<PAGE>
DIRECTOR IMMEDIATE VARIABLE ANNUITY
SEPARATE ACCOUNT ONE
HARTFORD LIFE AND ANNUITY INSURANCE COMPANY
P.O. BOX 5085
HARTFORD, CONNECTICUT 06102-5085
Telephone: 1-800-862-6668 (Contract
Owners)
[LOGO] 1-800-862-7155 (Investment Representatives)
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This Prospectus describes information you should know before you purchase
Director Immediate Variable Annuity. Please read it carefully.
The Director Immediate Variable Annuity is a contract between you and Hartford
Life and Annuity Insurance Company where you agree to make one Premium Payment
to us and we agree to make a series of Annuity Payouts at a later date. This
Annuity is an immediate, tax-deferred, variable annuity offered to individuals.
It is:
X Immediate, because we start making Annuity Payouts within 60 days.
X Tax-deferred, which means you don't pay taxes until you take money out or
until we start to make Annuity Payouts.
X 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:
- - 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
- - Growth and Income Sub-Account which purchases shares of Class IA of Hartford
Growth and Income HLS Fund
- - High Yield Sub-Account which purchases shares of Class IA of Hartford High
Yield HLS Fund
- - 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.
- - 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
<PAGE>
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 AND ANNUITY INSURANCE COMPANY 3
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
DEFINITIONS........................................................... 4
FEE TABLE............................................................. 6
ANNUAL FUND OPERATING EXPENSES........................................ 6
ACCUMULATION UNIT VALUES.............................................. 8
HIGHLIGHTS............................................................ 10
GENERAL CONTRACT INFORMATION.......................................... 11
Hartford Life and Annuity Insurance Company......................... 11
The Separate Account................................................ 11
The Funds........................................................... 11
PERFORMANCE RELATED INFORMATION....................................... 13
THE CONTRACT.......................................................... 14
Purchases and Contract Value........................................ 14
Charges and Fees.................................................... 15
Death Benefit....................................................... 16
Surrenders.......................................................... 17
ANNUITY PAYOUTS....................................................... 18
OTHER INFORMATION..................................................... 21
Assignment.......................................................... 21
Contract Modification............................................... 21
How Contracts are Sold.............................................. 21
Year 2000........................................................... 21
Legal Matters and Experts........................................... 22
More Information.................................................... 23
FEDERAL TAX CONSIDERATIONS............................................ 23
General............................................................. 23
Taxation of Hartford and the Separate Account....................... 23
Taxation of Purchasers of Non-Qualified Contracts................... 23
Contract Owners that are Nonresident Aliens or Foreign
Corporations....................................................... 26
Other Tax Consequences.............................................. 26
APPENDIX I -- INFORMATION REGARDING TAX-QUALIFIED RETIREMENT PLANS.... 27
ILLUSTRATIONS OF ANNUITY PAYMENTS ASSUMING HYPOTHETICAL RATES OF
RETURN.............................................................. 30
ILLUSTRATIONS OF ANNUITY PAYMENTS USING HISTORIC RATES OF RETURN...... 33
TABLE OF CONTENTS TO STATEMENT OF ADDITIONAL INFORMATION.............. 50
</TABLE>
<PAGE>
4 HARTFORD LIFE AND ANNUITY 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 the
Income Start Date.
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: An amount equal to the present value of any remaining
guaranteed Annuity Payouts determined as of a Contract Anniversary, reduced by
the dollar amount of any Annuity Payouts made since that anniversary.
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 PAYOUTS: The money we pay after the Income Start Date for the duration
and frequency selected.
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.
CODE: The Internal Revenue Code of 1986, as amended.
COMMUTED VALUE: The present value of any remaining guaranteed Annuity Payouts.
CONTINGENT DEFERRED SALES CHARGE: The deferred sales charge that will apply when
you Surrender.
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: The General Account includes our company assets.
HARTFORD, WE OR OUR: Hartford Life and Annuity Insurance Company. Only Hartford
is a capitalized term in the prospectus.
INCOME PAYOUT DATE: The date we use to compute the Annuity Payouts.
INCOME START DATE: The time when regularly scheduled Annuity Payouts begin.
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: As of the date we receive a certified death
certificate or other legal document acceptable to us, we will calculate an
Anniversary Value for each Contract Anniversary. The highest Anniversary Value
is the Maximum Anniversary Value.
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-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.
PAYOUT FACTOR: A number used to calculate the first Annuity Payout.
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.
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.
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HARTFORD LIFE AND ANNUITY INSURANCE COMPANY 5
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SURRENDER: A complete or partial withdrawal from your Contract.
SURRENDER VALUE: The Contract Value minus any applicable Premium Tax if
requested before the Annuity Calculation Date or the Commuted Value minus any
applicable Contingent Deferred Sales Charge if requested on or after the Annuity
Calculation Date.
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 AND ANNUITY INSURANCE COMPANY
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FEE AND EXPENSE TABLES
Contract Owner Transaction Expenses
<TABLE>
<S> <C>
Sales Charge imposed on Premium Payment........................... None
Contingent Deferred Sales Charge (as a percentage of Commuted
Value)*
First Year.................................................... 6%
Second Year................................................... 6%
Third Year.................................................... 5%
Fourth Year................................................... 5%
Fifth Year.................................................... 4%
Sixth Year.................................................... 3%
Seventh Year.................................................. 2%
Eighth Year................................................... 0%
Exchange Fee...................................................... None
</TABLE>
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* Only applies to PAYMENTS GUARANTEED FOR A SPECIFIED NUMBER OF YEARS Annuity
Payout Option, after the Income Start Date.
Annual Separate Account Expenses
(as a percentage of average annual net assets)
<TABLE>
<S> <C>
Mortality and Expense Risk Charge................................. 1.25%
Other Charges..................................................... None
Total Separate Account Expenses................................... 1.25%
</TABLE>
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 may also be applicable.
Annual Fund Operating Expenses
(as a percentage of net assets)
<TABLE>
<CAPTION>
TOTAL FUND
MANAGEMENT OPERATING
FEES EXPENSES
INCLUDING OTHER INCLUDING
WAIVERS EXPENSES WAIVERS
-------------- -------- --------------
<S> <C> <C> <C>
Hartford Bond HLS Fund.......................... 0.482% 0.021% 0.503%
Hartford Stock HLS Fund......................... 0.439% 0.018% 0.457%
Hartford Money Market HLS Fund.................. 0.433% 0.015% 0.448%
Hartford Advisers HLS Fund...................... 0.616% 0.018% 0.634%
Hartford Capital Appreciation HLS Fund.......... 0.623% 0.019% 0.642%
Hartford Mortgage Securities HLS Fund........... 0.432% 0.030% 0.462%
Hartford Index HLS Fund......................... 0.382% 0.019% 0.401%
Hartford International Opportunities HLS Fund... 0.681% 0.090% 0.771%
Hartford Dividend & Growth HLS Fund............. 0.641% 0.018% 0.659%
Hartford International Advisers HLS Fund........ 0.755% 0.108% 0.863%
Hartford MidCap HLS Fund........................ 0.759% 0.034% 0.793%
Hartford Small Company HLS Fund................. 0.753% 0.019% 0.772%
Hartford Growth and Income HLS Fund............. 0.767% 0.040% 0.807%
Hartford Global Leaders HLS Fund (1)............ 0.487% 0.120% 0.607%
Hartford High Yield HLS Fund (1)................ 0.487% 0.035% 0.522%
</TABLE>
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(1) 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. Before 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 Fund....... 0.775% 0.120% 0.895%
Hartford High Yield Fund........... 0.775% 0.035% 0.810%
</TABLE>
<PAGE>
HARTFORD LIFE AND ANNUITY INSURANCE COMPANY 7
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EXAMPLE
A Contract Owner will pay the following expenses on a $1,000 investment,
assuming a 5% annual return of assets and an Annuitant age 65 with a 5% Assumed
Investment Return:
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
If the LIFE Annuity Payout If the PAYMENTS GUARANTEED FOR If the PAYMENTS GUARANTEED FOR
Option is selected and you do 20 YEARS Payout Option is 20 YEARS Payout Option is
not surrender your Contract: Selected and you do not selected and you surrender your
surrender your Contract: Contract:
<CAPTION>
SUB-ACCOUNT 1 YEAR 3 YEARS 5 YEARS 10 YEARS 1 YEAR 3 YEARS 5 YEARS 10 YEARS 1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- -------- ------ ------- ------- -------- ------ ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Bond......................... $ 18 $ 56 $ 96 $ 208 $ 18 $ 56 $ 96 $ 208 $ 72 $ 101 $ 132 $ 208
Stock........................ 17 54 93 203 17 54 93 203 71 99 129 203
Money Market................. 17 54 93 202 17 54 93 202 71 99 129 202
Advisers..................... 19 60 103 222 19 60 103 222 73 105 139 222
Capital Appreciation......... 19 60 103 223 19 60 103 223 73 105 139 223
Mortgage Securities.......... 18 54 94 203 18 54 94 203 72 99 130 203
Index........................ 17 52 90 197 17 52 90 197 71 97 126 197
International
Opportunities.............. 21 64 110 237 21 64 110 237 75 109 146 237
Dividend & Growth............ 20 61 104 225 20 61 104 225 74 106 140 225
International Advisers....... 22 67 115 246 22 67 115 246 76 112 151 246
MidCap....................... 21 65 111 239 21 65 111 239 75 110 147 239
Small Company................ 21 64 110 237 21 64 110 237 75 109 146 237
Growth and Income............ 21 65 112 241 21 65 112 241 75 110 148 241
High Yield................... 18 62 N/A N/A 18 62 N/A N/A 71 107 N/A N/A
Global Leaders............... 19 65 N/A N/A 19 65 N/A N/A 73 110 N/A N/A
</TABLE>
These examples should not be considered representations of past or future
performance or expenses. The actual expenses paid or performance achieved may be
greater or less than those shown.
<PAGE>
8 HARTFORD LIFE AND ANNUITY INSURANCE COMPANY
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ACCUMULATION UNIT VALUES
(FOR AN ACCUMULATION UNIT OUTSTANDING THROUGHOUT THE PERIOD)
The following information has been derived from the audited financial
statements of the Separate Account, which have been audited by Arthur Andersen
LLP, independent public accountants, as indicated in their report with respect
thereto, and should be read in conjunction with those statements, which are
included in the Statement of Additional Information, which is incorporated by
reference in this Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31,
----------------------
1998 1997
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BOND SUB-ACCOUNT
(Inception date August 1, 1986)
<S> <C> <C>
Accumulation Unit Value at beginning of period............ $2.114 $--
Accumulation Unit Value at end of period.................. $2.258 $2.114
Number Accumulation Units outstanding at end of period (in
thousands)................................................ 162,501 111,586
STOCK SUB-ACCOUNT
(Inception date August 1, 1986)
Accumulation Unit Value at beginning of period............ $4.602 $--
Accumulation Unit Value at end of period.................. $6.066 $4.602
Number Accumulation Units outstanding at end of period (in
thousands)................................................ 403,629 372,754
MONEY MARKET SUB-ACCOUNT
(Inception date August 1, 1986)
Accumulation Unit Value at beginning of period............ $1.650 $--
Accumulation Unit Value at end of period.................. $1.716 $1.650
Number Accumulation Units outstanding at end of period (in
thousands)................................................ 183,614 140,797
ADVISERS SUB-ACCOUNT
(Inception date August 1, 1986)
Accumulation Unit Value at beginning of period............ $3.572 $--
Accumulation Unit Value at end of period.................. $4.398 $3.572
Number Accumulation Units outstanding at end of period (in
thousands)................................................ 1,095,048 1,012,472
CAPITAL APPRECIATION SUB-ACCOUNT
(Inception date August 1, 1986)
Accumulation Unit Value at beginning of period............ $4.845 $--
Accumulation Unit Value at end of period.................. $5.526 $4.845
Number Accumulation Units outstanding at end of period (in
thousands)................................................ 352,482 351,189
MORTGAGE SECURITIES SUB-ACCOUNT
(Inception date August 1, 1986)
Accumulation Unit Value at beginning of period............ $2.098 $--
Accumulation Unit Value at end of period.................. $2.211 $2.098
Number Accumulation Units outstanding at end of period (in
thousands)................................................ 78,026 81,143
INDEX SUB-ACCOUNT
(Inception date May 1, 1987)
Accumulation Unit Value at beginning of period............ $3.726 $--
Accumulation Unit Value at end of period.................. $4.712 $3.726
Number Accumulation Units outstanding at end of (in
thousands)................................................ 131,579 109,837
INTERNATIONAL OPPORTUNITIES SUB-ACCOUNT
(Inception date July 2, 1990)
Accumulation Unit Value at beginning of period............ $1.469 $--
Accumulation Unit Value at end of period.................. $1.641 $1.469
Number Accumulation Units outstanding at end of period (in
thousands)................................................ 240,090 264,642
DIVIDEND & GROWTH SUB-ACCOUNT
(Inception date March 8, 1994)
Accumulation Unit Value at beginning of period............ $2.149 $--
Accumulation Unit Value at end of period.................. $2.471 $2.149
Number Accumulation Units outstanding at end of period (in
thousands)................................................ 391,151 308,682
</TABLE>
<PAGE>
HARTFORD LIFE AND ANNUITY INSURANCE COMPANY 9
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<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31,
----------------------
1998 1997
--------- ---------
INTERNATIONAL ADVISERS SUB-ACCOUNT
(Inception date March 1, 1995)
<S> <C> <C>
Accumulation Unit Value at beginning of period............ $1.319 $--
Accumulation Unit Value at end of period.................. $1.476 $1.319
Number Accumulation Units outstanding at end of period (in
thousands)................................................ 50,971 43,217
MIDCAP SUB-ACCOUNT
(Inception date July 30, 1997)
Accumulation Unit Value at beginning of period............ $1.097 $--
Accumulation Unit Value at end of period.................. $1.371 $1.097
Number Accumulation Units outstanding at end of period (in
thousands)................................................ 33,348 8,306
SMALL COMPANY SUB-ACCOUNT
(Inception date August 9, 1996)
Accumulation Unit Value at beginning of period............ $1.247 $--
Accumulation Unit Value at end of period.................. $1.374 $1.247
Number Accumulation Units outstanding at end of period (in
thousands)................................................ 85,431 56,706
GLOBAL LEADERS SUB-ACCOUNT
(Inception date September 30, 1998)
Accumulation Unit Value at beginning of period............ $-- $--
Accumulation Unit Value at end of period.................. $1.315 $--
Number Accumulation Units outstanding at end of period (in
thousands)................................................ 416 --
GROWTH AND INCOME SUB-ACCOUNT
(Inception date June 1, 1998)
Accumulation Unit Value at beginning of period............ $-- $--
Accumulation Unit Value at end of period.................. $1.182 $--
Number Accumulation Units outstanding at end of period (in
thousands)................................................ 4,982 --
HIGH YIELD SUB-ACCOUNT
(Inception date September 30, 1998)
Accumulation Unit Value at beginning of period............ $-- $--
Accumulation Unit Value at end of period.................. $1.035 $--
Number Accumulation Units outstanding at end of period (in
thousands)................................................ 1,832 --
</TABLE>
<PAGE>
10 HARTFORD LIFE AND ANNUITY 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 Premium Payment. You may also transfer from another
investment. Your Premium Payment must be at least $25,000. You may not make
additional Premium Payments.
- For a limited time, usually within ten days after you receive your Contract,
you may cancel your Annuity without paying a Contingent Deferred Sales
Charge. 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. If you selected
the Payments Guaranteed for a Specified Number of Years Annuity Payout, we will
charge you a Contingent Deferred Sales Charge when you fully or partially
Surrender your Annuity. The Contingent Deferred Sales Charge is a percentage of
Commuted Value and is equal to:
x For the first two Contract Years, the charge is 6%.
x For the third and fourth Contract Years, the charge is 5%.
x For the fifth Contract Year, the charge is 4%.
x For the sixth Contract Year, the charge is 3%.
x For the seventh Contract Year, the charge is 2%.
x For the eighth Contract Year and beyond, the charge is 0%.
WHAT CHARGES WILL I PAY ON AN ANNUAL BASIS?
You pay two different types of charges each year. The first type of charge
is the fee you pay for insurance. This charge is:
A mortality and expense risk charge that is subtracted daily and is equal to
an annual charge of 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 0.401% to 0.863% 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?
If you selected the Payments Guaranteed for a Specified Number of Years
Annuity Payout Option, you may Surrender some or all of the amount you invested
after Annuity Payouts begin.
- 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.
- You may have to pay a Contingent Deferred Sales Charge on the money you
Surrender.
- Partial Surrenders may have adverse tax consequences, so please consult your
tax adviser.
WILL HARTFORD PAY A DEATH BENEFIT?
There is a Death Benefit if the Contract Owner or the Annuitant die. The
Death Benefit will be calculated as of the date we receive a certified death
certificate or other legal document acceptable to us.
If the Contract Owner dies before the Income Start Date, the Death Benefit
will be equal to the Contract Value on the date the certified death certificate
or other legal document acceptable to us is received. The Death Benefit may be
taken in one lump sum or under any of the Annuity Payout Options then being
offered.
If the Annuitant dies on or after the Income Start Date, the Death Benefit
will be paid according to the Annuity Payout Option selected. Under some Annuity
Payout Options, there is no Death Benefit.
Under the Payments Guaranteed for a Specified Number of Years Annuity Payout
Option on or after the Income Start Date, the Death Benefit is the greater of:
x Commuted Value
x 100% of the Premium Payment minus all Annuity Payouts made since the Income
Start Date; or
x the Maximum Anniversary Value.
As of the date we receive a certified death certificate or other legal
document acceptable to us, we will calculate an Anniversary Value for each
Contract Anniversary. The highest Anniversary Value is the Maximum Anniversary
Value.
Until complete instructions are received from the Beneficiary, the Death
Benefit will be transferred to the Money Market Sub-Account.
WHAT ANNUITY PAYOUT OPTIONS ARE AVAILABLE?
You may choose one of the following Annuity Payout Options: Option 1 -- Life
Annuity, Option 2 -- Life Annuity with Cash Refund, Option 3 -- Life Annuity
with Payments Guaranteed for a Specified Number of Years, Option 4 -- Joint and
Last Survivor Life Annuity, Option 5 -- Joint and Last Survivor Life Annuity
with Payments Guaranteed for a Specified Number of Years and Option 6 --
Payments Guaranteed for a Specified Number of Years. We may make other Annuity
Payout Options available at any time.
<PAGE>
HARTFORD LIFE AND ANNUITY INSURANCE COMPANY 11
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GENERAL CONTRACT INFORMATION
HARTFORD LIFE AND ANNUITY
INSURANCE COMPANY
Hartford Life and Annuity Insurance Company is a stock life insurance
company engaged in the business of writing life insurance and annuities, both
individual and group, in all states of the United States, the District of
Columbia and Puerto Rico, except New York. On January 1, 1998, Hartford's name
changed from ITT Hartford Life and Annuity Insurance Company to Hartford Life
and Annuity Insurance Company. We were originally incorporated under the laws of
Wisconsin on January 9, 1956, 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 May 20, 1991 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 our General Account or by the
investment performance of any of our 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 Premium Payment you
make to us.
THE FUNDS
All of the Funds are sponsored and administered by Hartford Life and Annuity
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 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.
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 are more fully described
in the accompanying Funds' prospectus and Statement of Additional Information,
which may be ordered 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:
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
<PAGE>
12 HARTFORD LIFE AND ANNUITY INSURANCE COMPANY
- --------------------------------------------------------------------------------
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." 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 within the range represented by the Russell 2000
Index selected on the basis of potential for capital appreciation. Sub-advised
by Wellington Management.
HARTFORD STOCK HLS FUND -- Seeks long-term growth by investing primarily in
equity securities. 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.
* "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 AND ANNUITY INSURANCE COMPANY 13
- --------------------------------------------------------------------------------
- - 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 the Contracts 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.
The Separate Account may also advertise NON-STANDARD TOTAL RETURNS THAT
PRE-DATE THE INCEPTION DATE OF THE SEPARATE ACCOUNT. These non-standardized
total returns are calculated by assuming that the Sub-Accounts have been in
existence for the same periods as the underlying Funds and by taking deductions
for charges equal to those currently assessed against the Sub-Accounts. 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 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.
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.
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. In advertising,
these disclosures will always be accompanied by the yield for the period since
the inception of the Separate Account. No yield disclosure for periods prior to
the date of the Separate Account will be used with out the yield disclosure 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
<PAGE>
14 HARTFORD LIFE AND ANNUITY INSURANCE COMPANY
- --------------------------------------------------------------------------------
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 tax-deferred variable annuity contract. It is
designed for retirement planning purposes and may be purchased by any individual
or trust, including:
- - Any trustee or custodian for a retirement plan qualified under Sections 401(a)
or 403(a) 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 a Premium Payment. You may also transfer assets from
an existing investment. The minimum Premium Payment is $25,000. No additional
Premium Payments may be made. 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. 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 Premium Payment on a Non-Valuation Day, the
amount will be invested on the next Valuation Day. 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 processed or keep the Premium Payment if you authorize us to keep it
until you 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 will not deduct any Contingent Deferred Sales Charges during this
time. 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 INCOME START 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 your Premium Payment is credited to your Sub-Accounts, it is converted
into Accumulation Units by dividing the amount of your Premium Payment, minus
any Premium Taxes, by the Accumulation Unit Value for that day. The larger the
Premium Payment 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
<PAGE>
HARTFORD LIFE AND ANNUITY INSURANCE COMPANY 15
- --------------------------------------------------------------------------------
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.
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 Income Start 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
Owners' 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.
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, subject to our
transfer limitations, from your designated third party 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 3 charges and fees associated with the Contract:
1. THE CONTINGENT DEFERRED SALES CHARGE
The Contingent Deferred Sales Charge is deducted only under the Payments
Guaranteed for a Specified Number of Years Annuity Payout Option. It covers some
of the expenses relating to the sale and distribution of the Contract, including
commissions paid to registered representatives and the cost of preparing sales
literature and other promotional activities.
We assess a Contingent Deferred Sales Charge when you request a full or
partial Surrender under the Payments Guaranteed for a Specified Number of Years
Annuity Payout Option. The Contingent Deferred Sales Charge will not exceed the
total amount of the Premium Payments made. The longer you leave your Premium
Payment in the Contract, the lower the Contingent Deferred Sales Charge will be
when you Surrender.
The Contingent Deferred Sales Charge is a percentage of the Commuted Value
and is equal to:
<TABLE>
<CAPTION>
CONTRACT
YEAR
SURRENDER
CHARGE AS
A
PERCENTAGE CONTINGENT
OF DEFERRED
COMMUTED SALES
VALUE CHARGE
--------- ---
<S> <C>
1 6%
2 6%
3 5%
4 5%
5 4%
6 3%
7 2%
8 or more 0%
</TABLE>
THE FOLLOWING SITUATIONS ARE NOT SUBJECT TO A CONTINGENT DEFERRED SALES CHARGE:
- - Upon death of the Annuitant or Contract Owner
- - Upon cancellation during the Right to Cancel Period
2. MORTALITY AND EXPENSE RISK CHARGE
For assuming mortality and expense risks under the Contract, we deduct a
daily charge at the rate of 1.25% per year of Sub-Account Value (estimated at
.90% for mortality and .35% for expenses). The mortality and expense risk charge
is broken into charges for mortality risks and for an expense risk:
- - MORTALITY RISK -- The primary mortality risk that we assume is made once
Annuity Payouts have begun. 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
<PAGE>
16 HARTFORD LIFE AND ANNUITY INSURANCE COMPANY
- --------------------------------------------------------------------------------
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.
For the Payments Guaranteed for a Specified Number of Years Annuity Payout
Option, we must cover any difference between the Death Benefit paid and the
Surrender Value. These differences may occur in periods of declining value or
periods when the Contingent Deferred Sales Charges would have been deducted. The
risk that we bear during this period is that actual mortality rates, in
aggregate, may be higher than expected.
- - EXPENSE RISK -- We also bear an expense risk that the Contingent Deferred
Sales Charges collected before the Income Start 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.
3. PREMIUM TAX
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 Calculation 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.
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.
WE MAY OFFER, IN OUR DISCRETION, REDUCED FEES AND CHARGES INCLUDING, BUT NOT
LIMITED TO CONTINGENT DEFERRED SALES CHARGES AND THE MORTALITY AND EXPENSE RISK
CHARGE 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.
BEFORE THE INCOME START DATE -- If the Contract Owner dies before the Income
Start Date, the Death Benefit will be equal to the Contract Value on the date
the certified death certificate or other legal document acceptable to us is
received. The Death Benefit may be taken in one lump sum or under any of the
Annuity Payout Options then being offered.
ON OR AFTER THE INCOME START DATE -- If the Annuitant dies on or after the
Income Start Date, the Death Benefit will be paid according to the Annuity
Payout Option selected. Under some Annuity Payout Options, there is no Death
Benefit.
Under the Payments Guaranteed for a Specified Number of Years Annuity Payout
Option on or after the Income Start Date, the Death Benefit is the greater of:
X Commuted Value
X 100% of the Premium Payment minus all Annuity Payouts made since the Income
Start Date; or
X the Maximum Anniversary Value.
As of the date we receive a certified death certificate or other legal
document acceptable to us, we will calculate an Anniversary Value for each
Contract Anniversary. The highest Anniversary Value is the Maximum Anniversary
Value. The Maximum Anniversary Value is only calculated until the earlier of the
Contract Owner or Annuitant's 81st birthday or death.
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. 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. Until complete instructions are received from the
Beneficiary, the Death Benefit will be transferred to the Money Market
Sub-Account.
The Beneficiary may elect under the Annuity Payout Option "Death Benefit
Remaining with the Company" 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 Income Start Date. Once
<PAGE>
HARTFORD LIFE AND ANNUITY INSURANCE COMPANY 17
- --------------------------------------------------------------------------------
we receive a certified death certificate or other legal documents acceptable to
us, the Beneficiary can: (a) make Sub-Account transfers and (b) take a full
Surrender without paying Contingent Deferred Sales Charges.
REQUIRED DISTRIBUTIONS: If the Annuitant dies before the Income Start 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 Income Start 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 Income Start Date.
IF DEATH OCCURS BEFORE THE INCOME START DATE:
<TABLE>
<CAPTION>
IF THE
DECEASED IS THEN THE . .
THE . . . AND . . . AND . . . .
- ----------------------------------------------------------
<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 Death Benefit
Owner is is paid to
living the Contract
Owner and not
the
designated
Beneficiary.
</TABLE>
IF DEATH OCCURS ON OR AFTER THE INCOME START DATE:
<TABLE>
<CAPTION>
IF THE
DECEASED IS
THE . . . AND . . . THEN THE . . .
- -------------------------------------------------
<S> <C> <C>
Contract Designated
Owner 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. Spousal continuation is available only once for each Contract.
SURRENDERS
WHAT KINDS OF SURRENDERS ARE AVAILABLE?
FULL SURRENDERS BEFORE THE INCOME START DATE: When you Surrender your
Contract before the Income Start 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, or Contingent Deferred Sales Charges. The
Surrender Value may be more or less than the amount of the Premium Payments made
to a Contract.
SURRENDERS AFTER THE INCOME START DATE: You may fully or partially
Surrender your Contract on or after the Income Start Date only if you selected
the Payments Guaranteed for a Specified Number of Years Annuity Payout Option.
Under this option, we pay you the Commuted Value of your
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18 HARTFORD LIFE AND ANNUITY INSURANCE COMPANY
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Contract minus any applicable Contingent Deferred Sales Charges. The Commuted
Value is determined on the day we receive your written request for Surrender.
PARTIAL SURRENDERS ARE ALLOWED AFTER THE INCOME START DATE IF YOU SELECTED
THE PAYMENTS GUARANTEED FOR A SPECIFIED NUMBER OF YEARS ANNUITY PAYOUT OPTION,
BUT CHECK WITH YOUR TAX ADVISER BECAUSE THERE MAY BE ADVERSE TAX CONSEQUENCES.
HOW DO I REQUEST A SURRENDER?
Requests for Surrenders must be in writing. 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 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. The
partial Surrender will be taken in proportion to the value in each Account.
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 a10% 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 Income Start 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 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. What Annuity Payout Option do you want to use?
3. How often do you want to receive Annuity Payouts?
4. Do you want to receive level monthly Annuity Payouts?
5. What is the Assumed Investment Return?
6. How are the variable dollar amount Annuity Payouts determined?
Please check with your financial advisor to select the Annuity Payout Option
that best meets your income needs.
1. WHEN DO YOU WANT ANNUITY PAYOUTS TO BEGIN?
You select an Income Start Date and an Annuity Payout Option when you
purchase your Contract. The Income Start Date is any date after the right to
cancel period is over and no later than 60 days after your Contract is issued.
Once selected, neither the Income Start Date nor your Annuity Payout Option can
be changed.
The Annuity Calculation Date is when the amount of your Annuity Payout is
determined. This occurs within five Valuation Days before your selected Income
Start Date.
All Annuity Payouts, regardless of frequency, will occur on the same day of
the month as the Income Start 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
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HARTFORD LIFE AND ANNUITY INSURANCE COMPANY 19
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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 CASH REFUND -- We will make Annuity Payouts as
long as the Annuitant is living. When the Annuitant dies, we pay the Beneficiary
the Contract Value as of the Annuity Calculation Date, minus applicable Premium
Taxes, and minus any Annuity Payouts already made. This Annuity Payout Option is
only available if you select the 5% Assumed Investment Return.
OPTION 3 -- LIFE ANNUITY WITH PAYMENTS GUARANTEED FOR A SPECIFIED NUMBER OF
YEARS -- We make monthly Annuity Payouts during the lifetime of the Annuitant
but Annuity Payouts are at least guaranteed for a time period you select which
is between 5 years and 100 years minus the age of Annuitant. If, at the death of
the Annuitant, Annuity Payouts have been made for less than the time period
selected, then the Beneficiary may elect to either continue the Annuity Payouts
for the remainder of the period, receive the Commuted Value in one lump sum or
take the Death Benefit.
For Qualified Contracts, the Annuity Payout period remaining must be less
than the life expectancy of the Annuitant when the Contact is issued.
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 Payouts; either fixed or variable, 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 Annuity Payouts, these percentages represent Annuity Units; for
fixed Annuity Payouts, they 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 ANNUITY WITH PAYMENTS GUARANTEED FOR A
SPECIFIED NUMBER OF YEARS -- We will make Annuity Payouts as long as the
Annuitant and Joint Annuitant are living, but Annuity Payouts are at least
guaranteed for a time period you select which is between 5 years and 100 years
minus the age of younger Annuitant. When one Annuitant dies, we continue to make
Annuity Payouts to the other Annuitant until that second Annuitant dies. If the
Annuitant and the Joint Annuitant both die before Annuity Payouts have been made
for less than the time period selected, then the Beneficiary may elect to either
continue the Annuity Payouts for the remainder of the period or receive the
Commuted Value in one lump sum.
When choosing this option, you must decide what will happen to the Annuity
Payouts; either fixed or variable, 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 Annuity Payouts, these percentages represent Annuity Units. The
percentage will also impact the Annuity Payout amount we pay while both
Annuitants are living. If you pick a lower percentage, your Annuity Payouts will
be higher while both Annuitants are alive.
OPTION 6 -- PAYMENTS GUARANTEED FOR A SPECIFIED NUMBER OF YEARS -- We will
make Annuity Payouts for the number of years that you select. You can select
between 5 years and 100 years minus the age of the Annuitant. If the Annuitant
dies before the specified number of years have passed, the Beneficiary may elect
either to continue Annuity Payouts for the rest of the specified number of
years, or receive the Commuted Value in one sum.
IMPORTANT INFORMATION:
- - YOU CANNOT SURRENDER YOUR CONTRACT ONCE ANNUITY PAYOUTS BEGIN, UNLESS YOU HAVE
SELECTED THE PAYMENTS GUARANTEED FOR A SPECIFIED NUMBER OF YEARS ANNUITY
PAYOUT OPTION. A CONTINGENT DEFERRED SALES CHARGE MAY BE DEDUCTED.
3. HOW OFTEN DO YOU WANT THE PAYEE TO RECEIVE ANNUITY PAYOUTS?
In addition to selecting an Income Start 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
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20 HARTFORD LIFE AND ANNUITY INSURANCE COMPANY
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- - 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. DO YOU WANT TO RECEIVE LEVEL MONTHLY ANNUITY PAYOUTS?
You may elect to receive Annuity Payouts that vary in amount each Contract
Year, but are level each month throughout the Contract Year. We offer these
level payouts on a monthly frequency only. You can begin receiving these level
monthly Annuity Payouts on your Income Start Date or as of any anniversary of
your Income Start Date. You can cancel these level Annuity Payouts by notifying
us within 30 days of the anniversary of the Income Start Date.
The level payouts are available only under the following Annuity Payout
Options:
- - Life Annuity with Cash Refund
- - Life Annuity with Payments Guaranteed for a Specified Number of Years
- - Joint and Survivor Life Annuity with Payments Guaranteed for a Specified
Number of Years
- - Payments Guaranteed for a Specified Number of Years
We will transfer the annual variable Annuity Payout amount to the General
Account to provide your level monthly Annuity Payouts. The assets of the General
Account are subject to the claims of our creditors. The level monthly Annuity
Payouts will be calculated using a fixed interest rate which will be determined
annually on each anniversary of your Income Start Date. The minimum interest
rate will be 3%, compounded annually.
In situations where we make Annuity Payouts based on the life of the
Annuitant, we will calcuate the level monthly Annuity Payout using the mortality
table listed in the Contract.
5. WHAT IS THE ASSUMED INVESTMENT RETURN?
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.
6. HOW ARE VARIABLE-DOLLAR AMOUNT ANNUITY PAYOUTS DETERMINED?
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
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 of 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 found in your Contract, multiplied
by the Annuity Unit Value for the preceding Valuation Period.
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HARTFORD LIFE AND ANNUITY INSURANCE COMPANY 21
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TRANSFER OF ANNUITY UNITS: After the Income Start 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 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. We may modify the Contract, but no
modification will effect 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 an affiliate of Hartford. Both HSD and Hartford are ultimately controlled by
The Hartford Financial Services Group, Inc. The principal business address of
HSD is the same as that of Hartford.
The securities will be sold by salesperson of HSD who represent Hartford as
insurance and variable annuity agents and who are registered representatives of
Broker-Dealers who have entered into distribution agreements with HSD.
HSD is registered with the Commission under the Securities Exchange Act of
1934 as a Broker-Dealer and is a member of the National Association of
Securities Dealers, Inc.
Commissions will be paid by Hartford and will not be more than 6% of premium
payments. From time to time, Hartford may pay or permit other promotional
incentives, in cash or credit or other compensation.
Broker-dealers or financial institutions are compensated according to a
schedule set forth by HSD and any applicable rules or regulations for variable
insurance compensation. Compensation is generally based on premium payments made
by policyholders or contract owners. This compensation is usually paid from the
sales charges described in this prospectus.
In addition, a broker-dealer or financial institution may also receive
additional compensation for, among other things, training, marketing or other
services provided. HSD, its affiliates or Hartford may also make compensation
arrangements with certain broker-dealers or financial institutions based on
total sales by the broker-dealer or financial institution of insurance products.
These payments, which may be different for different broker-dealers or financial
institutions, will be made by HSD, its affiliates or Hartford out of their own
assets and will not effect the amounts paid by the policyholders or contract
owners to purchase, hold or Surrender variable insurance products.
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,
<PAGE>
22 HARTFORD LIFE AND ANNUITY INSURANCE COMPANY
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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 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
and Annuity Insurance Company, P.O. Box 2999, Hartford, Connecticut 06104-2999.
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HARTFORD LIFE AND ANNUITY INSURANCE COMPANY 23
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The audited financial statements 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.
Reference is made to the report on the statutory financial statements of
Hartford Life and Annuity Insurance Company which states the statutory financial
statements are presented in accordance with statutory accounting practices
prescribed or permitted by the National Association of Insurance Commissioners
and the State of Connecticut Insurance Department, and are not presented in
accordance with generally accepted accounting principles. 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 and Annuity Insurance Company
Attn: Individual Annuity Services
P.O. Box 5085
Hartford, Connecticut 06102-5085.
Telephone: (800) 862-6668 (Contract Owners)
(800) 862-7155 (Investment Representatives)
FEDERAL TAX CONSIDERATIONS
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.
TAXATION OF HARTFORD AND
THE SEPARATE ACCOUNT
The Separate Account is taxed as part of Hartford which is taxed as a life
insurance company under Subchapter L of Chapter 1 of the Code. Accordingly, the
Separate Account is not separately taxed as a "regulated investment company"
under subchapter M. Investment income and any realized capital gains on the
assets of the Separate Account are reinvested and are taken into account in
determining the value of the Accumulation and Annuity Units. As a result, such
investment income and realized capital gains are automatically applied to
increase reserves under the Contract.
No taxes are due on interest, dividends and short-term or long-term capital
gains earned by the Separate Account with respect to Qualified or Non-Qualified
Contracts.
TAXATION OF PURCHASERS OF
NON-QUALIFIED CONTRACTS
CORPORATIONS, TRUSTS AND OTHER NON-NATURAL PERSONS -- 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.
NATURAL PERSONS -- Section 72 generally provides that a Contract Owner is
not taxed on increases in the value of the Contract until an amount distributed
from the Contract is received (or deemed received) by the Contract Owner, either
in the form of Annuity Payments, as contemplated by the Contract, or in some
other form (i.e., surrender or Death Benefit). However, this tax deferral
generally applies only if: (1) the investments in the Separate Account are
"adequately diversified" in accordance with Treasury Department regulations, (2)
Hartford, rather than the Contract Owner, is considered the owner of such assets
for federal income tax purposes, and (3) certain distribution
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24 HARTFORD LIFE AND ANNUITY INSURANCE COMPANY
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requirements are met in the event that the Contract Owner dies. These
requirements are discussed further under the caption "Tax Status of the
Contract" below.
DISTRIBUTIONS PRIOR TO THE INCOME START DATE -- The Contract does not permit
partial withdrawals or partial surrenders or loans. If, however, a Contract is
surrendered prior to the Income Start Date, amounts received by the Contract
Owner are includable in his or her income to the extent that such amounts exceed
the "investment in the contract." For this purpose, the investment in the
contract at any time equals the Premium Payment (to the extent that such Payment
was neither deductible when made nor excludable from income as, for example, in
the case of certain contributions to Qualified Contracts), less any amounts
previously received from the Contract which were not includable in income. Also,
the Surrender Value may be subject to a penalty tax, described below. In
general, an assignment of the Contract (or other change of ownership) without
full and adequate consideration will be treated as a distribution from the
Contract and taxed in the same manner as a surrender (except where the Contract
is transferred between spouses or incident to a divorce).
The Contract provides that upon the death of Contract Owner, Annuitant or
Joint Annuitant, the Beneficiary will receive the Contract Value. This
distribution is includable in the Beneficiary's income as follows: (1) if
distributed in a lump sum, it is taxed in the same manner as a surrender, (2) if
it is distributed in the form of Annuity Payments, it is taxed in the same
manner as Annuity Payments (see below).
DISTRIBUTIONS AFTER THE INCOME START DATE -- The portion of each Annuity
Payment taxable as ordinary income is equal to the excess of the Annuity Payment
over the "exclusion amount." The "exclusion amount" is the investment in the
Contract (described above), adjusted for any guaranteed period, divided by the
number of Annuity Payments expected to be made (determined by Treasury
Department regulations that take into account the Annuitant's life expectancy
and the Annuity Payment Option elected). After the dollar amount of the
investment in the Contract, adjusted for any guaranteed period, is deemed to be
recovered, the entire amount of each Annuity Payment is fully includable in
income. Nonetheless, should the Annuity Payments cease before the adjusted
investment in the Contract is fully recovered, a deduction is allowed for the
unrecovered amount of the adjusted investment in the Contract. Where a
guaranteed period of Annuity Payments is selected and the Annuitant does not
live to the end of that period, the Annuity Payments for the remainder of the
period are includable in income as follows: (1) if distributed in a lump sum,
they are included in income to the extent that they exceed the unrecovered
investment in the Contract at that time, or (2) if received as Annuity Payments,
they are fully excluded from income until the remaining investment in the
Contract is deemed to be recovered. All Annuity Payments thereafter are fully
includable in income.
PENALTY TAX ON CERTAIN DISTRIBUTIONS -- Distributions received (or deemed
received) from a Contract (before or after the Income Start Date) may be subject
to a penalty tax equal to 10% of the amount treated as taxable income. In
general, however, there is no penalty tax on distributions:
1. made on or after a taxpayer reaches age 59 1/2;
2. made on or after the death of the Contract Owner;
3. attributable to a taxpayer's becoming disabled;
4. that are part of a series of substantially equal periodic payments (not
less frequently than annually) for the life (or the life expectancy) of the
taxpayer or the joint lives (or joint life expectancies) of the taxpayer and his
or her designated beneficiary;
5. made under certain annuities issued in connection with structured
settlement agreements; and
6. made under an annuity contract that is purchased with a single premium
payment when the annuity date is no later than a year from purchase and
substantially equal periodic payments are made, not less frequently than
annually, during the annuity payment period.
AGGREGATION OF TWO OR MORE CONTRACTS -- All non-qualified deferred annuity
contracts that are issued by Hartford (or its affiliates) to the same owner
during any calendar year are treated as one annuity contract for purposes of
determining the amount includable in gross income under Section 72(e) of the
Code. The effects of this rule are not yet clear; however, it could affect the
time when income is taxable and the amount that might be subject to the 10%
penalty tax described above. In addition, the Treasury Department has specific
authority to issue regulations that prevent the avoidance of Section 72(e) of
the Code through the serial purchase of annuity contracts or otherwise. There
may also be other situations in which the Treasury Department may conclude that
it would be appropriate to aggregate two or more deferred or immediate annuity
contracts purchased by the same owner. Accordingly, a Contract Owner should
consult a competent tax adviser before purchasing more than one annuity contract
in a calendar year.
POSSIBLE CHANGES IN TAXATION -- In past years, legislation has been proposed
that would have adversely modified the federal taxation of certain annuity
contracts. For example, one such proposal would have changed the tax treatment
of non-qualified annuities that did not have "substantial life contingencies" by
taxing income as it is credited to the annuity contract. Although as of the date
of this Prospectus Congress is not considering any legislation regarding
taxation of annuity contracts, there is always the possibility that
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HARTFORD LIFE AND ANNUITY INSURANCE COMPANY 25
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the tax treatment of annuities could change by legislation or other means (such
as IRS regulations, revenue rulings, judicial decisions, etc.). Moreover, it is
also possible that any change could be retroactive (that is, effective prior to
the date of the change).
CONTRACTS OBTAINED THROUGH A TAX-FREE EXCHANGE OF OTHER ANNUITY OR LIFE
INSURANCE CONTRACTS -- Section 1035 of the Code generally provides that no gain
or loss shall be recognized on the exchange of one annuity contract for another.
If the surrendered contract was issued prior to August 14, 1982, the tax rules
formerly provided that the surrender was taxable only to the extent the amount
received exceeds the owner's investment in the contract will and continue to
apply to amounts allocable to investments in that contract prior to August 14,
1982. In contrast, contracts issued after January 19, 1985 in a Code Section
1035 exchange are treated as new contracts for purposes of the penalty and
distribution-at-death rules. Special rules and procedures apply to Section 1035
transactions. Prospective Contract Owners wishing to take advantage of Section
1035 should consult their tax adviser.
TAX STATUS OF THE CONTRACTS -- The foregoing discussion assumes that the
Contracts qualify as "annuity contracts" for federal income tax purposes under
the Code.
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.
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.
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26 HARTFORD LIFE AND ANNUITY INSURANCE COMPANY
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We reserve the right to modify the contract, as necessary, to prevent you from
being considered the owner of assets in the separate account.
REQUIRED DISTRIBUTIONS -- In order to be treated as an annuity contract for
federal income tax purposes, Section 72(s) of the Code requires any
Non-Qualified Contract to provide that: (a) if any Contract Owner dies on or
after the Income Start Date but prior to the time the entire interest in the
Contract has been distributed, the remaining portion of such interest will be
distributed at least as rapidly as under the method of distribution being used
as of the date of that Contract Owner's death; and (b) if any Contract Owner
dies prior to the Income Start Date, the entire interest in the Contract will be
distributed within five years after the date of the Contract Owner's death.
These requirements will be considered satisfied as to any portion of the
Contract Owner's interest that is payable to or for the benefit of a "designated
beneficiary," and that is distributed over the life of such Beneficiary or over
a period not extending beyond the life expectancy of that Beneficiary, provided
that such distributions begin within one year of that Contract Owner's death.
The Contract Owner's "designated beneficiary" is the person designated by such
Contract Owner as a Beneficiary and must be a natural person. However, if the
Contract Owner's sole designated beneficiary is the surviving spouse of the
Contract Owner, the Contract may be continued with the surviving spouse as the
new Contract Owner. This spousal continuation shall apply only once for this
contract. The requirements further provide that if the Contract Owner is not an
individual, the primary Annuitant shall be treated as the Contract Owner for
purposes of making distributions that are required to be made upon the death of
the Contract Owner. If there is a change in the primary Annuitant, such change
shall be treated as the death of the Contract Owner. The Contract does not
permit a change of the Annuitants, however.
Non-Qualified Contracts contain provisions that are intended to comply with
the requirements of Section 72(s) of the Code, although no regulations
interpreting these requirements have yet been issued. Hartford will review such
provisions and modify them if necessary to assure that they comply with the
requirements of Code Section 72(s) when clarified by regulation or otherwise.
CONTRACT OWNERS THAT ARE NONRESIDENT
ALIENS OR FOREIGN CORPORATIONS
The discussion above provides general information regarding U.S. federal
income tax consequences to Contract Owners 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 and any required tax forms are submitted to
Hartford. 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 the purchase of a Contract.
OTHER TAX CONSEQUENCES
As noted above, the foregoing comments about the federal tax consequences
under these Contracts are not exhaustive, and special rules may apply to other
tax situations not discussed in this Prospectus. Further, the federal income tax
consequences discussed herein reflect Hartford's understanding of current law
and the law may change. Federal estate and state and local estate, inheritance
and other tax consequences of ownership or receipt of distributions under a
Contract depend on the individual circumstances of each Contract Owner or
recipient of the distribution. In particular, gift and/or estate tax
consequences may result in situations where the Contract Owner is not also the
Annuitant, Payee, and Beneficiary. A competent tax adviser should be consulted
for further information.
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HARTFORD LIFE AND ANNUITY 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 AND ANNUITY 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 AND ANNUITY 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.
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ILLUSTRATIONS OF ANNUITY PAYMENTS
ASSUMING HYPOTHETICAL RATES OF RETURN
The following graph has been prepared to show how investment performance
could affect Variable Annuity Payments over time. The graph illustrates the
Variable Annuity Payments of a Non-Qualified Contact under three rate of return
scenarios. Of course, the illustrations merely represent what Variable Annuity
Payments might be paid under a HYPOTHETICAL Non-Qualified Contract.
WHAT THE GRAPHS ILLUSTRATE -- Each curve plotted on the graph illustrates
the payments under a hypothetical Non-Qualified Contract (described in more
detail below) assuming a different hypothetical rate of return for a single
Sub-Account supporting the Contract by plotting one point for each contract
year. Each such annual point on the graph represents the average of twelve
monthly Variable Annuity Payments made in that contract year under the
hypothetical Contract (hereinafter, an "Average Monthly Payment"). Each curve on
the graph assumes that the initial Variable Annuity Payment under the
hypothetical Contract is $1,000 (discussed in more detail below).
HYPOTHETICAL RATES OF RETURN -- The Variable Annuity Payments reflect three
different assumptions for a constant investment return before fees and expenses:
0%, 6% and 12%. Net of all expenses, these constant returns are: -1.85%, 4.04%
and 9.93%. Average Monthly Payments reflect the assumed investment return net of
all expenses of the illustrated Sub-Account (and the Funds) over the periods
shown in each graph. Fund management fees and operating expenses are assumed to
be at an annual rate of 0.62% of their average daily net assets. This is the
weighted average of Fund expenses shown in the fee table on page 6. The
mortality and expense risk charge is assumed to be at an annual rate of 1.25% of
the illustrated Sub-Account's average daily net assets.
Nevertheless, THE AVERAGE MONTHLY PAYMENTS DEPICTED IN THE GRAPH ARE BASED
ON HYPOTHETICAL CONTRACTS AND HYPOTHETICAL INVESTMENT RESULTS AND ARE NOT
PROJECTIONS OR INDICATIONS OF FUTURE RESULTS. HARTFORD DOES NOT GUARANTEE OR
EVER SUGGEST THAT ANY SUB-ACCOUNT OR CONTRACT ISSUED BY IT WOULD GENERATE THESE
OR SIMILAR AVERAGE MONTHLY PAYMENTS FOR ANY PERIOD OF TIME. THE GRAPHS ARE FOR
ILLUSTRATION PURPOSES ONLY AND DO NOT REPRESENT FUTURE VARIABLE ANNUITY PAYMENTS
OR FUTURE INVESTMENT RETURNS. Variable Annuity Payments under a real Contract
may be more or less than those forming the basis for the Average Monthly
Payments shown in these illustrations if the actual returns of the Sub-Accounts
selected by a Contract Owner are different from the hypothetical returns.
Because it is very likely that a Sub-Account's investment return will fluctuate
over time, one can expect Variable Annuity Payments under a real Contract to
fluctuate. Moreover, under a real Contract, the total amount of Variable Annuity
Payments ultimately received by a Payee depends upon which Annuity Payment
Option the Contract Owner selects and, for life contingent annuity payment
options, how long the Annuitant lives. See "Annuity Payouts."
ASSUMPTIONS ON WHICH THE HYPOTHETICAL CONTRACT IS BASED -- In order to
illustrate a hypothetical Contract, Hartford had to make several assumptions
about the Contract. These assumptions are that: (1) the hypothetical Contract is
a Non-Qualified Contract, (2) the entire Contract Value of the hypothetical
Contract is allocated (on the Annuity Calculation Date) to a Sub-Account having
a constant investment return before fees and expenses of 0%, 6%, or 12%, (3) the
Contract Owner selected an Assumed Investment Return of 5%, (4) the Contract
Owner elects to receive monthly Variable Annuity Payments, and (5) the Contract
Value (less any applicable Premium Tax) applied to the purchase of Annuity Units
on the Annuity Calculation Date under the Annuity Payment Option selected
results in an initial Variable Annuity Payment of $1,000.
For a discussion of how a Contract Owner may elect to receive monthly,
quarterly, semi-annual or annual Variable Annuity Payments, see "Annuity
Payouts."
ASSUMED INVESTMENT RETURN -- Among the most important factors that determine
that amount of Variable Annuity Payments is the Assumed Investment Return
selected by the Contract Owner. The hypothetical Contract has an Assumed
Investment Return of 5%. Subject to state approval, a Contract Owner may,
however, select a 3%, 5% or 6% Assumed Investment Return under a real Contract.
Generally, Variable Annuity Payments will increase in size from one Income
Payment Date to the next if the annualized net rate of return during that time
is greater than the Assumed Investment Return, and will decrease if the
annualized net rate of return over this period is less than the Assumed
Investment Return. (The Assumed Investment Return is an important component of
the Payment Factor.) For a detailed discussion of Assumed Investment Returns,
see "Annuity Payouts."
THE $1,000 INITIAL ANNUITY PAYMENT -- The hypothetical Contract has an
initial Variable Annuity Payment of $1,000. The dollar amount of the first
Variable Annuity Payment under a real Contract generally depends upon the
Annuity Payment Option selected by the Contract Owner, the amount of Contract
Value applied to purchase the Variable Annuity Payments, the annuity purchase
rates in the Contract at the time it is purchased (i.e., the Payment Factor),
the age of the Annuitant, and, in most cases (e.g., Non-Qualified Contracts),
the sex of the Annuitant. For
<PAGE>
HARTFORD LIFE AND ANNUITY INSURANCE COMPANY 31
- --------------------------------------------------------------------------------
each of the illustrations, the entire Contract Value under the hypothetical
Contract is allocated to a Sub-Account having a constant investment return
before fees and expenses of 0%, 6%, or 12%. However, for a real Contract,
Contract Value is often allocated among several Sub-Accounts prior to the
Annuity Calculation Date. The dollar amount of the first Variable Annuity
Payment attributable to each Sub-Account is determined under a real Contract by
dividing the dollar amount of Contract Value (less applicable Premium Tax)
applied to that Sub-Account on the Annuity Calculation Date by $1,000, and
multiplying the result by the annuity Payment Factor in the Contract for the
selected Annuity Payment Option. The dollar value of the first Variable Annuity
Payment is the sum of the first Variable Annuity Payments attributable to each
Sub-Account. For a detailed discussion of how the first Variable Annuity Payment
is determined, see "Annuity Payouts."
<PAGE>
32 HARTFORD LIFE AND ANNUITY INSURANCE COMPANY
- --------------------------------------------------------------------------------
HYPOTHETICAL ILLUSTRATIONS
<TABLE>
<CAPTION>
HYPOTHETICAL 0% GROSS HYPOTHETICAL 6% GROSS HYPOTHETICAL 12% GROSS
RATE RATE RATE
AVERAGE MONTHLY AVERAGE MONTHLY AVERAGE MONTHLY
PAYMENT PAYMENT PAYMENT
FOR EACH YEAR SHOWN FOR EACH YEAR SHOWN FOR EACH YEAR SHOWN
$1,000 INITIAL $1,000 INITIAL $1,000 INITIAL
PAYMENT; 5% AIR PAYMENT; 5% AIR PAYMENT; 5% AIR
- ---------------------- ---------------------- ----------------------
AVERAGE AVERAGE AVERAGE
CONTRACT MONTHLY CONTRACT MONTHLY CONTRACT MONTHLY
YEAR PAYMENT YEAR PAYMENT YEAR PAYMENT
- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
1 970 1 996 1 1,022
2 906 2 988 2 1,072
3 847 3 980 3 1,125
4 791 4 972 4 1,179
5 740 5 964 5 1,237
6 691 6 956 6 1,298
7 646 7 948 7 1,361
8 604 8 940 8 1,427
9 564 9 932 9 1,497
10 527 10 924 10 1,570
11 493 11 917 11 1,647
12 461 12 909 12 1,727
13 430 13 902 13 1,812
14 402 14 894 14 1,900
15 376 15 887 15 1,993
16 351 16 879 16 2,091
17 328 17 872 17 2,193
18 307 18 865 18 2,300
19 287 19 858 19 2,412
20 268 20 851 20 2,530
</TABLE>
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
AVERAGE MONTHLY PAYMENT
<S> <C> <C> <C>
Contract 0% 6% 12%
Year Gross Rate Gross Rate Gross Rate
1 970 996 1,022
2 906 988 1,072
3 847 980 1,125
4 791 972 1,179
5 740 964 1,237
6 691 956 1,298
7 646 948 1,361
8 604 940 1,427
9 564 932 1,497
10 527 924 1,570
11 493 917 1,647
12 461 909 1,727
13 430 902 1,812
14 402 894 1,900
15 376 887 1,993
16 351 879 2,091
17 328 872 2,193
18 307 865 2,300
19 287 858 2,412
20 268 851 2,530
</TABLE>
<PAGE>
HARTFORD LIFE AND ANNUITY INSURANCE COMPANY 33
- --------------------------------------------------------------------------------
ILLUSTRATIONS OF ANNUITY PAYMENTS
USING HISTORIC RATES OF RETURN
The following graphs have been prepared to show how investment performance
affects Variable Annuity Payments over time. These graphs illustrate the
"performance" of a Non-Qualified Contract under which Variable Annuity Payments
begin at the end of the month that the Contract was issued which is the same
month that each Sub-Account illustrated began operations. Of course, Hartford
did not sell Contracts prior to the date of this Prospectus (i.e., during any of
the time periods shown) and therefore the illustrations merely represent what
Variable Annuity Payments might have been under a hypothetical Non-Qualified
Contract had one existed during the years shown.
WHAT THE GRAPHS ILLUSTRATE -- Each graph illustrates the "performance" of a
particular Sub-Account based on hypothetical Non-Qualified Contract (described
in more detail below) by plotting one point for each calendar year since the
Sub-Account began operations. Each such annual point on the graph represents the
average of twelve monthly Variable Annuity Payments made in that year under the
hypothetical Contract. Each graph assumes that the initial Variable Annuity
Payment under the hypothetical Contract is $1,000 (discussed in more detail
below). All of the graphs end on December 31, 1998. Where a Sub-Account began
operations in mid-year, the point for the first year represents the average of
monthly Variable Annuity Payments made (which is fewer than 12) under the
hypothetical Contract during that year. The points therefore represent, in each
case, the average monthly Variable Annuity Payment (hereinafter, an "Average
Monthly Payment").
Average Monthly Payments reflect the actual past investment return after all
expenses of the Sub-Accounts over the periods shown in each graph. Nevertheless,
THE AVERAGE MONTHLY PAYMENTS DEPICTED IN THE GRAPHS ARE BASED ON HYPOTHETICAL
CONTRACTS AND PAST INVESTMENT RESULTS AND ARE NOT PROJECTIONS OR INDICATIONS OF
FUTURE RESULTS. HARTFORD DOES NOT GUARANTEE OR EVEN SUGGEST THAT ANY CONTRACT
ISSUED BY IT WOULD GENERATE THESE OR SIMILAR VARIABLE ANNUITY PAYMENTS FOR ANY
PERIOD OF TIME. THE GRAPHS ARE FOR ILLUSTRATION PURPOSES ONLY AND DO NOT
REPRESENT FUTURE VARIABLE ANNUITY PAYMENTS OR FUTURE INVESTMENT RETURNS.
Variable Annuity Payments under a real Contract may be more or less than those
forming the basis for the Average Monthly Payments shown in these illustrations
if the actual returns of the Sub-Accounts selected by a Contract Owner are
different from the past returns of the Sub-Accounts. Because it is very likely
that a Sub-Account's investment return will fluctuate over time, one can expect
Variable Annuity Payments under a real Contract to fluctuate. Moreover, under a
real Contract, the total amount of Variable Annuity Payments ultimately received
by a Payee depends upon which Annuity Payment Option the Contract Owner selects
and, for life contingent annuity options, how long the Annuitant lives. (See
"Annuity Payouts.")
ASSUMPTIONS ON WHICH THE HYPOTHETICAL CONTRACT IS BASED -- In order to
illustrate a hypothetical Contract, Hartford had to make several assumptions
about the Contract. These assumptions are that: (1) the hypothetical Contract is
a Non-Qualified Contract, (2) the entire Contract Value of the hypothetical
Contract is allocated (on the Annuity Calculation Date) to the Sub-Account being
illustrated, (3) the Contract Owner selected an Assumed Investment Return of 5%,
(4) the Contract Owner elects to receive monthly Variable Annuity Payments and
elects an Income Start Date that is the last day of the month in which the
Contract was issued, (5) the Contract Value (less any applicable premium tax)
applied to the purchase of Annuity Units on the Annuity Calculation Date under
the Annuity Payment Option selected results in an initial Variable Annuity
Payment of $1,000, and (6) the Income Start Date is the last day of the month
that the Sub-Account illustrated began operations. TO THE EXTENT THAT A REAL
CONTRACT IS ISSUED BY HARTFORD ON A BASIS DIFFERENT FROM THE FOREGOING
ASSUMPTIONS, THAT REAL CONTRACT WOULD HAVE HAD AVERAGE MONTHLY PAYMENTS
DIFFERENT FROM THOSE ILLUSTRATED EVEN DURING THE PERIODS ILLUSTRATED.
For a discussion of how a Contract Owner may elect to receive monthly,
quarterly, semi-annual or annual Variable Annuity Payments, see "Annuity
Payouts."
ASSUMED INVESTMENT RETURN -- Among the most important factors that determine
that amount of Variable Annuity Payments is the Assumed Investment Return
selected by the Contract Owner. The hypothetical Contract has an Assumed
Investment Return of 5%. Subject to state approval, a Contract Owner may,
however, select a 3%, 5% or 6% Assumed Investment Return under a real Contract.
Generally, Variable Annuity Payments will increase in size from one Income
Payment Date to the next if the annualized net rate of return during that time
is greater than the Assumed Investment Return, and will decrease if the
annualized net rate of return over this period is less than the Assumed
Investment Return. (The Assumed Investment Return is an important component of
the Payment Factor.) For a detailed discussion of Assumed Investment Returns,
see "Variable Annuity Payments." Standardized and non-standardized average
annual total returns as well as the Sub-Account Annual Percentage Change column
reflect the performance of the Sub-Account being illustrated without adjustment
for an Assumed Investment Return.
<PAGE>
34 HARTFORD LIFE AND ANNUITY INSURANCE COMPANY
- --------------------------------------------------------------------------------
THE $1,000 INITIAL ANNUITY PAYMENT -- The hypothetical Contract has an
initial Variable Annuity Payment of $1,000. The dollar amount of the first
Variable Annuity Payment under a real Contract generally depends upon the
Annuity Payment Option selected by the Contract Owner, the amount of Contract
Value applied to purchase the Variable Annuity Payments, the annuity purchase
rates in the Contract at the time it is purchased (i.e., the Payment Factor),
the age of the Annuitant, and, in most cases (e.g., Non-Qualified Contracts),
the sex of the Annuitant. For each of the illustrations, the entire Contract
Value under the hypothetical Contract is allocated to the Sub-Account shown in
the illustrations. However, for a real Contract, Contract Value is often
allocated among several Sub-Accounts prior to the Annuity Calculation Date. The
dollar amount of the first Variable Annuity Payment attributable to each
Sub-Account is determined under a real Contract by dividing the dollar amount of
Contract Value (less applicable Premium Tax) applied to that Sub-Account on the
Annuity Calculation Date by $1,000, and multiplying the result by the annuity
Payment Factor in the Contract for the selected Annuity Payment Option. The
dollar value of the first Variable Annuity Payment is the sum of the first
Variable Annuity Payments attributable to each Sub-Account. For a detailed
discussion of how the first Variable Annuity Payment is determined, see "Annuity
Payouts."
<PAGE>
HARTFORD LIFE AND ANNUITY INSURANCE COMPANY 35
- --------------------------------------------------------------------------------
ADVISERS SUB-ACCOUNT
<TABLE>
<CAPTION>
AVERAGE MONTHLY PAYMENT FOR EACH YEAR OR PARTIAL YEAR SHOWN
$1,000 INITIAL PAYMENT: 5% AIR
- --------------------------------------------------------------------------------
AVERAGE ANNUAL
CALENDAR MONTHLY SUB-ACCOUNT
YEAR PAYMENT RETURN
-------- -------- --------------------
<S> <C> <C>
1977
1978
1979
1980
1981
1982
1983 * 990 1.26%
1984 948 6.05%
1985 1,078 25.26%
1986 1,253 11.27%
1987 1,337 4.66%
1988 1,322 12.71%
1989 1,479 20.24%
1990 1,459 0.01%
1991 1,584 18.88%
1992 1,630 6.96%
1993 1,731 10.86%
1994 1,688 -3.94%
1995 1,821 26.74%
1996 2,042 15.14%
1997 2,384 22.96%
1998 2,745 23.11%
</TABLE>
<TABLE>
<CAPTION>
NON-STANDARDIZED AVERAGE ANNUAL TOTAL RETURNS
FOR THE PERIODS ENDED 12/31/1998**
- ------------------------------------------------------------
<S> <C>
1 Year 23.11%
5 Year 16.24%
10 Year 13.66%
Since Inception 12.52%
</TABLE>
<TABLE>
<CAPTION>
STANDARDIZED AVERAGE ANNUAL TOTAL RETURNS
FOR THE PERIODS ENDED 12/31/1998**
- ------------------------------------------------------------
<S> <C>
1 Year 17.11%
5 Year 15.80%
10 Year 13.66%
Since Inception 12.52%
</TABLE>
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
AVERAGE
CALENDAR MONTHLY
YEAR PAYMENT
<S> <C>
1977
1978
1979
1980
1981
1982
1983* 990
1984 948
1985 1,078
1986 1,253
1987 1,337
1988 1,322
1989 1,479
1990 1,459
1991 1,584
1992 1,630
1993 1,731
1994 1,688
1995 1,821
1996 2,042
1997 2,384
1998 2,745
</TABLE>
* Fund inception was 4/83. Therefore, the Average Monthly Payment represents
the average monthly payment from April 1983 to December 1983. The Annual
Sub-Account Return is based on the period from April 1983 to December 1983.
** Standardized Average Annual Total Returns differ from Non-Standardized
Average Annual Total Returns in that the former reflect a deduction for the
Contingent Deferred Sales Charge where the latter do not.
<PAGE>
36 HARTFORD LIFE AND ANNUITY INSURANCE COMPANY
- --------------------------------------------------------------------------------
CAPITAL APPRECIATION SUB-ACCOUNT
<TABLE>
<CAPTION>
AVERAGE MONTHLY PAYMENT FOR EACH YEAR OR PARTIAL YEAR SHOWN
$1,000 INITIAL PAYMENT: 5% AIR
- --------------------------------------------------------------------------------
AVERAGE ANNUAL
CALENDAR MONTHLY SUB-ACCOUNT
YEAR PAYMENT RETURN
-------- -------- --------------------
<S> <C> <C>
1977
1978
1979
1980
1981
1982
1983
1984 * 1,038 9.16%
1985 1,237 34.37%
1986 1,485 7.65%
1987 1,496 -5.55%
1988 1,451 24.67%
1989 1,694 22.60%
1990 1,550 -12.02%
1991 1,852 52.16%
1992 2,100 15.55%
1993 2,492 19.30%
1994 2,562 1.26%
1995 2,897 28.63%
1996 3,328 19.20%
1997 3,881 20.83%
1998 4,150 14.04%
</TABLE>
<TABLE>
<CAPTION>
NON-STANDARDIZED AVERAGE ANNUAL TOTAL RETURNS
FOR THE PERIODS ENDED 12/31/1998**
- ------------------------------------------------------------
<S> <C>
1 Year 14.04%
5 Year 16.43%
10 Year 17.08%
Since Inception 16.16%
</TABLE>
<TABLE>
<CAPTION>
STANDARDIZED AVERAGE ANNUAL TOTAL
RETURNS
FOR THE PERIODS ENDED 12/31/1998**
- -------------------------------------
<S> <C>
1 Year 8.04%
5 Year 15.99%
10 Year 17.08%
Since Inception 16.16%
</TABLE>
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
AVERAGE
CALENDAR MONTHLY
YEAR PAYMENT
<S> <C>
1977
1978
1979
1980
1981
1982
1983
1984* 1,038
1985 1,237
1986 1,485
1987 1,496
1988 1,451
1989 1,694
1990 1,550
1991 1,852
1992 2,100
1993 2,492
1994 2,562
1995 2,897
1996 3,328
1997 3,881
1998 4,150
</TABLE>
* Fund inception was 4/84. Therefore, the Average Monthly Payment represents
the average monthly payment from April 1984 to December 1984. The Annual
Sub-Account Return is based on the period from April 1984 to December 1984.
** Standardized Average Annual Total Returns differ from Non-Standardized
Average Annual Total Returns in that the former reflect a deduction for the
Contingent Deferred Sales Charge where the latter do not.
<PAGE>
HARTFORD LIFE AND ANNUITY INSURANCE COMPANY 37
- --------------------------------------------------------------------------------
DIVIDEND AND GROWTH SUB-ACCOUNT
<TABLE>
<CAPTION>
AVERAGE MONTHLY PAYMENT FOR EACH YEAR OR PARTIAL YEAR SHOWN
$1,000 INITIAL PAYMENT: 5% AIR
- --------------------------------------------------------------------------------
AVERAGE ANNUAL
CALENDAR MONTHLY SUB-ACCOUNT
YEAR PAYMENT RETURN
-------- -------- --------------------
<S> <C> <C>
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994 * 1,024 4.07%
1995 1,146 34.68%
1996 1,383 21.39%
1997 1,695 30.25%
1998 1,932 14.97%
</TABLE>
<TABLE>
<CAPTION>
NON-STANDARDIZED AVERAGE ANNUAL TOTAL RETURNS
FOR THE PERIODS ENDED 12/31/1998**
- ------------------------------------------------------------
<S> <C>
1 Year 14.97%
5 Year --
10 Year --
Since Inception 20.58%
</TABLE>
<TABLE>
<CAPTION>
STANDARDIZED AVERAGE ANNUAL TOTAL RETURNS
FOR THE PERIODS ENDED 12/31/1998**
- ------------------------------------------------------------
<S> <C>
1 Year 8.97%
5 Year --
10 Year --
Since Inception 20.25%
</TABLE>
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
AVERAGE
CALENDAR MONTHLY
YEAR PAYMENT
<S> <C>
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994* 1,024
1995 1,146
1996 1,383
1997 1,695
1998 1,932
</TABLE>
* Fund inception was 3/94. Therefore, the Average Monthly Payment represents
the average monthly payment from March 1994 to December 1994. The Annual
Sub-Account Return is based on the period from March 1994 to December 1994.
** Standardized Average Annual Total Returns differ from Non-Standardized
Average Annual Total Returns in that the former reflect a deduction for the
Contingent Deferred Sales Charge where the latter do not.
<PAGE>
38 HARTFORD LIFE AND ANNUITY INSURANCE COMPANY
- --------------------------------------------------------------------------------
GLOBAL LEADERS SUB-ACCOUNT
<TABLE>
<CAPTION>
AVERAGE MONTHLY PAYMENT FOR EACH YEAR OR PARTIAL YEAR SHOWN
$1,000 INITIAL PAYMENT: 5% AIR
- --------------------------------------------------------------------------------
AVERAGE ANNUAL
CALENDAR MONTHLY SUB-ACCOUNT
YEAR PAYMENT RETURN
-------- -------- --------------------
<S> <C> <C>
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998 * 1,159 31.47%
</TABLE>
<TABLE>
<S> <C>
TOTAL RETURNS FOR THE PERIOD
9/30/98 - 12/31/98**
- ------------------------------------------------------------
31.47% (does not reflect contingent deferred sales charge)
25.47% (reflects contingent deferred sales charge)
</TABLE>
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
AVERAGE
CALENDAR MONTHLY
YEAR PAYMENT
<S> <C>
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998* 1,159
</TABLE>
* Fund inception was 9/98. Therefore, the Average Monthly Payment represents
the average monthly payment from September 1998 to December 1998. The Annual
Sub-Account Return is based on this period.
** These returns are not annualized.
<PAGE>
HARTFORD LIFE AND ANNUITY INSURANCE COMPANY 39
- --------------------------------------------------------------------------------
GROWTH AND INCOME SUB-ACCOUNT
<TABLE>
<CAPTION>
AVERAGE MONTHLY PAYMENT FOR EACH YEAR OR PARTIAL YEAR SHOWN
$1,000 INITIAL PAYMENT: 5% AIR
- --------------------------------------------------------------------------------
AVERAGE ANNUAL
CALENDAR MONTHLY SUB-ACCOUNT
YEAR PAYMENT RETURN
-------- -------- --------------------
<S> <C> <C>
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998 * 1,018 18.18%
</TABLE>
<TABLE>
<CAPTION>
TOTAL RETURNS FOR THE PERIOD
6/1/98 - 12/31/98**
- ------------------------------------------------------------
<S> <C>
18.18% (does not reflect contingent deferred sales charge)
12.18% (reflects contingent deferred sales charge)
</TABLE>
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
AVERAGE
CALENDAR MONTHLY
YEAR PAYMENT
<S> <C>
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998* 1,018
</TABLE>
* Fund inception was 6/1/98. Therefore, the Average Monthly Payment represents
the average monthly payment from June 1998 to December 1998. The Annual
Sub-Account Return is based on this period.
** These returns are not annualized.
<PAGE>
40 HARTFORD LIFE AND ANNUITY INSURANCE COMPANY
- --------------------------------------------------------------------------------
HIGH YIELD SUB-ACCOUNT
<TABLE>
<CAPTION>
AVERAGE MONTHLY PAYMENT FOR EACH YEAR OR PARTIAL YEAR SHOWN
$1,000 INITIAL PAYMENT: 5% AIR
- --------------------------------------------------------------------------------
AVERAGE ANNUAL
CALENDAR MONTHLY SUB-ACCOUNT
YEAR PAYMENT RETURN
-------- -------- --------------------
<S> <C> <C>
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998 * 1,011 3.49%
</TABLE>
<TABLE>
<S> <C>
TOTAL RETURNS FOR THE PERIOD
9/30/98 - 12/31/98**
- ------------------------------------------------------------
3.49% (does not reflect contingent deferred sales charge)
-2.51% (reflects contingent deferred sales charge)
</TABLE>
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
AVERAGE
CALENDAR MONTHLY
YEAR PAYMENT
<S> <C>
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998* 1,011
</TABLE>
* Fund inception was 9/98. Therefore, the Average Monthly Payment represents
the average monthly payment from September 1998 to December 1998. The Annual
Sub-Account Return is based on this period.
** These returns are not annualized.
<PAGE>
HARTFORD LIFE AND ANNUITY INSURANCE COMPANY 41
- --------------------------------------------------------------------------------
INDEX SUB-ACCOUNT
<TABLE>
<CAPTION>
AVERAGE MONTHLY PAYMENT FOR EACH YEAR OR PARTIAL YEAR SHOWN
$1,000 INITIAL PAYMENT: 5% AIR
- --------------------------------------------------------------------------------
AVERAGE ANNUAL
CALENDAR MONTHLY SUB-ACCOUNT
YEAR PAYMENT RETURN
-------- -------- --------------------
<S> <C> <C>
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987 * 978 -14.02%
1988 890 14.75%
1989 1,049 28.73%
1990 1,035 -5.24%
1991 1,145 27.93%
1992 1,205 5.49%
1993 1,256 7.76%
1994 1,228 -0.31%
1995 1,401 34.85%
1996 1,653 20.58%
1997 2,044 30.96%
1998 2,408 26.47%
</TABLE>
<TABLE>
<CAPTION>
NON-STANDARDIZED AVERAGE ANNUAL TOTAL RETURNS
FOR THE PERIODS ENDED 12/31/1998**
- ------------------------------------------------------------
<S> <C>
1 Year 26.47%
5 Year 21.84%
10 Year 16.89%
Since Inception 14.21%
</TABLE>
<TABLE>
<CAPTION>
STANDARDIZED AVERAGE ANNUAL TOTAL RETURNS
FOR THE PERIODS ENDED 12/31/1998**
- ------------------------------------------------------------
<S> <C>
1 Year 20.47%
5 Year 21.47%
10 Year 16.89%
Since Inception 14.21%
</TABLE>
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
AVERAGE
CALENDAR MONTHLY
YEAR PAYMENT
<S> <C>
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987* 978
1988 890
1989 1,049
1990 1,035
1991 1,145
1992 1,205
1993 1,256
1994 1,228
1995 1,401
1996 1,653
1997 2,044
1998 2,408
</TABLE>
* Fund inception was 5/87. Therefore, the Average Monthly Payment represents
the average monthly payment from May 1987 to December 1987. The Annual
Sub-Account Return is based on the period from May 1987 to December 1987.
** Standardized Average Annual Total Returns differ from Non-Standardized
Average Annual Total Returns in that the former reflect a deduction for the
Contingent Deferred Sales Charge where the latter do not.
<PAGE>
42 HARTFORD LIFE AND ANNUITY INSURANCE COMPANY
- --------------------------------------------------------------------------------
INTERNATIONAL ADVISERS SUB-ACCOUNT
<TABLE>
<CAPTION>
AVERAGE MONTHLY PAYMENT FOR EACH YEAR OR PARTIAL YEAR SHOWN
$1,000 INITIAL PAYMENT: 5% AIR
- --------------------------------------------------------------------------------
AVERAGE ANNUAL
CALENDAR MONTHLY SUB-ACCOUNT
YEAR PAYMENT RETURN
-------- -------- --------------------
<S> <C> <C>
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995 * 1,037 11.45%
1996 1,099 10.41%
1997 1,143 4.20%
1998 1,180 11.94%
</TABLE>
<TABLE>
<CAPTION>
NON-STANDARDIZED AVERAGE ANNUAL TOTAL RETURNS
FOR THE PERIODS ENDED 12/31/1998**
- ------------------------------------------------------------
<S> <C>
1 Year 11.94%
5 Year --
10 Year --
Since Inception 10.70%
</TABLE>
<TABLE>
<CAPTION>
STANDARDIZED AVERAGE ANNUAL TOTAL RETURNS
FOR THE PERIODS ENDED 12/31/1998**
- ------------------------------------------------------------
<S> <C>
1 Year 5.94%
5 Year --
10 Year --
Since Inception 9.69%
</TABLE>
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
AVERAGE
CALENDAR MONTHLY
YEAR PAYMENT
<S> <C>
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995* 1,037
1996 1,099
1997 1,143
1998 1,180
</TABLE>
* Fund inception was 3/95. Therefore, the Average Monthly Payment represents
the average monthly payment from March 1995 to December 1995. The Annual
Sub-Account Return is based on the period from March 1995 to December 1995.
** Standardized Average Annual Total Returns differ from Non-Standardized
Average Annual Total Returns in that the former reflect a deduction for the
Contingent Deferred Sales Charge where the latter do not.
<PAGE>
HARTFORD LIFE AND ANNUITY INSURANCE COMPANY 43
- --------------------------------------------------------------------------------
INTERNATIONAL OPPORTUNITIES SUB-ACCOUNT
<TABLE>
<CAPTION>
AVERAGE MONTHLY PAYMENT FOR EACH YEAR OR PARTIAL YEAR SHOWN
$1,000 INITIAL PAYMENT: 5% AIR
- --------------------------------------------------------------------------------
AVERAGE ANNUAL
CALENDAR MONTHLY SUB-ACCOUNT
YEAR PAYMENT RETURN
-------- -------- --------------------
<S> <C> <C>
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990 * 900 -12.18%
1991 890 11.60%
1992 869 -5.62%
1993 911 32.07%
1994 999 -3.15%
1995 967 12.51%
1996 1,056 11.53%
1997 1,090 -0.91%
1998 1,086 11.72%
</TABLE>
<TABLE>
<CAPTION>
NON-STANDARDIZED AVERAGE ANNUAL TOTAL RETURNS
FOR THE PERIODS ENDED 12/31/1998**
- ------------------------------------------------------------
<S> <C>
1 Year 11.72%
5 Year 6.12%
10 Year --
Since Inception 6.00%
</TABLE>
<TABLE>
<CAPTION>
STANDARDIZED AVERAGE ANNUAL TOTAL RETURNS
FOR THE PERIODS ENDED 12/31/1998**
- ------------------------------------------------------------
<S> <C>
1 Year 5.72%
5 Year 5.36%
10 Year --
Since Inception 6.00%
</TABLE>
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
AVERAGE
CALENDAR MONTHLY
YEAR PAYMENT
<S> <C>
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990* 900
1991 890
1992 869
1993 911
1994 999
1995 967
1996 1,056
1997 1,090
1998 1,086
</TABLE>
* Fund inception was 7/90. Therefore, the Average Monthly Payment represents
the average monthly payment from July 1990 to December 1990. The Annual
Sub-Account Return is based on the period from July 1990 to December 1990.
** Standardized Average Annual Total Returns differ from Non-Standardized
Average Annual Total Returns in that the former reflect a deduction for the
Contingent Deferred Sales Charge where the latter do not.
<PAGE>
44 HARTFORD LIFE AND ANNUITY INSURANCE COMPANY
- --------------------------------------------------------------------------------
MID-CAP SUB-ACCOUNT
<TABLE>
<CAPTION>
AVERAGE MONTHLY PAYMENT FOR EACH YEAR OR PARTIAL YEAR SHOWN
$1,000 INITIAL PAYMENT: 5% AIR
- --------------------------------------------------------------------------------
AVERAGE ANNUAL
CALENDAR MONTHLY SUB-ACCOUNT
YEAR PAYMENT RETURN
-------- -------- --------------------
<S> <C> <C>
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997 * 1,026 9.68%
1998 1,143 25.00%
</TABLE>
<TABLE>
<CAPTION>
NON-STANDARDIZED AVERAGE ANNUAL TOTAL RETURNS
FOR THE PERIODS ENDED 12/31/1998**
- ------------------------------------------------------------
<S> <C>
1 Year 25.00%
5 Year --
10 Year --
Since Inception 24.85%
</TABLE>
<TABLE>
<CAPTION>
STANDARDIZED AVERAGE ANNUAL TOTAL RETURNS
FOR THE PERIODS ENDED 12/31/1998**
- ------------------------------------------------------------
<S> <C>
1 Year 19.00%
5 Year --
10 Year --
Since Inception 21.03%
</TABLE>
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
AVERAGE
CALENDAR MONTHLY
YEAR PAYMENT
<S> <C>
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997* 1,026
1998 1,143
</TABLE>
* Fund inception was 7/97. Therefore, the Average Monthly Payment represents
the average monthly payment from July 1997 to December 1997. The Annual
Sub-Account Return is based on the period from July 1997 to December 1997.
** Standardized Average Annual Total Returns differ from Non-Standardized
Average Annual Total Returns in that the former reflect a deduction for the
Contingent Deferred Sales Charge where the latter do not.
<PAGE>
HARTFORD LIFE AND ANNUITY INSURANCE COMPANY 45
- --------------------------------------------------------------------------------
MONEY MARKET SUB-ACCOUNT
<TABLE>
<CAPTION>
AVERAGE MONTHLY PAYMENT FOR EACH YEAR OR PARTIAL YEAR SHOWN
$1,000 INITIAL PAYMENT: 5% AIR
- --------------------------------------------------------------------------------
AVERAGE ANNUAL
CALENDAR MONTHLY SUB-ACCOUNT
YEAR PAYMENT RETURN
-------- -------- --------------------
<S> <C> <C>
1977
1978
1979
1980 * 1,009 5.09%
1981 1,074 14.29%
1982 1,162 12.39%
1983 1,212 8.01%
1984 1,254 9.35%
1985 1,296 7.19%
1986 1,313 5.45%
1987 1,311 5.17%
1988 1,319 6.06%
1989 1,347 7.77%
1990 1,375 6.76%
1991 1,386 4.72%
1992 1,364 2.35%
1993 1,324 1.66%
1994 1,286 2.67%
1995 1,272 4.45%
1996 1,261 3.86%
1997 1,248 4.02%
1998 1,237 3.96%
</TABLE>
<TABLE>
<CAPTION>
NON-STANDARDIZED AVERAGE ANNUAL TOTAL RETURNS
FOR THE PERIODS ENDED 12/31/1998**
- ------------------------------------------------------------
<S> <C>
1 Year 3.96%
5 Year 3.79%
10 Year 4.21%
Since Inception 6.19%
</TABLE>
<TABLE>
<CAPTION>
STANDARDIZED AVERAGE ANNUAL TOTAL RETURNS
FOR THE PERIODS ENDED 12/31/1998**
- ------------------------------------------------------------
<S> <C>
1 Year -2.04%
5 Year 3.09%
10 Year 4.21%
Since Inception 6.19%
</TABLE>
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
AVERAGE
CALENDAR MONTHLY
YEAR PAYMENT
<S> <C>
1977
1978
1979
1980* 1,009
1981 1,074
1982 1,162
1983 1,212
1984 1,254
1985 1,296
1986 1,313
1987 1,311
1988 1,319
1989 1,347
1990 1,375
1991 1,386
1992 1,364
1993 1,324
1994 1,286
1995 1,272
1996 1,261
1997 1,248
1998 1,237
</TABLE>
* Fund inception was 6/80. Therefore, the Average Monthly Payment represents
the average monthly payment from June 1980 to December 1980. The Annual
Sub-Account Return is based on the period from June 1980 to December 1980.
** Standardized Average Annual Total Returns differ from Non-Standardized
Average Annual Total Returns in that the former reflect a deduction for the
Contingent Deferred Sales Charge where the latter do not.
<PAGE>
46 HARTFORD LIFE AND ANNUITY INSURANCE COMPANY
- --------------------------------------------------------------------------------
MORTGAGE SECURITIES SUB-ACCOUNT
<TABLE>
<CAPTION>
AVERAGE MONTHLY PAYMENT FOR EACH YEAR OR PARTIAL YEAR SHOWN
$1,000 INITIAL PAYMENT: 5% AIR
- --------------------------------------------------------------------------------
AVERAGE ANNUAL
CALENDAR MONTHLY SUB-ACCOUNT
YEAR PAYMENT RETURN
-------- -------- --------------------
<S> <C> <C>
1977
1978
1979
1980
1981
1982
1983
1984 * 1,000
1985 1,064 19.13%
1986 1,162 9.75%
1987 1,151 1.36%
1988 1,170 7.03%
1989 1,205 11.74%
1990 1,239 8.35%
1991 1,324 13.31%
1992 1,365 3.35%
1993 1,372 4.99%
1994 1,297 -2.83%
1995 1,336 14.73%
1996 1,348 3.77%
1997 1,372 7.66%
1998 1,400 5.39%
</TABLE>
<TABLE>
<CAPTION>
NON-STANDARDIZED AVERAGE ANNUAL TOTAL RETURNS
FOR THE PERIODS ENDED 12/31/1998**
- ------------------------------------------------------------
<S> <C>
1 Year 5.39%
5 Year 5.59%
10 Year 6.93%
Since Inception 7.55%
</TABLE>
<TABLE>
<CAPTION>
STANDARDIZED AVERAGE ANNUAL TOTAL RETURNS
FOR THE PERIODS ENDED 12/31/1998**
- ------------------------------------------------------------
<S> <C>
1 Year -0.61%
5 Year 4.94%
10 Year 6.93%
Since Inception 7.55%
</TABLE>
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
AVERAGE
CALENDAR MONTHLY
YEAR PAYMENT
<S> <C>
1977
1978
1979
1980
1981
1982
1983
1984* 1,000
1985 1,064
1986 1,162
1987 1,151
1988 1,170
1989 1,205
1990 1,239
1991 1,324
1992 1,365
1993 1,372
1994 1,297
1995 1,336
1996 1,348
1997 1,372
1998 1,400
</TABLE>
* Fund inception was 12/84. Therefore, the Average Monthly Payment represents
the monthly payment for December 1984.
** Standardized Average Annual Total Returns differ from Non-Standardized
Average Annual Total Returns in that the former reflect a deduction for the
Contingent Deferred Sales Charge where the latter do not.
<PAGE>
HARTFORD LIFE AND ANNUITY INSURANCE COMPANY 47
- --------------------------------------------------------------------------------
SMALL COMPANY SUB-ACCOUNT
<TABLE>
<CAPTION>
AVERAGE MONTHLY PAYMENT FOR EACH YEAR OR PARTIAL YEAR SHOWN
$1,000 INITIAL PAYMENT: 5% AIR
- --------------------------------------------------------------------------------
AVERAGE ANNUAL
CALENDAR MONTHLY SUB-ACCOUNT
YEAR PAYMENT RETURN
-------- -------- --------------------
<S> <C> <C>
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996 * 1,025 4.26%
1997 1,092 16.91%
1998 1,129 10.23%
</TABLE>
<TABLE>
<CAPTION>
NON-STANDARDIZED AVERAGE ANNUAL TOTAL RETURNS
FOR THE PERIODS ENDED 12/31/1998**
- ------------------------------------------------------------
<S> <C>
1 Year 10.23%
5 Year --
10 Year --
Since Inception 14.06%
</TABLE>
<TABLE>
<CAPTION>
STANDARDIZED AVERAGE ANNUAL TOTAL RETURNS
FOR THE PERIODS ENDED 12/31/1998**
- ------------------------------------------------------------
<S> <C>
1 Year 4.23%
5 Year --
10 Year --
Since Inception 12.44%
</TABLE>
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
AVERAGE
CALENDAR MONTHLY
YEAR PAYMENT
<S> <C>
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996* 1,025
1997 1,092
1998 1,129
</TABLE>
* Fund inception was 8/96. Therefore, the Average Monthly Payment represents
the average monthly payment from August 1996 to December 1996. The Annual
Sub-Account Return is based on the period from August 1996 to December 1996.
** Standardized Average Annual Total Returns differ from Non-Standardized
Average Annual Total Returns in that the former reflect a deduction for the
Contingent Deferred Sales Charge where the latter do not.
<PAGE>
48 HARTFORD LIFE AND ANNUITY INSURANCE COMPANY
- --------------------------------------------------------------------------------
STOCK SUB-ACCOUNT
<TABLE>
<CAPTION>
AVERAGE MONTHLY PAYMENT FOR EACH YEAR OR PARTIAL YEAR SHOWN
$1,000 INITIAL PAYMENT: 5% AIR
- --------------------------------------------------------------------------------
AVERAGE ANNUAL
CALENDAR MONTHLY SUB-ACCOUNT
YEAR PAYMENT RETURN
-------- -------- --------------------
<S> <C> <C>
1977 * 999 1.72%
1978 992 3.55%
1979 1,044 21.10%
1980 1,228 29.61%
1981 1,349 -0.64%
1982 1,311 19.81%
1983 1,652 12.50%
1984 1,500 -0.70%
1985 1,718 29.85%
1986 2,052 10.93%
1987 2,305 4.09%
1988 2,172 17.51%
1989 2,536 24.49%
1990 2,450 -5.07%
1991 2,701 23.07%
1992 2,758 8.68%
1993 2,982 12.92%
1994 2,980 -3.11%
1995 3,306 32.43%
1996 3,937 22.83%
1997 4,893 29.75%
1998 5,892 31.82%
</TABLE>
<TABLE>
<CAPTION>
NON-STANDARDIZED AVERAGE ANNUAL TOTAL RETURNS
FOR THE PERIODS ENDED 12/31/1998**
- ------------------------------------------------------------
<S> <C>
1 Year 31.82%
5 Year 21.93%
10 Year 17.01%
Since Inception 14.70%
</TABLE>
<TABLE>
<CAPTION>
STANDARDIZED AVERAGE ANNUAL TOTAL RETURNS
FOR THE PERIODS ENDED 12/31/1998**
- ------------------------------------------------------------
<S> <C>
1 Year 25.82%
5 Year 21.57%
10 Year 17.01%
Since Inception 14.70%
</TABLE>
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
AVERAGE
CALENDAR MONTHLY
YEAR PAYMENT
<S> <C>
1977* 999
1978 992
1979 1,044
1980 1,228
1981 1,349
1982 1,311
1983 1,652
1984 1,500
1985 1,718
1986 2,052
1987 2,305
1988 2,172
1989 2,536
1990 2,450
1991 2,701
1992 2,758
1993 2,982
1994 2,980
1995 3,306
1996 3,937
1997 4,893
1998 5,892
</TABLE>
* Fund inception was 8/77. Therefore, the Average Monthly Payment represents
the average monthly payment from August 1977 to December 1977. The Annual
Sub-Account Return is based on the period from August 1977 to December 1977.
** Standardized Average Annual Total Returns differ from Non-Standardized
Average Annual Total Returns in that the former reflect a deduction for the
Contingent Deferred Sales Charge where the latter do not.
<PAGE>
HARTFORD LIFE AND ANNUITY INSURANCE COMPANY 49
- --------------------------------------------------------------------------------
BOND SUB-ACCOUNT
<TABLE>
<CAPTION>
AVERAGE MONTHLY PAYMENT FOR EACH YEAR OR PARTIAL YEAR SHOWN
$1,000 INITIAL PAYMENT: 5% AIR
- --------------------------------------------------------------------------------
AVERAGE ANNUAL
CALENDAR MONTHLY SUB-ACCOUNT
YEAR PAYMENT RETURN
-------- -------- --------------------
<S> <C> <C>
1977 * 998 1.00%
1978 979 1.34%
1979 959 1.63%
1980 929 4.91%
1981 932 9.12%
1982 1,045 26.16%
1983 1,132 1.48%
1984 1,121 11.78%
1985 1,262 19.11%
1986 1,396 10.78%
1987 1,360 -1.26%
1988 1,364 6.25%
1989 1,397 10.73%
1990 1,416 7.06%
1991 1,506 15.02%
1992 1,579 4.23%
1993 1,645 8.86%
1994 1,541 -5.14%
1995 1,585 17.01%
1996 1,596 2.24%
1997 1,637 9.97%
1998 1,708 6.80%
</TABLE>
<TABLE>
<CAPTION>
NON-STANDARDIZED AVERAGE ANNUAL TOTAL RETURNS
FOR THE PERIODS ENDED 12/31/1998**
- ------------------------------------------------------------
<S> <C>
1 Year 6.80%
5 Year 5.92%
10 Year 7.51%
Since Inception 7.70%
</TABLE>
<TABLE>
<CAPTION>
STANDARDIZED AVERAGE ANNUAL TOTAL RETURNS
FOR THE PERIODS ENDED 12/31/1998**
- ------------------------------------------------------------
<S> <C>
1 Year 0.80%
5 Year 5.28%
10 Year 7.51%
Since Inception 7.70%
</TABLE>
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
AVERAGE
CALENDAR MONTHLY
YEAR PAYMENT
<S> <C>
1977* 998
1978 979
1979 959
1980 929
1981 932
1982 1,045
1983 1,132
1984 1,121
1985 1,262
1986 1,396
1987 1,360
1988 1,364
1989 1,397
1990 1,416
1991 1,506
1992 1,579
1993 1,645
1994 1,541
1995 1,585
1996 1,596
1997 1,637
1998 1,708
</TABLE>
* Fund inception was 8/77. Therefore, the Average Monthly Payment represents
the average monthly payment from August 1977 to December 1977. The Annual
Sub-Account Return is based on the period from August 1977 to December 1977.
** Standardized Average Annual Total Returns differ from Non-Standardized
Average Annual Total Returns in that the former reflect a deduction for the
Contingent Deferred Sales Charge where the latter do not.
<PAGE>
50 HARTFORD LIFE AND ANNUITY INSURANCE COMPANY
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
TO
STATEMENT OF ADDITIONAL INFORMATION
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
DESCRIPTION OF HARTFORD LIFE AND ANNUITY INSURANCE COMPANY..............
INDEPENDENT PUBLIC ACCOUNTANTS..........................................
DISTRIBUTION OF CONTRACTS...............................................
CALCULATION OF YIELD AND RETURN.........................................
Yield of the Money Market Sub-Account...............................
Yield of the Bond, High Yield and Mortgage Securities
Sub-Accounts.......................................................
Calculation of Total Return.........................................
PERFORMANCE COMPARISONS.................................................
Yield and Total Return..............................................
VARIABLE ANNUITY PAYMENTS...............................................
Annuity Unit Value..................................................
Illustration of Calculation of Annuity Unit Value...................
Illustration of Variable Annuity Payments...........................
OTHER INFORMATION.......................................................
</TABLE>
<PAGE>
To obtain a Statement of Additional Information, please complete the form
below and mail to:
Hartford Life and Annuity Insurance Company
Attn: Individual Annuity Services
P.O. Box 5085
Hartford, CT 06102-5085
Please send a Statement of Additional Information for the Director Immediate
Variable Annuity to me at the following address:
- ----------------------------------------------------
Name
- ------------------------------------------------------------
Address
- ------------------------------------------------------------
City/State Zip
Code
<PAGE>
PART B
STATEMENT OF ADDITIONAL INFORMATION
Individual Single Premium Payment Immediate Variable Annuity Contract
Issued by
Hartford Life and Annuity Insurance Company
and
Hartford Life and Annuity Insurance Company Separate Account One
THIS STATEMENT OF ADDITIONAL INFORMATION, DATED MAY 3, 1999, IS NOT A
PROSPECTUS. THIS STATEMENT OF ADDITIONAL INFORMATION SHOULD BE READ IN
CONJUNCTION WITH THE PROSPECTUS DATED MAY 3, 1999 FOR HARTFORD LIFE AND ANNUITY
INSURANCE COMPANY ("HARTFORD") SINGLE PURCHASE PAYMENT IMMEDIATE VARIABLE
ANNUITY CONTRACT WHICH IS REFERRED TO HEREIN.
THE PROSPECTUS SETS FORTH INFORMATION THAT A PROSPECTIVE INVESTOR SHOULD KNOW
BEFORE PURCHASING A CONTRACT. FOR A FREE COPY OF THE PROSPECTUS, SEND A WRITTEN
REQUEST TO THE ADMINISTRATIVE OFFICE OF HARTFORD AT 200 HOPMEADOW STREET,
SIMSBURY, CONNECTICUT 06070, OR TELEPHONE 1-800-862-6668.
Director Immediate Variable Annuity (IHLA)
<PAGE>
-2-
TABLE OF CONTENTS
DESCRIPTION OF HARTFORD LIFE AND ANNUITY INSURANCE COMPANY . . . . . . . . . 3
INDEPENDENT PUBLIC ACCOUNTANTS . . . . . . . . . . . . . . . . . . . . . . . 3
DISTRIBUTION OF CONTRACTS. . . . . . . . . . . . . . . . . . . . . . . . . . 3
CALCULATION OF YIELD AND RETURN. . . . . . . . . . . . . . . . . . . . . . . 3
Yield of the Money Market Fund Sub-Account. . . . . . . . . . . . . . . 3
Yield of the Bond, High Yield, and Mortgage
Securities Sub-Accounts. . . . . . . . . . . . . . . . . . . . . . 4
Calculation of Total Return . . . . . . . . . . . . . . . . . . . . . . 5
PERFORMANCE COMPARISONS. . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Yield and Total Return. . . . . . . . . . . . . . . . . . . . . . . . . 7
VARIABLE ANNUITY PAYMENTS. . . . . . . . . . . . . . . . . . . . . . . . . . 8
Annuity Unit Value. . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Illustration of Calculation of Annuity Unit Value . . . . . . . . . . . 9
Illustration of Variable Annuity Payments . . . . . . . . . . . . . . . 10
OTHER INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
<PAGE>
-3-
DESCRIPTION OF HARTFORD LIFE AND ANNUITY INSURANCE
Hartford Life and Annuity Insurance Company is a stock life insurance company
engaged in the business of writing life insurance and annuities, both individual
and group, in all states of the United States, the District of Columbia and
Puerto Rico, except New York. On January 1, 1998, Hartford's name changed from
ITT Hartford Life and Annuity Insurance Company to Hartford Life and Annuity
Insurance Company. We were originally incorporated under the laws of Wisconsin
on January 9, 1956, 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
- --------------------------------------------------------------------------------
Duff & Phelps 12/21/98 AA+ Claims paying ability
- --------------------------------------------------------------------------------
</TABLE>
INDEPENDENT PUBLIC ACCOUNTANTS
The audited financial statements 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.
Reference is made to the report on the statutory financial statements of
Hartford Life and Annuity Insurance Company which states the statutory financial
statements are presented in accordance with statutory accounting practices
prescribed or permitted by the National Association of Insurance Commissioners
and the State of Connecticut Insurance Department, and are not presented in
accordance with generally accepted accounting principles. 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 continued basis.
HSD is an affiliate of Hartford. Both HSD and Hartford are ultimately
controlled by The Hartford Financial Services Group, Inc. The principal
business address of HSD is the same as Hartford.
The securities will be sold by salespersons of HSD, who represent Hartford as
insurance and Variable Annuity agents and who are registered representatives
or Broker-Dealers who have entered into distribution agreements with HSD.
HSD is registered with the Securities and Exchange Commission under the
Securities and Exchange Act of 1934 as a Broker-Dealer and is a member of the
National Association of Securities Dealers, Inc. ("NASD").
Hartford currently pays HSD underwriting commissions for its role as
principal underwriter of 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: $107,925,386; 1997: $134,304,585; and 1996: $118,242,027.
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
<PAGE>
-4-
"base period") will be computed by determining the "net change in value"
(calculated as set forth below) of a hypothetical account having a balance of
one accumulation unit of the Sub-Account at the beginning of the period,
subtracting a hypothetical charge reflecting deductions from Contract Owner
accounts, and dividing the difference by the value of the account at the
beginning of the base period to obtain the base period return, and then
multiplying the base period return by 365/7 with the resulting yield figure
carried to the nearest hundredth of one percent. Net changes in value of a
hypothetical account will include net investment income of the account (accrued
daily dividends as declared by the underlying funds, less daily expense charges
of the account) for the period, but will not include realized gains or losses or
unrealized appreciation or depreciation on the underlying fund shares.
The effective yield is calculated by compounding the base period return by
adding 1, raising the sum to a power equal to 365/7 and subtracting 1 from the
result, according to the following formula:
Effective Yield = [(Base Period Return + 1) to the power of 365/7] - 1
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.
MONEY MARKET SUB-ACCOUNT
The yield and effective yield for the seven-day period ending December 31, 1998
for the Money Market Sub-Account was as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
SUB-ACCOUNT YIELD EFFECTIVE YIELD
- --------------------------------------------------------------------------------
<S> <C> <C>
Money Market * 3.52% 3.59%
- --------------------------------------------------------------------------------
</TABLE>
*Yield and effective yield for the seven-day period ending December 31, 1998.
YIELDS OF THE BOND, HIGH YIELD AND MORTGAGE SECURITIES SUB-ACCOUNTS
As summarized in the Prospectus under the heading "Performance Related
Information," yields of these three 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. The Bond, High Yield and Mortgage
Securities Sub-Accounts' yields will vary from time-to-time depending upon
market conditions and, the
<PAGE>
-5-
composition of the underlying funds' portfolios. Yield should also be
considered relative to changes in the value of the Sub-Accounts' shares and to
the relative risks associated with the investment objectives and policies of the
Bond, High Yield and Mortgage Securities Sub-Accounts.
THE YIELD REFLECTS RECURRING CHARGES ON THE SEPARATE ACCOUNT LEVEL.
BOND, HIGH YIELD AND MORTGAGE SECURITIES SUB-ACCOUNTS
Yield calculations of the Sub-Accounts used for illustration purposes reflect
the interest earned by the Sub-Accounts, less applicable asset charges assessed
against a Contract Owner's account over the base period. Yield quotations based
on a 30-day period ended December 31, 1998 were computed by dividing the
dividends and interest earned during the period by the maximum offering price
per unit on the last day of the period, according to the following formula:
Example:
Current Yield Formula for the Sub-Account 2[((A-B)/(CD) + 1) to the power of 6
- 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.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
SUB-ACCOUNT YIELD
- --------------------------------------------------------------------------------
<S> <C>
- --------------------------------------------------------------------------------
High Yield ** 7.56%
- --------------------------------------------------------------------------------
Mortgage Securities ** 4.84%
- --------------------------------------------------------------------------------
</TABLE>
**Yield quotation based on a 30-day period ended December 31, 1998.
At any time in the future, yields and total return may be higher or lower than
past yields and there can be no assurance that any historical results will
continue.
CALCULATION OF TOTAL RETURN
As summarized in the Prospectus under the heading "Performance Related
Information," total return is a measure of the change in value of an investment
in a Sub-Account over the period covered. The formula for total return used
herein includes three steps: (1) calculating the value of the hypothetical
initial investment of $1,000 as
<PAGE>
-6-
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 (the contingent deferred sales
charge deducted under the "Since Inception" column below depends on the fund
inception date; 6% is deducted for 1 Year, 4% for 5 Year, and 0% for 10 Year
periods) 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 period ended December 31, 1998.
STANDARDIZED AVERAGE ANNUAL TOTAL RETURN FOR YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
SUB-ACCOUNT S/A 1 YEAR 5 YEAR 10 YEAR SINCE
INCEPTION INCEPTION
DATE
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Advisers 5/20/91 17.11% 15.80% N/A 14.00%
- --------------------------------------------------------------------------------
Bond 5/20/91 0.80% 5.27% N/A 7.08%
- --------------------------------------------------------------------------------
Capital Appreciation 5/20/91 8.04% 15.99% N/A 18.25%
- --------------------------------------------------------------------------------
Dividend & Growth 3/8/94 8.97% N/A N/A 20.24%
- --------------------------------------------------------------------------------
Global Leaders 9/30/98 N/A N/A N/A 25.47%
- --------------------------------------------------------------------------------
Growth and Income 5/29/98 N/A N/A N/A 12.18%
- --------------------------------------------------------------------------------
High Yield 9/30/98 N/A N/A N/A -2.51%
- --------------------------------------------------------------------------------
Index 5/20/91 20.47% 21.47% N/A 17.48%
- --------------------------------------------------------------------------------
International Advisers 3/1/95 5.94% N/A N/A 8.82%
- --------------------------------------------------------------------------------
International Opportunities 5/20/91 5.72% 5.48% N/A 7.75%
- --------------------------------------------------------------------------------
MidCap 7/30/97 19.00% N/A N/A 20.98%
- --------------------------------------------------------------------------------
Money Market 5/20/91 -2.04% 3.09% N/A 3.35%
- --------------------------------------------------------------------------------
Mortgage Securities 5/20/91 -0.61% 4.94% N/A 6.00%
- --------------------------------------------------------------------------------
Small Company 8/9/96 4.23% N/A N/A 12.44%
- --------------------------------------------------------------------------------
Stock 5/20/91 25.82% 21.57% N/A 17.92%
- --------------------------------------------------------------------------------
</TABLE>
In addition to the standardized total return, the Sub-Account may advertise a
non-standardized total return. This figure will usually be calculated for
one year, five years, and ten years or other periods. Non-standardized total
return is measured in the same manner as the standardized total return
described above, except that the contingent deferred sales charge 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 period ended December 31, 1998.
<PAGE>
-7-
NON-STANDARDIZED ANNUALIZED TOTAL RETURN THAT PRE-DATE THE INCEPTION DATE OF THE
SEPARATE ACCOUNT FOR YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
SUB-ACCOUNT FUND 1 YEAR 5 YEAR 10 YEAR SINCE
INCEPTION INCEPTION
DATE
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Advisers 3/31/83 23.11% 16.24% 13.66% N/A
- --------------------------------------------------------------------------------
Bond 8/31/77 6.80% 5.92% 7.51% N/A
- --------------------------------------------------------------------------------
Capital Appreciation 4/2/84 14.04% 16.43% 17.08% N/A
- --------------------------------------------------------------------------------
Dividend & Growth 3/8/94 14.97% N/A N/A 20.65%
- --------------------------------------------------------------------------------
Global Leaders 9/30/98 N/A N/A N/A 31.47%
- --------------------------------------------------------------------------------
Growth and Income 5/29/98 N/A N/A N/A 18.18%
- --------------------------------------------------------------------------------
High Yield 9/30/98 N/A N/A N/A 3.49%
- --------------------------------------------------------------------------------
Index 5/1/87 26.47% 21.84% 16.89% N/A
- --------------------------------------------------------------------------------
International Advisers 3/1/95 11.94% N/A N/A 10.68%
- --------------------------------------------------------------------------------
International Opportunities 7/2/90 11.72% 6.12% N/A 6.00%
- --------------------------------------------------------------------------------
MidCap 7/30/97 25.00% N/A N/A 24.85%
- --------------------------------------------------------------------------------
Money Market 6/30/80 3.96% 3.79% 4.21% N/A
- --------------------------------------------------------------------------------
Mortgage Securities 1/1/85 5.39% 5.59% 6.93% N/A
- --------------------------------------------------------------------------------
Small Company 8/9/96 10.23% N/A N/A 14.20%
- --------------------------------------------------------------------------------
Stock 8/31/77 31.82% 21.93% 17.01% N/A
- --------------------------------------------------------------------------------
</TABLE>
PERFORMANCE COMPARISONS
YIELD AND TOTAL RETURN
Each Sub-Account may from time-to-time include its total return in
advertisements or in information furnished to present or prospective
shareholders. Each 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
<PAGE>
-8-
included. The 500 companies represented include 400 industrial, 60
transportation and 40 financial services concerns. The S&P 500 represents about
80% of the market value of all issues traded on the New York Stock Exchange.
The NASDAQ-OTC Composite Price Index (The "NASDAQ Index") is a market
value-weighted and unmanaged index showing the changes in the aggregate market
value of approximately 3,500 stocks relative to the base measure of 100.00 on
February 5, 1971. The NASDAQ Index is composed entirely of common stocks of
companies traded over-the-counter and often through the National Association of
Securities Dealers Automated Quotations ("NASDAQ") system. Only those
over-the-counter stocks having only one market maker or traded on exchanges are
excluded.
The Morgan Stanley Capital International EAFE Index (the "EAFE Index") is an
unmanaged index, which includes over 1,000 companies representing the stock
markets of Europe, Australia, New Zealand, and the Far East. The EAFE Index is
weighted by market capitalization, and therefore, it has a heavy representation
in countries with large stock markets, such as Japan.
The Shearson Lehman Government Bond Index (the "SL Government Index") is a
measure of the market value of all public obligations of the U.S. Treasury; all
publicly issued debt of all agencies of the U.S. Government and all
quasi-federal corporations; and all corporate debt guaranteed by the U.S.
Government. Mortgage-backed securities, flower bonds and foreign targeted
issues are not included in the SL Government Index.
The Shearson Lehman Government/Corporate Bond Index (the "SL
Government/Corporate Index") is a measure of the market value of approximately
5,300 bonds with a face value currently in excess of $1.3 trillion. To be
included in the SL Government/Corporate Index, an issue must have amounts
outstanding in excess of $1 million, have at least one year to maturity and be
rated "Baa" or higher ("investment grade") by a nationally recognized rating
agency.
The Composite Index for Hartford Advisers Fund is comprised of the S&P 500
(55%), the Lehman Government/Corporate Bond Index (35%), both mentioned above,
and 90 Day U.S. Treasury Bills (10%).
VARIABLE ANNUITY PAYMENTS
ANNUITY UNIT VALUE
The value of an Annuity Unit is calculated at the same time that the value of an
Accumulation Unit is calculated and is based on the same values for Fund shares
and other assets and liabilities. (See "Annuity Payments" in the Prospectus.)
The Annuity
<PAGE>
-9-
Unit Value for each Sub-Account's first Valuation Period was set at $10. The
Annuity Unit Value of each Sub-Account for any subsequent Valuation Period is
equal to (a) multiplied by (b) divided by (c) where:
(a) is the Net Investment Factor for the Valuation Period for which the
Annuity Unit Value is being calculated;
(b) is the Annuity Unit Value for the preceding Valuation Period; and
(c) is a daily Assumed Investment Return factor (for the 3%, 5% or 6%
Assumed Investment Return) adjusted for the number of days in the
Valuation Period.
The Assumed Investment Return factor is equal to one plus the applicable
percentage. Therefore, for 3%, it is 1.03, for 4% it is 1.04 and for 6% it is
1.06. The annual factors can be translated into daily factor of 1.000080986,
1.00010746, and 1.000159654, respectively.
If a Contract Owner selects a 5% Assumed Investment Return rate and if the net
investment return of the Sub-Account for an Annuity Payment period is equal to
the pro-rated portion of the 5% Assumed Investment Return, the Variable Annuity
Payment attributable to that Sub-Account for that period will equal the Payment
for the prior period. To the extent that such net investment return exceeds an
annualized rate of return of 5% for a Payment period, the Payment for that
period will be greater than the Payment for the prior period and to the extent
that such return for a period falls short of an annualized rate of 5%, the
Payment for that period will be less than the Payment for the prior period.
The following illustrations show, by use of hypothetical examples, the method of
determining the Annuity Unit Value and the amount of several Variable Annuity
Payments based on one Sub-Account.
ILLUSTRATION OF CALCULATION OF ANNUITY UNIT VALUE
1. Annuity Unit Value for immediately preceding
Valuation Period 10.00000000
2. Net Investment Factor 1.00036164
3. Daily factor to compensate for Assumed Investment Return of 5% 1.00013368
4. Adjusted Net Investment Factor (2)/(3) 1.00028063
5. Annuity Unit Value for current Valuation Period (4)x(1) 10.00280630
<PAGE>
-10-
ILLUSTRATION OF VARIABLE ANNUITY PAYMENTS
(ASSUMING NO PREMIUM TAX IS APPLICABLE)
1. Number of Accumulation Units at Annuity Date 1,000.00
2. Accumulation Unit Value 12.55548000
3. Adjusted Contract Value (1)x(2) $12,555.48
4. First monthly Annuity Payment per $1,000 of adjusted
Contract Value $ 9.63
5. First monthly Annuity Payment (3)x(4)/1,000 $ 120.91
6. Annuity Unit Value 10.00280630
7. Number of Annuity Units (5)/(6) 12.08760785
8. Assume Annuity Unit value for second month equal to 10.04000000
9. Second Monthly Annuity Payment (7)X(8) $ 121.36
10. Assume Annuity Unit value for third month equal to 10.05000000
11. Third Monthly Annuity Payment (7)X(10) $ 121.48
OTHER INFORMATION
A registration statement has been filed with the Securities and Exchange
Commission ("SEC") under the Securities Act of 1933, as amended, with respect to
the Contracts discussed in this Statement of Additional Information. Not all
the information set forth in the registration statement, amendments and exhibits
thereto has been included in this Statement of Additional Information.
Statements contained in this Statement of Additional Information concerning the
content of the Contracts and other legal instruments are summaries. For a
complete statement of the terms of these documents, reference should be made to
the instruments filed with the SEC.
<PAGE>
HARTFORD LIFE AND ANNUITY INSURANCE COMPANY SA-1
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
- --------------------------------------------------------------------------------
TO HARTFORD LIFE AND ANNUITY INSURANCE COMPANY
SEPARATE ACCOUNT ONE AND TO THE
OWNERS OF UNITS OF INTEREST THEREIN:
We have audited the accompanying statements of assets and liabilities of
Hartford Life and Annuity Insurance Company Separate Account One (Bond Fund,
Stock Fund, Money Market Fund, Advisers Fund, Capital Appreciation Fund,
Mortgage Securities Fund, Index Fund, International Opportunities Fund, Dividend
and Growth Fund, International Advisers Fund, Small Company Fund, MidCap Fund,
Mentor Capital Growth Fund, Mentor Perpetual International Fund, Mentor Growth
Fund, Global Leaders Fund, High Yield Fund, and Growth and Income Fund)
(collectively, the Account) as of December 31, 1998, and the related statements
of operations and the statements of changes in net assets for the periods
presented. These financial statements are the responsibility of the Account's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the Account as of December 31,
1998, and the results of their operations and the changes in their net assets
for the periods presented in conformity with generally accepted accounting
principles.
Hartford, Connecticut
February 16, 1999 ARTHUR ANDERSEN LLP
<PAGE>
SA-2 HARTFORD LIFE AND ANNUITY INSURANCE COMPANY
- --------------------------------------------------------------------------------
SEPARATE ACCOUNT ONE
- --------------------------------------------------------------------------------
STATEMENTS OF ASSETS & LIABILITIES
YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
BOND FUND STOCK FUND
SUB-ACCOUNT SUB-ACCOUNT
------------ --------------
<S> <C> <C>
ASSETS:
Investments:
Hartford Bond HLS
Fund, Inc. - Class
IA
Shares 380,558,700
Cost $399,499,923
Market Value....... $411,256,468 --
Hartford Stock HLS
Fund, Inc. - Class
IA
Shares 513,943,883
Cost $2,170,908,704
Market Value....... -- $3,372,328,102
Hartford Money Market
HLS Fund, Inc. -
Class IA
Shares 345,742,205
Cost $345,742,205
Market Value....... -- --
Hartford Advisers HLS
Fund, Inc. - Class
IA
Shares 1,862,478,644
Cost $4,012,019,599
Market Value....... -- --
Hartford Capital
Appreciation HLS
Fund, Inc. - Class
IA
Shares 602,284,430
Cost $2,212,701,469
Market Value....... -- --
Hartford Mortgage
Securities HLS Fund,
Inc. - Class IA
Shares 100,460,881
Cost $109,029,070
Market Value....... -- --
Hartford Index HLS
Fund, Inc. - Class
IA
Shares 213,539,249
Cost $534,739,672
Market Value....... -- --
Hartford
International
Opportunities HLS
Fund, Inc. - Class
IA
Shares 486,127,383
Cost $617,788,895
Market Value....... -- --
Hartford Dividend and
Growth HLS Fund,
Inc. - Class IA
Shares 844,442,536
Cost $1,419,647,238
Market Value....... -- --
Hartford
International
Advisers HLS Fund,
Inc. - Class IA
Shares 174,208,203
Cost $199,416,162
Market Value....... -- --
Due from Hartford Life
and Annuity Insurance
Company............... 362,859 2,624,788
Receivable from fund
shares sold........... -- --
------------ --------------
Total Assets........... 411,619,327 3,374,952,890
------------ --------------
LIABILITIES:
Due to Hartford Life
and Annuity Insurance
Company............... -- --
Payable for fund shares
purchased............. 362,819 2,622,542
------------ --------------
Total Liabilities...... 362,819 2,622,542
------------ --------------
Net Assets (variable
annuity contract
liabilities).......... $411,256,508 $3,372,330,348
------------ --------------
------------ --------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
<PAGE>
HARTFORD LIFE AND ANNUITY 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 380,558,700
Cost $399,499,923
Market Value....... -- -- -- -- --
Hartford Stock HLS
Fund, Inc. - Class
IA
Shares 513,943,883
Cost $2,170,908,704
Market Value....... -- -- -- -- --
Hartford Money Market
HLS Fund, Inc. -
Class IA
Shares 345,742,205
Cost $345,742,205
Market Value....... $345,742,206 -- -- -- --
Hartford Advisers HLS
Fund, Inc. - Class
IA
Shares 1,862,478,644
Cost $4,012,019,599
Market Value....... -- $5,559,969,961 -- -- --
Hartford Capital
Appreciation HLS
Fund, Inc. - Class
IA
Shares 602,284,430
Cost $2,212,701,469
Market Value....... -- -- $2,866,320,390 -- --
Hartford Mortgage
Securities HLS Fund,
Inc. - Class IA
Shares 100,460,881
Cost $109,029,070
Market Value....... -- -- -- $108,955,151 --
Hartford Index HLS
Fund, Inc. - Class
IA
Shares 213,539,249
Cost $534,739,672
Market Value....... -- -- -- -- $ 762,431,637
Hartford
International
Opportunities HLS
Fund, Inc. - Class
IA
Shares 486,127,383
Cost $617,788,895
Market Value....... -- -- -- -- --
Hartford Dividend and
Growth HLS Fund,
Inc. - Class IA
Shares 844,442,536
Cost $1,419,647,238
Market Value....... -- -- -- -- --
Hartford
International
Advisers HLS Fund,
Inc. - Class IA
Shares 174,208,203
Cost $199,416,162
Market Value....... -- -- -- -- --
Due from Hartford Life
and Annuity Insurance
Company............... 421,944 1,806,477 69,123 88,820 252,179
Receivable from fund
shares sold........... 14,552 -- 133,219 29 --
------------ -------------- ------------------ ---------------- --------------
Total Assets........... 346,178,702 5,561,776,438 2,866,522,732 109,044,000 762,683,816
------------ -------------- ------------------ ---------------- --------------
LIABILITIES:
Due to Hartford Life
and Annuity Insurance
Company............... 14,580 -- -- 32 --
Payable for fund shares
purchased............. 424,367 1,803,197 30,681 89,714 247,739
------------ -------------- ------------------ ---------------- --------------
Total Liabilities...... 438,947 1,803,197 30,681 89,746 247,739
------------ -------------- ------------------ ---------------- --------------
Net Assets (variable
annuity contract
liabilities).......... $345,739,755 $5,559,973,241 $2,866,492,051 $108,954,254 $ 762,436,077
------------ -------------- ------------------ ---------------- --------------
------------ -------------- ------------------ ---------------- --------------
<CAPTION>
INTERNATIONAL DIVIDEND AND INTERNATIONAL
OPPORTUNITIES FUND GROWTH FUND ADVISERS FUND
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
------------------- ----------------- --------------
<S> <C> <C> <C>
ASSETS:
Investments:
Hartford Bond HLS
Fund, Inc. - Class
IA
Shares 380,558,700
Cost $399,499,923
Market Value....... -- -- --
Hartford Stock HLS
Fund, Inc. - Class
IA
Shares 513,943,883
Cost $2,170,908,704
Market Value....... -- -- --
Hartford Money Market
HLS Fund, Inc. -
Class IA
Shares 345,742,205
Cost $345,742,205
Market Value....... -- -- --
Hartford Advisers HLS
Fund, Inc. - Class
IA
Shares 1,862,478,644
Cost $4,012,019,599
Market Value....... -- -- --
Hartford Capital
Appreciation HLS
Fund, Inc. - Class
IA
Shares 602,284,430
Cost $2,212,701,469
Market Value....... -- -- --
Hartford Mortgage
Securities HLS Fund,
Inc. - Class IA
Shares 100,460,881
Cost $109,029,070
Market Value....... -- -- --
Hartford Index HLS
Fund, Inc. - Class
IA
Shares 213,539,249
Cost $534,739,672
Market Value....... -- -- --
Hartford
International
Opportunities HLS
Fund, Inc. - Class
IA
Shares 486,127,383
Cost $617,788,895
Market Value....... $658,633,088 -- --
Hartford Dividend and
Growth HLS Fund,
Inc. - Class IA
Shares 844,442,536
Cost $1,419,647,238
Market Value....... -- $ 1,824,406,277 --
Hartford
International
Advisers HLS Fund,
Inc. - Class IA
Shares 174,208,203
Cost $199,416,162
Market Value....... -- -- $201,156,297
Due from Hartford Life
and Annuity Insurance
Company............... 7,840 39,963 4,583
Receivable from fund
shares sold........... -- 263,090 35,519
------------------- ----------------- --------------
Total Assets........... 658,640,928 1,824,709,330 201,196,399
------------------- ----------------- --------------
LIABILITIES:
Due to Hartford Life
and Annuity Insurance
Company............... 123,419 262,396 35,607
Payable for fund shares
purchased............. 66,757 39,882 4,585
------------------- ----------------- --------------
Total Liabilities...... 190,176 302,278 40,192
------------------- ----------------- --------------
Net Assets (variable
annuity contract
liabilities).......... $658,450,752 $ 1,824,407,052 $201,156,207
------------------- ----------------- --------------
------------------- ----------------- --------------
</TABLE>
<PAGE>
SA-4 HARTFORD LIFE AND ANNUITY INSURANCE COMPANY
- --------------------------------------------------------------------------------
SEPARATE ACCOUNT ONE
- --------------------------------------------------------------------------------
STATEMENTS OF ASSETS & LIABILITIES -- (CONTINUED)
DECEMBER 31, 1998
<TABLE>
<CAPTION>
SMALL MIDCAP
COMPANY FUND FUND
SUB-ACCOUNT SUB-ACCOUNT
------------ -----------
<S> <C> <C>
ASSETS:
Investments:
Hartford Small
Company HLS Fund,
Inc. - Class IA
Shares 163,196,148
Cost $195,190,859
Market Value....... $215,600,879 --
Hartford MidCap HLS
Fund, Inc. - Class
IA
Shares 63,119,036
Cost $76,952,597
Market Value....... -- $90,844,451
Mentor VIP Capital
Growth Fund, Inc.
Shares 108,276
Cost $1,352,216
Market Value....... -- --
Mentor VIP Perpetual
International Fund,
Inc.
Shares 72,306
Cost $965,503
Market Value....... -- --
Mentor VIP Growth
Fund, Inc.
Shares 51,628
Cost $535,226
Market Value....... -- --
Hartford Global
Leader HLS Fund -
Class IA
Shares 933,527
Cost $1,147,333
Market Value....... -- --
Hartford High Yield
HLS Fund - Class IA
Shares 2,383,733
Cost $2,409,651
Market Value....... -- --
Hartford Growth and
Income HLS Fund -
Class IA
Shares 12,854,583
Cost $13,338,246
Market Value....... -- --
Due from Hartford Life
and Annuity Insurance
Company............... 82,389 158,156
Receivable from fund
shares sold........... -- 30
------------ -----------
Total Assets........... 215,683,268 91,002,637
------------ -----------
LIABILITIES:
Due to Hartford Life
and Annuity Insurance
Company............... -- 33
Payable for fund shares
purchased............. 81,459 157,877
------------ -----------
Total Liabilities...... 81,459 157,910
------------ -----------
Net Assets (variable
annuity contract
liabilities).......... $215,601,809 $90,844,727
------------ -----------
------------ -----------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
<PAGE>
HARTFORD LIFE AND ANNUITY INSURANCE COMPANY SA-5
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MENTOR VIP CAPITAL MENTOR VIP PERPETUAL MENTOR VIP GLOBAL HIGH GROWTH AND
GROWTH FUND INTERNATIONAL FUND GROWTH FUND LEADERS FUND YIELD FUND INCOME FUND
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
------------------- --------------------- ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
Investments:
Hartford Small
Company HLS Fund,
Inc. - Class IA
Shares 163,196,148
Cost $195,190,859
Market Value....... -- -- -- -- -- --
Hartford MidCap HLS
Fund, Inc. - Class
IA
Shares 63,119,036
Cost $76,952,597
Market Value....... -- -- -- -- -- --
Mentor VIP Capital
Growth Fund, Inc.
Shares 108,276
Cost $1,352,216
Market Value....... $1,470,384 -- -- -- -- --
Mentor VIP Perpetual
International Fund,
Inc.
Shares 72,306
Cost $965,503
Market Value....... -- $1,013,010 -- -- -- --
Mentor VIP Growth
Fund, Inc.
Shares 51,628
Cost $535,226
Market Value....... -- -- $ 591,659 -- -- --
Hartford Global
Leader HLS Fund -
Class IA
Shares 933,527
Cost $1,147,333
Market Value....... -- -- -- $1,199,752 -- --
Hartford High Yield
HLS Fund - Class IA
Shares 2,383,733
Cost $2,409,651
Market Value....... -- -- -- -- $2,423,652 --
Hartford Growth and
Income HLS Fund -
Class IA
Shares 12,854,583
Cost $13,338,246
Market Value....... -- -- -- -- -- $15,245,046
Due from Hartford Life
and Annuity Insurance
Company............... -- -- -- 3,970 17,616 213,335
Receivable from fund
shares sold........... 50 35 20 1 4 52
------------------- ----------- ------------ ------------- ------------ ------------
Total Assets........... 1,470,434 1,013,045 591,679 1,203,723 2,441,272 15,458,433
------------------- ----------- ------------ ------------- ------------ ------------
LIABILITIES:
Due to Hartford Life
and Annuity Insurance
Company............... 66 58 7 -- 3 57
Payable for fund shares
purchased............. -- -- -- 3,960 17,615 213,428
------------------- ----------- ------------ ------------- ------------ ------------
Total Liabilities...... 66 58 7 3,960 17,618 213,485
------------------- ----------- ------------ ------------- ------------ ------------
Net Assets (variable
annuity contract
liabilities).......... $1,470,368 $1,012,987 $ 591,672 $1,199,763 $2,423,654 $15,244,948
------------------- ----------- ------------ ------------- ------------ ------------
------------------- ----------- ------------ ------------- ------------ ------------
</TABLE>
<PAGE>
SA-6 HARTFORD LIFE AND ANNUITY INSURANCE COMPANY
- --------------------------------------------------------------------------------
SEPARATE ACCOUNT ONE
- --------------------------------------------------------------------------------
STATEMENTS OF ASSETS & LIABILITIES -- (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
UNITS
OWNED BY UNIT CONTRACT
PARTICIPANTS PRICE LIABILITY
------------- --------- ---------------
<S> <C> <C> <C>
DEFERRED ANNUITY CONTRACTS IN THE
ACCUMULATION PERIOD:
GROUP SUB-ACCOUNTS:
Bond Fund Sub-Account............ 180,119,797 $2.257591 $ 406,636,833
Bond Fund Sub-Account............ 3,237,265 1.030760 3,336,843
High Yield Sub-Account........... 2,254,839 1.034881 2,333,490
High Yield Sub-Account........... 87,179 1.034245 90,164
Stock Fund Sub-Account........... 553,087,499 6.065754 3,354,892,709
Stock Fund Sub-Account........... 7,571,146 1.036705 7,849,045
Money Market Fund Sub-Account.... 195,488,799 1.715714 335,402,871
Money Market Fund Sub-Account.... 9,217,359 1.016497 9,369,418
Advisers Fund Sub-Account........ 1,258,364,667 4.397886 5,534,144,353
Advisers Fund Sub-Account........ 15,480,493 1.035292 16,026,830
Capital Appreciation Fund
Sub-Account..................... 517,384,327 5.525767 2,858,945,241
Capital Appreciation Fund
Sub-Account..................... 3,000,204 0.984021 2,952,264
Mortgage Securities Fund
Sub-Account..................... 48,850,074 2.210954 108,005,267
Mortgage Securities Fund
Sub-Account..................... 695,958 1.022348 711,511
Growth and Income Sub-Account.... 11,822,488 1.181798 13,971,792
Growth and Income Sub-Account.... 1,167,734 1.090279 1,273,156
Index Fund Sub-Account........... 160,585,731 4.712432 756,749,336
Index Fund Sub-Account........... 3,777,102 1.044934 3,946,821
Global Leaders Fund
Sub-Account..................... 898,417 1.314731 1,181,177
Global Leaders Fund
Sub-Account..................... 14,146 1.313892 18,586
International Opportunities Fund
Sub-Account..................... 400,335,712 1.641190 657,026,967
International Opportunities Fund
Sub-Account..................... 657,015 0.924280 607,266
Dividend and Growth Fund
Sub-Account..................... 735,536,976 2.470981 1,817,497,892
Dividend and Growth Fund
Sub-Account..................... 4,239,504 1.008274 4,274,583
International Advisers Fund
Sub-Account..................... 135,919,042 1.476317 200,659,594
International Advisers Fund
Sub-Account..................... 373,140 0.971290 362,427
Small Company Fund Sub-Account... 156,179,000 1.374218 214,623,993
Small Company Fund Sub-Account... 672,638 0.975191 655,950
MidCap Fund Sub-Account.......... 65,617,196 1.371074 89,966,032
MidCap Fund Sub-Account.......... 732,350 1.016840 744,684
Mentor Capital Growth
Sub-Account..................... 1,367,467 1.075249 1,470,368
Mentor Perpetual International
Sub-Account..................... 913,254 1.109206 1,012,987
Mentor Growth Sub-Account........ 652,130 0.907292 591,672
---------------
SUB-TOTAL GROUP SUB-ACCOUNTS..... 16,407,332,122
---------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
<PAGE>
HARTFORD LIFE AND ANNUITY INSURANCE COMPANY SA-7
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
UNITS
OWNED BY UNIT CONTRACT
PARTICIPANTS PRICE LIABILITY
------------- --------- ---------------
<S> <C> <C> <C>
ANNUITY CONTRACTS IN THE ANNUITY
PERIOD:
GROUP SUB-ACCOUNTS:
Bond Fund Sub-Account............ 568,230 $2.257591 $ 1,282,832
Stock Fund Sub-Account........... 1,580,775 6.065754 9,588,594
Money Market Fund Sub-Account.... 563,885 1.715714 967,466
Advisers Fund Sub-Account........ 2,228,811 4.397886 9,802,058
Capital Appreciation Fund
Sub-Account..................... 831,477 5.525767 4,594,546
Mortgage Securities Fund
Sub-Account..................... 107,409 2.210954 237,476
Index Fund Sub-Account........... 369,219 4.712432 1,739,920
International Opportunities Fund
Sub-Account..................... 497,516 1.641190 816,519
Dividend and Growth Fund
Sub-Account..................... 1,066,207 2.470981 2,634,577
International Advisers Fund
Sub-Account..................... 90,892 1.476317 134,186
Small Company Fund Sub-Account... 234,218 1.374218 321,866
MidCap Fund Sub-Account.......... 97,742 1.371074 134,011
---------------
SUB-TOTAL GROUP SUB-ACCOUNTS..... 32,254,051
---------------
GRAND TOTAL........................ $16,439,586,173
---------------
---------------
</TABLE>
<PAGE>
SA-8 HARTFORD LIFE AND ANNUITY INSURANCE COMPANY
- --------------------------------------------------------------------------------
SEPARATE ACCOUNT ONE
- --------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
BOND FUND STOCK FUND
SUB-ACCOUNT SUB-ACCOUNT
----------- ------------
<S> <C> <C>
INVESTMENT INCOME:
Dividends.............. $19,422,738 $ 25,422,449
EXPENSES:
Mortality and expense
undertakings.......... (3,957,943) (33,114,279)
----------- ------------
Net investment income
(loss).............. 15,464,795 (7,691,830)
----------- ------------
CAPITAL GAINS INCOME..... -- 76,061,613
----------- ------------
NET REALIZED AND
UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Net realized gain
(loss) on security
transactions.......... (5,587) (1,418,674)
Net unrealized
appreciation
(depreciation) of
investments during the
period................ 5,072,560 663,245,884
----------- ------------
Net gain (loss) on
investments......... 5,066,973 661,827,210
----------- ------------
Net increase
(decrease) in net
assets resulting
from operations..... $20,531,768 $730,196,993
----------- ------------
----------- ------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
<PAGE>
HARTFORD LIFE AND ANNUITY INSURANCE COMPANY SA-9
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MONEY CAPITAL MORTGAGE
MARKET FUND ADVISERS FUND APPRECIATION FUND SECURITIES FUND INDEX FUND
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
----------- -------------- ------------------ ---------------- --------------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends.............. $12,949,636 $ 109,628,714 $ 15,232,567 $ 6,660,262 $ 6,171,446
EXPENSES:
Mortality and expense
undertakings.......... (3,174,374) (56,235,664) (31,598,370) (1,164,598) (7,331,927)
----------- -------------- ------------------ ---------------- --------------
Net investment income
(loss).............. 9,775,262 53,393,050 (16,365,803) 5,495,664 (1,160,481)
----------- -------------- ------------------ ---------------- --------------
CAPITAL GAINS INCOME..... -- 130,454,479 150,932,848 -- 11,566,682
----------- -------------- ------------------ ---------------- --------------
NET REALIZED AND
UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Net realized gain
(loss) on security
transactions.......... -- (287,760) (3,541,507) 1,531 (301,028)
Net unrealized
appreciation
(depreciation) of
investments during the
period................ -- 750,363,179 201,102,863 (691,300) 129,513,479
----------- -------------- ------------------ ---------------- --------------
Net gain (loss) on
investments......... -- 750,075,419 197,561,356 (689,769) 129,212,451
----------- -------------- ------------------ ---------------- --------------
Net increase
(decrease) in net
assets resulting
from operations..... $ 9,775,262 $ 933,922,948 $332,128,401 $ 4,805,895 $ 139,618,652
----------- -------------- ------------------ ---------------- --------------
----------- -------------- ------------------ ---------------- --------------
<CAPTION>
INTERNATIONAL DIVIDEND AND INTERNATIONAL
OPPORTUNITIES FUND GROWTH FUND ADVISERS FUND
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
------------------- ---------------- --------------
<S> <C> <C> <C>
INVESTMENT INCOME:
Dividends.............. $ 8,596,873 $ 28,727,201 $16,822,117
EXPENSES:
Mortality and expense
undertakings.......... (7,928,386) (18,910,940) (2,193,698)
------------------- ---------------- --------------
Net investment income
(loss).............. 668,487 9,816,261 14,628,419
------------------- ---------------- --------------
CAPITAL GAINS INCOME..... 39,050,857 44,842,140 4,004,303
------------------- ---------------- --------------
NET REALIZED AND
UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Net realized gain
(loss) on security
transactions.......... (1,485,356) (541,832) 13,013
Net unrealized
appreciation
(depreciation) of
investments during the
period................ 27,913,220 151,447,604 (335,247)
------------------- ---------------- --------------
Net gain (loss) on
investments......... 26,427,864 150,905,772 (322,234)
------------------- ---------------- --------------
Net increase
(decrease) in net
assets resulting
from operations..... $66,147,208 $ 205,564,173 $18,310,488
------------------- ---------------- --------------
------------------- ---------------- --------------
</TABLE>
<PAGE>
SA-10 HARTFORD LIFE AND ANNUITY INSURANCE COMPANY
- --------------------------------------------------------------------------------
SEPARATE ACCOUNT ONE
- --------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS -- (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
SMALL MIDCAP
COMPANY FUND FUND
SUB-ACCOUNT SUB-ACCOUNT
------------- ------------
<S> <C> <C>
INVESTMENT INCOME:
Dividends................ $ -- $ 574
EXPENSES:
Mortality and expense
undertakings.......... (2,126,815) (603,398)
------------- ------------
Net investment income
(loss).............. (2,126,815) (602,824)
------------- ------------
CAPITAL GAINS INCOME..... 2,433,792 --
------------- ------------
NET REALIZED AND
UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Net realized gain
(loss) on security
transactions.......... (74,920) (2,834)
Net unrealized
appreciation
(depreciation) of
investments during the
period................ 17,782,782 13,252,169
------------- ------------
Net gain (loss) on
investments......... 17,707,862 13,249,335
------------- ------------
Net increase
(decrease) in net
assets resulting
from operations..... $18,014,839 $ 12,646,511
------------- ------------
------------- ------------
</TABLE>
* From inception, June 1, 1998 to December 31, 1998.
** From inception, September 30, 1998 to December 31, 1998.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
<PAGE>
HARTFORD LIFE AND ANNUITY INSURANCE COMPANY SA-11
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MENTOR MENTOR PERPETUAL MENTOR GLOBAL HIGH GROWTH AND
CAPITAL GROWTH INTERNATIONAL GROWTH LEADERS FUND YIELD FUND INCOME FUND
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT** SUB-ACCOUNT** SUB-ACCOUNT*
--------------- ----------------- ------------ -------------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends................ $-- $-- $-- $ 1,405 $44,172 $ 56,708
EXPENSES:
Mortality and expense
undertakings.......... (3,951) (3,170) (2,316) (1,277) (4,493) (43,229)
--------------- ------- ------------ ------- ------- -------------
Net investment income
(loss).............. (3,951) (3,170) (2,316) 128 39,679 13,479
--------------- ------- ------------ ------- ------- -------------
CAPITAL GAINS INCOME..... -- -- -- 29,044 -- --
--------------- ------- ------------ ------- ------- -------------
NET REALIZED AND
UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Net realized gain
(loss) on security
transactions.......... 55 38 2 (3,023) (1,553) 140
Net unrealized
appreciation
(depreciation) of
investments during the
period................ 118,168 47,507 56,433 52,419 14,002 1,906,801
--------------- ------- ------------ ------- ------- -------------
Net gain (loss) on
investments......... 118,223 47,545 56,435 49,396 12,449 1,906,941
--------------- ------- ------------ ------- ------- -------------
Net increase
(decrease) in net
assets resulting
from operations..... $114,272 $44,375 $54,119 $78,568 $52,128 $1,920,420
--------------- ------- ------------ ------- ------- -------------
--------------- ------- ------------ ------- ------- -------------
</TABLE>
* From inception, June 1, 1998 to December 31, 1998.
** From inception, September 30, 1998 to December 31, 1998.
<PAGE>
SA-12 HARTFORD LIFE AND ANNUITY INSURANCE COMPANY
- --------------------------------------------------------------------------------
SEPARATE ACCOUNT ONE
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
BOND FUND STOCK FUND
SUB-ACCOUNT SUB-ACCOUNT
------------ --------------
<S> <C> <C>
OPERATIONS:
Net investment income
(loss)................ $ 15,464,795 $ (7,691,830)
Capital gains income... -- 76,061,613
Net realized gain
(loss) on security
transactions.......... (5,587) (1,418,674)
Net unrealized
appreciation
(depreciation) of
investments during the
period................ 5,072,560 663,245,884
------------ --------------
Net increase (decrease)
in net assets
resulting from
operations............ 20,531,768 730,196,993
------------ --------------
UNIT TRANSACTIONS:
Purchases.............. 58,804,116 385,880,357
Net transfers.......... 123,611,549 325,699,308
Surrenders for benefit
payments and fees..... (20,698,247) (105,089,407)
Net annuity
transactions.......... 632,000 6,055,572
------------ --------------
Net increase (decrease)
in net assets
resulting from unit
transactions.......... 162,349,418 612,545,830
------------ --------------
Net increase (decrease)
in net assets......... 182,881,186 1,342,742,823
NET ASSETS:
Beginning of period.... 228,375,322 2,029,587,525
------------ --------------
End of period.......... $411,256,508 $3,372,330,348
------------ --------------
------------ --------------
</TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
BOND FUND STOCK FUND
SUB-ACCOUNT SUB-ACCOUNT
------------ --------------
<S> <C> <C>
OPERATIONS:
Net investment income
(loss)................ $ 9,223,325 $ (2,373,240)
Capital gains income... -- 62,602,913
Net realized gain
(loss) on security
transactions.......... 9,814 84,100
Net unrealized
appreciation
(depreciation) of
investments during the
period................ 8,361,624 325,437,100
------------ --------------
Net increase (decrease)
in net assets
resulting from
operations............ 17,594,763 385,750,873
------------ --------------
UNIT TRANSACTIONS:
Purchases.............. 48,533,601 430,730,097
Net transfers.......... 24,454,452 137,640,435
Surrenders for benefit
payments and fees..... (9,332,737) (52,393,369)
Net annuity
transactions.......... 563,032 1,508,388
------------ --------------
Net increase (decrease)
in net assets
resulting from unit
transactions.......... 64,218,348 517,485,551
------------ --------------
Net increase in net
assets................ 81,813,111 903,236,424
NET ASSETS:
Beginning of period.... 146,562,211 1,126,351,101
------------ --------------
End of period.......... $228,375,322 $2,029,587,525
------------ --------------
------------ --------------
</TABLE>
* From inception, December 22, 1997 to December 31, 1997.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
<PAGE>
HARTFORD LIFE AND ANNUITY INSURANCE COMPANY SA-13
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MONEY CAPITAL MORTGAGE
MARKET FUND ADVISERS FUND APPRECIATION FUND SECURITIES FUND INDEX FUND
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
------------ -------------- ------------------ ---------------- --------------
<S> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment income
(loss)................ $ 9,775,262 $ 53,393,050 $ (16,365,803) $ 5,495,664 $ (1,160,481)
Capital gains income... -- 130,454,479 150,932,848 -- 11,566,682
Net realized gain
(loss) on security
transactions.......... -- (287,760) (3,541,507) 1,531 (301,028)
Net unrealized
appreciation
(depreciation) of
investments during the
period................ -- 750,363,179 201,102,863 (691,300) 129,513,479
------------ -------------- ------------------ ---------------- --------------
Net increase (decrease)
in net assets
resulting from
operations............ 9,775,262 933,922,948 332,128,401 4,805,895 139,618,652
------------ -------------- ------------------ ---------------- --------------
UNIT TRANSACTIONS:
Purchases.............. 75,815,780 600,914,213 285,756,586 9,674,424 107,850,968
Net transfers.......... 120,297,377 671,280,081 116,427,127 20,420,247 98,345,205
Surrenders for benefit
payments and fees..... (60,700,173) (226,423,137) (108,713,408) (6,506,845) (22,295,418)
Net annuity
transactions.......... 717,935 4,552,594 2,969,562 225,614 1,399,655
------------ -------------- ------------------ ---------------- --------------
Net increase (decrease)
in net assets
resulting from unit
transactions.......... 136,130,919 1,050,323,751 296,439,867 23,813,440 185,300,410
------------ -------------- ------------------ ---------------- --------------
Net increase (decrease)
in net assets......... 145,906,181 1,984,246,699 628,568,268 28,619,335 324,919,062
NET ASSETS:
Beginning of period.... 199,833,574 3,575,726,542 2,237,923,783 80,334,919 437,517,015
------------ -------------- ------------------ ---------------- --------------
End of period.......... $345,739,755 $5,559,973,241 $2,866,492,051 $108,954,254 $ 762,436,077
------------ -------------- ------------------ ---------------- --------------
------------ -------------- ------------------ ---------------- --------------
<CAPTION>
INTERNATIONAL DIVIDEND AND INTERNATIONAL
OPPORTUNITIES FUND GROWTH FUND ADVISERS FUND
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
------------------- ----------------- --------------
<S> <C> <C> <C>
OPERATIONS:
Net investment income
(loss)................ $ 668,487 $ 9,816,261 $ 14,628,419
Capital gains income... 39,050,857 44,842,140 4,004,303
Net realized gain
(loss) on security
transactions.......... (1,485,356) (541,832) 13,013
Net unrealized
appreciation
(depreciation) of
investments during the
period................ 27,913,220 151,447,604 (335,247)
------------------- ----------------- --------------
Net increase (decrease)
in net assets
resulting from
operations............ 66,147,208 205,564,173 18,310,488
------------------- ----------------- --------------
UNIT TRANSACTIONS:
Purchases.............. 39,589,829 264,852,722 23,124,347
Net transfers.......... (4,225,169) 249,782,849 22,048,417
Surrenders for benefit
payments and fees..... (26,163,417) (61,426,410) (7,181,403)
Net annuity
transactions.......... 434,251 2,178,448 67,952
------------------- ----------------- --------------
Net increase (decrease)
in net assets
resulting from unit
transactions.......... 9,635,494 455,387,609 38,059,313
------------------- ----------------- --------------
Net increase (decrease)
in net assets......... 75,782,702 660,951,782 56,369,801
NET ASSETS:
Beginning of period.... 582,668,050 1,163,455,270 144,786,406
------------------- ----------------- --------------
End of period.......... $658,450,752 $ 1,824,407,052 $201,156,207
------------------- ----------------- --------------
------------------- ----------------- --------------
</TABLE>
<TABLE>
<CAPTION>
MONEY CAPITAL MORTGAGE
MARKET FUND ADVISERS FUND APPRECIATION FUND SECURITIES FUND INDEX FUND
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
------------ -------------- ------------------ ---------------- --------------
<S> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment income
(loss)................ $ 7,922,137 $ 35,054,512 $ (12,623,739) $ 3,680,098 $ 645,552
Capital gains income... -- 107,409,178 112,339,947 -- 19,616,096
Net realized gain
(loss) on security
transactions.......... -- 1,305 (119,550) 58,290 185,916
Net unrealized
appreciation
(depreciation) of
investments during the
period................ -- 440,215,879 223,915,112 1,886,382 62,356,292
------------ -------------- ------------------ ---------------- --------------
Net increase (decrease)
in net assets
resulting from
operations............ 7,922,137 582,680,874 323,511,770 5,624,770 82,803,856
------------ -------------- ------------------ ---------------- --------------
UNIT TRANSACTIONS:
Purchases.............. 154,121,029 650,294,881 444,618,125 11,734,160 106,908,193
Net transfers.......... (105,053,239) 185,059,734 111,621,605 (5,624,261) 38,286,952
Surrenders for benefit
payments and fees..... (32,455,810) (124,493,708) (60,594,326) (6,044,100) (9,935,604)
Net annuity
transactions.......... 110,035 1,689,593 689,458 5,419 151,370
------------ -------------- ------------------ ---------------- --------------
Net increase (decrease)
in net assets
resulting from unit
transactions.......... 16,722,015 712,550,500 496,334,862 71,218 135,410,911
------------ -------------- ------------------ ---------------- --------------
Net increase in net
assets................ 24,644,152 1,295,231,374 819,846,632 5,695,988 218,214,767
NET ASSETS:
Beginning of period.... 175,189,422 2,280,495,168 1,418,077,151 74,638,931 219,302,248
------------ -------------- ------------------ ---------------- --------------
End of period.......... $199,833,574 $3,575,726,542 $2,237,923,783 $80,334,919 $ 437,517,015
------------ -------------- ------------------ ---------------- --------------
------------ -------------- ------------------ ---------------- --------------
<CAPTION>
INTERNATIONAL DIVIDEND AND INTERNATIONAL
OPPORTUNITIES FUND GROWTH FUND ADVISERS FUND
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
------------------- ----------------- --------------
<S> <C> <C> <C>
OPERATIONS:
Net investment income
(loss)................ $ (1,712,982) $ 5,721,921 $ 2,472,525
Capital gains income... 37,513,752 15,828,765 262,472
Net realized gain
(loss) on security
transactions.......... (68,174) (12,819) 3,758
Net unrealized
appreciation
(depreciation) of
investments during the
period................ (45,233,169) 182,031,024 383,378
------------------- ----------------- --------------
Net increase (decrease)
in net assets
resulting from
operations............ (9,500,573) 203,568,891 3,122,133
------------------- ----------------- --------------
UNIT TRANSACTIONS:
Purchases.............. 103,316,180 344,818,126 53,015,752
Net transfers.......... 21,889,359 142,586,883 20,439,056
Surrenders for benefit
payments and fees..... (18,041,766) (25,953,097) (3,671,030)
Net annuity
transactions.......... 39,532 343,961 63,436
------------------- ----------------- --------------
Net increase (decrease)
in net assets
resulting from unit
transactions.......... 107,203,305 461,795,873 69,847,214
------------------- ----------------- --------------
Net increase in net
assets................ 97,702,732 665,364,764 72,969,347
NET ASSETS:
Beginning of period.... 484,965,318 498,090,506 71,817,059
------------------- ----------------- --------------
End of period.......... $582,668,050 $ 1,163,455,270 $144,786,406
------------------- ----------------- --------------
------------------- ----------------- --------------
</TABLE>
* From inception, December 22, 1997 to December 31, 1997.
<PAGE>
SA-14 HARTFORD LIFE AND ANNUITY INSURANCE COMPANY
- --------------------------------------------------------------------------------
SEPARATE ACCOUNT ONE
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS -- (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
SMALL MIDCAP
COMPANY FUND FUND
SUB-ACCOUNT SUB-ACCOUNT
------------ -----------
<S> <C> <C>
OPERATIONS:
Net investment income
(loss)................ $(2,126,815 ) $ (602,824)
Capital gains income... 2,433,792 --
Net realized gain
(loss) on security
transactions.......... (74,920 ) (2,834)
Net unrealized
appreciation
(depreciation) of
investments during the
period................ 17,782,782 13,252,169
------------ -----------
Net increase (decrease)
in net assets
resulting from
operations............ 18,014,839 12,646,511
------------ -----------
UNIT TRANSACTIONS:
Purchases.............. 37,657,549 28,291,639
Net transfers.......... 31,192,792 36,483,561
Surrenders for benefit
payments and fees..... (6,343,764 ) (1,424,845)
Net annuity
transactions.......... 298,211 109,553
------------ -----------
Net increase (decrease)
in net assets
resulting from unit
transactions.......... 62,804,788 63,459,908
------------ -----------
Net increase (decrease)
in net assets......... 80,819,627 76,106,419
NET ASSETS:
Beginning of period.... 134,782,182 14,738,308
------------ -----------
End of period.......... $215,601,809 $90,844,727
------------ -----------
------------ -----------
</TABLE>
* From inception, June 1, 1998 to December 31, 1998.
** From inception, September 30, 1998 to December 31, 1998.
HARTFORD LIFE AND ANNUITY INSURANCE COMPANY
STATEMENTS OF CHANGES IN NET ASSETS -- (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
SMALL MIDCAP
COMPANY FUND FUND
SUB-ACCOUNT SUB-ACCOUNT*
------------ -------------
<S> <C> <C>
OPERATIONS:
Net investment income (loss).......... $ (841,931 ) $ (16,949)
Capital gains income.................. 6,247,370 --
Net realized gain (loss) on security
transactions......................... (1,756 ) 414
Net unrealized appreciation
(depreciation) of investments during
the period........................... 2,416,430 639,685
------------ -------------
Net increase (decrease) in net assets
resulting from operations............ 7,820,113 623,150
------------ -------------
UNIT TRANSACTIONS:
Purchases............................. 59,848,160 7,620,550
Net transfers......................... 42,807,593 6,536,068
Surrenders for benefit payments and
fees................................. (1,723,390 ) (41,460)
Net annuity transactions.............. 14,177 --
------------ -------------
Net increase (decrease) in net assets
resulting from unit transactions..... 100,946,540 14,115,158
------------ -------------
Net increase in net assets............ 108,766,653 14,738,308
NET ASSETS:
Beginning of period................... 26,015,529 --
------------ -------------
End of period......................... $134,782,182 $14,738,308
------------ -------------
------------ -------------
* From inception, December 22, 1997 to
December 31, 1997.
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
<PAGE>
HARTFORD LIFE AND ANNUITY INSURANCE COMPANY SA-15
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MENTOR MENTOR PERPETUAL MENTOR GLOBAL HIGH GROWTH AND
CAPITAL GROWTH INTERNATIONAL GROWTH LEADERS FUND YIELD FUND INCOME FUND
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT** SUB-ACCOUNT** SUB-ACCOUNT*
--------------- ----------------- ------------ -------------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment income
(loss)................ $ (3,951) $ (3,170) $ (2,316) $ 128 $ 39,679 $ 13,479
Capital gains income... -- -- -- 29,044 -- --
Net realized gain
(loss) on security
transactions.......... 55 38 2 (3,023) (1,553) 140
Net unrealized
appreciation
(depreciation) of
investments during the
period................ 118,168 47,507 56,433 52,419 14,002 1,906,801
--------------- ----------------- ------------ -------------- -------------- -------------
Net increase (decrease)
in net assets
resulting from
operations............ 114,272 44,375 54,119 78,568 52,128 1,920,420
--------------- ----------------- ------------ -------------- -------------- -------------
UNIT TRANSACTIONS:
Purchases.............. 92,146 38,705 39,810 463,522 815,158 5,482,553
Net transfers.......... 1,266,689 937,906 497,486 657,728 1,561,354 7,951,308
Surrenders for benefit
payments and fees..... (2,739) (7,999) 257 (55) (4,986) (109,333)
Net annuity
transactions.......... -- -- -- -- -- --
--------------- ----------------- ------------ -------------- -------------- -------------
Net increase (decrease)
in net assets
resulting from unit
transactions.......... 1,356,096 968,612 537,553 1,121,195 2,371,526 13,324,528
--------------- ----------------- ------------ -------------- -------------- -------------
Net increase (decrease)
in net assets......... 1,470,368 1,012,987 591,672 1,199,763 2,423,654 15,244,948
NET ASSETS:
Beginning of period.... -- -- -- -- -- --
--------------- ----------------- ------------ -------------- -------------- -------------
End of period.......... $1,470,368 $1,012,987 $591,672 $1,199,763 $2,423,654 $15,244,948
--------------- ----------------- ------------ -------------- -------------- -------------
--------------- ----------------- ------------ -------------- -------------- -------------
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
OPERATIONS:
Net investment income (loss)
Capital gains income
Net realized gain (loss) on security
transactions
Net unrealized appreciation
(depreciation) of investments during
the period
Net increase (decrease) in net assets
resulting from operations
UNIT TRANSACTIONS:
Purchases
Net transfers
Surrenders for benefit payments and
fees
Net annuity transactions
Net increase (decrease) in net assets
resulting from unit transactions
Net increase in net assets
NET ASSETS:
Beginning of period
End of period
* From inception, December 22, 1997 to
December 31, 1997.
</TABLE>
<PAGE>
SA-16 HARTFORD LIFE AND ANNUITY INSURANCE COMPANY
- --------------------------------------------------------------------------------
SEPARATE ACCOUNT ONE
- --------------------------------------------------------------------------------
HARTFORD LIFE AND ANNUITY INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
1. ORGANIZATION:
Separate Account One (the Account) is a separate investment account within
Hartford Life & Annuity Insurance Company (the Company) and is registered
with the Securities and Exchange Commission (SEC) as a unit investment trust
under the Investment Company Act of 1940, as amended. Both the Company and
the Account are subject to supervision and regulation by the Department of
Insurance of the State of Connecticut and the SEC. The Account invests
deposits by variable annuity contractholders of the Company in various
mutual funds (The Funds) as directed by the contractholders.
2. SIGNIFICANT ACCOUNTING POLICIES:
The following is a summary of significant accounting policies of the
Account, which are in accordance with generally accepted accounting
principles in the investment company industry:
a) SECURITY TRANSACTIONS--Security transactions are recorded on the trade
date (date the order to buy or sell is executed). Cost of investments
sold is determined on the basis of identified cost. Dividend and capital
gains income is accrued as of the ex-dividend date. Capital gains income
represents those dividends from the Funds which are characterized as
capital gains under tax regulations.
b) SECURITY VALUATION--The investments in shares of the Funds are valued at
the closing net asset value per share as determined by the appropriate
Fund as of December 31, 1998.
c) FEDERAL INCOME TAXES--The operations of the Account form a part of, and
are taxed with, the total operations of the Company, which is taxed as an
insurance company under the Internal Revenue Code. Under current law, no
federal income taxes are payable with respect to the operations of the
Account.
d) USE OF ESTIMATES--The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities as of the date of the financial statements and the reported
amounts of income and expenses during the period. Operating results in
the future could vary from the amounts derived from management's
estimates.
3. ADMINISTRATION OF THE ACCOUNT AND RELATED CHARGES:
Deduction and Charges -- Certain amounts are deducted from the Contracts on
a monthly basis, as described below:
a) MORTALITY AND EXPENSE RISK CHARGES--The Company will make deductions at a
maximum annual rate of 1.50% of the Contract's value for the mortality
and expense risks which the Company undertakes.
b) TAX EXPENSE CHARGE--If applicable, the Company will make deductions at a
maximum rate of 4.0% of the Contract's value to meet premium tax
requirements. An additional tax charge based on a percentage of the
Contract's value may be assessed to partial withdrawals or surrenders.
These expenses are included in surrenders for benefit payments and fees
in the accompanying statements of changes in net assets.
c) ANNUAL MAINTENANCE FEE--An annual maintenance fee in the amount of $30
may be deducted from the Contract's value each contract year. However,
this fee is not applicable to contracts with values of $50,000 or more,
as determined on the most recent contract anniversary. These expenses are
included in surrenders for benefit payments and fees in the accompanying
statements of changes in net assets.
______________________________________ 58 ______________________________________
<PAGE>
HARTFORD LIFE AND ANNUITY INSURANCE COMPANY F-1
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
Hartford Life and Annuity Insurance Company:
We have audited the accompanying statutory balance sheets of Hartford Life and
Annuity Insurance Company (a Connecticut Corporation and wholly owned subsidiary
of Hartford Life Insurance Company) (the Company) as of December 31, 1998 and
1997, and the related statutory statements of operations, changes in capital and
surplus, and cash flows for each of the three years in the period ended December
31, 1998. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these statutory
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.
The Company presents its financial statements in conformity with statutory
accounting practices as described in Note 1 of notes to statutory financial
statements. When statutory financial statements are presented for purposes other
than for filing with a regulatory agency, generally accepted auditing standards
require that an auditors' report on them state whether they are presented in
conformity with generally accepted accounting principles. The accounting
practices used by the Company vary from generally accepted accounting principles
as explained and quantified in Note 1.
In our opinion, because of the effects of the matter discussed in the preceding
paragraph, the statutory financial statements referred to above do not present
fairly, in conformity with generally accepted accounting principles, the
financial position of the Company as of December 31, 1998 and 1997, and the
results of its operations and its cash flows for each of the three years in the
period ended December 31, 1998.
However, in our opinion, the statutory financial statements referred to above
present fairly, in all material respects, the financial position of the Company
as of December 31, 1998 and 1997, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1998 in
conformity with statutory accounting practices as described in Note 1.
ARTHUR ANDERSEN LLP
Hartford, Connecticut
January 26, 1999
<PAGE>
F-2 HARTFORD LIFE AND ANNUITY INSURANCE COMPANY
- --------------------------------------------------------------------------------
BALANCE SHEETS
(STATUTORY BASIS)
($000)
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
-------------------------
1998 1997
----------- -----------
<S> <C> <C>
Assets
Bonds........................................... $ 1,453,792 $ 1,501,311
Common stocks................................... 40,650 64,408
Mortgage loans.................................. 59,548 85,103
Policy loans.................................... 47,212 36,533
Cash and short-term investments................. 469,955 309,432
Other invested assets........................... 2,188 20,942
----------- -----------
Total cash and invested assets................ 2,073,345 2,017,729
Investment income due and accrued............... 20,126 15,878
Premium balances receivable..................... 333 389
Receivables from affiliates..................... -- 1,269
Other assets.................................... 45,358 22,788
Separate account assets......................... 32,876,278 23,208,728
----------- -----------
Total Assets.................................. $35,015,440 $25,266,781
----------- -----------
----------- -----------
Liabilities
Aggregate reserves for future benefits.......... $ 579,140 $ 605,183
Policy and contract claims...................... 5,667 5,672
Liability for premium and other deposit funds... 2,011,672 1,795,149
Asset valuation reserve......................... 21,782 13,670
Payable to affiliates........................... 19,271 20,972
Other liabilities............................... (974,882) (754,393)
Separate account liabilities.................... 32,876,278 23,208,728
----------- -----------
Total liabilities............................. 34,538,928 24,894,981
----------- -----------
Capital and Surplus
Common stock.................................... 2,500 2,500
Gross paid-in and contributed surplus........... 226,043 226,043
Unassigned funds................................ 247,969 143,257
----------- -----------
Total capital and surplus..................... 476,512 371,800
----------- -----------
Total liabilities, capital and surplus............ $35,015,440 $25,266,781
----------- -----------
----------- -----------
</TABLE>
The accompanying notes are an integral part of
these statutory basis financial statements.
<PAGE>
HARTFORD LIFE AND ANNUITY INSURANCE COMPANY F-3
- --------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS
(STATUTORY BASIS)
($000)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
---------------------------------------
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Revenues
Premiums and annuity considerations............. $ 469,343 $ 296,645 $ 250,244
Annuity and other fund deposits................. 2,051,251 1,981,246 1,897,347
Net investment income........................... 129,982 102,285 98,441
Commissions and expense allowances on
reinsurance ceded.............................. 444,241 396,921 370,637
Reserve adjustment on reinsurance ceded......... 3,185,590 3,672,076 3,864,395
Other revenues.................................. 458,190 288,632 161,906
----------- ----------- -----------
Total revenues................................ 6,738,597 6,737,805 6,642,970
----------- ----------- -----------
Benefits and expenses
Death and annuity benefits...................... 43,390 66,176 60,194
Disability and other benefit payments........... 6,114 7,316 6,555
Surrenders...................................... 739,663 454,417 270,165
Commissions and other expenses.................. 666,515 564,077 491,637
Increase (Decrease) in aggregate reserves for
future benefits................................ (26,043) 33,213 27,351
Increase in liability for premium and other
deposit funds.................................. 216,523 640,006 207,156
Net transfers to separate accounts.............. 4,956,007 4,914,980 5,492,964
----------- ----------- -----------
Total benefits and expenses................... 6,602,169 6,680,185 6,556,022
----------- ----------- -----------
Net gain from operations
Before federal income tax (benefit) expense..... 136,428 57,620 86,948
Federal income tax (benefit) expense............ 35,887 (14,878) 19,360
----------- ----------- -----------
Net gain from operations.......................... 100,541 72,498 67,588
Net realized capital gains, after tax........... 2,085 1,544 407
----------- ----------- -----------
Net income........................................ $ 102,626 $ 74,042 $ 67,995
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of
these statutory basis financial statements.
<PAGE>
F-4 HARTFORD LIFE AND ANNUITY INSURANCE COMPANY
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN CAPITAL AND SURPLUS
(STATUTORY BASIS)
($000)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
---------------------------------------
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Common stock,
Beginning and end of year....................... $ 2,500 $ 2,500 $ 2,500
----------- ----------- -----------
Gross paid-in and contributed surplus,
Beginning and end of year....................... $ 226,043 $ 226,043 $ 226,043
----------- ----------- -----------
Unassigned funds
Balance, beginning of year...................... $ 143,257 $ 74,570 $ 9,791
Net income...................................... 102,626 74,042 67,995
Change in net unrealized capital gains (losses)
on common stocks and other invested assets..... 1,688 2,186 (5,171)
Change in asset valuation reserve............... (8,112) (6,228) 568
Change in non-admitted assets................... (1,277) (1,313) 1,387
Credit on reinsurance ceded..................... 9,787 -- --
----------- ----------- -----------
Balance, end of year............................ $ 247,969 $ 143,257 $ 74,570
----------- ----------- -----------
Capital and surplus,
End of year..................................... $ 476,512 $ 371,800 $ 303,113
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of
these statutory basis financial statements.
<PAGE>
HARTFORD LIFE AND ANNUITY INSURANCE COMPANY F-5
- --------------------------------------------------------------------------------
STATEMENTS OF CASH FLOWS
(STATUTORY BASIS)
($000)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
---------------------------------------
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Operations
Premiums and annuity considerations............. $ 2,520,655 $ 2,277,874 $ 2,147,627
Investment income............................... 127,425 101,991 106,178
Other income.................................... 4,092,964 4,381,718 4,396,892
----------- ----------- -----------
Total income.................................. 6,741,044 6,761,583 6,650,697
----------- ----------- -----------
Benefits paid................................... 790,051 529,733 338,998
Federal income taxes (received) paid on
operations..................................... 25,780 (14,499) 28,857
Other expenses.................................. 5,859,063 5,754,725 6,254,139
----------- ----------- -----------
Total benefits and expenses................... 6,674,894 6,269,959 6,621,994
----------- ----------- -----------
Net cash from operations...................... 66,150 491,624 28,703
----------- ----------- -----------
Proceeds from investments
Bonds........................................... 633,926 614,413 871,019
Common stocks................................... 34,010 11,481 72,100
Mortgage loans.................................. 85,275 -- --
Other........................................... 127 152 10
----------- ----------- -----------
Net investment proceeds....................... 753,338 626,046 943,129
----------- ----------- -----------
Taxes paid on capital gains..................... -- -- 936
Other cash provided............................. 1,269 -- 41,998
----------- ----------- -----------
Total proceeds................................ 820,757 1,117,670 1,012,894
----------- ----------- -----------
Cost of investments acquired
Bonds........................................... 586,913 848,267 914,523
Common stocks................................... 7,012 28,302 82,495
Mortgage loans.................................. 59,702 85,103 --
Other........................................... 1,168 18,548 130
----------- ----------- -----------
Total investments acquired.................... 654,795 980,220 997,148
----------- ----------- -----------
Other cash applied
Other........................................... 5,439 4,848 12,220
----------- ----------- -----------
Total other cash applied...................... 5,439 4,848 12,220
----------- ----------- -----------
Total applications............................ 660,234 985,068 1,009,368
----------- ----------- -----------
Net change in cash and short-term investments..... 160,523 132,602 3,526
Cash and short-term investments, beginning of
year............................................. 309,432 176,830 173,304
----------- ----------- -----------
Cash and short-term investments, end of year...... $ 469,955 $ 309,432 $ 176,830
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of
these statutory basis financial statements.
<PAGE>
F-6 HARTFORD LIFE AND ANNUITY INSURANCE COMPANY
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
(STATUTORY BASIS)
DECEMBER 31, 1998
(AMOUNTS IN THOUSANDS UNLESS OTHERWISE STATED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
ORGANIZATION
Hartford Life and Annuity Insurance Company ("ILA" or "the Company"),
formerly known as ITT Hartford Life and Annuity Insurance Company, is a wholly
owned subsidiary of Hartford Life Insurance Company ("HLIC"), which is an
indirect subsidiary of Hartford Life, Inc. ("HLI"), which is majority owned by
The Hartford Financial Services Group, Inc. ("The Hartford"), formerly a wholly
owned subsidiary of ITT Corporation ("ITT"). On February 10, 1997, HLI filed a
registration statement, as amended, with the Securities and Exchange Commission
relating to the initial public offering of HLI Class A Common Stock (the
"Offering"). Pursuant to the Offering on May 22, 1997, HLI sold to the public 26
million shares, representing 18.6% of the equity ownership of HLI. On December
19, 1995, ITT Corporation distributed all the outstanding shares of The Hartford
to ITT shareholders of record in an action known herein as the "Distribution".
As a result of the Distribution, The Hartford became an independent, publicly
traded company. During 1996, ILA re-domesticated from the State of Wisconsin to
the State of Connecticut.
ILA offers a complete line of ordinary and universal life insurance,
individual annuities and certain supplemental accident and health benefit
coverages.
BASIS OF PRESENTATION
The accompanying ILA statutory basis financial statements were prepared in
conformity with statutory accounting practices prescribed or permitted by the
National Association of Insurance Commissioners ("NAIC"), the State of
Connecticut Department of Insurance and the State of Wisconsin for the 1996
period, as applicable. Certain prior year amounts and balances have been
reclassified to conform with current year presentation.
Current prescribed statutory accounting practices include accounting
publications of the National Association of Insurance Commissioners ("NAIC"), as
well as state laws, regulations and general administrative rules. Permitted
statutory accounting practices encompass accounting practices approved by State
Insurance Departments. The Company does not follow any permitted statutory
accounting practices that have a material effect on statutory surplus, statutory
net income or risk-based capital.
Final approval of the NAIC's proposed "Comprehensive Guide" on statutory
accounting principles was distributed in 1998. The requirements are effective
January 1, 2001, and are not expected to have a material impact on statutory
surplus of the Company.
The preparation of financial statements in conformity with statutory
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 reported period. Actual
results could differ from those estimates. The most significant estimates
include those used in determining the liability for aggregate reserves for
future benefits and the liability for premium and other deposit funds. Although
some variability is inherent in these estimates, management believes the amounts
provided are adequate.
Statutory accounting practices and generally accepted accounting principles
("GAAP") differ in certain significant respects. These differences principally
involve:
(1) treatment of policy acquisition costs (commissions, underwriting and selling
expenses, premium taxes, etc.) which are charged to expense when incurred
for statutory purposes rather than on a pro-rata basis over the expected
life of the policy for GAAP purposes;
(2) recognition of premium revenues, which for statutory purposes are generally
recorded as collected or when due during the premium paying period of the
contract and which for GAAP purposes, for universal life policies and
investment products, generally, are only recorded for policy charges for the
cost of insurance, policy administration and surrender charges assessed to
policy account balances. Also, for GAAP purposes, premiums for traditional
life insurance policies are recognized as revenues when they are due from
policyholders and the retrospective deposit method is used in accounting for
universal life and other types of contracts where the payment pattern is
irregular or surrender charges are a significant source of profit. The
prospective deposit method is used for GAAP purposes where investment
margins are the primary source of profit;
(3) development of liabilities for future policy benefits, which for statutory
purposes predominantly use interest rate and mortality assumptions
prescribed by the NAIC which may vary considerably from interest and
mortality assumptions used for GAAP financial reporting;
<PAGE>
HARTFORD LIFE AND ANNUITY INSURANCE COMPANY F-7
- --------------------------------------------------------------------------------
(4) providing for income taxes based on current taxable income (tax return) only
for statutory purposes, rather than establishing additional assets or
liabilities for deferred Federal income taxes to recognize the tax effect
related to reporting revenues and expenses in different periods for
financial reporting and tax return purposes;
(5) excluding certain GAAP assets designated as non-admitted assets (e.g.,
negative Interest Maintenance Reserve, past due agents' balances and
furniture and equipment) from the balance sheet for statutory purposes by
directly charging surplus;
(6) establishing accruals for post-retirement and post-employment health care
benefits currently, or using a twenty year phase-in approach, whereas GAAP
liabilities are recorded upon adoption of the applicable standard;
(7) establishing a formula reserve for realized and unrealized losses due to
default and equity risk associated with certain invested assets (Asset
Valuation Reserve); as well as the deferral and amortization of realized
gains and losses, motivated by changes in interest rates during the period
the asset is held, into income over the remaining life to maturity of the
asset sold (Interest Maintenance Reserve); whereas on a GAAP basis, no such
formula reserve is required and realized gains and losses are recognized in
the period the asset is sold;
(8) the reporting of reserves and benefits net of reinsurance ceded, where risk
transfer has taken place, whereas on a GAAP basis, reserves are reported
gross of reinsurance with reserve credits presented as recoverable assets;
as well as, the accounting for retroactive reinsurance which is immediately
charged to surplus for statutory accounting purposes whereas GAAP precludes
immediate gain recognition unless the ceding enterprise's liability to its
policyholders is extinguished; as well as reinsurance ceded that fails to
meet GAAP risk transfer guidelines would result in deposit accounting for
GAAP where as for statutory, reserves ceded and assumed would be reflected
in the statutory basis statements of operations;
(9) the reporting of fixed maturities at amortized cost, whereas GAAP requires
that fixed maturities be classified as "held-to-maturity",
"available-for-sale" or "trading", based on the Company's intentions with
respect to the ultimate disposition of the security and its ability to
affect those intentions. The Company's bonds were classified on a GAAP basis
as "available-for-sale" and accordingly, those investments and common stocks
were reflected at fair value with the corresponding impact included as a
component of Stockholder's Equity designated as "Net unrealized capital
gains (losses) on securities net of tax". For statutory reporting purposes,
Change in Net Unrealized Capital Gains (Losses) on Common Stocks and Other
Invested Assets includes the change in unrealized gains (losses) on common
stock reported at fair value; and
(10) separate account liabilities are valued on the Commissioner's Annuity
Reserve Valuation Method ("CARVM"), with the surplus generated recorded as a
liability to the general account (and a contra liability on the balance
sheet of the general account), whereas GAAP liabilities are valued at
account value.
As of and for the years ended December 31, the significant differences
between Statutory and GAAP basis net income and capital and surplus for the
Company are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
GAAP Net Income.................... $ 74,525 $ 58,050 $ 41,202
Amortization and deferral of policy
acquisition costs, net............ (331,882) (345,657) (341,571)
Change in unearned revenue
reserve........................... 22,131 4,641 55,504
Deferred taxes..................... 2,476 47,092 2,090
Separate accounts.................. 259,287 282,818 306,978
Asset impairments and
write-downs....................... 17,250 -- --
Benefit reserve adjustment......... 32,759 24,666 (1,013)
Deposit accounting for Lyndon
reinsurance (Note 3).............. 24,627 -- --
Other, net......................... 1,453 2,432 4,805
------------ ------------ ------------
Statutory Net Income............... $ 102,626 $ 74,042 $ 67,995
------------ ------------ ------------
------------ ------------ ------------
GAAP Capital and Surplus........... $ 648,097 $ 570,469 $ 503,887
Deferred policy acquisition
costs............................. (1,615,653) (1,283,771) (938,114)
Unearned revenue reserve........... 156,920 134,789 130,148
Deferred taxes..................... 68,936 64,522 12,823
Separate accounts.................. 1,183,642 924,355 640,101
Asset impairments and
write-downs....................... 17,250 -- --
Unrealized gains on bonds.......... (26,119) (21,451) (7,978)
Benefit reserve adjustment......... 65,029 16,378 7,035
Asset valuation reserve............ (21,782) (13,670) (7,442)
Adjustment relating to Lyndon
contribution (Note 3)............. -- (23,671) (36,126)
Other, net......................... 192 3,850 (1,221)
------------ ------------ ------------
Statutory Capital and Surplus...... $ 476,512 $ 371,800 $ 303,113
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
As more fully described in Note 3, Lyndon Insurance Company (Lyndon) was
contributed to the Company on June 30, 1995. The GAAP net assets contributed
exceeded the statutory basis net assets by $41,277 as of December 31, 1995,
relating primarily to statutory reserves for future
<PAGE>
F-8 HARTFORD LIFE AND ANNUITY INSURANCE COMPANY
- --------------------------------------------------------------------------------
benefits, GAAP deposit accounting receivables and deferred tax liabilities. In
1998, the majority of the former Lyndon's assumed business was recaptured by the
unaffiliated direct writer.
AGGREGATE RESERVES FOR FUTURE BENEFITS AND LIABILITY FOR PREMIUM AND OTHER
DEPOSIT FUNDS
Aggregate reserves for payment of future life, health and annuity benefits
were computed in accordance with actuarial standards. Reserves for life
insurance policies are generally based on the 1958 and 1980 Commissioner's
Standard Ordinary Mortality Tables and various valuation rates ranging from 2.5%
to 6%. Accumulation and on-benefit annuity reserves are based principally on
individual annuity tables at various rates ranging from 2.5% to 8.75% and using
CARVM. Accident and health reserves are established using a two year preliminary
term method and morbidity tables based on Company experience.
ILA has established separate accounts to segregate the assets and
liabilities of certain annuity contracts that must be segregated from the
Company's general assets under the terms of the contracts. The assets consist
primarily of marketable securities reported at market value. Premiums, benefits
and expenses of these contracts are reported in the statutory basis statements
of operations.
INVESTMENTS
Investments in bonds are carried at amortized cost. Bonds that are deemed
ineligible to be held at amortized cost by the NAIC Securities Valuation Office
("SVO") are carried at the appropriate SVO published value. When a permanent
reduction in the value of publicly traded securities occurs, the decrease is
reported as a realized loss and the carrying value is adjusted accordingly.
Short-term investments consist of money market funds and are stated at cost,
which approximates fair value. Common stocks are carried at fair value with the
current year change in the difference from cost reflected in surplus. Other
invested assets are generally recorded at fair value.
The Company uses a variety of derivative financial instruments as part of an
overall risk management strategy. These instruments, including interest rate and
foreign currency swaps, caps, and floors 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 financial instruments for trading purposes. Derivatives must be
designated at inception as a hedge measured for effectiveness both at inception
and on an ongoing basis. The 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.
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 net investment income. Should the swap be terminated the gains or losses are
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 statutory basis statements of operations while
the change in market value is recognized as an unrealized gain or loss. Foreign
currency swaps are similar to interest rate swaps except there is an initial
exchange of principal in two currencies and an agreement to re-exchange the
currencies at a future date, at an agreed upon exchange rate.
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.
Derivatives used to create a synthetic asset must meet synthetic accounting
criteria, including designation at inception and consistency of terms between
the synthetic and the instrument being replicated. Consistent with industry
practice, synthetic instruments are accounted for like the financial instrument
they are intended to replicate. Derivatives which fail to meet risk management
criteria subsequent to acquisition, are accounted for at fair market value with
the impact reflected in the statutory basis statements of operations.
Open forward commitment contracts are marked to market through surplus. Such
contracts are accounted for at settlement by recording the purchase of specified
securities at the previously committed price. Gains or losses resulting from
termination of the forward commitment contracts before the delivery of the
securities are recognized immediately in the statutory basis statements of
operations as a component of Net Realized Capital Gains, after tax.
The Asset Valuation Reserve ("AVR") is designed to provide a standardized
reserving process for realized and unrealized losses due to default and equity
risks associated with invested assets. The reserve increased $8,112 and $6,228
in 1998 and 1997, respectively and decreased $(568) in 1996. Additionally, the
Interest Maintenance Reserve ("IMR") captures net realized capital gains and
losses, net
<PAGE>
HARTFORD LIFE AND ANNUITY INSURANCE COMPANY F-9
- --------------------------------------------------------------------------------
of applicable income taxes, resulting from changes in interest rates and
amortizes these gains or losses into income over the life of the mortgage loan
or bond sold. The IMR balance as of December 31, 1998 and December 31, 1997 was
$452 and $(193), respectively and is reflected in Other Liabilities and as a
component of non-admitted assets in Unassigned Funds for each of the years then
ended. For the years ended December 31, 1998, 1997 and 1996, amortization of IMR
is included in Other Revenues and was $(207), $(85) and $(392), respectively.
Realized capital gains and losses, net of taxes not included in IMR are reported
in the statutory basis statements of operations. Realized investment gains and
losses are determined on a specific identification basis.
OTHER LIABILITIES
The amount reflected in other liabilities includes a receivable from the
separate accounts of $1,187 million and $923 million as of December 31, 1998 and
1997, respectively. The balances are classified in accordance with NAIC
prescribed practices.
MORTGAGE LOANS
Mortgage loans, which are carried at cost and approximate fair value,
include investments in assets backed by mortgage loan pools.
2. INVESTMENTS:
(A) COMPONENTS OF NET INVESTMENT INCOME
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ---------
<S> <C> <C> <C>
Interest income from bonds and
short-term investments.......... $ 123,370 $ 100,475 $ 89,940
Interest income from policy
loans........................... 3,133 1,958 1,846
Interest and dividends from other
investments..................... 4,482 1,005 7,864
---------- ---------- ---------
Gross investment income.......... 130,985 103,438 99,650
Less: investment expenses........ 1,003 1,153 1,209
---------- ---------- ---------
Net investment income............ $ 129,982 $ 102,285 $ 98,441
---------- ---------- ---------
---------- ---------- ---------
</TABLE>
(B) COMPONENTS OF NET UNREALIZED CAPITAL GAINS (LOSSES) ON COMMON STOCKS
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Gross unrealized capital gains.. $ 2,204 $ 537 $ 713
Gross unrealized capital
losses......................... (1,871) (1,820) (4,160)
--------- --------- ---------
Net unrealized capital
(losses)/gains................. 333 (1,283) (3,447)
Balance, beginning of year...... (1,283) (3,447) 1,724
--------- --------- ---------
Change in net unrealized capital
gains (losses) on Common
stocks......................... $ 1,616 $ 2,164 $ (5,171)
--------- --------- ---------
--------- --------- ---------
</TABLE>
(C) COMPONENTS OF NET UNREALIZED CAPITAL GAINS (LOSSES) ON BONDS AND SHORT-TERM
INVESTMENTS
<TABLE>
<CAPTION>
1998 1997 1996
---------- --------- ----------
<S> <C> <C> <C>
Gross unrealized capital
gains........................ $ 10,905 $ 23,357 $ 11,821
Gross unrealized capital
losses....................... (833) (1,906) (3,842)
---------- --------- ----------
Net unrealized capital
gains........................ 10,072 21,451 7,979
Balance, beginning of year.... 21,451 7,979 20,877
---------- --------- ----------
Change in net unrealized
capital gains on bonds and
short-term investments....... $ (11,379) $ 13,472 $ (12,898)
---------- --------- ----------
---------- --------- ----------
</TABLE>
(D) COMPONENTS OF NET REALIZED CAPITAL GAINS (LOSSES)
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Bonds and short-term investments.... $ 1,314 $ (120) $ 2,756
Common stocks....................... 1,624 -- --
Real estate and other............... (1) 114 --
--------- --------- ---------
Realized capital (losses) gains..... 2,937 (6) 2,756
Capital gains (benefit) tax......... -- (831) 936
--------- --------- ---------
Net realized capital gains.......... 2,937 825 1,820
Amounts transferred to IMR.......... 852 (719) 1,413
--------- --------- ---------
Net realized capital gains.......... $ 2,085 $ 1,544 $ 407
--------- --------- ---------
--------- --------- ---------
</TABLE>
(E) OFF-BALANCE SHEET INVESTMENTS
The Company had no significant financial instruments with off-balance sheet
risk as of December 31, 1998.
(F) CONCENTRATION OF CREDIT RISK
The Company has invested in securities of a single issuer, Bankers Trust
Corporation, in an amount greater than 10% of the Company's statutory capital
and surplus. The statement value of this investment was $105,221 as of December
31, 1998. The NAIC ratings on these holdings were 1z and 2. Excluding this and
U.S. government and government agency investments, the Company had no other
significant concentrations of credit risk as of December 31, 1998.
<PAGE>
F-10 HARTFORD LIFE AND ANNUITY INSURANCE COMPANY
- --------------------------------------------------------------------------------
(G) BONDS, SHORT-TERM INVESTMENTS AND COMMON STOCKS
<TABLE>
<CAPTION>
1998
------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
COST GAINS LOSSES FAIR VALUE
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
U.S. government and government agencies and authorities:
-- Guaranteed and sponsored.................................... $ 4,982 $ 35 $ (2) $ 5,015
-- Guaranteed and sponsored -- asset-backed.................... 75,615 -- -- 75,615
States, municipalities and political subdivisions................ 10,402 415 -- 10,817
International governments........................................ 7,466 568 -- 8,034
Public utilities................................................. 94,475 1,330 (39) 95,766
All other corporate.............................................. 607,679 8,473 (792) 615,360
All other corporate -- asset-backed.............................. 505,900 -- -- 505,900
Short-term investments........................................... 343,783 -- -- 343,783
Certificates of deposit.......................................... 130,216 84 -- 130,300
Parents, subsidiaries and affiliates............................. 117,057 -- -- 117,057
---------- ---------- ---------- ----------
Total bonds and short-term investments........................... $1,897,575 $10,905 $(833) $1,907,647
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
<TABLE>
<CAPTION>
GROSS GROSS
UNREALIZED UNREALIZED ESTIMATED
COST GAINS LOSSES FAIR VALUE
--------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Common stock -- unaffiliated................................. $ 4,933 $ 290 $ (50) $ 5,173
Common stock -- affiliated................................... 35,384 1,914 (1,821) 35,477
--------- ---------- ---------- ----------
Total common stocks.......................................... $40,317 $2,204 $(1,871) $40,650
--------- ---------- ---------- ----------
--------- ---------- ---------- ----------
</TABLE>
<TABLE>
<CAPTION>
1997
------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
COST GAINS LOSSES FAIR VALUE
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
U.S. government and government agencies and authorities:
-- Guaranteed and sponsored.................................... $ 11,114 $ 55 $ (51) $ 11,118
-- Guaranteed and sponsored -- asset-backed.................... 55,506 1,056 (269) 56,293
States, municipalities and political subdivisions................ 26,404 329 -- 26,733
International governments........................................ 7,609 500 -- 8,109
Public utilities................................................. 73,024 754 (132) 73,646
All other corporate.............................................. 517,715 14,110 (704) 531,121
All other corporate -- asset-backed.............................. 630,069 5,005 (739) 634,335
Short-term investments........................................... 277,330 33 (8) 277,355
Certificates of deposit.......................................... 93,770 1,515 (3) 95,282
Parents, subsidiaries and affiliates............................. 86,100 -- -- 86,100
---------- ---------- ---------- ----------
Total bonds and short-term investments........................... $1,778,641 $23,357 $(1,906) $1,800,092
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
<TABLE>
<CAPTION>
GROSS GROSS
UNREALIZED UNREALIZED ESTIMATED
COST GAINS LOSSES FAIR VALUE
--------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Common stock -- unaffiliated................................. $30,307 $537 $ -- $30,844
Common stock -- affiliated................................... 35,384 -- (1,820) 33,564
--------- ----- ---------- ----------
Total common stocks.......................................... $65,691 $537 $(1,820) $64,408
--------- ----- ---------- ----------
--------- ----- ---------- ----------
</TABLE>
The amortized cost and estimated fair value of bonds and short-term
investments as of December 31, 1998 by estimated maturity year are shown below.
Asset-backed securities, including mortgage backed securities and
collaterialized mortgage obligations, are distributed to maturity year based on
ILA's estimates of the rate of future prepayments of principal over the
remaining lives of the securities. Expected maturities differ from contractual
maturities due to call or repayment provisions.
<TABLE>
<CAPTION>
AMORTIZED ESTIMATED
MATURITY COST FAIR VALUE
- ----------------------------------- ------------ ------------
<S> <C> <C>
One year or less................... $ 788,845 $ 792,826
Over one year through five years... 689,025 692,811
Over five years through ten
years............................. 308,661 310,357
Over ten years..................... 111,044 111,653
------------ ------------
Total.............................. $ 1,897,575 $ 1,907,647
------------ ------------
------------ ------------
</TABLE>
<PAGE>
HARTFORD LIFE AND ANNUITY INSURANCE COMPANY F-11
- --------------------------------------------------------------------------------
Proceeds from sales and maturities of investments in bonds and short-term
investments during 1998, 1997 and 1996 were $1,354,563, $1,435,820 and
$1,139,073, respectively, resulting in gross realized gains of $1,705, $964 and
$3,675, respectively, and gross realized losses of $391, $1,084 and $919,
respectively, before transfers to IMR.
(H) FAIR VALUE OF FINANCIAL INSTRUMENTS BALANCE SHEET ITEMS (IN MILLIONS):
<TABLE>
<CAPTION>
1998 1997
-------------------------- --------------------------
CARRYING ESTIMATED CARRYING ESTIMATED
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
ASSETS
Bonds and short-term
investments..................... $ 1,898 $ 1,908 $ 1,779 $ 1,800
Common stocks.................... 41 41 64 64
Policy loans..................... 47 47 37 37
Mortgage loans................... 60 60 85 85
Other invested assets............ 2 2 21 21
LIABILITIES
Liabilities on investment
contracts....................... $ 2,053 $ 2,129 $ 1,911 $ 1,835
</TABLE>
The estimated fair value of bonds and short-term investments was determined
by the Company primarily using NAIC market values. The carrying amounts for
policy loans approximates fair value. The fair value of mortgage loans was
determined by discounting future expected cash flows using interest rates
currently being offered for similar loans. The fair value of liabilities on
investment contracts is determined by forecasting future cash flows and
discounting the forecasted cash flows at current market interest rates.
3. AGGREGATE RESERVES FOR FUTURE BENEFITS
The Company's existing reserves consist of life, health, annuity and
supplementary contracts. The Company cedes and assumes insurance to and from
non-affiliated insurers in order to limit its maximum loss. Such transfers do
not relieve the Company or the unaffiliated reinsured of their primary
liabilities. The Company cedes to RGA Reinsurance Company and its affiliate
Employers Reassurance Corporation, on a modified coinsurance basis, 80% of the
variable annuity business written since 1994 and 100% of the variable life and
variable universal life excess sales load refund obligation effective 1998.
There were no material reinsurance recoverables from reinsurers outstanding as
of, and for the years ended, December 31, 1998 and 1997.
A summary of reinsurance information as of and for the years ended December
31, follows:
<TABLE>
<CAPTION>
1998 DIRECT ASSUMED CEDED NET
- ----------------------------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Premium and Annuity
Considerations.................... $ 483,328 $ 24,954 $ (38,939) $ 469,343
Death, Annuity, Disability and
Other Benefits.................... $ 64,331 $ 1,574 $ (16,401) $ 49,504
Surrenders......................... $ 739,663 $ -- $ -- $ 739,663
Aggregate Reserves for Future
Benefits.......................... $ 713,425 $ -- $ (134,285) $ 579,140
Policy and Contract Claims......... $ 5,895 $ 85 $ (313) $ 5,667
<CAPTION>
1997 DIRECT ASSUMED CEDED NET
- ----------------------------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Premium and Annuity
Considerations.................... $ 266,427 $ 51,630 $ (21,412) $ 296,645
Death, Annuity, Disability and
Other Benefits.................... $ 79,779 $ 839 $ (7,126) $ 73,492
Surrenders......................... $ 454,417 $ -- $ -- $ 454,417
Aggregate Reserves for Future
Benefits.......................... $ 651,820 $ -- $ (46,637) $ 605,183
Policy and Contract Claims......... $ 5,861 $ 157 $ (346) $ 5,672
<CAPTION>
1996 DIRECT ASSUMED CEDED NET
- ----------------------------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Premium and Annuity
Considerations.................... $ 226,612 $ 33,817 $ (10,185) $ 250,244
Death, Annuity, Disability and
Other Benefits.................... $ 34,950 $ 35,138 $ (3,339) $ 66,749
Surrenders......................... $ 270,165 $ -- $ -- $ 270,165
</TABLE>
In connection with the distribution described in Note 1, on June 30, 1995,
the assets of Lyndon were contributed to the Company. The statutory basis assets
in excess of statutory basis liabilities was approximately $112 million and was
reflected as an increase in Gross Paid-In and Contributed Surplus at December
31, 1995. In 1998, the majority of former Lyndon's assumed business was
recaptured by the unaffiliated direct writer. A ceding commission of $25,622 and
change in reserve of $26,404 for the year ended December 31, 1998, is reflected
in Other Revenue and Increase/(Decrease) in Aggregate Reserves for Future
Benefits in the statutory basis statements of operations, respectively.
<PAGE>
F-12 HARTFORD LIFE AND ANNUITY INSURANCE COMPANY
- --------------------------------------------------------------------------------
Analysis of Annuity Actuarial Reserves and Deposit Liabilities by Withdrawal
Characteristics as of December 31, 1998 (including general and separate account
liabilities) are as follows:
<TABLE>
<CAPTION>
% OF
SUBJECT TO DISCRETIONARY WITHDRAWAL: AMOUNT TOTAL
- --------------------------------------- ------------- ---------
<S> <C> <C>
With market value adjustment........... $ 4,563 0.0%
At book value less current surrender
charge of 5% or more.................. 1,378,056 4.1%
At market value........................ 31,087,511 93.8%
------------- ---------
Total with adjustment or at market
value................................. 32,470,130 97.9%
At book value without adjustment
(minimal or no charge or
adjustment)........................... 665,159 2.0%
Not subject to discretionary
withdrawal............................ 19,739 0.1%
------------- ---------
Reinsurance ceded...................... 33,155,028
Total, net......................... $ 33,155,028
-------------
-------------
</TABLE>
4. RELATED PARTY TRANSACTIONS:
Transactions between the Company and its affiliates within The Hartford
relate principally to tax settlements, reinsurance, rental and service fees,
capital contributions and payments of dividends. The Company has also invested
in bonds of its affiliates, Hartford Financial Services Corporation and HL
Investment Advisors, Inc., and common stock of its subsidiary, ITT Hartford
Life, LTD.
5. FEDERAL INCOME TAXES:
The Company 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 HLI, the Company
will be included for Federal income tax purposes in the consolidated group of
which The Hartford is the common parent. It is the 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. Federal income taxes (received) paid by the Company for
operations and capital gains were $25,780, $(14,499) and $29,793 in 1998, 1997
and 1996, respectively. The effective tax rate was 26%, (26)% and 22% in 1998,
1997 and 1996, respectively.
The Company is currently under audit by the Internal Revenue Service (IRS)
for the three year tax period ending 1995. The audit is not yet complete. As of
December 31, 1998, the Company does not currently expect any material
adjustments to arise from this audit.
The following schedule provides a reconciliation of the tax provision at the
U.S. Federal Statutory rate to Federal income tax (benefit) expense (in
millions):
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Tax provision at U.S. Federal statutory
rate..................................... $ 48 $ 20 $ 30
Tax deferred acquisition costs............ 25 25 27
Statutory to tax reserve differences...... 8 1 --
Unrealized gain on separate accounts...... (41) (44) (21)
Investments and other..................... (4) (17) (17)
--------- --------- ---------
Federal income tax (benefit) expense...... $ 36 $ (15) $ 19
--------- --------- ---------
--------- --------- ---------
</TABLE>
6.CAPITAL AND SURPLUS AND SHAREHOLDER DIVIDEND RESTRICTIONS:
The maximum amount of dividends which can be paid, without prior approval,
by State of Connecticut insurance companies to shareholders is generally
restricted to the greater of 10% of surplus as of the preceding December 31st or
the net gain from operations for the previous year. Dividends are paid as
determined by the Board of Directors and are not cumulative. No dividends were
paid in 1998, 1997 and 1996. The amount available for dividend in 1999 is
$100,541.
7. PENSION PLANS AND OTHER POST-RETIREMENT AND POST-EMPLOYMENT BENEFITS:
HLI's employees are included in The Hartford's non-contributory 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. HLI'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 affiliated group pension contracts. The cost to HLI was
approximately $9,000 in 1998 and $7,000 in both 1997 and 1996.
HLI also provides, through The Hartford, certain health care and life
insurance benefits for eligible retired employees. A substantial portion of
HLI's employees may become eligible for these benefits upon retirement. HLI'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. HLI 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
<PAGE>
HARTFORD LIFE AND ANNUITY INSURANCE COMPANY F-13
- --------------------------------------------------------------------------------
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.
8. SEPARATE ACCOUNTS:
The Company maintains separate account assets and liabilities totaling $32.9
billion and $23.2 billion as of December 31, 1998 and 1997, respectively.
Separate account assets are reported at fair value and separate account
liabilities are determined in accordance with CARVM, which approximates the
market value less applicable surrender charges. Separate account assets are
segregated from other investments, the policyholder assumes the investment risk,
and the investment income and gains and losses accrue directly to the
policyholder. Separate account management fees, net of minimum guarantees, were
$360 million, $252 million and $144 million in 1998, 1997 and 1996,
respectively, and are recorded as a component of other revenues on the statutory
basis statements of operations.
9. COMMITMENTS AND CONTINGENCIES:
As of December 31, 1998, the Company had no material contingent liabilities,
nor had the Company committed any surplus funds for any contingent liabilities
or arrangements. The Company is involved in pending and threatened litigation in
the normal course of its business in which claims for monetary and punitive
damages have been asserted. Although there can be no assurances, 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 statutory capital and surplus of the Company.
As discussed in Note 5, issues may potentially be raised by the IRS in
future audits of open years. Management does not believe that possible audit
adjustments will have a material effect on the statutory capital and surplus of
the Company.
Under insurance guaranty fund laws in each state, insurers licensed to do
business can be assessed up to prescribed limits for policyholder losses
incurred by insolvent companies. The amount of any future assessments on ILA
under these laws cannot be reasonably estimated. Most of the laws do provide,
however, that an assessment may be excused or deferred if it would threaten an
insurer's own financial strength. Additionally, guaranty fund assessments are
used to reduce state premium taxes paid by the Company in certain states. ILA
paid guaranty fund assessments of $1,043, $1,544 and $1,262 in 1998, 1997 and
1996, respectively. ILA incurred guaranteed fund expense of $548 in 1998, 1997
and 1996.
