... -- -- -- --
--------------- --------------- ------- ------
End of period.......... $1,943,547 $599,110 $10,719 $9,971
--------------- --------------- ------- ------
--------------- --------------- ------- ------
<CAPTION>
MITCHELL HUTCHINS TACTICAL
ALLOCATION PORTFOLIO
SUB-ACCOUNT****
---------------------------
<S> <C>
OPERATIONS:
Net investment income
(loss)................ $ 7
Capital gains income... 56
Net realized gain
(loss) on security
transactions.......... --
Net unrealized
appreciation
(depreciation) of
investments during the
period................ 507
-------
Net increase (decrease)
in net assets
resulting from
operations............ 570
-------
UNIT TRANSACTIONS:
Purchases.............. 10,000
Net transfers.......... --
Surrenders for benefit
payments and fees..... 1
Net annuity
transactions.......... --
-------
Net increase (decrease)
in net assets
resulting from unit
transactions.......... 10,001
-------
Net increase (decrease)
in net assets......... 10,571
NET ASSETS:
Beginning of period.... --
-------
End of period.......... $10,571
-------
-------
</TABLE>
** From inception, June 1, 1998 to December 31, 1998.
*** From inception, September 30, 1998 to December 31, 1998.
**** From inception, December 16, 1998 to December 31, 1998.
<PAGE>
SA-22 HARTFORD LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
SEPARATE ACCOUNT TWO
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
1. ORGANIZATION:
Separate Account Two (the Account) is a separate investment account within
Hartford Life Insurance Company (the Company) and is registered with the
Securities and Exchange Commission (SEC) as a unit investment trust under
the Investment Company Act of 1940, as amended. Both the Company and the
Account are subject to supervision and regulation by the Department of
Insurance of the State of Connecticut and the SEC. The Account invests
deposits by variable annuity contractholders of the Company in various
mutual funds (the Funds) as directed by the contractholders.
2. SIGNIFICANT ACCOUNTING POLICIES:
The following is a summary of significant accounting policies of the
Account, which are in accordance with generally accepted accounting
principles in the investment company industry:
a) SECURITY TRANSACTIONS--Security transactions are recorded on the trade
date (date the order to buy or sell is executed). Cost of investments
sold is determined on the basis of identified cost. Dividend and capital
gains income are accrued as of the ex-dividend date. Capital gains income
represents those dividends from the Funds which are characterized as
capital gains under tax regulations.
b) SECURITY VALUATION--The investments in shares of the Funds are valued at
the closing net asset value per share as determined by the appropriate
Fund as of December 31, 1998.
c) FEDERAL INCOME TAXES--The operations of the Account form a part of, and
are taxed with, the total operations of the Company, which is taxed as an
insurance company under the Internal Revenue Code. Under current law, no
federal income taxes are payable with respect to the operations of the
Account.
d) USE OF ESTIMATES--The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities as of the date of the financial statements and the reported
amounts of income and expenses during the period. Operating results in
the future could vary from the amounts derived from management's
estimates.
3. ADMINISTRATION OF THE ACCOUNT AND RELATED CHARGES:
Deduction and Charges -- Certain amounts are deducted from the Contracts, as
described below:
a) MORTALITY AND EXPENSE RISK CHARGES--The Company will make deductions at a
maximum annual rate of 1.50% of the Contract's value for the mortality
and expense risks which the Company undertakes.
b) TAX EXPENSE CHARGE--If applicable, the Company will make deductions at a
maximum rate of 4.0% of the Contract's value to meet premium tax
requirements. An additional tax charge based on a percentage of the
Contract's value may be assessed to partial withdrawals or surrenders.
These expenses are reflected in surrenders for benefit payments and fees
on the accompanying statements of changes in net assets.
c) ANNUAL MAINTENANCE FEE--An annual maintenance fee in the amount of $30
may be deducted from the Contract's value each contract year. However,
this fee is not applicable to contracts with values of $50,000 or more,
as determined on the most recent contract anniversary. These expenses are
reflected in surrenders for benefit payments and fees on the accompanying
statements of changes in net assets.
4. HARTFORD U.S. GOVERNMENT MONEY MARKET FUND:
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 AND SUBSIDIARIES F-1
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Hartford Life Insurance Company:
We have audited the accompanying Consolidated Balance Sheets of Hartford Life
Insurance Company and subsidiaries as of December 31, 1998 and 1997, and the
related Consolidated Statements of Income, Changes in Stockholder's Equity and
Cash Flows for each of the three years in the period ended December 31, 1998.
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 financial statements and
schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the Consolidated Financial Statements referred to above present
fairly, in all material respects, the financial position of Hartford Life
Insurance Company and subsidiaries as of December 31, 1998 and 1997, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1998 in conformity with generally accepted
accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedules listed in the Index to
Consolidated Financial Statements and Schedules are presented for the purpose of
complying with the Securities and Exchange Commission's rules and are not part
of the basic financial statements. These schedules have been subjected to the
auditing procedures applied in the audits of the basic financial statements and,
in our opinion, fairly state in all material respects the financial data
required to be set forth therein in relation to the basic financial statements
taken as a whole.
ARTHUR ANDERSEN LLP
Hartford, Connecticut
January 26, 1999
<PAGE>
F-2 HARTFORD LIFE INSURANCE COMPANY AND SUBSIDIARIES
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
------------------------
1998 1997 1996
------ ------ ------
(IN MILLIONS)
<S> <C> <C> <C>
Revenues
Premiums and other considerations............... $2,218 $1,637 $1,705
Net investment income........................... 1,759 1,368 1,397
Net realized capital (losses) gains............. (2) 4 (213)
------ ------ ------
Total revenues................................ 3,975 3,009 2,889
------ ------ ------
Benefits, claims and expenses
Benefits, claims and claim adjustment
expenses....................................... 1,911 1,379 1,535
Amortization of deferred policy acquisition
costs.......................................... 431 335 234
Dividends to policyholders...................... 329 240 635
Other expenses.................................. 766 586 427
------ ------ ------
Total benefits, claims and expenses........... 3,437 2,540 2,831
------ ------ ------
Income before income tax expense................ 538 469 58
Income tax expense.............................. 188 167 20
------ ------ ------
Net income........................................ $ 350 $ 302 $ 38
------ ------ ------
------ ------ ------
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
HARTFORD LIFE INSURANCE COMPANY AND SUBSIDIARIES F-3
- --------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
AS OF DECEMBER
31,
-----------------
1998 1997
------- -------
<S> <C> <C>
(IN MILLIONS,
EXCEPT FOR SHARE
DATA)
Assets
Investments
Fixed maturities, available for sale, at fair
value (amortized cost of $14,505 and
$13,885)....................................... $14,818 $14,176
Equity securities, at fair value................ 31 180
Policy loans, at outstanding balance............ 6,684 3,756
Other investments, at cost...................... 264 47
------- -------
Total investments............................. 21,797 18,159
Cash............................................ 17 54
Premiums receivable and agents' balances........ 17 18
Reinsurance recoverables........................ 1,257 6,114
Deferred policy acquisition costs............... 3,754 3,315
Deferred income tax............................. 464 348
Other assets.................................... 695 682
Separate account assets......................... 90,262 69,055
------- -------
Total assets.................................. $118,263 $97,745
------- -------
------- -------
Liabilities
Future policy benefits.......................... $ 3,595 $ 3,059
Other policyholder funds........................ 19,615 21,034
Other liabilities............................... 2,094 2,254
Separate account liabilities.................... 90,262 69,055
------- -------
Total liabilities............................. 115,566 95,402
------- -------
Stockholder's Equity
Common stock -- 1,000 shares authorized, issued
and outstanding, par value $5,690.............. 6 6
Capital surplus................................. 1,045 1,045
Accumulated other comprehensive income
Net unrealized capital gains on securities,
net of tax................................... 184 179
------- -------
Total accumulated other comprehensive
income....................................... 184 179
------- -------
Retained earnings............................... 1,462 1,113
------- -------
Total stockholder's equity.................... 2,697 2,343
------- -------
Total liabilities and stockholder's equity...... $118,263 $97,745
------- -------
------- -------
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
F-4 HARTFORD LIFE INSURANCE COMPANY AND SUBSIDIARIES
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY
<TABLE>
<CAPTION>
ACCUMULATED
OTHER
COMPREHENSIVE
INCOME
---------------
NET UNREALIZED
CAPITAL GAINS
(LOSSES) ON TOTAL
COMMON CAPITAL SECURITIES, RETAINED STOCKHOLDER'S
STOCK SURPLUS NET OF TAX EARNINGS EQUITY
------ -------------- --------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
(IN MILLIONS)
1998
Balance, December 31, 1997.............. $6 $ 1,045 $179 $1,113 $2,343
Comprehensive income
Net income............................ -- -- -- 350 350
------
Other comprehensive income, net of tax
(1):
Changes in net unrealized capital
gains on securities (2).............. -- -- 5 -- 5
------
Total other comprehensive income........ 5
------
Total comprehensive income 355
------
Dividends............................... -- -- -- (1) (1)
--
------ ----- ----------- ------
Balance, December 31, 1998.......... $6 $ 1,045 $184 $1,462 $2,697
--
------ ----- ----------- ------
1997
Balance, December 31, 1996.............. $6 $ 1,045 $ 30 $ 811 $1,892
Comprehensive income
Net income............................ -- -- -- 302 302
------
Other comprehensive income, net of tax
(1):
Changes in net unrealized capital
gains on securities (2).............. -- -- 149 -- 149
------
Total other comprehensive income........ 149
------
Total comprehensive income 451
--
------ ----- ----------- ------
Balance, December 31, 1997.......... $6 $ 1,045 $179 $1,113 $2,343
--
------ ----- ----------- ------
1996
Balance, December 31, 1995.............. $6 $ 1,007 $(57) $ 773 $1,729
Comprehensive income
Net income............................ -- -- -- 38 38
------
Other comprehensive income, net of tax
(1):
Changes in net unrealized capital
gains on securities (2).............. -- -- 87 -- 87
------
Total other comprehensive income........ 87
------
Total comprehensive income............ 125
------
Capital contribution.................... -- 38 -- -- 38
--
------ ----- ----------- ------
Balance, December 31, 1996.......... $6 $ 1,045 $ 30 $ 811 $1,892
--
--
------ ----- ----------- ------
------ ----- ----------- ------
</TABLE>
- ---------
(1) Net unrealized capital gain on securities is reflected net of tax of $3,
$80 and $47, as of December 31, 1998, 1997 and 1996, respectively.
(2) There was no reclassification adjustment for after-tax gains (losses)
realized in net income for the years ended December 31, 1998 and 1997. December
31, 1996 is net of a $142 reclassification adjustment for after-tax losses
realized in net income.
See Notes to Consolidated Financial Statements.
<PAGE>
HARTFORD LIFE INSURANCE COMPANY AND SUBSIDIARIES F-5
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER
31,
------------------------------
1998 1997 1996
-------- -------- --------
(IN MILLIONS)
<S> <C> <C> <C>
Operating Activities
Net income............................ $ 350 $ 302 $ 38
Adjustments to reconcile net income to
net cash provided by operating
activities
Depreciation and amortization......... (23) 8 14
Net realized capital losses (gains)... 2 (4) 213
Decrease in premiums receivable and
agents' balances..................... 1 119 10
(Decrease) increase in other
liabilities.......................... (79) 223 577
Change in receivables, payables, and
accruals............................. 83 107 (22)
Increase (decrease) in accrued
taxes................................ 60 126 (91)
(Increase) decrease in deferred income
taxes................................ (118) 40 (102)
Increase in deferred policy
acquisition costs.................... (439) (555) (572)
Increase in future policy benefits.... 536 585 101
(Increase) decrease in reinsurance
recoverables and other related
assets............................... (2) 21 (146)
-------- -------- --------
Net cash provided by operating
activities......................... 371 972 20
-------- -------- --------
Investing Activities
Purchases of investments.............. (6,061) (6,869) (5,854)
Sales of investments.................. 4,901 4,256 3,543
Maturity of investments............... 1,761 2,329 2,693
-------- -------- --------
Net cash provided by (used for)
investing activities............... 601 (284) 382
-------- -------- --------
Financing Activities
Capital contribution.................. -- -- 38
Net disbursements for investment and
universal life-type contracts charged
against policyholder accounts........ (1,009) (677) (443)
-------- -------- --------
Net cash used for financing
activities......................... (1,009) (677) (405)
-------- -------- --------
Net (decrease) increase in cash....... (37) 11 (3)
Cash -- beginning of year............. 54 43 46
-------- -------- --------
Cash -- end of year................... $ 17 $ 54 $ 43
-------- -------- --------
-------- -------- --------
Supplemental Disclosure of Cash Flow
Information:
Net Cash Paid During the Year for:
Income taxes.......................... $ 263 $ 9 $ 189
Noncash Investing Activities:
Due to the recapture of an in force block of business previously ceded
to MBL Life Assurance Co. of New Jersey, reinsurance recoverables of
$4,546 were exchanged for the fair value of assets comprised of
$4,354 in policy loans and $192 in other assets.
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
F-6 HARTFORD LIFE INSURANCE COMPANY AND SUBSIDIARIES
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN MILLIONS EXCEPT PER SHARE DATA UNLESS OTHERWISE STATED)
1. ORGANIZATION AND DESCRIPTION OF BUSINESS
These Consolidated Financial Statements include Hartford Life Insurance
Company and its wholly-owned subsidiaries ("Hartford Life Insurance Company" or
the "Company"), Hartford Life and Annuity Insurance Company (ILA) and Hartford
International Life Reassurance Corporation (HLRe), formerly American Skandia
Life Reinsurance Corporation. The Company is a wholly-owned subsidiary of
Hartford Life and Accident Insurance Company (HLA), a wholly-owned subsidiary of
Hartford Life, Inc. (Hartford Life). Hartford Life is a direct subsidiary of
Hartford Accident and Indemnity Company (HA&I), an indirect subsidiary of The
Hartford Financial Services Group, Inc. (The Hartford). Pursuant to an initial
public offering (the "IPO") on May 22, 1997, Hartford Life sold 26 million
shares of Class A Common Stock at $28.25 per share and received proceeds, net of
offering expenses, of $687. Of the proceeds, $527 was used to retire debt
related to Hartford Life's outstanding promissory notes and line of credit with
the remaining $160 contributed by Hartford Life to HLA to support growth in its
core businesses. Hartford Life became a publicly traded company upon the sale of
26 million shares representing approximately 18.6% of the equity ownership in
Hartford Life. On December 19, 1995, ITT Industries, Inc. (formerly ITT
Corporation) (ITT) distributed all the outstanding shares of capital stock of
The Hartford to ITT stockholders of record on such date. As a result, The
Hartford became an independent, publicly traded company.
Along with its parent, HLA, the Company is a leading financial services and
insurance company which provides (a) investment products such as individual
variable annuities and fixed market value adjusted annuities, deferred
compensation and retirement plan services and mutual funds for savings and
retirement needs; (b) life insurance for income protection and estate planning;
and (c) employee benefits products such as group life and disability insurance
that is directly written by the Company and is substantially ceded to its
parent, HLA, and (d) corporate owned life insurance.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) BASIS OF PRESENTATION
These Consolidated Financial Statements present the financial position,
results of operations and cash flows of the Company. All material intercompany
transactions and balances between the Company, its subsidiaries and affiliates
have been eliminated. The Consolidated Financial Statements are prepared on the
basis of generally accepted accounting principles which differ materially from
the statutory accounting practices prescribed by various insurance regulatory
authorities.
The preparation of financial statements, in conformity with generally
accepted accounting principles, requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. The most
significant estimates include those used in determining deferred policy
acquisition costs and the liability for future policy benefits and other
policyholder funds. Although some variability is inherent in these estimates,
management believes the amounts provided are adequate.
Certain reclassifications have been made to prior year financial information
to conform to the current year presentation.
(B) CHANGES IN ACCOUNTING PRINCIPLES
In November 1998, the Emerging Issues Task Force (EITF) reached consensus on
Issue No. 98-15, "Structured Notes Acquired for a Specific Investment Strategy".
This EITF issue requires companies to account for structured notes acquired for
a specific investment strategy, as a unit. Affected companies that entered into
these notes prior to September 25, 1998 are required to either restate prior
period financial statements to conform with the prescribed unit accounting model
or disclose the related impact on earnings for all periods presented and
cumulatively over the life of the instruments had the registrant accounted for
the structure as a unit. Based upon recently prescribed current generally
accepted accounting principles for such types of transactions entered into after
September 24, 1998, there was no additional earnings impact to the Company
related to combined structured note transactions. As of December 31, 1998, the
Company does not hold any combined structured notes.
In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for
Derivative Instruments and Hedging Activities". The new standard establishes
accounting and reporting guidance for derivative instruments, including certain
derivative instruments embedded in other contracts. The standard requires, among
other things, that all derivatives be carried on the balance sheet at fair
value. The standard also specifies hedge accounting criteria under which a
derivative can qualify for special accounting. In order to receive special
accounting, the derivative instrument must qualify as either
<PAGE>
HARTFORD LIFE INSURANCE COMPANY AND SUBSIDIARIES F-7
- --------------------------------------------------------------------------------
a hedge of the fair value or the variability of the cash flow of a qualified
asset or liability. Special accounting for qualifying hedges provides for
matching the timing of gain or loss recognition on the hedging instrument with
the recognition of the corresponding changes in value of the hedged item. SFAS
No. 133 will be effective for fiscal years beginning after June 15, 1999.
Initial application for Hartford Life Insurance Company will begin for the first
quarter of the year 2000. While Hartford Life Insurance Company is currently in
the process of quantifying the impact of SFAS No. 133, the Company is reviewing
its derivative holdings in order to take actions needed to minimize potential
volatility, while at the same time maintaining the economic protection needed to
support the goals of its business.
In March 1998, the American Institute of Certified Public Accountants
(AICPA) issued Statement of Position (SOP) No. 98-1, "Accounting for the Costs
of Computer Software Developed or Obtained for Internal Use". The SOP provides
guidance on accounting for the costs of internal use software and in determining
whether the software is for internal use. The SOP defines internal use software
as software that is acquired, internally developed, or modified solely to meet
internal needs and identifies stages of software development and accounting for
the related costs incurred during the stages. This statement is effective for
fiscal years beginning after December 15, 1998 and is not expected to have a
material impact on the Company's financial condition or results of operations.
Effective January 1, 1998, the Company adopted SFAS No. 130, "Reporting
Comprehensive Income", which establishes standards for reporting and display of
comprehensive income and its components in a full set of general purpose
financial statements. The objective of this statement is to report a measure of
all changes in equity of an enterprise that result from transactions and other
economic events of the period other than transactions with owners. Comprehensive
income is the total of net income and all other nonowner changes in equity.
Accordingly, the Company has reported comprehensive income in the Consolidated
Statements of Changes in Stockholder's Equity.
In December 1997, the AICPA issued SOP No. 97-3 "Accounting by Insurance and
Other Enterprises for Insurance Related Assessments". This SOP provides guidance
on accounting by insurance and other enterprises for assessments related to
insurance activities. Specifically, the SOP provides guidance on when a guaranty
fund or other assessment should be recognized, how to measure the liability, and
what information should be disclosed. This SOP will be effective for fiscal
years beginning after December 15, 1998. Adoption of SOP 97-3 is not expected to
have a material impact on the Company's financial condition or results of
operations.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information". The new standard requires public
business enterprises to disclose certain financial and descriptive information
about reportable operating segments in annual financial statements and in
condensed financial statements of interim periods. Operating segments are
components of an enterprise about which separate financial information is
available that is evaluated regularly by the chief operating decision maker in
deciding how to allocate resources and assessing performance. SFAS No. 131 also
establishes standards for related disclosures about products and services,
geographic areas and major customers. The Company adopted SFAS No. 131 in 1998.
For additional information, see Note 13.
On November 14, 1996, the EITF reached a consensus on Issue No. 96-12,
"Recognition of Interest Income and Balance Sheet Classification of Structured
Notes". This EITF issue requires companies to record income on certain
structured securities on a retrospective interest method. The Company adopted
EITF No. 96-12 for structured securities acquired after November 14, 1996.
Adoption of EITF No. 96-12 did not have a material effect on the Company's
financial condition or results of operations.
In June 1996, the FASB issued SFAS No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishment of Liabilities" which is
effective for transfers and servicing of financial assets and extinguishments of
liabilities occurring after December 31, 1996. This statement established
criteria for determining whether transferred assets should be accounted for as
sales or secured borrowings. Adoption of SFAS No. 125 did not have a material
effect on the Company's financial condition or results of operations.
Effective January 1, 1996, Hartford Life Insurance Company adopted SFAS No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of ". This statement establishes accounting standards for
the impairment of long-lived assets, certain identifiable intangibles and
goodwill related to those assets to be held and used and for long-lived assets
and certain identifiable intangibles to be disposed. Adoption of SFAS No. 121
did not have a material effect on the Company's financial condition or results
of operations.
The Company's cash flows were not impacted by these changes in accounting
principles.
(C) REVENUE RECOGNITION
Revenues for investment products and universal life-type policies consist of
policy charges for policy administration, cost of insurance 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.
<PAGE>
F-8 HARTFORD LIFE INSURANCE COMPANY AND SUBSIDIARIES
- --------------------------------------------------------------------------------
(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) INVESTMENTS
Hartford Life Insurance Company's investments in fixed maturities include
bonds and commercial paper which are considered "available for sale" and
accordingly are carried at fair value with the after-tax difference from cost
reflected as a component of stockholder's equity designated "net unrealized
capital gains on securities, net of tax". Equity securities, which include
common and non-redeemable preferred stocks, are carried at fair values with the
after-tax difference from cost reflected in stockholder's equity. Policy loans
are carried at outstanding balance which approximates fair value. Realized
capital gains and losses on security transactions associated with the Company's
immediate participation guaranteed contracts are excluded from revenues and
deferred over the expected maturity of the securities, since under the terms of
the contracts the realized gains and losses will be credited to policyholders in
future years as they are entitled to receive them. Net realized capital gains
and losses, excluding those related to immediate participation guaranteed
contracts, are reported as a component of revenue and are determined on a
specific identification basis.
The Company's accounting policy for impairment requires recognition of an
other than temporary impairment charge on a security if it is determined that
the Company is unable to recover all amounts due under the contractual
obligations of the security. In addition, for securities expected to be sold, an
other than temporary impairment charge is recognized if the Company does not
expect the fair value of a security to recover to cost or amortized cost prior
to the expected date of sale. Once an impairment charge has been recorded, the
Company then continues to review the other than temporarily impaired securities
for additional impairment, if necessary.
(F) DERIVATIVE INSTRUMENTS
Hartford Life Insurance Company uses a variety of derivative instruments
including swaps, caps, floors, forwards and exchange traded financial futures
and options as part of an overall risk management strategy. These instruments
are used as a means of hedging exposure to price, foreign currency and/or
interest rate risk on planned investment purchases or existing assets and
liabilities. The Company does not hold or issue derivative instruments for
trading purposes. Hartford Life Insurance Company's accounting for derivative
instruments used to manage risk is in accordance with the concepts established
in SFAS No. 80, "Accounting for Futures Contracts", SFAS No. 52, "Foreign
Currency Translation", AICPA SOP 86-2, "Accounting for Options" and various EITF
pronouncements. Written options are used, in all cases in conjunction with other
assets and derivatives, as part of the Company's asset and liability management
strategy. Derivative instruments are carried at values consistent with the asset
or liability being hedged. Derivative instruments used to hedge fixed maturities
or equity securities are carried at fair value with the after-tax difference
from cost reflected in Stockholder's Equity. Derivative instruments used to
hedge other invested assets or liabilities are carried at cost. For a discussion
of SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities"
issued in June 1998, see (b) Changes in Accounting Principles.
Derivative instruments must be designated at inception as a hedge and
measured for effectiveness both at inception and on an ongoing basis. Hartford
Life Insurance Company's correlation threshold for hedge designation is 80% to
120%. If correlation, which is assessed monthly and measured based on a rolling
three month average, falls outside the 80% to 120% range, hedge accounting will
be terminated. Derivative instruments used to create a synthetic asset must meet
synthetic accounting criteria including designation at inception and consistency
of terms between the synthetic and the instrument being replicated. Consistent
with industry practice, synthetic instruments are accounted for like the
financial instrument it is intended to replicate. Derivative instruments which
fail to meet risk management criteria, subsequent to acquisition, are marked to
market with the impact reflected in the Consolidated Statements of Income.
Gains or losses on financial futures contracts entered into in anticipation
of the investment of future receipt of product cash flows are deferred and, at
the time of the ultimate investment purchase, reflected as an adjustment to the
cost basis of the purchased asset. Gains or losses on futures used in invested
asset risk management are deferred and adjusted into the cost basis of the
hedged asset when the contract futures are closed, except for futures used in
duration hedging which are deferred and basis adjusted on a quarterly basis. The
basis adjustments are amortized into net investment income over the remaining
asset life.
Open forward commitment contracts are marked to market through stockholder's
equity. Such contracts are accounted for at settlement by recording the purchase
of the specified securities at the previously committed price. Gains or losses
resulting from the termination of forward commitment contracts before the
delivery of the securities are recognized immediately in the Consolidated
Statements of Income as a component of net investment income.
The cost of options entered into as part of a risk management strategy are
basis adjusted to the underlying asset or liability and amortized over the
remaining life of the
<PAGE>
HARTFORD LIFE INSURANCE COMPANY AND SUBSIDIARIES F-9
- --------------------------------------------------------------------------------
option. Gains or losses on expiration or termination are adjusted into the basis
of the underlying asset or liability and amortized over the remaining asset
life.
Interest rate swaps involve the periodic exchange of payments without the
exchange of underlying principal or notional amounts. Net receipts or payments
are accrued and recognized over the life of the swap agreement as an adjustment
to investment income. Should the swap be terminated, the gain or loss is
adjusted into the basis of the asset or liability and amortized over the
remaining life. Should the hedged asset be sold or liability terminated without
terminating the swap position, any swap gains or losses are immediately
recognized in net investment income. Interest rate swaps purchased in
anticipation of an asset purchase (anticipatory transaction) are recognized
consistent with the underlying asset components such that the settlement
component is recognized in the Consolidated Statements of Income while the
change in market value is recognized as an unrealized capital gain or loss.
Premiums paid on purchased floor or cap agreements and the premium received
on issued cap or floor agreements (used for risk management) are adjusted into
the basis of the applicable asset and amortized over the asset life. Gains or
losses on termination of such positions are adjusted into the basis of the asset
or liability and amortized over the remaining asset life. Net payments are
recognized as an adjustment to income or basis adjusted and amortized depending
on the specific hedge strategy.
Forward exchange contracts and foreign currency swaps are accounted for in
accordance with SFAS No. 52. Changes in the spot rate of instruments designated
as hedges of the net investment in a foreign subsidiary are reflected in the
cumulative translation adjustments component of stockholder's equity. Cash flows
from futures, options, and swaps, accounted for as hedges, are included with the
cash flows of the item being hedged.
(G) SEPARATE ACCOUNTS
Hartford Life Insurance Company maintains separate account assets and
liabilities which are reported at fair value. Separate account assets are
segregated from other investments. Separate accounts reflect two categories of
risk assumption: non-guaranteed separate accounts, wherein the policyholder
assumes the investment risk and rewards, and guaranteed separate account assets,
wherein the Company contractually guarantees either a minimum return or account
value to the policyholder.
(H) DEFERRED POLICY ACQUISITION COSTS
Policy acquisition costs, which include commissions and certain underwriting
expenses associated with acquiring business, are deferred and amortized over the
estimated lives of the contracts, usually 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
charges, 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
re-estimated and adjusted by a cumulative charge or credit to income.
Acquisition costs and their related deferral are included in the Company's
other expenses as follows:
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Commissions.......................... $ 1,069 $ 976 $ 848
Deferred acquisition costs........... (891) (862) (823)
Other................................ 588 472 402
--------- --------- ---------
Total other expenses............. $ 766 $ 586 $ 427
--------- --------- ---------
--------- --------- ---------
</TABLE>
(I) DIVIDENDS TO POLICYHOLDERS
Certain life insurance policies contain dividend payment provisions that
enable the policyholder to participate in the earnings on that participating
block of business. The participating insurance in force accounted for 71%, 55%
and 44% in 1998, 1997 and 1996, respectively, of total insurance in force.
3. INVESTMENTS AND DERIVATIVE INSTRUMENTS
(A) COMPONENTS OF NET INVESTMENT INCOME
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER
31,
-------------------------------
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Interest income from fixed
maturities......................... $ 952 $ 932 $ 918
Interest income from policy loans... 789 425 477
Income from other investments....... 32 26 15
--------- --------- ---------
Gross investment income............. 1,773 1,383 1,410
Less: Investment expenses........... 14 15 13
--------- --------- ---------
Net investment income............... $ 1,759 $ 1,368 $ 1,397
--------- --------- ---------
--------- --------- ---------
</TABLE>
(B) COMPONENTS OF NET REALIZED CAPITAL (LOSSES) GAINS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
---------------------------------
1998 1997 1996
--------- ----- ---------
<S> <C> <C> <C>
Fixed maturities......................... $ (28) $ (7) $ (201)
Equity securities........................ 21 12 2
Real estate and other.................... 5 (1) (4)
Less: Decrease in liability to
policyholders for realized capital
gains................................... -- -- (10)
--------- --- ---------
Net realized capital (losses) gains...... $ (2) $ 4 $ (213)
--------- --- ---------
--------- --- ---------
</TABLE>
<PAGE>
F-10 HARTFORD LIFE INSURANCE COMPANY AND SUBSIDIARIES
- --------------------------------------------------------------------------------
(C) NET UNREALIZED CAPITAL (LOSSES) GAINS ON EQUITY SECURITIES
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
-------------------------------------
1998 1997 1996
----- ----- -----
<S> <C> <C> <C>
Gross unrealized capital gains.............. $ 2 $ 14 $ 13
Gross unrealized capital losses............. (1) -- (1)
--- --- ---
Net unrealized capital gains................ 1 14 12
Deferred income tax expense................. -- 5 4
--- --- ---
Net unrealized capital gains, net of tax.... 1 9 8
Balance -- beginning of year................ 9 8 1
--- --- ---
Net change in unrealized capital gains on
equity securities.......................... $ (8) $ 1 $ 7
--- --- ---
--- --- ---
</TABLE>
(D) NET UNREALIZED CAPITAL GAINS (LOSSES) ON FIXED MATURITIES
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER
31,
-------------------------------
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Gross unrealized capital gains.......... $ 421 $ 371 $ 386
Gross unrealized capital losses......... (108) (80) (341)
Unrealized capital gains credited to
policyholders.......................... (32) (30) (11)
--------- --------- ---------
Net unrealized capital gains............ 281 261 34
Deferred income tax expense............. 98 91 12
--------- --------- ---------
Net unrealized capital gains, net of
tax.................................... 183 170 22
Balance -- beginning of year............ 170 22 (58)
--------- --------- ---------
Net change in unrealized capital gains
(losses) on fixed maturities........... $ 13 $ 148 $ 80
--------- --------- ---------
--------- --------- ---------
</TABLE>
(E) FIXED MATURITY INVESTMENTS
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1998
---------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED
COST GAINS LOSSES FAIR VALUE
---------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
U. S. Government and Government agencies and authorities
(guaranteed and sponsored)...................................... $ 121 $ 2 $ -- $ 123
U. S. Government and Government agencies and authorities
(guaranteed and sponsored) -- asset backed...................... 1,001 23 (8) 1,016
States, municipalities and political subdivisions................ 165 8 -- 173
International governments........................................ 393 26 (7) 412
Public utilities................................................. 844 33 (3) 874
All other corporate including international...................... 5,469 260 (42) 5,687
All other corporate -- asset backed.............................. 4,155 58 (42) 4,171
Short-term investments........................................... 1,847 -- -- 1,847
Certificates of deposit.......................................... 510 11 (6) 515
---------- ----- ----------- ----------
Total fixed maturities....................................... $14,505 $421 $(108) $14,818
---------- ----- ----------- ----------
---------- ----- ----------- ----------
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1997
---------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED
COST GAINS LOSSES FAIR VALUE
---------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
U. S. Government and Government agencies and authorities
(guaranteed and sponsored)...................................... $ 217 $ 3 $ (1) $ 219
U. S. Government and Government agencies and authorities
(guaranteed and sponsored) -- asset backed...................... 1,175 64 (35) 1,204
States, municipalities and political subdivisions................ 211 7 (1) 217
International governments........................................ 376 20 (3) 393
Public utilities................................................. 871 26 (3) 894
All other corporate including international...................... 5,033 200 (25) 5,208
All other corporate -- asset backed.............................. 4,091 41 (8) 4,124
Short-term investments........................................... 1,318 -- -- 1,318
Certificates of deposit.......................................... 593 10 (4) 599
---------- ----- ----- ----------
Total fixed maturities....................................... $13,885 $371 $(80) $14,176
---------- ----- ----- ----------
---------- ----- ----- ----------
</TABLE>
The amortized cost and estimated fair value of fixed maturity investments as
of December 31, 1998 by estimated maturity year are shown below. Expected
maturities differ from contractual maturities due to call or prepayment
provisions. 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 the securities. These estimates are developed using
prepayment speeds provided in broker
<PAGE>
HARTFORD LIFE INSURANCE COMPANY AND SUBSIDIARIES F-11
- --------------------------------------------------------------------------------
consensus data. Such estimates are derived from prepayment speeds experienced at
the interest rate levels projected for the applicable underlying collateral and
can be expected to vary from actual experience.
MATURITY
<TABLE>
<CAPTION>
AMORTIZED
COST FAIR VALUE
----------- -----------
<S> <C> <C>
One year or less......................... $ 3,047 $ 3,116
Over one year through five years......... 4,796 4,843
Over five years through ten years........ 3,242 3,318
Over ten years........................... 3,420 3,541
----------- -----------
Total................................ $ 14,505 $ 14,818
----------- -----------
----------- -----------
</TABLE>
Sales of fixed maturities, excluding short-term fixed maturities, for the
years ended December 31, 1998, 1997 and 1996 resulted in proceeds of $3.2
billion, $4.2 billion and $3.5 billion, gross realized capital gains of $103,
$169 and $87, gross realized capital losses (including writedowns) of $131, $176
and $298, respectively. In 1996, gross realized capital losses includes an other
than temporary impairment of $137 related to the Company's block of guaranteed
investment contract business written prior to 1995 which could not recover to
amortized cost prior to sale. Sales of equity security investments for the years
ended December 31, 1998, 1997 and 1996 resulted in proceeds of $35, $132 and $74
and gross realized capital gains of $21, $12 and $2, respectively, and no gross
realized capital losses for all periods.
(F) CONCENTRATION OF CREDIT RISK
The Company is not exposed to any significant concentration of credit risk
in fixed maturities of a single issuer greater than 10% of stockholder's equity.
(G) DERIVATIVE INSTRUMENTS
Hartford Life Insurance Company utilizes a variety of derivative
instruments, including swaps, caps, floors, forwards and exchange traded futures
and options, in accordance with Company policy and in order to achieve one of
three Company approved objectives: to hedge risk arising from interest rate,
price or currency exchange rate volatility; to manage liquidity; or, to control
transactions costs. The Company utilizes derivative instruments to manage market
risk through four principal risk management strategies: hedging anticipated
transactions, hedging liability instruments, hedging invested assets and hedging
portfolios of assets and/or liabilities. The Company does not trade in these
instruments for the express purpose of earning trading profits.
Hartford Life Insurance Company maintains a derivatives counterparty
exposure policy which establishes market-based credit limits, favors long-term
financial stability and creditworthiness, and typically requires credit
enhancement/credit risk reducing agreements. Credit risk is measured as the
amount owed to the Company based on current market conditions and potential
payment obligations between the Company and its counterparties. Credit exposures
are quantified weekly and netted, and collateral is pledged to or held by the
Company to the extent the current value of derivatives exceed exposure policy
thresholds.
Hartford Life Insurance Company's derivative program is monitored by an
internal compliance unit and is reviewed by senior management and Hartford
Life's Finance Committee of the Board of Directors. Notional amounts, which
represent the basis upon which pay or receive amounts are calculated and are not
reflective of credit risk, pertaining to derivative financial instruments
(excluding the Company's guaranteed separate account derivative investments),
totaled $6.2 billion and $6.5 billion ($3.9 billion and $4.6 billion related to
the Company's investments, $2.3 billion and $1.9 billion on the Company's
liabilities) as of December 31, 1998 and 1997, respectively.
The tables below provide a summary of derivative instruments held by
Hartford Life Insurance Company as of December 31, 1998 and 1997, segregated by
major investment and liability category:
<PAGE>
F-12 HARTFORD LIFE INSURANCE COMPANY AND SUBSIDIARIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1998 -- AMOUNT HEDGED (NOTIONAL AMOUNTS)
----------------------------------------------------------------------------------
FOREIGN
TOTAL ISSUED PURCHASED INTEREST CURRENCY TOTAL
CARRYING CAPS & CAPS & FUTURES RATE SWAPS NOTIONAL
ASSETS HEDGED VALUE FLOORS FLOORS (2) SWAPS (3) AMOUNT
- ----------------------------------- -------- -------- ---------- ---------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Asset backed securities (excluding
inverse floaters and
anticipatory)..................... $ 5,163 $ -- $ 188 $ 3 $ 885 $-- $ 1,076
Inverse floaters (1)............... 24 44 55 -- -- -- 99
Anticipatory (4)................... -- -- -- -- 235 -- 235
Other bonds and notes.............. 7,683 461 597 18 1,300 90 2,466
Short-term investments............. 1,948 -- -- -- -- -- --
-------- -------- ---------- --- ---------- --- ----------
Total fixed maturities......... 14,818 505 840 21 2,420 90 3,876
Equity securities, policy loans and
other investments................. 6,979 -- -- -- -- -- --
-------- -------- ---------- --- ---------- --- ----------
Total investments.............. $ 21,797 505 840 21 2,420 90 3,876
Other policyholder funds....... $ 19,615 1,100 50 -- 1,195 -- 2,345
-------- -------- ---------- --- ---------- --- ----------
Total derivative instruments --
notional value................ $ 1,605 $ 890 $ 21 $ 3,615 $90 $ 6,221
-------- -------- ---------- --- ---------- --- ----------
Total derivative instruments --
fair value.................... $ (6) $ 19 $ -- $ 27 $(7) $ 33
-------- -------- ---------- --- ---------- --- ----------
-------- -------- ---------- --- ---------- --- ----------
</TABLE>
<TABLE>
<CAPTION>
1997 -- AMOUNT HEDGED (NOTIONAL AMOUNTS)
--------------------------------------------------------------------------
FOREIGN
TOTAL ISSUED PURCHASED INTEREST CURRENCY TOTAL
CARRYING CAPS & CAPS & RATE SWAPS NOTIONAL
ASSETS HEDGED VALUE FLOORS FLOORS FUTURES (2) SWAPS (3) AMOUNT
- ----------------------------------- -------- ------- ------------ ----------- --------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Asset backed securities
(excluding inverse floaters and
anticipatory)..................... $ 5,253 $ 500 $ 1,404 $ 28 $ 221 $ -- $2,153
Inverse floaters (1)............... 75 47 80 -- 25 -- 152
Anticipatory (4)................... -- -- -- -- -- -- --
Other bonds and notes.............. 7,531 462 460 22 1,258 91 2,293
Short-term investments............. 1,317 -- -- -- -- -- --
-------- ------- ------------ --- --------- --- -------
Total fixed maturities......... 14,176 1,009 1,944 50 1,504 91 4,598
Equity securities, policy loans and
other investments................. 3,983 -- -- -- -- -- --
-------- ------- ------------ --- --------- --- -------
Total investments.............. $ 18,159 1,009 1,944 50 1,504 91 4,598
Other policyholder funds....... $ 21,034 10 150 -- 1,747 -- 1,907
-------- ------- ------------ --- --------- --- -------
Total derivative instruments --
notional value................ $ 1,019 $ 2,094 $ 50 $ 3,251 $ 91 $6,505
-------- ------- ------------ --- --------- --- -------
Total derivative instruments --
fair value.................... $ (8) $ 23 $ -- $ 19 $ (6 ) $ 28
-------- ------- ------------ --- --------- --- -------
-------- ------- ------------ --- --------- --- -------
</TABLE>
- ---------
(1) Inverse floaters are variations of collateralized mortgage obligations
(CMO's) for which the coupon rates move inversely with an index rate such as the
London Interbank Offered Rate (LIBOR). The risk to principal is considered
negligible as the underlying collateral for the securities is guaranteed or
sponsored by government agencies. To address the volatility risk created by the
coupon variability, the Company uses a variety of derivative instruments,
primarily interest rate swaps, caps and floors.
(2) As of December 31, 1998 and 1997, approximately 5% and 44% ,
respectively, of the notional futures contracts expire within one year.
(3) As of December 31, 1998 and 1997, approximately 11% and 16%,
respectively, of foreign currency swaps expire within one year.
(4) Deferred gains and losses on anticipatory transactions are included in
the carrying value of fixed maturities in the Consolidated Balance Sheets. At
the time of the ultimate purchase, they are reflected as a basis adjustment to
the purchased asset. As of December 31, 1998 and 1997, the Company had no
deferred gains for interest rate swaps. During 1998, $1.5 in deferred gains were
basis adjusted.
<PAGE>
HARTFORD LIFE INSURANCE COMPANY AND SUBSIDIARIES F-13
- --------------------------------------------------------------------------------
The following is a reconciliation of notional amounts by derivative type and
strategy as of December 31, 1998 and 1997:
<TABLE>
<CAPTION>
DECEMBER 31, 1997 MATURITIES/ DECEMBER 31, 1998
NOTIONAL AMOUNT ADDITIONS TERMINATIONS (1) NOTIONAL AMOUNT
----------------- -------- ----------------- -----------------
<S> <C> <C> <C> <C>
BY DERIVATIVE TYPE
Caps......................................... $1,239 $1,000 $ 327 $1,912
Floors....................................... 1,864 -- 1,281 583
Swaps/Forwards............................... 3,342 1,838 1,475 3,705
Futures...................................... 50 8 37 21
Options...................................... 10 -- 10 --
------- -------- ------- -------
Total.................................... $6,505 $2,846 $3,130 $6,221
------- -------- ------- -------
BY STRATEGY
Liability.................................... $1,907 $1,099 $ 661 $2,345
Anticipatory................................. -- 242 7 235
Asset........................................ 1,805 1,260 667 2,398
Portfolio.................................... 2,793 245 1,795 1,243
------- -------- ------- -------
Total.................................... $6,505 $2,846 $3,130 $6,221
------- -------- ------- -------
------- -------- ------- -------
</TABLE>
- ---------
(1) During 1998, the Company had no significant gains or losses on
terminations of hedge positions using derivative financial instruments.
4. FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS No. 107 "Disclosure about Fair Value of Financial Instruments" requires
disclosure of fair value information of financial instruments. For certain
financial instruments where quoted market prices are not available, other
independent valuation techniques and assumptions are used. Because considerable
judgment is used, these estimates are not necessarily indicative of amounts that
could be realized in a current market exchange. SFAS No. 107 excludes certain
financial instruments from disclosure, including insurance contracts. Hartford
Life Insurance Company uses the following methods and assumptions in estimating
the fair value of each class of financial instrument.
Fair value for fixed maturities and marketable equity securities
approximates those quotations published by applicable stock exchanges or
received from other reliable sources.
For policy loans, carrying amounts approximate fair value.
Fair value for other invested assets primarily consist of partnerships and
trusts that are based on external market valuations from partnership and trust
management as well as mortgage loans where carrying amounts approximate fair
value.
Other policyholder funds fair value information is determined by estimating
future cash flows, discounted at the current market rate.
The fair value of derivative financial instruments, including swaps, caps,
floors, futures, options and forward commitments, is determined using a pricing
model which is validated through periodic comparison to dealer quoted prices.
The carrying amount and fair values of Hartford Life Insurance Company's
financial instruments as of December 31, 1998 and 1997 were as follows:
<TABLE>
<CAPTION>
1998 1997
------------------ ------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
--------- ------- --------- -------
<S> <C> <C> <C> <C>
ASSETS
Fixed maturities..................................... $ 14,818 $14,818 $ 14,176 $14,176
Equity securities.................................... 31 31 180 180
Policy loans......................................... 6,684 6,684 3,756 3,756
Other investments.................................... 264 309 47 91
LIABILITIES
Other policyholder funds (1)......................... $ 11,709 $11,726 $ 11,769 $11,755
</TABLE>
- ---------
(1) Excludes corporate owned life insurance and universal life insurance
contracts.
<PAGE>
F-14 HARTFORD LIFE INSURANCE COMPANY AND SUBSIDIARIES
- --------------------------------------------------------------------------------
5. SEPARATE ACCOUNTS
Hartford Life Insurance Company maintained separate account assets and
liabilities totaling $90.3 billion and $69.1 billion as of December 31, 1998 and
1997, respectively, which are reported at fair value. Separate account assets,
which are segregated from other investments, reflect two categories of risk
assumption: non-guaranteed separate accounts totaling $80.6 billion and $58.6
billion as of December 31, 1998 and 1997, respectively, wherein the policyholder
assumes the investment risk, and guaranteed separate accounts totaling $9.7 and
$10.5 billion as of December 31, 1998 and 1997, respectively, wherein Hartford
Life Insurance Company contractually guarantees either a minimum return or
account value to the policyholder. Included in non-guaranteed separate account
assets were policy loans totaling $1.8 billion and $1.9 billion as of December
31, 1998 and 1997, respectively. Net investment income (including net realized
capital gains and losses) and interest credited to policyholders on separate
account assets are not reflected in the Consolidated Statements of Income.
Separate account management fees and other revenues were $908, $699 and $538
in 1998, 1997 and 1996, respectively. The guaranteed separate accounts include
fixed market value adjusted (MVA) individual annuity and modified guaranteed
life insurance. The average credited interest rate on these contracts was 6.6%
and 6.5% as of December 31, 1998 and 1997, respectively. The assets that support
these liabilities were comprised of $9.5 billion and $10.2 billion in fixed
maturities as of December 31, 1998 and 1997, respectively. The portfolios are
segregated from other investments and are managed to minimize liquidity and
interest rate risk. In order to minimize the risk of disintermediation
associated with early withdrawals, fixed MVA annuity and modified guaranteed
life insurance contracts carry a graded surrender charge as well as a market
value adjustment. Additional investment risk is hedged using a variety of
derivatives which totaled $40 and $119 in carrying value and $3.5 billion and
$3.0 billion in notional amounts as of December 31, 1998 and 1997, respectively.
6. STATUTORY RESULTS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER
31,
-------------------------------
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Statutory net income................ $ 211 $ 214 $ 144
--------- --------- ---------
Statutory surplus................... $ 1,676 $ 1,441 $ 1,207
--------- --------- ---------
--------- --------- ---------
</TABLE>
A significant percentage of the consolidated statutory surplus is
permanently reinvested or is subject to various state regulatory restrictions
which limit the payment of dividends without prior approval. The total amount of
statutory dividends which may be paid by the insurance subsidiaries of the
Company in 1999 is estimated to be $168.
Hartford Life Insurance Company and its domestic insurance subsidiaries
prepare their statutory financial statements in accordance with accounting
practices prescribed by the State of Connecticut. Prescribed statutory
accounting practices include publications of the National Association of
Insurance Commissioners, as well as state laws, regulations, and general
administrative rules.
7. STOCK COMPENSATION PLANS
Hartford Life Insurance Company's employees are included in the 1997
Hartford Life, Inc. Incentive Stock Plan (the "Plan"), which was adopted during
the second quarter of 1997. Under the Plan, options granted may be either
non-qualified options or incentive stock options qualifying under Section 422A
of the Internal Revenue Code. The aggregate number of shares of Class A Common
Stock which may be awarded in any one year shall be subject to an annual limit.
The maximum number of shares of Class A Common Stock which may be granted under
the Plan in each year shall be 1.5% of the total issued and outstanding shares
of Hartford Life Class A Common Stock and treasury stock as reported in the
Annual Report on Hartford Life's Form 10-K for the preceding year plus unused
portions of such limit from prior years. In addition, no more than 5 million
shares of Class A Common Stock shall be cumulatively available for awards of
incentive stock options under the Plan, and no more than 20% of the total number
of shares on a cumulative basis shall be available for restricted stock and
performance shares.
All options granted have an exercise price equal to the market price of
Hartford Life's stock on the date of grant and an option's maximum term is ten
years. Certain nonperformance based options become exercisable upon the
attainment of specified market price appreciation of Hartford Life's common
shares or at seven years after the date of grant, while the remaining
nonperformance based options become exercisable over a three year period
commencing with the date of grant.
Also included in the Plan are long-term performance awards which become
payable upon the attainment of specific performance goals achieved over a three
year period.
During the second quarter of 1997, Hartford Life established the Hartford
Life, Inc. Employee Stock Purchase Plan (ESPP). Under this plan, eligible
employees of Hartford Life and the Company may purchase Class A Common Stock of
Hartford Life at a 15% discount from the lower of the market price at the
beginning or end of the quarterly offering period. Hartford Life may sell up to
2,700,000 shares of stock to eligible employees. Hartford Life sold 121,943 and
54,316 shares under the ESPP in 1998 and 1997, respectively. The weighted
average fair value of the discount under the ESPP was $13.80 per share in 1998
and $9.63 per share in 1997.
<PAGE>
HARTFORD LIFE INSURANCE COMPANY AND SUBSIDIARIES F-15
- --------------------------------------------------------------------------------
8. POSTRETIREMENT BENEFIT AND SAVINGS PLANS
(A) PENSION PLANS
Hartford Life Insurance Company's employees are included in The Hartford's
noncontributory defined benefit pension plans. These plans provide pension
benefits that are based on years of service and the employee's compensation
during the last ten years of employment. The Company's funding policy is to
contribute annually an amount between the minimum funding requirements set forth
in the Employee Retirement Income Security Act of 1974, as amended, and the
maximum amount that can be deducted for U.S. Federal income tax purposes.
Generally, pension costs are funded through the purchase of the Company's group
pension contracts. The cost to the Company was approximately $6 in 1998 and $5
in both 1997 and 1996.
The Company also provides, through The Hartford, certain health care and
life insurance benefits for eligible retired employees. A substantial portion of
the Company's employees may become eligible for these benefits upon retirement.
The Company's contribution for health care benefits will depend on the retiree's
date of retirement and years of service. In addition, the plan has a defined
dollar cap which limits average Company contributions. The Company has prefunded
a portion of the health care and life insurance obligations through trust funds
where such prefunding can be accomplished on a tax effective basis.
Postretirement health care and life insurance benefits expense, allocated by The
Hartford, was immaterial to the results of operations for 1998, 1997 and 1996.
The assumed rate in the per capita cost of health care (the health care
trend rate) was 7.8% for 1998, decreasing ratably to 5.0% in the year 2003.
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 covered employees.
(B) INVESTMENT AND SAVINGS PLAN
Substantially all employees of the Company are eligible to participate in
The Hartford's Investment and Savings Plan. Under this plan, designated
contributions, which may be invested in Class A Common Stock of Hartford Life or
certain other investments, are matched, up to 3% of compensation, by the
Company. The cost to Hartford Life Insurance Company for the above-mentioned
plan was approximately $4 and $2 in 1998 and 1997, respectively.
9. REINSURANCE
Hartford Life Insurance Company cedes insurance to other insurers, including
its parent, HLA, in order to limit its maximum loss. Such transfer does not
relieve the Company of its primary liability. The Company also assumes insurance
from other insurers. Failure of reinsurers to honor their obligations could
result in losses to the Company. The Company evaluates the financial condition
of its reinsurers and monitors concentration of credit risk.
Net premiums and other considerations were comprised of the following:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER
31,
-------------------------------
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Gross premiums...................... $ 2,722 $ 2,164 $ 2,138
Assumed............................. 150 159 190
Ceded............................... (654) (686) (623)
--------- --------- ---------
Net premiums and other
considerations................... $ 2,218 $ 1,637 $ 1,705
--------- --------- ---------
--------- --------- ---------
</TABLE>
The Company ceded approximately $128, $76 and $100 of group life premium to
HLA in 1998, 1997 and 1996, respectively, representing $38.4 billion, $33.6
billion and $33.3 billion of insurance in force, respectively. The Company ceded
$383, $339 and $318 of accident and health premium to HLA in 1998, 1997 and
1996, respectively. The Company assumed $82, $89 and $101 of premium in 1998,
1997 and 1996, respectively, representing $7.4 billion, $8.2 billion and $8.5
billion of individual life insurance in force, respectively, from HLA.
Life reinsurance recoveries, which reduce death and other benefits,
approximated $97, $158 and $140 for the years ended December 31, 1998, 1997 and
1996, respectively.
Hartford Life Insurance Company has no significant reinsurance-related
concentrations of credit risk.
10. INCOME TAX
Hartford Life and The Hartford have entered into a tax sharing agreement
under which each member in the consolidated U.S. Federal income tax return will
make payments between them such that, with respect to any period, the amount of
taxes to be paid by the Company, subject to certain adjustments, generally will
be determined as though the Company were filing separate Federal, state and
local income tax returns.
As long as The Hartford continues to own at least 80% of the combined voting
power and 80% of the value of the outstanding capital stock of Hartford Life,
the Company will be included for Federal income tax purposes in the affiliated
group of which The Hartford is the common parent. It is the intention of The
Hartford and its non-life subsidiaries to file a single consolidated Federal
income tax return. The life insurance companies will file a separate
consolidated federal income tax return. The Company's effective tax rate was
35%, 36% and 35% in 1998, 1997 and 1996, respectively.
<PAGE>
F-16 HARTFORD LIFE INSURANCE COMPANY AND SUBSIDIARIES
- --------------------------------------------------------------------------------
Income tax expense is as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER
31,
-------------------------------
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Current.................................. $ 307 $ 162 $ 118
Deferred................................. (119) 5 (98)
--------- --------- ---------
Income tax expense..................... $ 188 $ 167 $ 20
--------- --------- ---------
--------- --------- ---------
</TABLE>
A reconciliation of the tax provision at the U.S. Federal statutory rate to
the provision for income taxes is as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
---------------------------------
1998 1997 1996
--------- --------- -----
<S> <C> <C> <C>
Tax provision at the U.S. Federal
statutory rate........................... $ 188 $ 164 $ 20
Other..................................... -- 3 --
--------- --------- ---
Total................................... $ 188 $ 167 $ 20
--------- --------- ---
--------- --------- ---
</TABLE>
Deferred tax assets (liabilities) include the following as of December 31:
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Tax basis deferred policy acquisition costs.... $ 751 $ 639
Financial statement deferred policy acquisition
costs and reserves............................ 103 69
Employee benefits.............................. 4 8
Net unrealized capital gains on securities..... (98) (96)
Investments and other.......................... (296) (272)
--------- ---------
Total........................................ $ 464 $ 348
--------- ---------
--------- ---------
</TABLE>
Hartford Life Insurance Company had a current tax payable of $65 and $64 as
of December 31, 1998 and 1997, respectively.
Prior to the Tax Reform Act of 1984, the Life Insurance Company Income Tax
Act of 1959 permitted the deferral from taxation of a portion of statutory
income under certain circumstances. In these situations, the deferred income was
accumulated in a "Policyholders' Surplus Account" and, based on current tax law,
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, 1998 was $104.
11. RELATED PARTY TRANSACTIONS
Transactions of the Company with HA&I and its affiliates relate principally
to tax settlements, reinsurance, insurance coverage, rental and service fees,
payment of dividends and capital contributions. In addition, certain affiliated
insurance companies purchased group annuity contracts from the Company to fund
pension costs and claim annuities to settle casualty claims. Substantially all
general insurance expenses related to the Company, including rent and employee
benefit plan expenses, are initially paid by The Hartford. Direct expenses are
allocated to the Company using specific identification, and indirect expenses
are allocated using other applicable methods. Indirect expenses include those
for corporate areas which, depending on type, are allocated based on either a
percentage of direct expenses or on utilization. Indirect expenses allocated to
the Company by The Hartford were $47, $34 and $40 in 1998, 1997 and 1996,
respectively. Management believes that the methods used are reasonable.
12. COMMITMENTS AND CONTINGENT LIABILITIES
(A) LITIGATION
Hartford Life Insurance 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, at the
present time the Company does not anticipate that the ultimate liability arising
from such pending or threatened litigation, after consideration of provisions
made for potential losses and costs of defense, will have a material adverse
effect on the financial condition or operating results of the Company.
(B) GUARANTY FUNDS
Under insurance guaranty fund laws in each state, the District of Columbia
and Puerto Rico, insurers licensed to do business can be assessed by state
insurance guaranty associations for certain obligations of insolvent insurance
companies to policyholders and claimants. Recent regulatory actions against
certain large life insurers encountering financial difficulty have prompted
various state insurance guaranty associations to begin assessing life insurance
companies for the deemed losses. Most of these laws do provide, however, that an
assessment may be excused or deferred if it would threaten an insurer's solvency
and further provide annual limits on such assessments. Part of the assessments
paid by the Company and its subsidiaries pursuant to these laws may be used as
credits for a portion of the associated premium taxes. The Company paid guaranty
fund assessments of approximately $9, $15 and $11 in 1998, 1997 and 1996,
respectively, of which $4, $4 and $5, respectively, were estimated to be
creditable against premium taxes.
(C) LEASES
The rent paid to Hartford Fire for space occupied by the Company was $7 in
both 1998 and 1997 and $3 in 1996. Future minimum rental commitments are as
follows:
<TABLE>
<S> <C>
1999............. $ 7
2000............. 12
2001............. 12
2002............. 13
2003............. 13
Thereafter....... 74
---------
Total.......... $ 131
---------
---------
</TABLE>
<PAGE>
HARTFORD LIFE INSURANCE COMPANY AND SUBSIDIARIES F-17
- --------------------------------------------------------------------------------
Rental expense is recognized on a level basis over the term of the primary
sublease, which expires on December 31, 2009, and amounted to approximately $9
in both 1998 and 1997 and $8 in 1996.
(D) TAX MATTERS
Hartford Life's federal income tax returns are routinely audited by the
Internal Revenue Service. Hartford Life is currently under audit for the years
1993 through 1995, with the audit for the years 1996 through 1997 expected to
begin during early 1999. Management believes that adequate provision has been
made in the financial statements for items that may result from tax examinations
and other tax related matters.
(E) INVESTMENTS
As of December 31, 1998, Hartford Life Insurance Company held $71 of asset
backed securities securitized and serviced by Commercial Financial Services,
Inc. (CFS) of which $50 were included in the Company's general account and $21
in the Company's guaranteed separate account. In October 1998, the Company
became aware of allegations of improper activities at CFS. On December 11, 1998,
CFS filed for protection under Chapter 11 of the Bankruptcy Code. As of December
31, 1998, CFS continues to service the asset backed securities, which remain
current on payments of principal and interest, however, the Company does not
expect to recover all of its principal investment. Based upon information
available in the fourth quarter 1998, the Company recognized a $25, after-tax,
writedown related to its holdings in CFS of which $18 was related to the
Company's general account assets. The ultimate realizable amount depends on the
outcome of the bankruptcy of CFS and these estimates are therefore subject to
material change as new information becomes available. The Company is presently
unable to determine the amount of further potential loss, if any, related to the
securities.
13. SEGMENT INFORMATION
Hartford Life Insurance Company adopted SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information", during the fourth quarter of
1998. This statement replaces SFAS No. 14, "Financial Reporting for Segments of
a Business Enterprise", and establishes new standards for reporting information
about operating segments in annual financial statements and in interim financial
reports issued to shareholders. It also establishes standards for related
disclosures about products and services, geographic areas and major customers.
This statement requires that the reportable operating segments be based on the
Company's internal operations. On this basis, Hartford Life Insurance Company's
segments represent strategic operations which offer different products and
services as well as serve different markets.
Hartford Life Insurance Company is organized into three reportable operating
segments which include Investment Products, Individual Life and Corporate Owned
Life Insurance (COLI). Investment Products offers individual variable annuities,
fixed market value adjusted (MVA) annuities and fixed and variable immediate
annuities, mutual funds, deferred compensation and retirement plan services,
structured settlement contracts and other special purpose annuity contracts.
Individual Life sells a variety of life insurance products, including variable
life, universal life, interest-sensitive whole life and term life insurance.
COLI primarily offers variable products used by employers to fund non-qualified
benefits or other post-employment benefit obligations as well as leveraged COLI.
The Company includes in "Other" corporate items not directly allocable to any of
its reportable operating segments as well as certain employee benefit products
including group life and disability insurance that is directly written by the
Company and is substantially ceded to its parent, HLA.
The accounting policies of the reportable operating segments are the same as
those described in the summary of significant accounting policies in Note 2.
Hartford Life Insurance Company evaluates performance of its segments based on
revenues, net income and the segment's return on allocated capital. The Company
charges direct operating expenses to the appropriate segment and allocates the
majority of indirect expenses to the segments based on an intercompany expense
arrangement. Intersegment revenues are not significant and primarily occur
between corporate and the operating segments. These amounts include interest
income on allocated surplus and the amortization of net realized capital gains
and losses through net investment income utilizing the duration of the segment's
investment portfolios. The Company's revenues are primarily derived from
customers within the United States. The Company's long-lived assets primarily
consist of deferred policy acquisition costs and deferred tax assets from within
the United States. The following table outlines summarized financial information
concerning the Company's segments. The information for 1997 and 1996 has been
restated to conform to the 1998 presentation.
<TABLE>
<CAPTION>
INVESTMENT INDIVIDUAL
1998 PRODUCTS LIFE COLI OTHER TOTAL
- ------------------------------------------------------- --------- ------- --------- ------- -------
<S> <C> <C> <C> <C> <C>
Total revenues......................................... $ 1,779 $ 543 $ 1,567 $ 86 $ 3,975
Net investment income.................................. 736 181 793 49 1,759
Amortization of deferred policy acquisition costs...... 326 105 -- -- 431
Income tax expense (benefit)........................... 145 35 12 (4) 188
Net income (loss)...................................... 270 64 24 (8) 350
Assets................................................. 87,207 5,228 22,631 3,197 118,263
</TABLE>
<PAGE>
F-18 HARTFORD LIFE INSURANCE COMPANY AND SUBSIDIARIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INVESTMENT INDIVIDUAL
1997 PRODUCTS LIFE COLI OTHER TOTAL
- ------------------------------------------------------- --------- ------- --------- ------- -------
<S> <C> <C> <C> <C> <C>
Total revenues......................................... $ 1,510 $ 487 $ 980 $ 32 $ 3,009
Net investment income.................................. 739 164 429 36 1,368
Amortization of deferred policy acquisition costs...... 250 83 -- 2 335
Income tax expense..................................... 111 30 15 11 167
Net income............................................. 206 55 27 14 302
Assets................................................. 72,288 4,914 17,800 2,743 97,745
</TABLE>
<TABLE>
<CAPTION>
INVESTMENT INDIVIDUAL
1996 PRODUCTS LIFE COLI OTHER TOTAL
- ------------------------------------------------------- --------- ------- --------- ------- -------
<S> <C> <C> <C> <C> <C>
Total revenues......................................... $ 1,002 $ 440 $ 1,360 $ 87 $ 2,889
Net investment income.................................. 684 153 480 80 1,397
Amortization of deferred policy acquisition costs...... 174 60 -- -- 234
Income tax expense (benefit)........................... (42 ) 24 11 27 20
Net income (loss)...................................... (77 ) 44 26 45 38
Assets................................................. 57,410 3,753 14,222 2,377 77,762
</TABLE>
14. QUARTERLY RESULTS FOR 1998 AND 1997 (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
--------------------------------------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
-------------------- -------------------- -------------------- --------------------
1998 1997 1998 1997 1998 1997 1998 1997
--------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues........................... $ 915 $ 651 $ 721 $ 645 $ 826 $ 679 $ 1,513 $ 1,034
Benefits, claims and expenses...... 787 550 591 536 688 550 1,371 904
Net income......................... 83 63 85 74 89 81 93 84
</TABLE>
<PAGE>
HARTFORD LIFE INSURANCE COMPANY AND SUBSIDIARIES F-19
- --------------------------------------------------------------------------------
SCHEDULE I -- SUMMARY OF INVESTMENTS -- OTHER THAN INVESTMENTS IN AFFILIATES
AS OF DECEMBER 31, 1998
(IN MILLIONS)
<TABLE>
<CAPTION>
AMOUNT AT
WHICH
FAIR SHOWN ON
TYPE OF INVESTMENT COST VALUE BALANCE SHEET
- --------------------------------------------- ------- ------- --------------
<S> <C> <C> <C>
Fixed Maturities
Bonds and Notes
U. S. Government and Government agencies
and authorities (guaranteed and
sponsored)................................ $ 121 $ 123 $ 123
U. S. Government and Government agencies
and authorities (guaranteed and sponsored)
-- asset backed........................... 1,001 1,016 1,016
States, municipalities and political
subdivisions.............................. 165 173 173
Foreign governments........................ 393 412 412
Public utilities........................... 844 874 874
All other corporate including
international............................. 5,469 5,687 5,687
All other corporate -- asset backed........ 4,155 4,171 4,171
Short-term investments..................... 1,847 1,847 1,847
Certificates of deposit...................... 510 515 515
------- ------- -------
Total fixed maturities....................... 14,505 14,818 14,818
------- ------- -------
Equity Securities
Common Stocks
Industrial and miscellaneous............... 30 31 31
------- ------- -------
Total equity securities...................... 30 31 31
------- ------- -------
Total fixed maturities and equity
securities.................................. 14,535 14,849 14,849
------- ------- -------
Policy Loans................................. 6,684 6,684 6,684
------- ------- -------
Other Investments
Mortgage loans on real estate.............. 206 207 206
Other invested assets...................... 58 102 58
------- ------- -------
Total other investments...................... 264 309 264
------- ------- -------
Total investments............................ $21,483 $21,842 $21,797
------- ------- -------
------- ------- -------
</TABLE>
<PAGE>
F-20 HARTFORD LIFE INSURANCE COMPANY AND SUBSIDIARIES
- --------------------------------------------------------------------------------
SCHEDULE III -- SUPPLEMENTARY INSURANCE INFORMATION
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(IN MILLIONS)
<TABLE>
<CAPTION>
DEFERRED
POLICY FUTURE OTHER PREMIUMS NET
ACQUISITION POLICY POLICYHOLDER AND OTHER INVESTMENT
SEGMENT COSTS BENEFITS FUNDS CONSIDERATIONS INCOME
- --------------------------------------------- ----------- --------- ---------- --------------- ---------
<S> <C> <C> <C> <C> <C>
1998
Investment Products.......................... $2,823 $2,407 $ 9,194 $1,043 $ 736
Individual Life.............................. 931 466 2,307 363 181
Corporate Owned Life Insurance............... -- 225 8,097 774 793
Other........................................ -- 497 17 38 49
----------- --------- ---------- ------ ---------
Consolidated operations...................... $3,754 $3,595 $19,615 $2,218 $1,759
----------- --------- ---------- ------ ---------
----------- --------- ---------- ------ ---------
1997
Investment Products.......................... $2,478 $2,070 $ 9,620 $ 771 $ 739
Individual Life.............................. 837 392 2,182 323 164
Corporate Owned Life Insurance............... -- 56 9,259 551 429
Other........................................ -- 541 (27) (8) 36
----------- --------- ---------- ------ ---------
Consolidated operations...................... $3,315 $3,059 $21,034 $1,637 $1,368
----------- --------- ---------- ------ ---------
----------- --------- ---------- ------ ---------
1996
Investment Products.......................... $2,030 $1,526 $10,140 $ 537 $ 684
Individual Life.............................. 730 346 2,160 287 153
Corporate Owned Life Insurance............... -- -- 9,823 880 480
Other........................................ -- 602 11 1 80
----------- --------- ---------- ------ ---------
Consolidated operations...................... $2,760 $2,474 $22,134 $1,705 $1,397
----------- --------- ---------- ------ ---------
----------- --------- ---------- ------ ---------
<CAPTION>
NET BENEFITS, AMORTIZATION
REALIZED CLAIMS AND OF DEFERRED
CAPITAL CLAIM POLICY
GAINS ADJUSTMENT ACQUISITION DIVIDENDS TO OTHER
SEGMENT (LOSSES) EXPENSES COSTS POLICYHOLDERS EXPENSES
- --------------------------------------------- ----------- ----------- ------------- ------------- ----------
<S> <C> <C> <C> <C> <C>
1998
Investment Products.......................... $ -- $ 670 $326 $ -- $ 368
Individual Life.............................. (1) 262 105 -- 77
Corporate Owned Life Insurance............... -- 924 -- 329 278
Other........................................ (1) 55 -- -- 43
----------- ----------- ----- ----- -----
Consolidated operations...................... $ (2) $1,911 $431 $329 $ 766
----------- ----------- ----- ----- -----
----------- ----------- ----- ----- -----
1997
Investment Products.......................... $ -- $ 677 $250 $ -- $ 266
Individual Life.............................. -- 242 83 -- 77
Corporate Owned Life Insurance............... -- 439 -- 240 259
Other........................................ 4 21 2 -- (16)
----------- ----------- ----- ----- -----
Consolidated operations...................... $ 4 $1,379 $335 $240 $ 586
----------- ----------- ----- ----- -----
----------- ----------- ----- ----- -----
1996
Investment Products.......................... $(219) $ 744 $175 $ -- $ 203
Individual Life.............................. -- 245 59 -- 68
Corporate Owned Life Insurance............... -- 545 -- 634 144
Other........................................ 6 1 -- 1 12
----------- ----------- ----- ----- -----
Consolidated operations...................... $(213) $1,535 $234 $635 $ 427
----------- ----------- ----- ----- -----
----------- ----------- ----- ----- -----
</TABLE>
<PAGE>
HARTFORD LIFE INSURANCE COMPANY AND SUBSIDIARIES F-21
- --------------------------------------------------------------------------------
SCHEDULE IV -- REINSURANCE
(IN MILLIONS)
<TABLE>
<CAPTION>
CEDED TO ASSUMED FROM PERCENTAGE
GROSS OTHER OTHER NET OF AMOUNT
AMOUNT COMPANIES COMPANIES AMOUNT ASSUMED TO NET
-------- -------------- -------------- -------- ---------------
<S> <C> <C> <C> <C> <C>
For the year ended December 31, 1998
Life insurance in force........................... $326,400 $ 200,782 $ 18,289 $143,907 12.7%
Premiums and other considerations
Life insurance and annuities.................... $ 2,329 $ 271 $ 142 $ 2,200 6.5%
Accident and health insurance................... 393 383 8 18 44.4%
-------- -------------- ------- --------
Total premiums and other considerations........... $ 2,722 $ 654 $ 150 $ 2,218 6.8%
-------- -------------- ------- --------
-------- -------------- ------- --------
For the year ended December 31, 1997
Life insurance in force......................... $245,487 $ 178,771 $ 33,156 $ 99,872 33.2%
Premiums and other considerations
Life insurance and annuities.................... $ 1,818 $ 340 $ 157 $ 1,635 9.6%
Accident and health insurance................... 346 346 2 2 100.0%
-------- -------------- ------- --------
Total premiums and other considerations........... $ 2,164 $ 686 $ 159 $ 1,637 9.7%
-------- -------------- ------- --------
-------- -------------- ------- --------
For the year ended December 31, 1996
Life insurance in force......................... $177,094 $ 106,146 $ 31,957 $102,905 31.1%
Premiums and other considerations
Life insurance and annuities.................... $ 1,801 $ 298 $ 169 $ 1,672 10.1%
Accident and health insurance................... 337 325 21 33 63.6%
-------- -------------- ------- --------
Total premiums and other considerations........... $ 2,138 $ 623 $ 190 $ 1,705 11.1%
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</TABLE>
