<PAGE>
As filed with the Securities and Exchange Commission on April 14, 1998.
File No. 33-60702
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Pre-Effective Amendment No. [ ]
-------
Post-Effective Amendment No. 7 [X]
-------
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 16 [X]
-----
HARTFORD LIFE AND ANNUITY INSURANCE COMPANY
PUTNAM CAPITAL MANAGER TRUST SEPARATE ACCOUNT TWO
(Exact Name of Registrant)
HARTFORD LIFE AND ANNUITY INSURANCE COMPANY
(Name of Depositor)
P.O. BOX 2999
HARTFORD, CT 06104-2999
(Address of Depositor's Principal Offices)
(860) 843-6733
(Depositor's Telephone Number, Including Area Code)
MARIANNE O'DOHERTY, ESQ.
HARTFORD LIFE INSURANCE COMPANIES
P.O. BOX 2999
HARTFORD, CT 06104-2999
(Name and Address of Agent for Service)
It is proposed that this filing will become effective:
immediately upon filing pursuant to paragraph (b) of Rule 485
------
X on May 1, 1998 pursuant to paragraph (b) of Rule 485
------
60 days after filing pursuant to paragraph (a)(1) of Rule 485
------
on May 1, 1998 pursuant to paragraph (a)(1) of Rule 485
------
this post-effective amendment designates a new effective
------ date for a previously filed post-effective amendment.
PURSUANT TO RULE 24F-2(a)(1) UNDER THE INVESTMENT COMPANY ACT OF 1940, THE
REGISTRANT HAS REGISTERED AN INDEFINITE AMOUNT OF SECURITIES.
<PAGE>
CROSS REFERENCE SHEET
PURSUANT TO RULE 495(a)
<TABLE>
<CAPTION>
N-4 Item No. Prospectus Heading
--------------------------------------- ------------------------------
<S> <C>
1. Cover Page Cover Page
2. Definitions Glossary of Special Terms
3. Synopsis or Highlights Summary
4. Condensed Financial Information Statement of Additional Information
5. General Description of Registrant, The Contract; The Separate Account Two;
Depositor, and Portfolio Companies The Fixed Account; The Company; The Funds;
General Matters
6. Deductions Charges Under the Contract
7. General Description of Operation of the Contract
Annuity Contracts Accumulation Period; Death Benefit; The
Contract; The Separate Account Two; General
Matters
8. Annuity Period Annuity/Payout Period
9. Death Benefit Death Benefit
10. Purchases and Contract Value Operation of the Contract/
Accumulation Period
11. Redemptions Operation of the Contract/
Accumulation Period
12. Taxes Federal Tax Considerations
13. Legal Proceedings General Matters - Legal Proceedings
14. Table of Contents of the Statement Table of Contents to Statement of
of Additional Information Additional Information
15. Cover Page Part B; Statement of Additional
Information
16. Table of Contents Table of Contents
<PAGE>
17. General Information and History Introduction
18. Services None
19. Purchase of Securities Distribution of Contracts
being Offered
20. Underwriters Distribution of Contracts
21. Calculation of Performance Data Calculation of Yield and Return
22. Annuity Payments Annuity Benefits
23. Financial Statements Financial Statements
24. Financial Statements and Financial Statements and
Exhibits Exhibits
25. Directors and Officers of the Directors and Officers of the
Depositor Depositor
26. Persons Controlled by or Under Persons Controlled by or Under
Common Control with the Depositor Common Control with the Depositor
or Registrant or Registrant
27. Number of Contract Owners Number of Contract Owners
28. Indemnification Indemnification
29. Principal Underwriters Principal Underwriters
30. Location of Accounts and Records Location of Accounts and Records
31. Management Services Management Services
32. Undertakings Undertakings
</TABLE>
<PAGE>
HARTFORD LIFE AND ANNUITY INSURANCE COMPANY
PUTNAM CAPITAL MANAGER TRUST SEPARATE ACCOUNT TWO
This Prospectus describes the Putnam Capital Manager, a tax deferred variable
annuity issued by Hartford Life and Annuity Insurance Company ("Hartford").
Payments for the Contract will be held in a series of Hartford Life and
Annuity Insurance Company - Putnam Capital Manager Trust Separate Account Two
(the "Separate Account") or in the Fixed Account of Hartford. Allocations to
and transfers to and from the Fixed Account are not permitted in certain
states.
There are currently twenty (20) Sub-Accounts available under the Contract. The
following underlying investment portfolios ("Funds") of Class IA shares of
Putnam Variable Trust are available under the Contracts: Putnam VT Asia Pacific
Growth Fund, Putnam VT Diversified Income Fund, Putnam VT The George Putnam Fund
of Boston, Putnam VT Global Asset Allocation Fund, Putnam VT Global Growth Fund,
Putnam VT Growth and Income Fund, Putnam VT Health Sciences Fund, Putnam VT High
Yield Fund, Putnam VT International Growth Fund, Putnam VT International Growth
and Income Fund, Putnam VT International New Opportunities Fund, Putnam VT
Investors Fund, Putnam VT Money Market Fund, Putnam VT New Opportunities Fund,
Putnam VT New Value Fund, Putnam VT OTC & Emerging Growth Fund, Putnam VT U.S.
Government and High Quality Bond Fund, Putnam VT Utilities Growth and Income
Fund, Putnam VT Vista Fund, and Putnam VT Voyager Fund.
This Prospectus sets forth the information concerning the Separate Account and
the Fixed Account that investors should know before investing. This Prospectus
should be kept for future reference. Additional information about the Separate
Account and the Fixed Account has been filed with the Securities and Exchange
Commission and is available without charge upon request. To obtain the
Statement of Additional Information send a written request to Hartford Life and
Annuity Insurance Company, Attn: Annuity Marketing Services, P.O. Box 5085,
Hartford, CT 06102-5085. The Table of Contents for the Statement of Additional
Information may be found on page 52 of this Prospectus. The Statement of
Additional Information is incorporated by reference into this Prospectus.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
THIS PROSPECTUS IS ACCOMPANIED BY A CURRENT PROSPECTUS FOR THE FUNDS AND IS
VALID ONLY WHEN ACCOMPANIED BY A CURRENT PROSPECTUS FOR THE FUNDS.
VARIABLE ANNUITY CONTRACTS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR ENDORSED OR
GUARANTEED BY, ANY BANK, NOR ARE THEY FEDERALLY INSURED OR OTHERWISE PROTECTED
BY THE FDIC, THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY; THEY ARE SUBJECT TO
INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF THE PRINCIPAL AMOUNT INVESTED.
Prospectus Dated: May 1, 1998
Statement of Additional Information Dated: May 1, 1998
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
GLOSSARY OF SPECIAL TERMS. . . . . . . . . . . . . . . . . . . . . . . . . 4
FEE TABLE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
ACCUMULATION UNIT VALUES . . . . . . . . . . . . . . . . . . . . . . . . .10
SUMMARY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11
PERFORMANCE RELATED INFORMATION. . . . . . . . . . . . . . . . . . . . . .14
INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .15
THE CONTRACT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .15
Right to Cancel Period. . . . . . . . . . . . . . . . . . . . . . . . .16
THE SEPARATE ACCOUNT . . . . . . . . . . . . . . . . . . . . . . . . . . .17
THE FIXED ACCOUNT. . . . . . . . . . . . . . . . . . . . . . . . . . . . .18
HARTFORD LIFE AND ANNUITY COMPANY. . . . . . . . . . . . . . . . . . . . .19
THE FUNDS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .20
OPERATION OF THE CONTRACT/ACCUMULATION PERIOD. . . . . . . . . . . . . . .24
Premium Payments. . . . . . . . . . . . . . . . . . . . . . . . . . . .24
Value of Accumulation Units . . . . . . . . . . . . . . . . . . . . . .24
Value of the Fixed Account. . . . . . . . . . . . . . . . . . . . . . .25
Value of the Contract . . . . . . . . . . . . . . . . . . . . . . . . .25
Transfers Among Sub-Accounts. . . . . . . . . . . . . . . . . . . . . .25
Transfers Between the Fixed Account and the Sub-Accounts. . . . . . . .26
Redemption/Surrender of a Contract. . . . . . . . . . . . . . . . . . .26
DEATH BENEFIT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .28
CHARGES UNDER THE CONTRACT . . . . . . . . . . . . . . . . . . . . . . . .30
Contingent Deferred Sales Charges . . . . . . . . . . . . . . . . . . .30
Free Withdrawal Privilege . . . . . . . . . . . . . . . . . . . . . . .32
Mortality and Expense Risk Charge . . . . . . . . . . . . . . . . . . .32
Administration Charge and Annual Maintenance Fees . . . . . . . . . . .33
Premium Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . .33
ANNUITY BENEFITS . . . . . . . . . . . . . . . . . . . . . . . . . . . . .33
Annuity Options . . . . . . . . . . . . . . . . . . . . . . . . . . . .34
The Annuity Unit and Valuation. . . . . . . . . . . . . . . . . . . . .35
Determination of Payment Amount . . . . . . . . . . . . . . . . . . . .35
FEDERAL TAX CONSIDERATIONS . . . . . . . . . . . . . . . . . . . . . . . .37
A. General. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .37
B. Taxation of Hartford and the Separate Account. . . . . . . . . . . .37
C. Taxation of Annuities - General Provisions Affecting Purchasers
Other Than Qualified Retirement Plans. . . . . . . . . . . . . . . .37
D. Federal Income Tax Withholding . . . . . . . . . . . . . . . . . . .43
E. General Provisions Affecting Qualified Retirement Plans. . . . . . .43
F. Annuity Purchases by Nonresident Aliens and Foreign Corporations . .43
GENERAL MATTERS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .43
Assignment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .43
Modification. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .43
Delay of Payments . . . . . . . . . . . . . . . . . . . . . . . . . . .44
Voting Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . .44
Distribution of the Contracts . . . . . . . . . . . . . . . . . . . . .45
2
<PAGE>
Other Contracts Offered . . . . . . . . . . . . . . . . . . . . . . . .45
Custodian of Separate Account Assets. . . . . . . . . . . . . . . . . .45
Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . .45
Legal Counsel . . . . . . . . . . . . . . . . . . . . . . . . . . . . .45
Experts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .46
Additional Information. . . . . . . . . . . . . . . . . . . . . . . . .46
APPENDIX I -- Information Regarding Tax-Qualified Plans. . . . . . . . . .47
TABLE OF CONTENTS TO STATEMENT OF ADDITIONAL INFORMATION . . . . . . . . .52
</TABLE>
3
<PAGE>
GLOSSARY OF SPECIAL TERMS
ACCUMULATION UNIT: An accounting unit of measure used to calculate values before
Annuity payments begin.
ANNUITANT: The person or Participant upon whose life the Contract is issued.
ANNUITY: A series of payments for life, or for life with a minimum number of
payments or a determinable sum guaranteed, or for a joint lifetime and
thereafter during the lifetime of the survivor, or for a designated period.
ANNUITY COMMENCEMENT DATE: The date on which Annuity payments are to commence.
For group unallocated Contracts, the date for each Participant is determined by
the Contract Owner in accordance with the terms of the Plan.
ANNUITY UNIT: An accounting unit of measure used to calculate the value of
Annuity payments.
BENEFICIARY: The person(s) who receive Contract Values in the event of the
Annuitant's or Contract Owner's death under certain conditions. Under a group
unallocated Contract, the person named within the Plan documents/enrollment
forms by each Participant entitled to receive benefits as per the terms of the
Contract in case of the death of the Participant.
CODE: The Internal Revenue Code of 1986, as amended.
COMMISSION: Securities and Exchange Commission.
CONTINGENT ANNUITANT: The person so designated by the Contract Owner, who upon
the Annuitant's death, prior to the Annuity Commencement Date, becomes the
Annuitant.
CONTRACT ANNIVERSARY: The anniversary of the Contract Date.
CONTRACT OWNER(S): The owner(s) of the Contract, trustee or other entity,
sometimes herein referred to as "you".
CONTRACT VALUE: The aggregate value of any Sub-Account Accumulation Units held
under the Contract plus the value of the Fixed Account.
CONTRACT YEAR: A period of 12 months commencing with the Contract Date or any
anniversary thereof.
FIXED ACCOUNT: Part of the General Account of Hartford to which a Contract Owner
may allocate all or a portion of his Premium Payment or Contract Value.
4
<PAGE>
FIXED ANNUITY: An Annuity providing for guaranteed payments which remain fixed
in amount throughout the payment period and which do not vary with the
investment experience of a separate account.
FUNDS: Currently, the portfolios of Putnam Variable Trust described on page 20
of this Prospectus.
GENERAL ACCOUNT: The General Account of Hartford which consists of all assets of
the Hartford Life Insurance Company other than those allocated to the separate
accounts of the Hartford Life Insurance Company.
HARTFORD: Hartford Life and Annuity Insurance Company.
HOME OFFICE OF THE COMPANY: Currently located at 200 Hopmeadow Street, Simsbury,
Connecticut. All correspondence concerning the Contract should be sent to P.O.
Box 5085, Hartford, CT 06102-5085, Attn: Individual Annuity Operations.
MAXIMUM ANNIVERSARY VALUE: A value used in determining on death benefit. It is
based on a series of calculations of Contract Values on Contract Anniversaries,
premium payments and partial surrenders, as described on page 26.
MINIMUM DEATH BENEFIT: The minimum amount payable upon the death of the Contract
Owner/Annuitant or Participant in the case of group Contracts prior to age 85
and before annuity payments have commenced.
NON-QUALIFIED CONTRACT: A Contract which is not classified as a tax-qualified
retirement plan using pretax dollars under Internal Revenue Code.
PARTICIPANT: (For Group Unallocated Contracts Only) Any eligible employee of an
employer/Contract Owner participating in the Plan.
PLAN: A voluntary Plan of an Employer which qualifies for special tax treatment
under a section of the Internal Revenue Code.
PREMIUM PAYMENT: A payment made to Hartford pursuant to the terms of the
Contract.
PREMIUM TAX: A tax charged by a state or municipality on Premium Payments or
Contract Values.
QUALIFIED CONTRACT: A Contract which qualifies as a tax-qualified retirement
plan using pre tax dollars under the Internal Revenue Code, such as an employer
sponsored Section 401(k) on an Individual Retirement Annuity (IRA).
SEPARATE ACCOUNT: The Hartford separate account entitled "Hartford Life
Insurance Company Putnam Capital Manager Trust Separate Account".
5
<PAGE>
SPECIFIED CONTRACT ANNIVERSARY: Every seventh Contract Anniversary (i.e., the
7th, 14th, 21st, etc. Contract Anniversaries).
SUB-ACCOUNT: Accounts established within the Separate Account with respect to a
Fund.
TERMINATION VALUE: The Contract Value upon termination of the Contract prior to
the Annuity Commencement Date, less any applicable Premium Taxes, the Annual
Maintenance Fee and any applicable contingent deferred sales charges.
TRUST: Putnam Variable Trust.
UNALLOCATED CONTRACTS: Contracts issued to employers or such other entities
as Contract Owners with no allocation to a specific Participant, as defined
herein. The Plans will be responsible for the individual allocations.
VALUATION DAY: Every day the New York Stock Exchange is open for trading. The
value of the Separate Account is determined at the close of the New York Stock
Exchange (generally 4:00 p.m. Eastern Time) on such days.
VALUATION PERIOD: The period between the close of business on successive
Valuation Days.
VARIABLE ANNUITY: An Annuity providing for payments varying in amount in
accordance with the investment experience of the assets of the Separate Account.
6
<PAGE>
PUTNAM CAPITAL MANAGER III
(For Contracts issued from May 1, 1990 until June 22, 1994)
FEE TABLE
SUMMARY
CONTRACT OWNER TRANSACTION EXPENSES
(ALL SUB-ACCOUNTS)
<TABLE>
<S> <C>
Sales Load Imposed on Purchases (as a percentage of
premium payments). . . . . . . . . . . . . . . . . . . . . None
Exchange Fee . . . . . . . . . . . . . . . . . . . . . . . . $0
Deferred Sales Load (as a percentage of purchase
payments or amount surrendered, as applicable)
First Year (1) . . . . . . . . . . . . . . . . . . . . . . . 7%
Second Year. . . . . . . . . . . . . . . . . . . . . . . . . 6%
Third Year . . . . . . . . . . . . . . . . . . . . . . . . . 5%
Fourth Year. . . . . . . . . . . . . . . . . . . . . . . . . 4%
Fifth Year . . . . . . . . . . . . . . . . . . . . . . . . . 3%
Sixth Year . . . . . . . . . . . . . . . . . . . . . . . . . 2%
Seventh Year . . . . . . . . . . . . . . . . . . . . . . . . 1%
Eighth Year. . . . . . . . . . . . . . . . . . . . . . . . . 0%
Annual Maintenance Fee (2) . . . . . . . . . . . . . . . . . $25
Annual Expenses-Separate Account (as a percentage of
average account value)
Mortality and Expense Risk . . . . . . . . . . . . . . . . . 1.250%
Administration Fees. . . . . . . . . . . . . . . . . . . . . 0.150%
Total . . . . . . . . . . . . . . . . . . . . . . . . . . 1.400%
</TABLE>
1. Length of time from premium payment.
2. The Annual Maintenance Fee is a single $25 charge on a Contract. It is
deducted proportionally from the investment options in use at the time of
the charge. Pursuant to the requirements of the Investment Company Act
of 1940, the Annual Maintenance Fee has been reflected in the Examples by
a method intended to show the "average" impact of the Annual Maintenance
Fee on an investment in the Separate Account. The Annual Maintenance Fee
is deducted only when the accumulated value is less than $50,000. In the
example, the Annual Maintenance Fee is approximated as a 0.05% annual
asset charge based on the experience of the Contracts.
7
<PAGE>
ANNUAL FUND OPERATING EXPENSES
(as a percentage of net assets)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
TOTAL FUND
OPERATING
OTHER EXPENSES (AFTER
MANAGEMENT EXPENSES (AFTER ANY FEE WAIVERS
FEES (AFTER ANY ANY EXPENSE AND EXPENSE
FEE WAIVERS REIMBURSEMENT) REIMBURSEMENT)
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Putnam VT Asia Pacific Growth Fund 0.80% 0.27% 1.07%
- --------------------------------------------------------------------------------------------------------------------------------
Putnam VT Diversified Income Fund 0.69% 0.11% 0.80%
- --------------------------------------------------------------------------------------------------------------------------------
Putnam VT The George Putnam Fund of Boston (1) 0.49% 0.36% 0.85%
- --------------------------------------------------------------------------------------------------------------------------------
Putnam VT Global Asset Allocation Fund 0.66% 0.11% 0.77%
- --------------------------------------------------------------------------------------------------------------------------------
Putnam VT Global Growth Fund 0.60% 0.15% 0.75%
- --------------------------------------------------------------------------------------------------------------------------------
Putnam VT Growth and Income Fund 0.47% 0.04% 0.51%
- --------------------------------------------------------------------------------------------------------------------------------
Putnam VT Health Sciences Fund (1) 0.56% 0.34% 0.90%
- --------------------------------------------------------------------------------------------------------------------------------
Putnam VT High Yield Fund 0.66% 0.06% 0.72%
- --------------------------------------------------------------------------------------------------------------------------------
Putnam VT International Growth Fund (1) 0.73% 0.47% 1.20%
- --------------------------------------------------------------------------------------------------------------------------------
Putnam VT International Growth and Income Fund 0.80% 0.32% 1.12%
- --------------------------------------------------------------------------------------------------------------------------------
Putnam VT International New Opportunities Fund (1) 0.92% 0.68% 1.60%
- --------------------------------------------------------------------------------------------------------------------------------
Putnam VT Investors Fund (1) 0.52% 0.33% 0.85%
- --------------------------------------------------------------------------------------------------------------------------------
Putnam VT Money Market Fund 0.45% 0.09% 0.54%
- --------------------------------------------------------------------------------------------------------------------------------
Putnam VT New Opportunities Fund 0.58% 0.05% 0.63%
- --------------------------------------------------------------------------------------------------------------------------------
Putnam VT New Value Fund 0.70% 0.15% 0.85%
- --------------------------------------------------------------------------------------------------------------------------------
Putnam VT OTC & Emerging Growth Fund (1) 0.56% 0.34% 0.90%
- --------------------------------------------------------------------------------------------------------------------------------
Putnam VT U.S. Government and High Quality Bond Fund 0.61% 0.08% 0.69%
- --------------------------------------------------------------------------------------------------------------------------------
Putnam VT Utilities Growth and Income Fund 0.67% 0.07% 0.74%
- --------------------------------------------------------------------------------------------------------------------------------
Putnam VT Vista Fund 0.65% 0.22% 0.87%
- --------------------------------------------------------------------------------------------------------------------------------
Putnam VT Voyager Fund 0.54% 0.05% 0.59%
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The Management Fees and Other Expenses shown in the table above reflect
an expense limitation. In the absence of an expense limitation, Management
Fees, Other Expenses, and Total Fund Operating Expenses would have been:
<TABLE>
<CAPTION>
TOTAL FUND
MANAGEMENT FEES OTHER EXPENSES OPERATING EXPENSES
<S> <C> <C> <C>
Putnam VT The George Putnam 0.65 0.36 1.01
Fund of Boston*
Putnam VT Health Sciences 0.70 0.34 1.04
Fund*
Putnam VT International 0.80 0.47 1.27
Growth Fund
Putnam VT International 1.20 0.68 1.88
New Opportunities Fund
Putnam VT Investors 0.65 0.33 0.98
Fund*
Putnam VT OTC & Emerging 0.70 0.34 1.04
Growth Fund*
</TABLE>
*Estimated Management Fees, Other Expenses, and Total Fund Operating Expenses.
8
<PAGE>
EXAMPLE
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
If you surrender your Contract at the end of
the applicable time period, you would pay
the following expenses on a $1,000 investment,
assuming a 5% annual return on assets:
- --------------------------------------------------------------------------------
SUB-ACCOUNT 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Putnam Asia $96 $129 $166 $288
Pacific Growth
Sub-Account
- --------------------------------------------------------------------------------
Putnam Diversified 93 121 152 261
Income
Sub-Account
- --------------------------------------------------------------------------------
Putnam The George Putnam 94 123 154 266
Fund
Sub-Account
- --------------------------------------------------------------------------------
Putnam Global 93 120 150 258
Asset Allocation
Sub-Account
- --------------------------------------------------------------------------------
Putnam Global 93 120 149 255
Growth
Sub-Account
- --------------------------------------------------------------------------------
Putnam Growth 90 113 138 232
and Income
Sub-Account
- --------------------------------------------------------------------------------
Putnam Health 94 124 157 271
Sciences
Sub-Account
- --------------------------------------------------------------------------------
Putnam High 92 119 148 252
Yield
Sub-Account
- --------------------------------------------------------------------------------
Putnam International 97 133 172 301
Growth
Sub-Account
- --------------------------------------------------------------------------------
Putnam International 96 131 168 293
Growth and Income
Sub-Account
- --------------------------------------------------------------------------------
Putnam International 101 146 192 340
New Opportunities
Sub-Account
- --------------------------------------------------------------------------------
Putnam Investors 94 123 154 266
Sub-Account
- --------------------------------------------------------------------------------
Putnam Money 90 113 138 233
Market
Sub-Account
- --------------------------------------------------------------------------------
Putnam New 91 116 143 243
Opportunities
Sub-Account
- --------------------------------------------------------------------------------
Putnam New 94 123 154 266
Value
Sub-Account
- --------------------------------------------------------------------------------
Putnam Otc & 94 124 157 271
Emerging Growth
Sub-Account
- --------------------------------------------------------------------------------
Putnam U.S. 92 118 146 249
Government and High-Quality
Bond Sub-Account
- --------------------------------------------------------------------------------
Putnam Utilities 92 119 149 254
Growth and Income
Sub-Account
- --------------------------------------------------------------------------------
Putnam Vista 94 123 155 268
Sub-Account
- --------------------------------------------------------------------------------
Putnam Voyager 91 115 141 239
Sub-Account
- --------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
If you annuitize your Contract at the end of
the applicable time period, you would pay the
following expenses on a $1,000 investment,
assuming a 5% annual return on assets:
- --------------------------------------------------------------------------------
SUB-ACCOUNT 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Putnam Asia $25 $79 $135 $288
Pacific Growth
Sub-Account
- --------------------------------------------------------------------------------
Putnam Diversified 23 71 121 260
Income
Sub-Account
- --------------------------------------------------------------------------------
Putnam The George Putnam 23 72 124 265
Fund
Sub-Account
- --------------------------------------------------------------------------------
Putnam Global 22 70 120 257
Asset Allocation
Sub-Account
- --------------------------------------------------------------------------------
Putnam Global 22 69 119 255
Growth
Sub-Account
- --------------------------------------------------------------------------------
Putnam Growth 20 62 107 232
and Income
Sub-Account
- --------------------------------------------------------------------------------
Putnam Health 24 74 126 270
Sciences
Sub-Account
- --------------------------------------------------------------------------------
Putnam High 22 68 117 252
Yield
Sub-Account
- --------------------------------------------------------------------------------
Putnam International 27 83 142 301
Growth
Sub-Account
- --------------------------------------------------------------------------------
Putnam International 26 80 138 293
Growth and Income
Sub-Account
- --------------------------------------------------------------------------------
Putnam International 31 95 162 340
New Opportunities
Sub-Account
- --------------------------------------------------------------------------------
Putnam Investors 23 72 124 265
Sub-Account
- --------------------------------------------------------------------------------
Putnam Money 20 62 108 233
Market
Sub-Account
- --------------------------------------------------------------------------------
Putnam New 21 65 112 242
Opportunities
Sub-Account
- --------------------------------------------------------------------------------
Putnam New 23 72 124 265
Value
Sub-Account
- --------------------------------------------------------------------------------
Putnam Otc & 24 74 126 270
Emerging Growth
Sub-Account
- --------------------------------------------------------------------------------
Putnam U.S. 21 67 115 249
Government and High-Quality
Bond Sub-Account
- --------------------------------------------------------------------------------
Putnam Utilities 22 69 118 254
Growth and Income
Sub-Account
- --------------------------------------------------------------------------------
Putnam Vista 23 73 125 267
Sub-Account
- --------------------------------------------------------------------------------
Putnam Voyager 20 64 110 238
Sub-Account
- --------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
If you do not surrender your Contract, you
would pay the following expenses on a $1,000
investment, assuming a 5% annual return on
assets:
- --------------------------------------------------------------------------------
SUB-ACCOUNT 1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------
Putnam Asia $26 $79 $136 $288
Pacific Growth
Sub-Account
- --------------------------------------------------------------------------------
Putnam Diversified 23 71 122 261
Income
Sub-Account
- --------------------------------------------------------------------------------
Putnam The George Putnam 24 73 124 266
Fund
Sub-Account
- --------------------------------------------------------------------------------
Putnam Global 23 70 120 258
Asset Allocation
Sub-Account
- --------------------------------------------------------------------------------
Putnam Global 23 70 119 255
Growth
Sub-Account
- --------------------------------------------------------------------------------
Putnam Growth 20 63 108 232
and Income
Sub-Account
- --------------------------------------------------------------------------------
Putnam Health 24 74 127 271
Sciences
Sub-Account
- --------------------------------------------------------------------------------
Putnam High 22 69 118 252
Yield
Sub-Account
- --------------------------------------------------------------------------------
Putnam International 27 83 142 301
Growth
Sub-Account
- --------------------------------------------------------------------------------
Putnam International 26 81 138 293
Growth and Income
Sub-Account
- --------------------------------------------------------------------------------
Putnam International 31 96 162 340
New Opportunities
Sub-Account
- --------------------------------------------------------------------------------
Putnam Investors 24 73 124 266
Sub-Account
- --------------------------------------------------------------------------------
Putnam Money 20 63 108 233
Market
Sub-Account
- --------------------------------------------------------------------------------
Putnam New 21 66 113 243
Opportunities
Sub-Account
- --------------------------------------------------------------------------------
Putnam New 24 73 124 266
Value
Sub-Account
- --------------------------------------------------------------------------------
Putnam Otc & 24 74 127 271
Emerging Growth
Sub-Account
- --------------------------------------------------------------------------------
Putnam U.S. 22 68 116 249
Government and High-Quality
Bond Sub-Account
- --------------------------------------------------------------------------------
Putnam Utilities 22 69 119 254
Growth and Income
Sub-Account
- --------------------------------------------------------------------------------
Putnam Vista 24 73 125 268
Sub-Account
- --------------------------------------------------------------------------------
Putnam Voyager 21 65 111 239
Sub-Account
- --------------------------------------------------------------------------------
</TABLE>
THE PURPOSE OF THIS TABLE IS TO ASSIST THE CONTRACT OWNER IN UNDERSTANDING
VARIOUS COSTS AND EXPENSES THAT A CONTRACT OWNER WILL BEAR DIRECTLY OR
INDIRECTLY. THE TABLE REFLECTS EXPENSES OF THE SEPARATE ACCOUNT AND UNDERLYING
FUNDS. PREMIUM TAXES MAY ALSO BE APPLICABLE.
THIS EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES AND ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
9
<PAGE>
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,
- ------------------------------------------------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PUTNAM ASIA PACIFIC GROWTH SUB-ACCOUNT
(Inception date May 1, 1995)
- ------------------------------------------------------------------------------------------------------------------------------------
Accumulation unit value at beginning of period $ 10.903 $ 10.135 $ 10.000 - -
- ------------------------------------------------------------------------------------------------------------------------------------
Accumulation unit value at end of period $ 9.176 $ 10.903 $ 10.135 - -
- ------------------------------------------------------------------------------------------------------------------------------------
Number of accumulation units outstanding
at end of period (in thousands) 7,445 6,980 1,292 - -
- ------------------------------------------------------------------------------------------------------------------------------------
PUTNAM DIVERSIFIED INCOME SUB-ACCOUNT
(Inception date September 15, 1993)
- ------------------------------------------------------------------------------------------------------------------------------------
Accumulation unit value at beginning of period $ 12.127 $ 11.302 $ 9.622 $ 10.188 $ 10.000
- ------------------------------------------------------------------------------------------------------------------------------------
Accumulation unit value at end of period $ 12.841 $ 12.127 $ 11.302 $ 9.622 $ 10.188
- ------------------------------------------------------------------------------------------------------------------------------------
Number of accumulation units outstanding at
end of period (in thousands) 21,017 18,268 11,006 8,609 4,428
- ------------------------------------------------------------------------------------------------------------------------------------
PUTNAM GLOBAL ASSET ALLOCATION SUB-ACCOUNT
(Inception date February 1, 1988)
- ------------------------------------------------------------------------------------------------------------------------------------
Accumulation unit value at beginning of period $ 22.902 $ 20.087 $ 16.355 $ 16.988 $ 14.665
- ------------------------------------------------------------------------------------------------------------------------------------
Accumulation unit value at end of period $ 27.026 $ 22.902 $ 20.087 $ 16.355 $ 16.988
- ------------------------------------------------------------------------------------------------------------------------------------
Number of accumulation units outstanding at
end of period (in thousands) 16,683 14,342 10,181 8,665 4,491
- ------------------------------------------------------------------------------------------------------------------------------------
PUTNAM GLOBAL GROWTH SUB-ACCOUNT
(Inception date May 1, 1990)
Accumulation unit value at beginning of period $ 17.294 $ 14.963 $ 13.119 $ 13.432 $ 10.289
- ------------------------------------------------------------------------------------------------------------------------------------
Accumulation unit value at end of period $ 19.497 $ 17.294 $ 14.963 $ 13.119 $ 13.432
- ------------------------------------------------------------------------------------------------------------------------------------
Number of accumulation units outstanding at
end of period (in thousands) 43,485 39,498 25,154 20,285 8,312
- ------------------------------------------------------------------------------------------------------------------------------------
PUTNAM GROWTH AND INCOME SUB-ACCOUNT
(Inception date February 1, 1988)
- ------------------------------------------------------------------------------------------------------------------------------------
Accumulation unit value at beginning of period $ 32.703 $ 27.201 $ 20.178 $ 20.390 $ 18.096
- ------------------------------------------------------------------------------------------------------------------------------------
Accumulation unit value at end of period $ 40.036 $ 32.703 $ 27.201 $ 20.178 $ 20.390
- ------------------------------------------------------------------------------------------------------------------------------------
Number of accumulation units outstanding at
end of period (in thousands) 94,356 73,133 42,420 11,321 15,223
- ------------------------------------------------------------------------------------------------------------------------------------
PUTNAM HIGH YIELD SUB-ACCOUNT
(Inception date February 1, 1988)
- ------------------------------------------------------------------------------------------------------------------------------------
Accumulation unit value at beginning of period $ 22.682 $ 20.390 $ 17.476 $ 17.890 $ 15.173
- ------------------------------------------------------------------------------------------------------------------------------------
Accumulation unit value at end of period $ 25.575 $ 22.682 $ 20.390 $ 17.476 $ 17.890
- ------------------------------------------------------------------------------------------------------------------------------------
Number of accumulation units outstanding at
end of period (in thousands) 21,602 17,031 10,603 675 5,066
- ------------------------------------------------------------------------------------------------------------------------------------
PUTNAM INTERNATIONAL GROWTH SUB-ACCOUNT
(Inception date January 2, 1997)
- ------------------------------------------------------------------------------------------------------------------------------------
Accumulation unit value at beginning of period $ 10.000 - - - -
- ------------------------------------------------------------------------------------------------------------------------------------
Accumulation unit value at end of period $ 11.451 - - - -
- ------------------------------------------------------------------------------------------------------------------------------------
Number of accumulation units outstanding at
end of period (in thousands) 6,948 - - - -
- ------------------------------------------------------------------------------------------------------------------------------------
PUTNAM INTERNATIONAL GROWTH AND INCOME SUB-ACCOUNT
(Inception date January 2, 1997)
- ------------------------------------------------------------------------------------------------------------------------------------
Accumulation unit value at beginning of period $ 10.000 - - - -
- ------------------------------------------------------------------------------------------------------------------------------------
Accumulation unit value at end of period $ 11.777 - - - -
- ------------------------------------------------------------------------------------------------------------------------------------
Number of accumulation units outstanding at
end of period (in thousands) 9,878 - - - -
- ------------------------------------------------------------------------------------------------------------------------------------
PUTNAM INTERNATIONAL NEW OPPORTUNITIES SUB-ACCOUNT
(Inception date January 2, 1997)
- ------------------------------------------------------------------------------------------------------------------------------------
Accumulation unit value at beginning of period $ 10.000 - - - -
- ------------------------------------------------------------------------------------------------------------------------------------
Accumulation unit value at end of period $ 9.850 - - - -
- ------------------------------------------------------------------------------------------------------------------------------------
Number of accumulation units outstanding at
end of period (in thousands) 6,510 - - - -
- ------------------------------------------------------------------------------------------------------------------------------------
PUTNAM MONEY MARKET SUB-ACCOUNT
(Inception date February 1, 1988)
- ------------------------------------------------------------------------------------------------------------------------------------
Accumulation unit value at beginning of period $ 1.429 $ 1.379 $ 1.325 $ 1.294 $ 1.277
- ------------------------------------------------------------------------------------------------------------------------------------
Accumulation unit value at end of period $ 1.483 $ 1.429 $ 1.379 $ 1.325 $ 1.294
- ------------------------------------------------------------------------------------------------------------------------------------
Number of accumulation units outstanding at
end of period (in thousands) 122,079 147,638 66,283 38,819 12,916
- ------------------------------------------------------------------------------------------------------------------------------------
PUTNAM NEW OPPORTUNITIES SUB-ACCOUNT
(Inception date May 2, 1994)
- ------------------------------------------------------------------------------------------------------------------------------------
Accumulation unit value at beginning of period $ 16.635 $ 15.312 $ 10.718 $ 10.000
- ------------------------------------------------------------------------------------------------------------------------------------
Accumulation unit value at end of period $ 20.223 $ 16.635 $ 15.312 $ 10.718
- ------------------------------------------------------------------------------------------------------------------------------------
Number of accumulation units outstanding at
end of period (in thousands) 59,879 50,976 16,971 2,699
- ------------------------------------------------------------------------------------------------------------------------------------
PUTNAM NEW VALUE SUB-ACCOUNT
(Inception date January 2, 1997)
- ------------------------------------------------------------------------------------------------------------------------------------
Accumulation unit value at beginning of period $ 10.000 - - - -
- ------------------------------------------------------------------------------------------------------------------------------------
Accumulation unit value at end of period $ 11.597 - - - -
- ------------------------------------------------------------------------------------------------------------------------------------
Number of accumulation units outstanding at
end of period (in thousands) 10,226 - - - -
- ------------------------------------------------------------------------------------------------------------------------------------
PUTNAM U.S. GOVERNMENT AND HIGH QUALITY BOND SUB-ACCOUNT
(Inception date February 1, 1988)
- ------------------------------------------------------------------------------------------------------------------------------------
Accumulation unit value at beginning of period $ 18.631 $ 18.448 $ 15.533 $ 16.277 $ 14.833
- ------------------------------------------------------------------------------------------------------------------------------------
Accumulation unit value at end of period $ 19.959 $ 18.631 $ 18.448 $ 15.533 $ 16.277
- ------------------------------------------------------------------------------------------------------------------------------------
Number of accumulation units outstanding at
end of period (in thousands) 11,666 $ 11,110 8,948 7,585 7,254
- ------------------------------------------------------------------------------------------------------------------------------------
PUTNAM UTILITIES GROWTH AND INCOME SUB-ACCOUNT
(Inception date May 4, 1992)
- ------------------------------------------------------------------------------------------------------------------------------------
Accumulation unit value at beginning of period $ 16.072 $ 14.075 $ 10.889 $ 11.876 $ 10.618
- ------------------------------------------------------------------------------------------------------------------------------------
Accumulation unit value at end of period $ 20.143 $ 16.072 $ 14.075 $ 10.889 $ 11.876
- ------------------------------------------------------------------------------------------------------------------------------------
Number of accumulation units outstanding at end of
period (in thousands) 17,569 17,006 14,307 11,859 11,003
- ------------------------------------------------------------------------------------------------------------------------------------
PUTNAM VISTA SUB-ACCOUNT
(Inception date January 2, 1997)
- ------------------------------------------------------------------------------------------------------------------------------------
Accumulation unit value at beginning of period $ 10.000 - - - -
- ------------------------------------------------------------------------------------------------------------------------------------
Accumulation unit value at end of period $ 12.151 - - - -
- ------------------------------------------------------------------------------------------------------------------------------------
Number of accumulation units outstanding at
end of period (in thousands) 8,062 - - - -
- ------------------------------------------------------------------------------------------------------------------------------------
PUTNAM VOYAGER SUB-ACCOUNT
(Inception date February 1, 1988)
- ------------------------------------------------------------------------------------------------------------------------------------
Accumulation unit value at beginning of period $ 36.227 $ 32.520 $ 23.445 $ 23.530 $ 20.102
- ------------------------------------------------------------------------------------------------------------------------------------
Accumulation unit value at end of period $ 45.197 $ 36.227 $ 32.520 $ 23.445 $ 23.530
- ------------------------------------------------------------------------------------------------------------------------------------
Number of accumulation units outstanding at
end of period (in thousands) 48,250 41,121 23,357 13,372 6,509
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
10
<PAGE>
SUMMARY
WHAT IS THE CONTRACT AND HOW MAY I PURCHASE ONE?
The Contract offered is a tax-deferred Variable Annuity Contract (see
"Taxation of Annuities in General," page 37). Generally, the Contract is
purchased by completing an application or an order to purchase a Contract and
submitting it, along with the initial Premium Payments, to Hartford for its
approval. The minimum initial Premium Payment is $1,000 with a minimum
allocation to any Fund of $500. Certain plans may make smaller initial and
subsequent periodic premium payments. Subsequent Premium Payments, if made,
must be a minimum of $500 except if you are in the InvestEase Program the
minimum is $50. A Contract Owner may, at any time within 10 days of delivery
of a Contract sold hereunder, return the Contract to Hartford at its Home
Office and the value of the Contract (without deduction for any charges
normally assessed thereunder) will be refunded. The Contract Owner bears the
investment risk during the period prior to the Company's receipt of request
for cancellation, except for Contract Owners in Georgia, North Carolina, South
Carolina, Washington, West Virginia, Utah, and other states where required by
law who will be refunded the premiums (see "Right to Cancel Period," page 16).
WHO MAY PURCHASE THE CONTRACT?
Any individual, group or trust may purchase the Contracts, including any trustee
or custodian for a retirement plan which qualifies for special Federal tax
treatment under the Internal Revenue Code including individual retirement
annuities ("Qualified Contracts"). (See "Federal Tax Considerations" commencing
on page 37 and Appendix I commencing on page 47.)
WHAT TYPES OF INVESTMENTS ARE AVAILABLE UNDER THE CONTRACT?
The underlying investments for the Contract are shares of Putnam Variable
Trust, an open-end series investment company with multiple portfolios ("the
Funds") as follows: Putnam VT Asia Pacific Growth Fund, Putnam VT Diversified
Income Fund, Putnam VT The George Putnam Fund of Boston, Putnam VT Global
Asset Allocation Fund, Putnam VT Global Growth Fund, Putnam VT Growth and
Income Fund, Putnam VT Health Sciences Fund, Putnam VT High Yield Fund,
Putnam VT International Growth Fund, Putnam VT International Growth and
Income Fund, Putnam VT International New Opportunities Fund, Putnam VT
Investors Fund, Putnam VT Money Market Fund, Putnam VT New Opportunities
Fund, Putnam VT New Value Fund, Putnam VT OTC & Emerging Growth Fund, Putnam
VT U.S. Government and High Quality Bond Fund, Putnam VT Utilities Growth and
Income Fund, Putnam VT Vista Fund, Putnam VT Voyager Fund, and such other
Funds as shall be offered from time to time, and the Fixed Account, or a
combination of the Funds and the Fixed Account. (See "The Funds" commencing
on page 20 and "The Fixed Account" commencing on page 18.)
11
<PAGE>
WHAT ARE THE CHARGES UNDER THE CONTRACTS?
SALES EXPENSES
There is no deduction for sales expenses from Premium Payments when made.
However, a contingent deferred sales charge may be assessed against Contract
Values when they are surrendered. (See "Contingent Deferred Sales Charges"
commencing on page 30.)
The length of time from receipt of a Premium Payment to the time of surrender
determines the contingent deferred sales charge. For this purpose, Premium
Payments will be deemed to be surrendered in the order in which they are
received and all surrenders will be first from Premium Payments and then from
other Contract values. The charge is a percentage of the amount withdrawn (not
to exceed the aggregate amount of the Premium Payments made). The charge is as
follows:
<TABLE>
<CAPTION>
LENGTH OF TIME
FROM PREMIUM PAYMENT
CHARGE (NUMBER OF YEARS)
<S> <C> <C>
7% 1
6% 2
5% 3
4% 4
3% 5
2% 6
1% 7
0% 8 or more
</TABLE>
No contingent deferred sales charge will be assessed in the event of death of
the Annuitant or Contract Owner, or upon the exercise of the withdrawal
privilege or if Contract Values are applied to an Annuity option provided for
under the Contract (except that a surrender out of Annuity Option Four will be
subject to a contingent deferred sales charge where applicable). (See
"Contingent Deferred Sales Charges" commencing on page 30.)
FREE WITHDRAWAL PRIVILEGE
Withdrawals of up to 10% per Contract Year, on a noncumulative basis, of the
Premium Payments made to a Contract may be made without the imposition of the
contingent deferred sales charge. (See "Contingent Deferred Sales Charges"
commencing on page 30.) Certain plans or programs may have different
withdrawal privileges.
MORTALITY AND EXPENSE RISKS
For assuming the mortality and expense risks under the Contract, Hartford will
impose a 1.25% per annum charge against all Contract Values held in the Separate
Account (see "Mortality and Expense Risk Charge," page 32).
12
<PAGE>
ANNUAL ADMINISTRATION AND MAINTENANCE FEE
The Contract provides for administration and Contract maintenance charges. For
administration, the charge is .15% per annum against all Contract Values held in
the Separate Account. For Contract maintenance, the charge is $25 annually.
(See "Administration Charge and Maintenance Fees," page 33.) Contracts with a
Contract Value of $50,000 or more at time of Contract Anniversary will not be
assessed this fee.
PREMIUM TAXES
A deduction will be made for Premium Taxes for Contracts sold in certain states.
(See "Premium Taxes," page 33.)
CHARGES BY THE FUNDS
The Funds are subject to certain fees, charges and expenses. (See the
Prospectus for the Trust attached hereto.)
CAN I GET MY MONEY IF I NEED IT?
Subject to any applicable charges, the Contract may be surrendered, or portions
of the value of such Contract may be withdrawn, at any time prior to the Annuity
Commencement Date. However, if less than $500 remains in a Contract as a result
of a withdrawal, Hartford may terminate the Contract in its entirety. (See
"Redemption/Surrender of a Contract," page 26.)
DOES THE CONTRACT PAY ANY DEATH BENEFITS?
A death benefit is provided in the event of death of the Annuitant, Contract
Owner, or Joint Contract Owner prior to the Annuitant's, Contract Owner's, or
Joint Contract Owner's 85th birthday and before Annuity payments have
commenced. (See "Death Benefit," page 28.)
WHAT ARE THE AVAILABLE ANNUITY OPTIONS UNDER THE CONTRACT?
There are five available Annuity options under the Contract which are described
on page 34. The Annuity Commencement Date may not be deferred beyond the
Annuitant's 90th birthday except in certain states where the Annuity
Commencement Date may not be deferred beyond the Annuitant's 85th birthday. If
a Contract Owner does not elect otherwise, the Contract Value less applicable
premium taxes will be applied on the Annuity Commencement Date under the second
option to provide a life annuity with 120 monthly payments certain.
DOES THE CONTRACT OWNER HAVE ANY VOTING RIGHTS UNDER THE CONTRACT?
Contract Owners will have the right to vote on matters affecting an underlying
Fund to the extent that proxies are solicited by such Fund. If a Contract Owner
does not vote,
13
<PAGE>
Hartford shall vote such interests in the same proportion as shares of the Fund
for which instructions have been received by Hartford. (See "Voting Rights,"
page 44.)
PERFORMANCE RELATED INFORMATION
The Separate Account may advertise certain performance related information
concerning its Sub-Accounts. Performance information about a Sub-Account is
based on the Sub-Account's past performance only and is no indication of future
performance.
Putnam Asia Pacific Growth Sub-Account, Putnam Diversified Income Sub-Account,
The George Putnam Fund Sub-Account, Putnam Global Asset Allocation Sub-Account,
Putnam Global Growth Sub-Account, Putnam Growth and Income Sub-Account, Putnam
Health Sciences Sub-Account, Putnam High Yield Sub-Account, Putnam International
Growth Sub-Account, Putnam International Growth and Income Sub-Account, Putnam
International New Opportunities Sub-Account, Putnam Investors Sub-Account,
Putnam Money Market Sub-Account, Putnam New Opportunities Sub-Account, Putnam
New Value Sub-Account, Putnam OTC & Emerging Growth Sub-Account, Putnam U.S.
Government and High Quality Bond Sub-Account, Putnam Utilities Growth and
Income Sub-Account, Putnam Vista Sub-Account, and Putnam Voyager Sub-Account
may include total return in advertisements or other sales material.
When a Sub-Account advertises its total return, it will usually be calculated
for one year, five years, and ten years or some other relevant periods if the
Sub-Account has not been in existence for at least ten years. Total return is
measured by comparing the value of an investment in the Sub-Account at the
beginning of the relevant period to the value of the investment at the end of
the period (assuming the deduction of any contingent deferred sales charge which
would be payable if the investment were redeemed at the end of the period).
Putnam Diversified Income Sub-Account, Putnam Growth and Income Sub-Account,
Putnam International Growth and Income Sub-Account, Putnam High Yield
Sub-Account and Putnam U.S. Government and High Quality Bond Sub-Account 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 reflects the recurring charges at the Separate Account level including
the Annual Maintenance Fee.
Putnam Money Market Sub-Account may advertise yield and effective yield. The
yield 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 reflects the
recurring charges at the Separate Account level including the Annual Maintenance
Fee.
14
<PAGE>
Total return at the Separate Account level includes all Contract charges: sales
charges, mortality and expense risk charges, and the Annual Maintenance Fee,
and is therefore lower than total return at the Fund level, with no comparable
charges. Likewise, yield at the Separate Account level includes all recurring
charges (except sales charges), and is therefore lower than yield at the Fund
level, with no comparable charges.
Hartford may provide information on various topics to Contract Owners and
prospective Contract Owners in advertising, sales literature or other materials.
These topics may include the relationship between sectors of the economy and the
economy as a whole and its effect on various securities markets, investment
strategies and techniques (such as value investing, dollar cost averaging and
asset allocation), the advantages and disadvantages of investing in
tax-advantaged and taxable instruments, customer profiles and hypothetical
purchase scenarios, financial management and tax and retirement planning, and
other investment alternatives, including comparisons between the Contracts and
the characteristics of and market for such alternatives.
INTRODUCTION
This Prospectus has been designed to provide you with the necessary information
to make a decision on purchasing a tax-deferred Variable Annuity Contract
offered by Hartford and funded by the Fixed Account and/or a series of the
Separate Account. Please read the Glossary of Special Terms on pages 4, 5
and 6 prior to reading this Prospectus to familiarize yourself with the terms
being used.
THE CONTRACT
The Putnam Capital Manager is a tax-deferred Variable Annuity Contract.
Payments for the Contract will be held in the Fixed Account and/or a series of
the Separate Account. Initially there are no deductions from your Premium
Payments (except for Premium Taxes, if applicable) so your entire Premium
Payment is put to work in the investment Sub-Account(s) of your choice or the
Fixed Account. Each Sub-Account invests in a different underlying Fund with
its own distinct investment objectives. You pick the Sub-Account(s) with the
investment objectives that meet your needs. You may select one or more
Sub-Accounts and/or the Fixed Account and determine the percentage of your
Premium Payment that is put into a Sub-Account or the Fixed Account. You may
also transfer assets among the Sub-Accounts and the Fixed Account so that your
investment program meets your specific needs over time. There are minimum
requirements for investing in each Sub-Account and the Fixed Account which are
described later in this Prospectus. In addition, there are certain other
limitations on withdrawals and transfers of amounts in the Sub-Accounts and
the Fixed Account as described in this Prospectus. See "Charges Under the
Contract" for a description of the charges for redeeming a Contract and other
charges made under the Contract.
Generally, the Contract contains the five optional forms of Annuity described
later in this Prospectus. Options 2, 4 and 5 are available with respect to
Qualified Contracts only if the guaranteed payment period is less than the life
expectancy of the Annuitant at the time the option becomes effective. Such life
expectancy shall be computed on the basis
15
<PAGE>
of the mortality table prescribed by the IRS, or if none is prescribed, the
mortality table then in use by Hartford.
The Contract Owner may select an Annuity Commencement Date and an Annuity option
which may be on a fixed or variable basis, or a combination thereof. The
Annuity Commencement Date may not be deferred beyond the Annuitant's 90th
birthday, except in certain states where the Annuity Commencement Date may not
be deferred beyond the Annuitant's 85th birthday.
The Annuity Commencement Date and/or the Annuity option may be changed from time
to time, but any such change must be made at least 30 days prior to the date on
which payments are scheduled to begin. If you do not elect otherwise, payments
will begin at the Annuitant's age 90 under Option 2 with 120 monthly payments
certain (Option 1 for Contracts issued in Texas).
When an Annuity is effected under a Contract, unless otherwise specified,
Contract Values held in the Sub-Accounts will be applied to provide a Variable
Annuity based on the pro rata amount in the various Sub-Accounts. Fixed Account
Contract Values will be applied to provide a Fixed Annuity. Variable Annuity
payments will vary in accordance with the investment performance of the
Sub-Accounts you have selected. The Contract allows the Contract Owner to
change the Sub-Accounts on which variable payments are based after payments have
commenced once every three (3) months. Any Fixed Annuity allocation may not be
changed.
The Contract offered under this Prospectus may be purchased by any individual
("Non-Qualified Contract") or by an individual, trustee or custodian for a
retirement plan qualified under Sections 401(a) or 403(a) of the Internal
Revenue Code; annuity purchase plans adopted by public school systems and
certain tax-exempt organizations according to Section 403(b) of the Internal
Revenue Code; Individual Retirement Annuities adopted according to Section 408
of the Internal Revenue Code; employee pension plans established for employees
by a state, a political subdivision of a state, or an agency or instrumentality
of either a state or a political subdivision of a state, and certain eligible
deferred compensation plans as defined in Section 457 of the Internal Revenue
Code ("Qualified Contracts").
RIGHT TO CANCEL PERIOD
If you are not satisfied with your purchase you may surrender the Contract by
returning it within ten days (or longer in some states) after you receive it. A
written request for cancellation must accompany the Contract. In such event,
Hartford will, without deduction for any charges normally assessed thereunder,
pay you an amount equal to the sum of (i) the difference between the Premium
Payment and the amounts allocated to the Sub-Account(s) and/or the Fixed Account
under the Contract and (ii) the Contract Value on the date of surrender
attributable to the amounts so allocated. You bear the investment risk during
the period prior to the Company's receipt of request for cancellation.
Hartford will refund the premium paid only for individual retirement annuities
and in those states where required by law.
16
<PAGE>
THE SEPARATE ACCOUNT
The Separate Account was established on May 20, 1991, in accordance with
authorization by the Board of Directors of Hartford. It is the Separate Account
in which Hartford sets aside and invests the assets attributable to variable
annuity Contracts, including the Contracts sold under this Prospectus. Although
the Separate Account is an integral part of Hartford, it is registered as a unit
investment trust under the Investment Company Act of 1940. This registration
does not, however, involve supervision by the Commission of the management or
the investment practices or policies of the Separate Account or Hartford. The
Separate Account meets the definition of "separate account" under federal
securities law.
Under Connecticut law, the assets of the Separate Account attributable to the
Contracts offered under this Prospectus are held for the benefit of the owners
of, and the persons entitled to payments under, those Contracts. Income, gains,
and losses, whether or not realized, from assets allocated to the Separate
Account, are, in accordance with the Contracts, credited to or charged against
the Separate Account. Also, the assets in the Separate Account are not
chargeable with liabilities arising out of any other business Hartford may
conduct. So Contract Values allocated to the Sub-Accounts will not be affected
by the rate of return of Hartford's General Account, nor by the investment
performance of any of Hartford's other separate accounts. However, the
obligations arising under the Contracts are general obligations of Hartford.
Your investment in the Separate Account is allocated to one or more Sub-Accounts
as per your specifications. Each Sub-Account is invested exclusively in the
shares of one underlying Fund. Net Premium Payments and proceeds of transfers
between Funds are applied to purchase shares in the appropriate Fund at net
asset value determined as of the end of the Valuation Period during which the
payments were received or the transfer made. All distributions from the Funds
are reinvested at net asset value. The value of your investment will therefore
vary in accordance with the net income and the market value of the portfolios of
the underlying Fund(s). During the Variable Annuity payout period, both your
Annuity payments and reserve values will vary in accordance with these factors.
Hartford does not guarantee the investment results of the Funds or any of the
underlying investments. There is no assurance that the value of a Contract
during the years prior to retirement or the aggregate amount of the Variable
Annuity payments will equal the total of Premium Payments made under the
Contract. Since each underlying Fund has different investment objectives and
policies, each is subject to different risks. These risks are more fully
described in the accompanying Trust Prospectus.
Hartford reserves the right, subject to compliance with the law, to substitute
the shares of any other registered investment company for the shares of any Fund
held by the Separate Account. Substitution may occur only if shares of the
Fund(s) become unavailable or if there are changes in applicable law or
interpretations of law. Current law requires notification to you of any such
substitution and approval of the Commission.
17
<PAGE>
The Separate Account may be subject to liabilities arising from a Series of the
Separate Account whose assets are attributable to other variable annuity
Contracts or variable life insurance policies offered by the Separate Account
which are not described in this Prospectus.
THE FIXED ACCOUNT
THAT PORTION OF THE CONTRACT RELATING TO THE FIXED ACCOUNT IS NOT REGISTERED
UNDER THE SECURITIES ACT OF 1933 ("1933 ACT") AND THE FIXED ACCOUNT IS NOT
REGISTERED AS AN INVESTMENT COMPANY UNDER THE INVESTMENT COMPANY ACT OF 1940
("1940 ACT"). ACCORDINGLY, NEITHER THE FIXED ACCOUNT NOR ANY INTERESTS THEREIN
ARE SUBJECT TO THE PROVISIONS OR RESTRICTIONS OF THE 1933 ACT OR THE 1940 ACT,
AND THE DISCLOSURE REGARDING THE FIXED ACCOUNT HAS NOT BEEN REVIEWED BY THE
STAFF OF THE SECURITIES AND EXCHANGE COMMISSION. THE FOLLOWING DISCLOSURE ABOUT
THE FIXED ACCOUNT MAY BE SUBJECT TO CERTAIN GENERALLY APPLICABLE PROVISIONS OF
THE FEDERAL SECURITIES LAWS REGARDING THE ACCURACY AND COMPLETENESS OF
DISCLOSURE.
Premium Payments and Contract Values allocated to the Fixed Account become a
part of the general assets of Hartford. Hartford invests the assets the General
Account in accordance with applicable laws governing investments of Insurance
Company General Accounts.
Currently, Hartford guarantees that it will credit interest at a rate of not
less than 3% per year, compounded annually, to amounts allocated to the Fixed
Account under the Contracts. However, Hartford reserves the right to change the
rate according to state insurance law. Hartford may credit a lower minimum
interest rate according to state law. Hartford may credit interest at a rate in
excess of 3% per year; however, Hartford is not obligated to credit any interest
in excess of 3% per year. There is no specific formula for the determination of
excess interest credits. Some of the factors that the Company may consider in
determining whether to credit excess interest to amounts allocated to the Fixed
Account and the amount thereof, are general economic trends, rates or return
currently available and anticipated on the Company's investments, regulatory
and tax requirements and competitive factors. ANY INTEREST CREDITED TO AMOUNTS
ALLOCATED TO THE FIXED ACCOUNT IN EXCESS OF 3% PER YEAR WILL BE DETERMINED IN
THE SOLE DISCRETION OF THE COMPANY. THE OWNER ASSUMES THE RISK THAT INTEREST
CREDITED TO FIXED ACCOUNT ALLOCATIONS MAY NOT EXCEED THE MINIMUM GUARANTEE OF 3%
FOR ANY GIVEN YEAR.
DOLLAR COST AVERAGING PLUS PROGRAM From time to time, Hartford may credit
increased interest rates to Contract Owners under certain programs established
at the discretion of
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Hartford. Contract Owners may enroll in a special pre-authorized transfer
program known as Hartford's Dollar Cost Averaging Bonus Program (the
"Program"). Under this Program, Contract Owners who enroll may allocate a
minimum of $5,000 of their Premium Payment into the Program (Hartford may
allow a lower minimum Premium Payment for qualified plan transfers or
rollovers, including IRAs) and pre-authorize transfers to any of the
Sub-Accounts under either the 6 Month Transfer Program or 12 Month Transfer
Program. The 6 Month Transfer Program and the 12 Month Transfer Program will
generally have different credited interest rates. Under the 6 Month Transfer
Program, the interest rate can accrue up to 6 months and all Premium Payments
and accrued interest must be transferred to the selected Sub-Accounts in 3 to
6 months. Under the 12 Month Transfer Program, the interest rate can accrue
up to 12 months and all Premium Payments and accrued interest must be
transferred to the selected Sub-Accounts in 7 to 12 months. This will be
accomplished by monthly transfers for the period selected and a final transfer
of the entire amount remaining in the Program.
The pre-authorized transfers will begin within 15 days after the initial Program
Premium Payment and complete enrollment instructions are received by Hartford.
If complete Program enrollment instructions are not received by Hartford within
15 days of receipt of the initial Program Premium Payment, the Program will be
voided and the entire balance in the Program will be credited with the
non-Program interest rate then in effect for the Fixed Account.
Any subsequent Premium Payments received by Hartford within the Program period
selected will be allocated to the Sub-Accounts over the remainder of that
Program transfer period, unless otherwise directed by the Contract Owner.
A Contract Owner may only have one dollar cost averaging program in place at one
time, this includes one standard dollar cost averaging plan or one Dollar Cost
Averaging Plus Program.
Contract Owners may elect to terminate the pre-authorized transfers by calling
or writing Hartford of their intent to cancel their enrollment in the Program.
Upon cancellation of enrollment in the Program, Contract Owners will no longer
receive the increased interest rate. Hartford reserves the right to discontinue,
modify or amend the Program or any other interest rate program established by
Hartford. Any change to the Program will not affect Contract Owners currently
enrolled in the Program. This Program may not be available in all states; please
contact Hartford to determine if it is available in your state.
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 and the District of Columbia,
except New York.
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Effective on January 1, 1998, Hartford's name changed from ITT Hartford Life
and Annuity Insurance Company to Hartford Life and Annuity Insurance Company.
Hartford was originally incorporated under the laws of Wisconsin on January 9,
1956, and was subsequently redomiciled to Connecticut. Its offices are located
in Simsbury, Connecticut; however, its mailing address is P.O. Box 2999,
Hartford, CT 06104-2999. Hartford is a subsidiary of Hartford Fire Insurance
Company, one of the largest multiple lines insurance carriers in the United
States. Hartford is ultimately controlled by The Hartford Financial Services
Group, Inc., a Delaware corporation.
HARTFORD RATINGS
<TABLE>
<CAPTION>
RATING AGENCY EFFECTIVE RATING BASIS OF RATING
DATE OF
RATING
- ---------------------------------------------------------------
<S> <C> <C> <C>
A.M. Best and 9/9/97 A+ Financial soundness
Company, Inc. and operating
performance.
- ---------------------------------------------------------------
Standard & Poor's 1/23/98 AA Claims paying ability
- ---------------------------------------------------------------
Duff & Phelps 1/23/98 AA+ Claims paying ability
- ---------------------------------------------------------------
</TABLE>
THE FUNDS
The underlying investments for the Contracts are shares of Putnam Variable
Trust, an open-end series investment company with multiple portfolios ("Funds").
The underlying Funds corresponding to each Sub-Account and their investment
objectives are described below. Hartford reserves the right, subject to
compliance with the law, to offer additional funds with differing investment
objectives. The Funds may not be available in all states.
PUTNAM VT ASIA PACIFIC GROWTH FUND
Seeks capital appreciation by investing primarily in securities of companies
located in Asia and in the Pacific Basin. The fund's investments will normally
include common stocks, preferred stocks, securities convertible into common
stocks or preferred stocks, and warrants to purchase common stocks or preferred
stocks.
PUTNAM VT DIVERSIFIED INCOME FUND
Seeks high current income consistent with capital preservation by investing in
the following three sectors of the fixed income securities markets: a U.S.
Government and Investment Grade Sector, a High Yield Sector (which invests
primarily in securities commonly known as "junk bonds"), and an International
Sector. See the special considerations for investments in high yield securities
described in the Fund prospectus.
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<PAGE>
PUTNAM VT THE GEORGE PUTNAM FUND OF BOSTON
Seeks to provide a balanced investment composed of a well-diversified portfolio
of stocks and bonds which will produce both capital growth and current income.
PUTNAM VT GLOBAL ASSET ALLOCATION FUND
Seeks a high level of long-term total return consistent with preservation of
capital by investing in U.S. equities, international equities, U.S. fixed income
securities, and international fixed income securities.
PUTNAM VT GLOBAL GROWTH FUND
Seeks capital appreciation through a globally diversified portfolio of common
stocks.
PUTNAM VT GROWTH AND INCOME FUND
Seeks capital growth and current income by investing primarily in common stocks
that offer potential for capital growth, current income, or both.
PUTNAM VT HEALTH SCIENCES FUND
Seeks capital appreciation by investing at least 80% of its assets (other than
assets invested in U.S. government securities, short-term debt obligations, and
cash or money market instruments) in common stocks and other securities of
companies in the health sciences industries.
PUTNAM VT HIGH YIELD FUND
Seeks high current income and, when consistent with this objective, a secondary
objective of capital growth, by investing primarily in high-yielding,
lower-rated fixed income securities, constituting a portfolio which Putnam
Management believes does not involve undue risk to income or principal. See the
special considerations for investments in high yield securities described in the
Fund prospectus.
PUTNAM VT INTERNATIONAL GROWTH FUND
Seeks capital appreciation by investing primarily in equity securities of
companies located in a country other than the United States.
PUTNAM VT INTERNATIONAL GROWTH AND INCOME FUND
Seeks capital growth, and a secondary objective of high current income by
investing primarily in common stocks that offer potential for capital growth and
may, when consistent with its investment objectives, invest in common stocks
that offer potential for current income. Under normal market conditions, the
fund expects to invest substantially all of its assets in securities principally
traded on markets outside the United States.
PUTNAM VT INTERNATIONAL NEW OPPORTUNITIES FUND
Seeks long term capital appreciation by investing in companies that have
above-average growth prospects due to the fundamental growth of their market
sector. Under normal market conditions, the fund expects to invest substantially
all of its total assets, other than cash or short-term investments held pending
investment, in common stocks, preferred
21
<PAGE>
stocks, convertible preferred stocks, covertible bonds and other equity
securities principally traded in securities markets outside the United States.
PUTNAM VT INVESTORS FUND
Seeks long-term growth of capital and any increased income that results from
this growth by investing primarily in common stocks that Putnam Management
believes afford the best opportunity for capital growth over the long term.
PUTNAM VT MONEY MARKET FUND
Seeks as high a rate of current income as Putnam Management believes is
consistent with preservation of capital and maintenance of liquidity by
investing in high-quality money market instruments.
PUTNAM VT NEW OPPORTUNITIES FUND
Seeks long-term capital appreciation by investing principally in common stocks
of companies in sectors of the economy which Putnam Management believes possess
above-average long-term growth potential.
PUTNAM VT NEW VALUE FUND
Seeks long-term capital appreciation by investing primarily in common stocks
that Putnam Management believes are undervalued at the time of purchase and have
the potential for long-term capital appreciation.
PUTNAM VT OTC & EMERGING GROWTH FUND
Seeks capital appreciation by investing primarily in common stocks that Putnam
Management believes have potential for capital appreciation significantly
greater than that of market averages.
PUTNAM VT U.S. GOVERNMENT AND HIGH QUALITY BOND FUND
Seeks current income consistent with preservation of capital by investing
primarily in securities issued or guaranteed as to principal and interest by the
U.S. Government or by its agencies or instrumentalities and in other debt
obligations rated at least A by a nationally recognized securities rating agency
such as Standard & Poor's or Moody's Investor Services, Inc. or, if not rated,
determined by Putnam Management to be of comparable quality.
PUTNAM VT UTILITIES GROWTH AND INCOME FUND
Seeks capital growth and current income by concentrating its investments in debt
and equity securities issued by companies in the public utilities industries.
PUTNAM VT VISTA FUND
Seeks capital appreciation by investing in a diversified portfolio of common
stocks which Putnam Management believes have the potential for above-average
capital appreciation.
22
<PAGE>
PUTNAM VT VOYAGER FUND
Seeks capital appreciation by investing primarily in common stocks of companies
that Putnam Management believes have potential for capital appreciation that is
significantly greater than that of market averages.
Putnam VT Asia Pacific Growth Fund, Putnam VT Diversified Income Fund, Putnam VT
The George Putnam Fund of Boston, Putnam VT Global Growth Fund, Putnam VT
Growth and Income Fund, Putnam VT Health Sciences Fund, Putnam VT High Yield
Fund, Putnam VT International Growth Fund, Putnam VT International Growth and
Income Fund, Putnam VT International New Opportunities Fund, Putnam VT Investors
Fund, Putnam VT Money Market Fund, Putnam VT New Opportunities Fund, Putnam VT
New Value Fund, Putnam VT OTC & Emerging Growth Fund, Putnam VT U.S. Government
and High Quality Bond Fund, Putnam VT Utilities Growth and Income Fund, Putnam
VT Vista Fund, and Putnam VT Voyager Fund are generally managed in styles
similar to other open-end investment companies which are managed by Putnam
Management and whose shares are generally offered to the public. These other
Putnam funds may, however, employ different investment practices and may invest
in securities different from those in which their counterpart Funds invest, and
consequently will not have identical portfolios or experience identical
investment results.
The Funds are available only to serve as the underlying investment for variable
annuity and variable life Contracts. A full description of the Funds, their
investment objectives, policies and restrictions, risks, charges and expenses
and other aspects of their operation are contained in the accompanying Trust
prospectus which should be read in conjunction with this Prospectus before
investing, and in the Trust's Statement of Additional Information which may be
ordered without charge from Putnam Investor Services, Inc.
It is conceivable that in the future it may be disadvantageous for variable
annuity separate accounts and variable life insurance separate accounts to
invest in the Funds simultaneously. Although Hartford and the Funds do not
currently foresee any such disadvantages either to variable annuity Contract
Owners or to variable life insurance Policy Owners, the Trust's Board of
Trustees would monitor events in order to identify any material conflicts
between such Contract Owners and Policy Owners and to determine what action, if
any, should be taken in response thereto. If the Board of Trustees of the Funds
were to conclude that separate funds should be established for variable life and
variable annuity separate accounts, the variable annuity Contract Owners would
not bear any expenses attendant upon establishment of such separate funds.
Putnam Management, One Post Office Square, Boston, MA 02109, serves as the
investment manager for the Funds. An affiliate, The Putnam Advisory Company,
Inc., manages domestic and foreign institutional accounts and mutual funds.
Another affiliate, Putnam Fiduciary Trust Company, provides investment advice
to institutional clients under its banking and fiduciary policies. Putnam
Management and its affiliates are wholly-owned subsidiaries of Marsh & McLennan
Companies, Inc., a publicly owned
23
<PAGE>
holding company whose principal businesses are international insurance brokerage
and employee benefit consulting.
Subject to the general oversight of the Trustees of the Trust, Putnam Management
manages the Funds' portfolios in accordance with their stated investment
objectives and policies, makes investment decisions for the Funds, places orders
to purchase and sell securities on behalf of the Funds, and administers the
affairs of the Funds. For its services, the Funds pay Putnam Management a
quarterly fee. See the accompanying Trust Prospectus for a more complete
description of Putnam Management and the respective fees of the Funds.
OPERATION OF THE CONTRACT/ACCUMULATION PERIOD
PREMIUM PAYMENTS
The balance of each initial Premium Payment remaining after the deduction of any
applicable Premium Tax is credited to your Contract within two business days of
receipt of a properly completed application or an order to purchase a Contract
and the initial Premium Payment by Hartford at its Home Office, P.O. Box 5085,
Hartford, CT 06102-5085. It will be credited to the Sub-Account(s) and/or the
Fixed Account in accordance with your election. If the application or other
information is incomplete when received, the balance of each initial Premium
Payment, after deduction of any applicable Premium Tax, will be credited to the
Sub-Account(s) or the Fixed Account within five business days of receipt or the
entire Premium Payment will be immediately returned unless you have been
informed of the delay and request that the Premium Payment not be returned.
Subsequent Premium Payments are priced on the Valuation Day received by Hartford
in its Home Office or other designated administrative offices.
The number of Accumulation Units in each Sub-Account to be credited to a
Contract will be determined by dividing the portion of the Premium Payment being
credited to each Sub-Account by the value of an Accumulation Unit in that
Sub-Account on that date.
The minimum initial Premium Payment is $1,000. Subsequent Premium Payments,
if made, must be a minimum of $500 except if you are in the InvestEase
Program the minimum is $50. Certain plans may make smaller initial and
subsequent periodic payments. Each Premium Payment may be split among the
various Sub-Accounts and the Fixed Account subject to minimum amounts then in
effect.
VALUE OF ACCUMULATION UNITS
The Accumulation Unit value for each Sub-Account will vary to reflect the
investment experience of the applicable Fund and will be determined on each
Valuation Day by multiplying the Accumulation Unit value of the particular
Sub-Account on the preceding Valuation Day by a "Net Investment Factor" for
that Sub-Account for the Valuation Period then ended. The "Net Investment
Factor" for each of the Sub-Accounts is equal to the net asset value per share
of the corresponding Fund at the end of the Valuation Period (plus the per share
amount of any dividends or capital gains distributed by that Fund if the
ex-dividend date occurs in the Valuation Period then ended) divided
24
<PAGE>
by the net asset value per share of the corresponding Fund at the beginning of
the Valuation Period. You should refer to the Trust Prospectus which
accompanies this Prospectus for a description of how the assets of each Fund are
valued since each determination has a direct bearing on the Accumulation Unit
value of the Sub-Account and therefore the value of a Contract. The
Accumulation Unit value is affected by the performance of the underlying
Fund(s), expenses and deduction of the charges described in this Prospectus.
The shares of the Fund are valued at net asset value on each Valuation Day. A
description of the valuation methods used in valuing Fund shares may be found in
the accompanying Prospectus of the Trust.
VALUE OF THE FIXED ACCOUNT
Hartford will determine the value of the Fixed Account by crediting interest to
amounts allocated to the Fixed Account. The minimum Fixed Account interest rate
is 3%, compounded annually. Hartford may credit a lower minimum interest rates
according to state law. Hartford, also may credit interest at rates greater
than the minimum Fixed Account interest rate.
VALUE OF THE CONTRACT
The value of the Sub-Account investments under your Contract at any time prior
to the commencement of Annuity payments can be determined by multiplying the
total number of Accumulation Units credited to your Contract in each Sub-Account
by the then current Accumulation Unit values for the applicable Sub-Account.
The value of the Fixed Account under your Contract will be the amount allocated
to the Fixed Account plus interest credited. You will be advised at least
semi-annually of the number of Accumulation Units credited to each Sub-Account,
the current Accumulation Unit values, the Fixed Account Value, and the total
value of your Contract.
TRANSFERS AMONG SUB-ACCOUNTS
You may transfer the values of your Sub-Account allocations from one or more
Sub-Accounts to another free of charge. Transfers by telephone may be made by
calling (800) 521-0538. Telephone transfers may not be permitted by some states
for their residents who purchase variable annuities. However, Hartford reserves
the right to limit the number of transfers to twelve (12) per Contract Year,
with no two (2) transfers occurring on consecutive Valuation Days. Hartford may
permit the Contract Owner to preauthorize transfers among Sub-Accounts and
between the Sub-Accounts and the Fixed Account under certain circumstances.
The policy of Hartford and its agents and affiliates is that they will not be
responsible for losses resulting from acting upon telephone requests reasonably
believed to be genuine. Hartford will employ reasonable procedures to confirm
that instructions communicated by telephone are genuine; otherwise, Hartford may
be liable for any losses due to unauthorized or fraudulent instructions. The
procedures Hartford follows for transactions initiated by telephone include
requirements that callers on behalf of a Contract Owner identify themselves and
the Contract Owner by
25
<PAGE>
name and social security number. All transfer instructions by telephone are
tape recorded.
The right to reallocate Contract Values between the Sub-Accounts is subject to
modification if Hartford determines, in its sole discretion, that the exercise
of that right by one or more Contract Owners is, or would be, to the
disadvantage of other Contract Owners. Any modification could be applied to
transfers to or from some or all of the Sub-Accounts and could include, but not
be limited to, the requirement of a minimum time period between each transfer,
not accepting transfer requests of an agent acting under a power of attorney on
behalf of more than one Contract Owner, or limiting the dollar amount that may
be transferred between the Sub-Accounts and the Fixed Account by a Contract
Owner at any one time. Such restrictions may be applied in any manner
reasonably designed to prevent any use of the transfer right which is considered
by Hartford to be to the disadvantage of other Contract Owners.
Transfers between the Sub-Accounts may be made both before and after Annuity
payments commence (limited to once a quarter) provided that the minimum
allocation to any Sub-Account may not be less than $500. No minimum balance is
presently required in any Sub-Account.
TRANSFERS BETWEEN THE FIXED ACCOUNT AND THE SUB-ACCOUNTS
Subject to the restrictions set forth above, transfers from the Fixed Account
into a Sub-Account may be made at any time during the Contract Year. The
maximum amount which may be transferred from the Fixed Account during any
Contract Year is the greater of 30% of the Fixed Account balance as of the last
Contract Anniversary or the greatest amount of any prior transfer from the Fixed
Account. If Hartford permits preauthorized transfers from the Fixed Account to
the Sub-Accounts, this restriction is inapplicable. However, if any interest
rate is renewed at a rate at least one percentage point less than the previous
rate, the Contract Owner may elect to transfer up to 100% of the funds receiving
the reduced rate within sixty days of notification of the interest rate
decrease. Generally, transfers may not be made from any Sub-Account into the
Fixed Account for the six-month period following any transfer from the Fixed
Account into one or more of the Sub-Accounts. Hartford reserves the right to
modify the limitations on transfers from the Fixed Account and to defer
transfers from the Fixed Account for up to six months from the date of request.
REDEMPTION/SURRENDER OF A CONTRACT
At any time prior to the Annuity Commencement Date, you have the right, subject
to any IRS provisions applicable thereto, to surrender the value of the Contract
in whole or in part. Surrenders are not permitted after Annuity payments
commence EXCEPT that a full surrender is allowed when payments for a designated
period (Option 4 or 5) are selected as the Annuity option.
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<PAGE>
FULL SURRENDERS. At any time prior to the Annuity Commencement Date (and after
the Annuity Commencement Date with respect to values applied to Option 4), the
Contract Owner has the right to terminate the Contract. In such event, the
Termination Value of the Contract may be taken in the form of a lump sum cash
settlement. The Termination Value of the Contract is equal to the Contract
Value less any applicable Premium Taxes, the Contract Maintenance Fee, if
applicable and any applicable contingent deferred sales charges. The
Termination Value may be more or less than the amount of the Premium Payments
made to a Contract.
PARTIAL SURRENDERS. The Contract Owner may make a partial surrender of Contract
Values at any time prior to the Annuity Commencement Date so long as the amount
surrendered is at least equal to the minimum amount rules then in effect.
Additionally, if the remaining Contract Value following a surrender is less than
$500 (and, for Texas Contracts, there were no Premium Payments made during the
preceding two Contract Years), Hartford may terminate the Contract and pay the
Termination Value.
During the Contract Year, on a non-cumulative basis, partial surrenders of
Contract Values of up to 10% of the aggregate Premium Payments made to the
Contract may be made without being subject to the contingent deferred sales
charge. Certain plans or programs may have different withdrawal privileges.
Hartford may permit the Contract Owner to preauthorize partial surrenders
subject to certain limitations then in effect.
TELEPHONE SURRENDER PRIVILEGES. Hartford permits partial surrenders by
telephone subject to dollar amount limitations in effect at the time a Contract
Owner requests the surrender. To request partial surrenders by telephone, a
Contract Owner must have completed and returned to Hartford a Telephone
Redemption Program Enrollment Form authorizing telephone surrenders. If there
are joint Contract Owners, both must authorize Hartford to accept telephone
instructions and agree that Hartford may accept telephone instructions for
partial surrenders from either Contract Owner. Partial surrender requests will
not be honored until Hartford receives all required documents in proper form.
Telephone authorization will remain valid until (a) Hartford receives written
notice of revocation by a Contract Owner, or, in the case of joint Contract
Owners, written notice from either Contract Owner; (b) Hartford discontinues the
privilege; or (c) Hartford has reason to believe that a Contract Owner has
entered into a market timing agreement with an investment adviser and/or
broker/dealer.
Hartford may record any telephone calls to verify data concerning transactions
and may adopt other procedures to confirm that telephone instructions are
genuine. Hartford will not be liable for losses or expenses arising out of
telephone instructions reasonably believed to be genuine.
In order to obtain that day's unit values on surrender, Hartford must receive
telephone surrender instructions prior to the close of trading on the New York
Stock Exchange (generally 4:00 p.m.).
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<PAGE>
Hartford may modify, suspend, or terminate telephone transaction privileges at
any time.
THERE ARE CERTAIN RESTRICTIONS ON SECTION 403(B) TAX SHELTERED ANNUITIES. AS OF
DECEMBER 31, 1988, ALL SECTION 403(B) ANNUITIES HAVE LIMITS ON FULL AND PARTIAL
SURRENDERS. CONTRIBUTIONS TO THE CONTRACT MADE AFTER DECEMBER 31, 1988 AND ANY
INCREASES IN CASH VALUE AFTER DECEMBER 31, 1988 MAY NOT BE DISTRIBUTED UNLESS
THE CONTRACT OWNER/EMPLOYEE HAS A) ATTAINED AGE 59 1/2, B) TERMINATED
EMPLOYMENT, C) DIED, D) BECOME DISABLED OR E) EXPERIENCED FINANCIAL HARDSHIP.
DISTRIBUTIONS DUE TO FINANCIAL HARDSHIP OR SEPARATION FROM SERVICE MAY STILL BE
SUBJECT TO A PENALTY TAX OF 10%.
HARTFORD WILL NOT ASSUME ANY RESPONSIBILITY IN DETERMINING WHETHER A WITHDRAWAL
IS PERMISSIBLE, WITH OR WITHOUT TAX PENALTY, IN ANY PARTICULAR SITUATION; OR IN
MONITORING WITHDRAWAL REQUESTS REGARDING PRE OR POST JANUARY 1, 1989 ACCOUNT
VALUES.
ANY SUCH FULL OR PARTIAL SURRENDER DESCRIBED ABOVE MAY RESULT IN ADVERSE TAX
CONSEQUENCES TO THE CONTRACT OWNER. THE CONTRACT OWNER, THEREFORE, SHOULD
CONSULT WITH HIS TAX ADVISER BEFORE UNDERTAKING ANY SUCH SURRENDER. (SEE
"FEDERAL TAX CONSIDERATIONS" COMMENCING ON PAGE 37.)
Payment on any request for a full or partial surrender from the Sub-Accounts
and/or the Fixed Account will be made as soon as possible and in any event no
later than seven days after the written request is received by Hartford at its
Home Office, Attn: Individual Annuity Operations, P.O. Box 5085, Hartford, CT
06102-5085. Hartford may defer payment of any amounts from the Fixed Account
for up to six months from the date of the request for surrender. If Hartford
defers payment for more than 30 days, Hartford will pay interest of at least 3%
per annum on the amount deferred. In requesting a partial withdrawal you should
specify the Fixed Account and/or the Sub-Account(s) from which the partial
withdrawal is to be taken. Otherwise, such withdrawal and any applicable
contingent deferred sales charges will be effected on a pro rata basis according
to the value in the Fixed Account and each Sub-Account under a Contract. Within
this context, the contingent deferred sales charges are taken from the Premium
Payments in the order in which they were received: from the earliest Premium
Payments to the latest Premium Payments. (See "Contingent Deferred Sales
Charges," page 30.)
DEATH BENEFIT
The Contracts provide that in the event the Annuitant dies before the Annuity
Commencement Date, the Contingent Annuitant will become the Annuitant. If the
Annuitant dies before the Annuity Commencement Date and either (a) there is no
28
<PAGE>
designated Contingent Annuitant, (b) the Contingent Annuitant predeceases the
Annuitant, or if any Contract Owner dies before the Annuity Commencement Date,
the Beneficiary as determined under the Contract Control Provisions, will
receive Minimum Death Benefit as determined on the date of receipt of due proof
of death by Hartford in its Home Office. With regard to Joint Contract Owners,
at the first death of a Joint Contract Owner prior to the Annuity Commencement
Date, the Beneficiary will be the surviving Contract Owner notwithstanding that
the beneficiary designation may be different. If the deceased, the Annuitant or
Contract Owner, as applicable, had attained age 85, then the Death Benefit will
equal the Contract Value. However, if, upon death prior to the Annuity
Commencement Date, the Annuitant or Contract Owner, as applicable, had not
attained his 85th birthday, the Beneficiary will receive the greater of (a) the
Contract Value determined as of the day written proof of death of such person is
received by Hartford, or (b) 100% of the total Premium Payments made to such
Contract, reduced by any prior surrenders, or (c) the Contract Value on the
Specified Contract Anniversary immediately preceding the date of death,
increased by the dollar amount of any Premium Payments made and reduced by the
dollar amount of any partial terminations since the immediately preceding
Specified Contract Anniversary in all states except North Carolina where the
Beneficiary will receive the greater of the Contract Value or the Premium
Payments as set forth in (a) and (b) above.
Death Benefit proceeds will remain invested in the Separate Account in
accordance with the allocation instructions given by the Certificate Owner until
the proceeds are paid or Hartford receives new instructions from the
Beneficiary. The death benefit may be taken in one sum, payable within 7 days
after the date Due Proof of Death is received, or under any of the settlement
options then being offered by the Company provided, however, that: (a) in the
event of the death of any Contract Owner prior to the Annuity Commencement Date,
the entire interest in the Contract will be distributed within 5 years after the
death of the Contract Owner and (b) in the event of the death of any Contract
Owner or Annuitant which occurs on or after the Annuity Commencement Date, any
remaining interest in the Contract will be paid at least as rapidly as under the
method of distribution in effect at the time of death, or, if the benefit is
payable over a period not extending beyond the life expectancy of the
Beneficiary or over the life of the Beneficiary, such distribution must commence
within one year of the date of death. Notwithstanding the foregoing, in the
event of the Contract Owner's death where the sole Beneficiary is the spouse of
the Contract Owner and the Annuitant or Contingent Annuitant is living, such
spouse may elect, in lieu of receiving the death benefit, to be treated as the
Contract Owner. The proceeds due on the death may be applied to provide
variable payments, fixed payments, or a combination of variable and fixed
payments.
If the Contract is owned by a corporation or other non-individual, the Death
Benefit payable upon the death of the Annuitant prior to the Annuity
Commencement Date will be payable only as one sum or under the same settlement
options and in the same manner as if an individual Contract Owner died on the
date of the Annuitant's death.
There may be postponement in the payment of death benefits wherever (a) the New
York Stock Exchange is closed, except for holidays or weekends or trading on the
New York
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Stock Exchange is restricted as determined by the Commission; (b) the Commission
permits postponement and so orders; or (c) the Commission determines that an
emergency exists making valuation of disposal of securities not reasonably
practicable.
For a discussion of the manner in which Annuity payments are determined and may
vary from month to month see "Determination of Payment Amount," page 35.
CHARGES UNDER THE CONTRACT
CONTINGENT DEFERRED SALES CHARGES
There is no deduction for sales expenses from Premium Payments when made.
However, a contingent deferred sales charge may be assessed against Contract
Values when they are surrendered.
A Contract Owner who chooses to surrender a Contract in full who has not
yet withdrawn the Annual Withdrawal Amount during the current Contract Year
(as described at page 31 below under the sub-heading "Confinement in a
Hospital, Long Term Care Facility or Nursing Home") may, depending upon the
amount of investment gain experienced under the Contract, reduce the amount
of any contingent deferred sales charge paid by first withdrawing the Annual
Withdrawal Amount and then requesting a full surrender of the Contract.
Currently, regardless of whether a Contract Owner first requests a partial
withdrawal of the Annual Withdrawal Amount, upon receiving a request for a
full surrender of a Contract, Hartford assesses any applicable contingent
deferred sales charge against the surrender proceeds representing the lesser
of: (1) aggregate Premium Payments under the Contract not previously
withdrawn; and (2) the Contract Value, less the Annual Withdrawal Amount
available at the time of the full surrender, less the Contract Maintenance
Fee.
The length of time from receipt of a Premium Payment to the time of surrender
determines the contingent deferred sales charge. For this purpose, Premium
Payments will be deemed to be surrendered in the order in which they are
received and all surrenders will be first from Premium Payments and then from
other Contract Values. The charge is a percentage of the amount withdrawn, not
to exceed the aggregate amount of the Premium Payments made, and equals:
<TABLE>
<CAPTION>
LENGTH OF TIME
FROM PREMIUM PAYMENT
CHARGE (NUMBER OF YEARS)
<S> <C>
7% 1
6% 2
5% 3
4% 4
3% 5
2% 6
1% 7
0% 8 or more
</TABLE>
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No contingent deferred sales charge will be assessed on a distribution due to
the death of the Annuitant or Contract Owner, or if Contract Values are applied
to an Annuity option provided for under the Contract (except that a surrender
out of Option 4 will be subject to a contingent deferred sales charge if
applicable) or upon the exercise of the withdrawal privilege.
In the case of a redemption in which you request a certain dollar amount be
withdrawn, the sales charge is deducted from the amount withdrawn and the
balance is paid to you. Example: You request a total withdrawal of $1,000 and
the applicable sales load is 5%. Your Sub-Account(s) and/or the Fixed Account
will be reduced by $1,000 and you will receive $950 (i.e., the $1,000 total
withdrawal less the 5% sales charge). This is also the method applicable on a
full surrender of your Contract. In the case of a partial redemption in which
you request to receive a specified amount, the sales charge will be calculated
on the total amount that must be withdrawn from your Sub-Account(s) and/or the
Fixed Account in order to provide you with the amount requested. Example: You
request to receive $1,000 and the applicable sales charge is 5%. Your
Sub-Account(s) and/or the Fixed Account will be reduced by $1,052.63 (i.e., a
total withdrawal of $1,052.63 which results in a $52.63 sales charge ($1,052.63
x 5%) and a net amount paid to you of $1,000 as requested). This example does
not take into account the Free Withdrawal Privilege described below.
The contingent deferred sales charges are used to cover expenses relating to the
sale and distribution of the Contracts, including commissions paid to any
distribution organization and its sales personnel, the cost of preparing sales
literature and other promotional activities. To the extent that these charges
do not cover such distribution expenses, the expenses will be borne by Hartford
from its general assets, including surplus. The surplus might include profits
resulting from unused mortality and expense risk charges.
CONFINEMENT IN A HOSPITAL, LONG TERM CARE FACILITY OR NURSING HOME - Hartford
will waive any Sales Charge applicable to a partial or full surrender if the
Annuitant is confined, at the recommendation of a physician for medically
necessary reasons, for at least 180 calendar days to: a hospital recognized as a
general hospital by the proper authority of the state in which it is located; or
a hospital recognized as a general hospital by the Joint Commission on the
Accreditation of Hospitals; or a facility certified as a hospital or long-term
care facility; or a nursing home licensed by the state in which it is located
and offers the services of a registered nurse 24 hours a day.
The Annuitant cannot be confined at the time the Contract was purchased in order
to receive this waiver and the Contract Owner(s) must have been the Contract
Owner(s) continuously since the Contract issue date; must provide written proof
of confinement satisfactory to Hartford; and must request the partial or full
surrender within 91 calendar days of the last day of confinement.
This waiver may not be available in all states. Please contact your registered
representative or Hartford to determine availability.
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FREE WITHDRAWAL PRIVILEGE
During any Contract year (on a non-cumulative basis), a Contract Owner may make
a partial surrender of Contract Values of up to 10% of the aggregate Premium
Payments made to the Contract (as determined on the date of the requested
withdrawal) without the application of the contingent deferred sales charge
described above ("Annual Withdrawal Amount"). Certain plans or programs may
have different withdrawal privileges. Any such withdrawal will be deemed to be
from Contract Values other than Premium Payments. From time to time, Hartford
may permit the Contract Owner to preauthorize partial surrenders subject to
certain limitations then in effect. Additional surrenders or any surrender of
the Contract Values in excess of such amount in any Contract Year during the
period when contingent deferred sales charges are applicable will be subject to
the appropriate charge as set forth above.
MORTALITY AND EXPENSE RISK CHARGE
Although Variable Annuity payments made under the Contracts will vary in
accordance with the 30 investment performance of the underlying Fund shares held
in the Sub-Account(s), the payments will not be affected by (a) Hartford's
actual mortality experience among Annuitants before or after the Annuity
Commencement Date or (b) Hartford's actual expenses, if greater than the
deductions provided for in the Contracts because of the expense and mortality
undertakings by Hartford.
For assuming these risks under the Contracts, Hartford will make a daily charge
at the rate of 1.25% per annum against all Contract Values held in the
Sub-Accounts during the life of the Contract, including the payout period,
(estimated at .90% for mortality and .35% for expense).
The mortality undertaking provided by Hartford under the Contracts, assuming the
selection of one of the forms of life Annuities, is to make monthly Annuity
payments (determined in accordance with the 1983a Individual Annuity Mortality
Table and other provisions contained in the Contract) to Annuitants regardless
of how long an Annuitant may live, and regardless of how long all Annuitants as
a group may live. Hartford also assumes the liability for payment of a minimum
death benefit under the Contract.
The mortality undertakings are based on Hartford's determination of expected
mortality rates among all Annuitants. If actual experience among Annuitants
during the Annuity payment period deviates from Hartford's actuarial
determination of expected mortality rates among Annuitants because, as a group,
their longevity is longer than anticipated, Hartford must provide amounts from
its general funds to fulfill its Contract obligations. In that event, a loss
will fall on Hartford. Also, in the event of the death of an Annuitant or
Contract Owner prior to age 85 and before the commencement of Annuity payments,
whichever is earlier, Hartford can, in periods of declining value, experience a
loss resulting from the assumption of the mortality risk relative to the minimum
death benefit.
In providing an expense undertaking, Hartford assumes the risk that the
contingent deferred sales charges and the Administration and Maintenance Fees
for maintaining the
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Contracts prior to the Annuity Commencement Date may be insufficient to cover
the actual cost of providing such items.
ADMINISTRATION CHARGE AND ANNUAL MAINTENANCE FEES
Hartford will deduct certain fees from Contract Values to reimburse it for
expenses relating to the administration and maintenance of the Contract and
the Fixed Account. For Annual Maintenance Fee, Hartford will deduct an annual
fee of $25 on each Contract Anniversary on or before the Annuity Commencement
Date. The deduction will be made pro rata according to the value in each
Sub-Account and the Fixed Account under a Contract. If during a Contract Year
the Contract is surrendered for its full value, Hartford will deduct the
Annual Maintenance Fee at the time of such surrender. Hartford reserves the
right to waive the Annual Maintenance Fee under other conditions. For
administration, Hartford makes a daily charge at the rate of .15% per annum
against all Contract Values held in the Separate Account during both the
accumulation and annuity phases of the Contract. There is not necessarily a
relationship between the amount of administrative charge imposed on a given
Contract and the amount of expenses that may be attributable to that Contract;
expenses may be more or less than the charge.
The types of expenses incurred by the Separate Account include, but are not
limited to, expenses of issuing the Contract and expenses for confirmations,
Contract quarterly statements, processing of transfers and surrenders,
responding to Contract Owner inquiries, reconciling and depositing cash
receipts, calculation and monitoring daily Sub-Account unit values, Separate
Account reporting, including semiannual and annual reports and mailing and
tabulation of shareholder proxy solicitations.
You should refer to the Trust Prospectus for a description of deductions and
expenses paid out of the assets of the Trust's portfolios.
PREMIUM TAXES
A deduction is also made for Premium Tax, if applicable, imposed by a state or
other governmental entity. Certain states impose a Premium Tax, currently
ranging up to 3.5%. Some states assess the tax at the time purchase payments
are made; others assess the tax at the time of annuitization. Hartford will pay
Premium Taxes at the time imposed under applicable law. At its sole discretion,
Hartford may deduct Premium Taxes at the time Hartford pays such taxes to the
applicable taxing authorities, at the time the Contract is surrendered, or at
the time the Contract annuitizes.
ANNUITY BENEFITS
You select an Annuity Commencement Date and an Annuity option which may be on a
fixed or variable basis, or a combination thereof. The Annuity Commencement
Date will not be deferred beyond the Annuitant's 90th birthday except for
certain states where deferral past age 85 is not permitted. The Annuity
Commencement Date and/or the Annuity option may be changed from time to time,
but any change must be at least 30 days prior to the date on which Annuity
payments are scheduled to begin. The Contract allows the Contract Owner to
change the Sub-Accounts on which variable payments are
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based after payments have commenced once every three (3) months. Any Fixed
Annuity allocation may not be changed.
ANNUITY OPTIONS
The Contract contains the five optional Annuity forms described below. Options
2, 4 and 5 are available to Qualified Contracts only if the guaranteed payment
period is less than the life expectancy of the Annuitant at the time the option
becomes effective. Such life expectancy shall be computed on the basis of the
mortality table prescribed by the IRS, or if none is prescribed, the mortality
table then in use by Hartford. With respect to Non-Qualified Contracts, if you
do not elect otherwise, payments in most states will automatically begin at the
Annuitant's age 90 (with the exception of states that do not allow deferral past
age 85) under Option 2 with 120 monthly payments certain. For Qualified
Contracts and Contracts issued in Texas, if you do not elect otherwise, payments
will begin automatically at the Annuitant's age 90 under Option 1 to provide a
life Annuity.
Under any of the Annuity options excluding Options 4 and 5, no surrenders are
permitted after Annuity payments commence. Only full surrenders are allowed out
of Option 4 and any such surrender will be subject to contingent deferred sales
charges, if applicable. Full or partial withdrawals may be made from Option 5
at any time and contingent deferred sales charges will not be applied.
OPTION 1: LIFE ANNUITY
A life Annuity is an Annuity payable during the lifetime of the Annuitant and
terminating with the last payment preceding the death of the Annuitant. This
options offers the largest payment amount of any of the life Annuity options
since there is no guarantee of a minimum number of payments nor a provision for
a death benefit payable to a Beneficiary.
It would be possible under this option for an Annuitant to receive only one
Annuity payment if he died prior to the due date of the second Annuity payment,
two if he died before the date of the third Annuity payment, etc.
OPTION 2: LIFE ANNUITY WITH 120, 180 OR 240 MONTHLY PAYMENTS CERTAIN
This Annuity option is an Annuity payable monthly during the lifetime of an
Annuitant with the provision that payments will be made for a minimum of 120,
180 or 240 months, as elected. If, at the death of the Annuitant, payments have
been made for less than the minimum elected number of months, then the present
value as of the date of the Annuitant's death, of any remaining guaranteed
payments will be paid in one sum to the Beneficiary or Beneficiaries designated
unless other provisions have been made and approved Hartford.
OPTION 3: JOINT AND LAST SURVIVOR ANNUITY
An Annuity payable monthly during the joint lifetime of the Annuitant and a
designated second person, and thereafter during the remaining lifetime of the
survivor, ceasing with
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the last payment prior to the death of the survivor. Based on the options
currently offered by Hartford, the Annuitant may elect that the payment to the
survivor be less than the payment made during the joint lifetime of the
Annuitant and a designated second person.
It would be possible under this option for an Annuitant and designated second
person to receive only one payment in the event of the common or simultaneous
death of the parties prior to the due date for the second payment and so on.
OPTION 4: PAYMENTS FOR A DESIGNATED PERIOD
An amount payable monthly for the number of years selected which may be from 5
to 30 years. Under this option, you may, at any time, surrender the Contract
and receive, within seven days, the Termination Value of the Contract as
determined by Hartford.
In the event of the Annuitant's death prior to the end of the designated
period, the present value as of the date of the Annuitant's death, of any
remaining guaranteed payments will be paid in one sum to the Beneficiary or
Beneficiaries designated unless other provisions have been made and approved
Hartford.
Option 4 is an option that does not involve life contingencies and thus no
mortality guarantee. Charges made for the mortality undertaking under the
Contracts thus provide no real benefit to a Contract Owner.
OPTION 5: DEATH BENEFIT REMAINING WITH HARTFORD
Proceeds from the Death Benefit may be left with Hartford for a period not to
exceed five years from the date of the Contract Owner's death prior to the
Annuity Commencement Date. These proceeds will remain in the Sub-Account(s) to
which they were allocated at the time of death unless the Beneficiary elects to
reallocate them. Full or partial withdrawals may be made at any time. In the
event of withdrawals, the remaining value will equal the Contract Value of the
proceeds left with Hartford, minus any withdrawals.
Hartford may offer other annuity options from time to time.
THE ANNUITY UNIT AND VALUATION
The value of the Annuity Unit for each Sub-Account in the Separate Account for
any day is determined by multiplying the value for the preceding day by the
product of (1) the net investment factor (See "Valuation of Accumulation
Units," commencing on page 10) for the day for which the Annuity Unit value is
being calculated and (2) a factor to neutralize the assumed investment rate of
4.00% per annum discussed below.
DETERMINATION OF PAYMENT AMOUNT
When Annuity payments are to commence, the value of the Contract is determined
as the sum of the value of the Fixed Account no earlier than the close of
business on the fifth Valuation Day preceding the date the first Annuity payment
is due plus the product of the value of the Accumulation Unit of each
Sub-Account on that same day, and the number
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of Accumulation Units credited to each Sub-Account as of the date the Annuity is
to commence.
The Contract contains tables indicating the minimum dollar amount of the first
monthly payment under the optional forms of Annuity for each $1,000 of value of
a Sub-Account under a Contract. The first monthly payment varies according to
the form and type of Annuity selected. The Contract contains Annuity tables
derived from the 1983a Individual Annuity Mortality Table with ages set back one
year and with an assumed investment rate ("A.I.R.") of 4% per annum.
The total first monthly Variable Annuity payment is determined by multiplying
the value (expressed in thousands of dollars) of a Sub-Account (less any
applicable Premium Taxes) by the amount of the first monthly payment per $1,000
of value obtained from the tables in the Contracts.
Fixed Annuity payments are determined at annuitization by multiplying the values
allocated to the Fixed Account (less applicable Premium Taxes) by a rate to be
determined by Hartford which is no less than the rate specified in the Annuity
tables in the Contract. The Annuity payment will remain level for the duration
of the Annuity.
The amount of the first monthly Variable Annuity payment, determined as
described above, is divided by the value of an Annuity Unit for the appropriate
Sub-Account no earlier than the close of business on the fifth Valuation Day
preceding the day on which the payment is due in order to determine the number
of Annuity Units represented by the first payment. This number of Annuity Units
remains fixed during the Annuity payment period, and in each subsequent month
the dollar amount of the Variable Annuity payment is determined by multiplying
this fixed number of Annuity Units by the then current Annuity Unit value.
THE A.I.R. ASSUMED IN THE MORTALITY TABLES WOULD PRODUCE LEVEL VARIABLE ANNUITY
PAYMENTS IF THE INVESTMENT RATE REMAINED CONSTANT. IN FACT, PAYMENTS WILL VARY
UP OR DOWN AS THE INVESTMENT RATE VARIES UP OR DOWN FROM THE A.I.R.
The Annuity Unit value used in calculating the amount of the Variable Annuity
payments will be based on an Annuity Unit value determined as of the close of
business on a day no earlier than the fifth Valuation Day preceding the date of
the Annuity payment.
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FEDERAL TAX CONSIDERATIONS
What are some of the federal tax consequences which affect these Contracts?
A. GENERAL
SINCE THE TAX LAW IS COMPLEX AND SINCE TAX CONSEQUENCES WILL VARY ACCORDING TO
THE ACTUAL STATUS OF THE CONTRACT OWNER INVOLVED AND THE TYPE OF PLAN UNDER
WHICH THE CONTRACT IS PURCHASED, LEGAL AND TAX ADVICE MAY BE NEEDED BY A PERSON,
TRUSTEE OR OTHER ENTITY CONTEMPLATING THE PURCHASE OF A CONTRACT DESCRIBED
HEREIN.
It should be understood that any detailed description of the federal income tax
consequences regarding the purchase of these Contracts cannot be made in this
Prospectus and that special tax rules may be applicable with respect to certain
purchase situations not discussed herein. In addition, no attempt is made here
to consider any applicable state or other tax laws. For detailed information, a
qualified tax adviser should always be consulted. The discussion here and in
Appendix I, commencing on page 47, is based on Hartford's understanding of
existing federal income tax laws as they are currently interpreted.
B. TAXATION OF HARTFORD AND THE SEPARATE ACCOUNT
The Separate Account is taxed as part of Hartford which is taxed as a life
insurance company in accordance with the Internal Revenue Code of 1986, as
amended (the "Code"). Accordingly, the Separate Account will not be taxed as a
"regulated investment company" under subchapter M of Chapter 1 of the Code.
Investment income and any realized capital gains on the assets of the Separate
Account are reinvested and are taken into account in determining the value of
the Accumulation and Annuity Units (See "Value of Accumulation Units" commencing
on page 10). As a result, such investment income and realized capital gains are
automatically applied to increase reserves under the Contract.
No taxes are due on interest, dividends and short-term or long-term capital
gains earned by the Separate Account with respect to Qualified or Non-Qualified
Contracts.
C. TAXATION OF ANNUITIES -- GENERAL PROVISIONS AFFECTING PURCHASERS OTHER THAN
QUALIFIED RETIREMENT PLANS
Section 72 of the Code governs the taxation of annuities in general.
1. NON-NATURAL PERSONS, CORPORATIONS, ETC. Section 72 contains provisions
for Contract Owners which are non-natural persons. Non-natural
persons include corporations, trusts, limited liability companies and
partnerships. The annual net
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increase in the value of the Contract is currently includable in the
gross income of a non-natural person, unless the non-natural person
holds the Contract as an agent for a natural person. There are
additional exceptions from current inclusion for (i) certain annuities
held by structured settlement companies, (ii) certain annuities held
by an employer with respect to a terminated qualified retirement plan
and (iii) certain immediate annuities. A non-natural person which is
a tax-exempt entity for federal tax purposes will not be subject to
income tax as a result of this provision.
If the Contract Owner is not an individual, the primary Annuitant
shall be treated as the Contract Owner for purposes of making
distributions which are required to be made upon the death of the
Contract Owner. If there is a change in the primary Annuitant, such
change shall be treated as the death of the Contract Owner.
2. OTHER CONTRACT OWNERS (NATURAL PERSONS). A Contract Owner is not
taxed on increases in the value of the Contract until an amount is
received or deemed received, e.g., in the form of a lump sum payment
(full or partial value of a Contract) or as Annuity payments under the
settlement option elected.
The provisions of Section 72 of the Code concerning distributions are
summarized briefly below. Also summarized are special rules affecting
distributions from Contracts obtained in a tax-free exchange for other
annuity contracts or life insurance contracts which were purchased
prior to August 14, 1982.
a. DISTRIBUTIONS PRIOR TO THE ANNUITY COMMENCEMENT DATE.
i. Total premium payments less amounts received which were
not includable in gross income equal the "investment in
the contract" under Section 72 of the Code.
ii. To the extent that the value of the Contract (ignoring
any surrender charges except on a full surrender) exceeds
the "investment in the contract," such excess constitutes
the "income on the contract."
iii. Any amount received or deemed received prior to the
Annuity Commencement Date (e.g., upon a partial
surrender) is deemed to come first from any such "income
on the contract" and then from "investment in the
contract," and for these purposes such "income on the
contract" shall be computed by reference to any
aggregation rule in subparagraph 2.c. below. As a
result, any such amount received or deemed received (1)
shall be includable in gross income to the extent that
such amount does not exceed any such "income on the
contract," and (2) shall not be includable in gross
income to the extent that such amount does exceed any
such "income on the contract." If at the time that any
amount is received or deemed received there is no "income
on the contract" (e.g., because the
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gross value of the Contract does not exceed the
"investment in the contract" and no aggregation rule
applies), then such amount received or deemed received
will not be includable in gross income, and will simply
reduce the "investment in the contract."
iv. The receipt of any amount as a loan under the Contract or
the assignment or pledge of any portion of the value of
the Contract shall be treated as an amount received for
purposes of this subparagraph a. and the next
subparagraph b.
v. In general, the transfer of the Contract, without full
and adequate consideration, will be treated as an amount
received for purposes of this subparagraph a. and the
next subparagraph b. This transfer rule does not apply,
however, to certain transfers of property between spouses
or incident to divorce.
b. DISTRIBUTIONS AFTER ANNUITY COMMENCEMENT DATE. Annuity payments
made periodically after the Annuity Commencement Date are
includable in gross income to the extent the payments exceed the
amount determined by the application of the ratio of the
"investment in the contract" to the total amount of the payments
to be made after the Annuity Commencement Date (the "exclusion
ratio").
i. When the total of amounts excluded from income by
application of the exclusion ratio is equal to the
investment in the contract as of the Annuity Commencement
Date, any additional payments (including surrenders) will
be entirely includable in gross income.
ii. If the annuity payments cease by reason of the death of
the Annuitant and, as of the date of death, the amount of
annuity payments excluded from gross income by the
exclusion ratio does not exceed the investment in the
contract as of the Annuity Commencement Date, then the
remaining portion of unrecovered investment shall be
allowed as a deduction for the last taxable year of the
Annuitant.
iii. Generally, nonperiodic amounts received or deemed
received after the Annuity Commencement Date are not
entitled to any exclusion ratio and shall be fully
includable in gross income. However, upon a full
surrender after such date, only the excess of the amount
received (after any surrender charge) over the remaining
"investment in the contract" shall be includable in gross
income (except to the extent that the aggregation rule
referred to in the next subparagraph c. may apply).
c. AGGREGATION OF TWO OR MORE ANNUITY CONTRACTS. Contracts issued
after October 21, 1988 by the same insurer (or affiliated
insurer) to the same
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Contract Owner within the same calendar year (other than certain
contracts held in connection with a tax-qualified retirement
arrangement) will be treated as one annuity Contract for the
purpose of determining the taxation of distributions prior to the
Annuity Commencement Date. An annuity contract received in a
tax-free exchange for another annuity contract or life insurance
contract may be treated as a new Contract for this purpose.
Hartford believes that for any annuity subject to such
aggregation, the values under the Contracts and the investment in
the contracts will be added together to determine the taxation
under subparagraph 2.a., above, of amounts received or deemed
received prior to the Annuity Commencement Date. Withdrawals
will first be treated as withdrawals of income until all of the
income from all such Contracts is withdrawn. As of the date of
this Prospectus, there are no regulations interpreting this
provision.
d. 10% PENALTY TAX -- APPLICABLE TO CERTAIN WITHDRAWALS AND ANNUITY
PAYMENTS.
i. If any amount is received or deemed received on the
Contract (before or after the Annuity Commencement Date),
the Code applies a penalty tax equal to ten percent of
the portion of the amount includable in gross income,
unless an exception applies.
ii. The 10% penalty tax will not apply to the following
distributions (exceptions vary based upon the precise
plan involved):
1. Distributions made on or after the date the
recipient has attained the age of 59 1/2.
2. Distributions made on or after the death of the
holder or where the holder is not an individual,
the death of the primary annuitant.
3. Distributions attributable to a recipient's
becoming disabled.
4. A distribution that is part of a scheduled series
of substantially equal periodic payments for the
life (or life expectancy) of the recipient (or the
joint lives or life expectancies of the recipient
and the recipient's Beneficiary).
5. Distributions of amounts which are allocable to
the "investment in the contract" prior to August
14, 1982 (see next subparagraph e.).
e. SPECIAL PROVISIONS AFFECTING CONTRACTS OBTAINED THROUGH A
TAX-FREE EXCHANGE OF OTHER ANNUITY OR LIFE INSURANCE CONTRACTS
PURCHASED PRIOR TO AUGUST 14, 1982. If the Contract was
obtained by a tax-free exchange of a life insurance or annuity
Contract purchased prior to August 14, 1982, then any amount
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received or deemed received prior to the Annuity Commencement
Date shall be deemed to come (1) first from the amount of
the "investment in the contract" prior to August 14, 1982
("pre-8/14/82 investment") carried over from the prior Contract,
(2) then from the portion of the "income on the contract"
(carried over to, as well as accumulating in, the successor
Contract) that is attributable to such pre-8/14/82 investment,
(3) then from the remaining "income on the contract" and
(4) last from the remaining "investment in the contract."
As a result, to the extent that such amount received or deemed
received does not exceed such pre-8/14/82 investment, such
amount is not includable in gross income. In addition, to the
extent that such amount received or deemed received does not
exceed the sum of (a) such pre-8/14/82 investment and (b) the
"income on the contract" attributable thereto, such amount is
not subject to the 10% penalty tax. In all other respects,
amounts received or deemed received from such post-exchange
Contracts are generally subject to the rules described in this
subparagraph 3.
f. REQUIRED DISTRIBUTIONS
i. Death of Contract Owner or Primary Annuitant
Subject to the alternative election or spouse
beneficiary provisions in ii or iii below:
1. If any Contract Owner dies on or after the
Annuity Commencement Date and before the entire
interest in the Contract has been distributed,
the remaining portion of such interest shall be
distributed at least as rapidly as under the
method of distribution being used as of the date
of such death;
2. If any Contract Owner dies before the Annuity
Commencement Date, the entire interest in the
Contract will be distributed within 5 years
after such death; and
3. If the Contract Owner is not an individual, then
for purposes of 1. or 2. above, the primary
annuitant under the Contract shall be treated as
the Contract Owner, and any change in the primary
annuitant shall be treated as the death of the
Contract Owner. The primary annuitant is the
individual, the events in the life of whom are of
primary importance in affecting the timing or
amount of the payout under the Contract.
ii. Alternative Election to Satisfy Distribution
Requirements
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If any portion of the interest of a Contract Owner
described in i. above is payable to or for the
benefit of a designated beneficiary, such
beneficiary may elect to have the portion
distributed over a period that does not extend
beyond the life or life expectancy of the
beneficiary. The election and payments must begin
within a year of the death.
iii. Spouse Beneficiary
If any portion of the interest of a Contract Owner is
payable to or for the benefit of his or her spouse,
and the Annuitant or Contingent Annuitant is living,
such spouse shall be treated as the Contract Owner of
such portion for purposes of section i. above.
3. DIVERSIFICATION REQUIREMENTS. Section 817 of the Code provides that a
variable annuity contract will not be treated as an annuity contract
for any period during which the investments made by the separate
account or underlying fund are not adequately diversified in
accordance with regulations prescribed by the Treasury Department. If
a Contract is not treated as an annuity contract, the Contract Owner
will be subject to income tax on the annual increases in cash value.
The Treasury Department has issued diversification regulations which
generally require, among other things, that no more than 55% of the
value of the total assets of the segregated asset account underlying a
variable contract is represented by any one investment, no more than
70% is represented by any two investments, no more than 80% is
represented by any three investments, and no more than 90% is
represented by any four investments. In determining whether the
diversification standards are met, all securities of the same issuer,
all interests in the same real property project, and all interests in
the same commodity are each treated as a single investment. In
addition, in the case of government securities, each government agency
or instrumentality shall be treated as a separate issuer.
A separate account must be in compliance with the diversification
standards on the last day of each calendar quarter or within 30 days
after the quarter ends. If an insurance company inadvertently fails
to meet the diversification requirements, the company may comply
within a reasonable period and avoid the taxation of contract income
on an ongoing basis. However, either the company or the Contract
Owner must agree to pay the tax due for the period during which the
diversification requirements were not met.
Hartford monitors the diversification of investments in the separate
accounts and tests for diversification as required by the Code.
Hartford intends to administer all contracts subject to the
diversification requirements in a manner that will maintain adequate
diversification.
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4. OWNERSHIP OF THE ASSETS IN THE SEPARATE ACCOUNT. In order for a
variable annuity contract to qualify for tax deferral, assets in the
segregated asset accounts supporting the variable contract must be
considered to be owned by the insurance company and not by the
variable contract owner. The Internal Revenue Service ("IRS") has
issued several rulings which discuss investor control. The IRS has
ruled that certain incidents of ownership by the contract owner, such
as the ability to select and control investments in a separate
account, will cause the contract owner to be treated as the owner of
the assets for tax purposes.
Further, in the explanation to the temporary Section 817 diversification
regulations, the Treasury Department noted that the temporary regulations "do
not provide guidance concerning the circumstances in which investor control of
the investments of a segregated asset account may cause the investor, rather
than the insurance company, to be treated as the owner of the assets in the
account." The explanation further indicates that "the temporary regulations
provide that in appropriate cases a segregated asset account may include
multiple sub-accounts, but do not specify the extent to which policyholders may
direct their investments to particular sub-accounts without being treated as the
owners of the underlying assets. Guidance on this and other issues will be
provided in regulations or revenue rulings under Section 817(d), relating to the
definition of variable contract." The final regulations issued under Section
817 did not provide guidance regarding investor control, and as of the date of
this prospectus, no other such guidance has been issued. Further, Hartford
does not know if or in what form such guidance will be issued. In addition,
although regulations are generally issued with prospective effect, it is
possible that regulations may be issued with retroactive effect. Due to the
lack of specific guidance regarding the issue of investor control, there is
necessarily some uncertainty regarding whether a Contract Owner could be
considered the owner of the assets for tax purposes. Hartford reserves the
right to modify the contracts, as necessary, to prevent Contract Owners from
being considered the owners of the assets in the separate accounts.
D. FEDERAL INCOME TAX WITHHOLDING
The portion of a distribution which is taxable income to the recipient will
be subject to federal income tax withholding, pursuant to Section 3405 of the
Code. The application of this provision is summarized below:
1. NON-PERIODIC DISTRIBUTIONS. The portion of a non-periodic
distribution which constitutes taxable income will be subject to
federal income tax withholding unless the recipient elects not to have
taxes withheld. If an election not to have taxes withheld is not
provided, 10% of the taxable distribution will be withheld as federal
income tax. Election forms will be provided at the time distributions
are requested. If the necessary election forms are not submitted to
Hartford, Hartford will automatically withhold 10% of the taxable
distribution.
2. PERIODIC DISTRIBUTIONS (DISTRIBUTIONS PAYABLE OVER A PERIOD GREATER
THAN ONE YEAR). The portion of a periodic distribution which
constitutes taxable income will be subject to federal income tax
withholding as if the recipient were married claiming three
exemptions. A recipient may elect not to have income taxes withheld
or have income taxes withheld at a different rate by providing a
completed election form. Election forms will be provided at the time
distributions are requested.
E. GENERAL PROVISIONS AFFECTING QUALIFIED RETIREMENT PLANS
The Contract may be used for a number of qualified retirement plans. If the
Contract is being purchased with respect to some form of qualified retirement
plan, please refer to Appendix I commencing on page 47 for information
relative to the types of plans for which it may be used and the general
explanation of the tax features of such plans.
F. ANNUITY PURCHASES BY NONRESIDENT ALIENS AND FOREIGN CORPORATIONS
The discussion above provides general information regarding U.S. federal income
tax consequences to annuity purchasers that are U.S. citizens or residents.
Purchasers that are not U.S. citizens or residents will generally be subject to
U.S. federal income tax and withholding on annuity distributions at a 30% rate,
unless a lower treaty rate applies. In addition, purchasers may be subject to
state premium tax, other state and/or municipal taxes, and taxes that may be
imposed by the purchaser's country of citizenship or residence. Prospective
purchasers are advised to consult with a qualified tax adviser regarding U.S.,
state, and foreign taxation with respect to an annuity purchase.
GENERAL MATTERS
ASSIGNMENT
Ownership of a Contract described herein is generally assignable. However, if
the Contracts are issued pursuant to some form of Qualified Plan, it is possible
that the ownership of the Contracts may not be transferred or assigned depending
on the type of qualified retirement plan involved. An assignment of a
Non-Qualified Contract may subject the assignment proceeds to income taxes and
certain penalty taxes. (See "Federal Tax Considerations" Taxation of
Annuities -- General Provisions Affecting Purchasers Other Than Qualified
Retirement Plans," page 37.)
MODIFICATION
Hartford reserves the right to modify the Contract, but only if such
modification: (i) is necessary to make the Contract or the Separate Account
comply with any law or regulation issued by a governmental agency to which
Hartford is subject; or (ii) is
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necessary to assure continued qualification of the Contract under the Code or
other federal or state laws relating to retirement annuities or annuity
Contracts; or (iii) is necessary to reflect a change in the operation of the
Separate Account or the Sub-Account(s); or (iv) provides additional Separate
Account options; or (v) withdraws Separate Account options. In the event of any
such modification Hartford will provide notice to the Contract Owner or to the
payee(s) during the Annuity period. Hartford may also make appropriate
endorsement in the Contract to reflect such modification.
DELAY OF PAYMENTS
There may be postponement of a surrender payment or death benefit whenever (a)
the New York Stock Exchange is closed, except for holidays or weekends, or
trading on the New York Stock Exchange is restricted as determined by the
Commission; (b) the Commission permits postponement and so orders; or (c) the
Commission determines that an emergency exists making valuation or disposal of
securities not reasonably practicable.
VOTING RIGHTS
Hartford is the legal owner of all Fund shares held in the Separate Account. As
the owner, Hartford has the right to vote at the Funds' shareholder meetings.
However, to the extent required by federal securities laws or regulations,
Hartford will:
1. Vote all Fund shares attributable to a Contract according to instructions
received from the Contract Owner, and
2. Vote shares attributable to a Contract for which no voting instructions are
received in the same proportion as shares for which instructions are
received.
If any federal securities laws or regulations, or their present interpretation
change to permit Hartford to vote Fund shares in its own right, Hartford may
elect to do so.
Hartford will notify you of any Fund shareholders' meeting if the shares held
for your account may be voted at such meetings. Hartford will also send proxy
materials and a form of instruction by means of which you can instruct Hartford
with respect to the voting of the Fund shares held for your account.
In connection with the voting of Fund shares held by it, Hartford will arrange
for the handling and tallying of voting instructions received from Contract
Owners. Hartford as such, shall have no right, except as hereinafter provided,
to vote any Fund shares held by it hereunder which may be registered in its name
or the names of its nominees. Hartford will, however, vote the Fund shares held
by it in accordance with the instructions received from the Contract Owners for
whose accounts the Fund shares are held.
If a Contract Owner desires to attend any meeting at which shares held for the
Contract Owner's benefit may be voted, the Contract Owner may request Hartford
to furnish a proxy or otherwise arrange for the exercise of voting rights with
respect to the Fund
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shares held for such Contract Owner's account. In the event that the Contract
Owner gives no instructions or leaves the manner of voting discretionary,
Hartford will vote such shares of the appropriate Fund in the same proportion as
shares of that Fund for which instructions have been received. During the
Annuity period under a Contract the number of votes will decrease as the assets
held to Fund Annuity benefits decrease.
DISTRIBUTION OF THE CONTRACTS
Hartford Securities Distribution Company, Inc. ("HSD") serves as Principal
Underwriter for the securities issued with respect to the Separate Account. HSD
is a wholly-owned subsidiary of Hartford Life Insurance Company. The principal
business address of HSD is the same as Hartford.
The securities will be sold by salespersons of HSD who represent Hartford as
insurance and variable annuity agents and who are registered representatives of
Broker-Dealers who have entered into distribution agreements with HSD.
HSD is registered with the 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.
OTHER CONTRACTS OFFERED
In addition to the Contracts described in this Prospectus, it is contemplated
that other forms of group or individual Variable Annuities may be sold providing
benefits which vary in accordance with the investment experience of the Separate
Account.
CUSTODIAN OF SEPARATE ACCOUNT ASSETS
The assets of the Separate Account are held by Hartford under a safekeeping
arrangement.
LEGAL PROCEEDINGS
There are no material legal proceedings pending to which the Separate Account is
a party.
LEGAL COUNSEL
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.
45
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EXPERTS
The audited financial statements included in this prospectus and elsewhere in
the registration statement have been audited by Arthur Andersen LLP, independent
public accountants, as indicated in their reports with respect thereto, and are
included herein in reliance upon the authority of said firm as experts in giving
said reports. Reference is made to the report on the statutory-basis financial
statements of Hartford Life and Annuity Insurance Company (formerly ITT
Hartford Life and Annuity Insurance Company) which states the statutory-basis
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.
ADDITIONAL INFORMATION
Inquiries will be answered by calling your representative or by writing:
Hartford Life and Annuity Insurance Company
Attn: Individual Annuity Operations
P.O. Box 5085
Hartford, CT 06102-5085
Telephone: (800) 862-6668
46
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APPENDIX I
INFORMATION REGARDING TAX-QUALIFIED PLANS
The tax rules applicable to tax-qualified contract owners, including
restrictions on contributions and distributions, taxation of distributions
and tax penalties, vary according to the type of plan as well as the terms
and conditions of the plan itself. Various tax penalties may apply to
contributions in excess of applicable limits, distributions prior to age 59
1/2 (subject to certain exceptions), distributions which do not conform to
applicable commencement and minimum distribution rules, and certain other
transactions with respect to tax-qualified plans. Therefore, this summary
does not attempt to provide more than general information about the tax rules
associated with use of a Contract by a tax-qualified retirement plan.
Contract owners, plan participants and beneficiaries are cautioned that the
rights and benefits of any person to benefits may be controlled by the terms
and conditions of the tax-qualified retirement plan itself, regardless of the
terms and conditions of a Contract, but that Hartford is not bound by the
terms and conditions of such plans to the extent such terms conflict with a
Contract, unless Hartford specifically consents to be bound. Additionally,
some tax-qualified retirement plans are subject to distribution and other
requirements which are not incorporated into Hartford's administrative
procedures. Contract owners, participants and beneficiaries are responsible
for determining that contributions, distributions and other transactions
comply with applicable law. Because of the complexity of these rules, owners,
participants and beneficiaries are encouraged to consult their own tax
advisors as to specific tax consequences.
A. TAX-QUALIFIED PENSION OR PROFIT-SHARING PLANS Provisions of the Code
permit eligible employers to establish tax-qualified pension or profit
sharing plans (described in Section 401(a) and 401(k), if applicable, and
exempt from taxation under Section 501(a) of the Code), and Simplified
Employee Pension Plans (described in Section 408(k)). Such plans are
subject to limitations on the amount that may be contributed, the persons
who may be eligible to participate and the time when distributions must
commence. Employers intending to use these contracts in connection with
tax-qualified pension or profit-sharing plans should seek competent tax
and other legal advice.
B. TAX SHELTERED ANNUITIES UNDER SECTION 403(b) Section 403(b) of the Code
permits public school employees and employees of certain types of
charitable, educational and scientific organizations, as specified in
Section 501(c)(3) of the Code, to purchase annuity contracts, and, subject
to certain limitations, to exclude such contributions from gross income.
Generally, such contributions may not exceed the lesser of $10,000
(indexed) or 20% of an employee's "includable compensation" for such
employee's most recent full year of employment, subject to other
adjustments. Special provisions under the Code may allow some employees to
elect a different overall limitation.
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Tax-sheltered annuity programs under Section 403(b) are subject to a
PROHIBITION AGAINST DISTRIBUTIONS FROM THE CONTRACT ATTRIBUTABLE TO
CONTRIBUTIONS MADE PURSUANT TO A SALARY REDUCTION AGREEMENT, unless such
distribution is made:
(1) after the participating employee attains age 59 1/2;
(2) upon separation from service;
(3) upon death or disability; or
(4) in the case of hardship (and in the case of hardship, any income
attributable to such contributions may not be distributed).
Generally, the above restrictions do not apply to distributions attributable to
cash values or other amounts held under a Section 403(b) contract as of December
31, 1988.
C. DEFERRED COMPENSATION PLANS UNDER SECTION 457 Employees and independent
contractors performing services for eligible employers may have
contributions made to an Eligible Deferred Compensation Plan of their
employer in accordance with the employer's plan and Section 457 of the
Code. Section 457 places limitations on contributions to Eligible
Deferred Compensation Plans maintained by a State or other tax-exempt
organization. For these purposes, the term "State" means a State, a
political sub-division of a State, and an agency or instrumentality of a
State or political sub-division of a State. Generally, the limitation is
33 1/3% of includable compensation (typically 25% of gross compensation)
or, for 1998, $8,000 (indexed), whichever is less. Such a plan may also
provide for additional "catch-up" deferrals during the three taxable
years ending before a Participant attains normal retirement age.
An employee electing to participate in an Eligible Deferred Compensation
Plan should understand that his or her rights and benefits are governed
strictly by the terms of the plan and that the employer is the legal owner
of any contract issued with respect to the plan. The employer, as owner of
the contract(s), retains all voting and redemption rights which may accrue
to the contract(s) issued with respect to the plan. The participating
employee should look to the terms of his or her plan for any charges in
regard to participating therein other than those disclosed in this
Prospectus. Participants should also be aware that effective August 20,
1996, the Small Business Job Protection Act of 1996 requires that all
assets and income of an Eligible Deferred Compensation Plan established by
a governmental employer which is a State, a political subdivision of a
State, or any agency or instrumentality of a State or political subdivision
of a State, must be held in trust (or under certain specified annuity
contracts or custodial accounts) for the exclusive benefit of participants
and their beneficiaries. Special transition rules apply to such Eligible
governmental Deferred Compensation Plans already in existence on August 20,
1996, and provide that such plans need not establish a trust before January
1, 1999. However, this requirement of a trust does not apply to amounts
under an Eligible
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Deferred Compensation Plan of a tax-exempt (non-governmental) organization,
and such amounts will be subject to the claims of such tax-exempt employers
general creditors.
In general, distributions from an Eligible Deferred Compensation Plan are
prohibited under Section 457 of the Code unless made after the
participating employee attains age 70 1/2, separates from service, dies,
or suffers an unforeseeable financial emergency. Present federal tax law
does not allow tax-free transfers or rollovers for amounts accumulated in a
Section 457 plan except for transfers to other Section 457 plans in limited
cases.
D. INDIVIDUAL RETIREMENT ANNUITIES UNDER SECTION 408 Section 408 of the Code
permits eligible individuals to establish individual retirement programs
through the purchase of Individual Retirement Annuities ("IRAs"). IRAs are
subject to limitations on the amount that may be contributed, the
contributions that may be deducted from taxable income, the persons who may
be eligible and the time when distributions may commence. Also,
distributions from certain qualified plans may be "rolled-over" on a
tax-deferred basis into an IRA.
The Contracts may be offered as SIMPLE IRAs in connection with a SIMPLE
IRA plan of an employer. Special rollover rules apply to SIMPLE IRAs.
Amounts can be rolled over from one SIMPLE IRA to another SIMPLE IRA.
However, amounts can be rolled over from a SIMPLE IRA to a regular IRA only
after two years have expired since the participant first commenced
participation in your employer's SIMPLE IRA plan. Amounts cannot be rolled
over to a SIMPLE IRA from a qualified plan or a regular IRA. Hartford is a
non-designated financial institution.
Beginning in 1998, the Contracts may be offered as ROTH IRAs under Section
408A of the Code. Contributions to a ROTH IRA are not deductible. Subject
to special limitations, a regular IRA may be converted into a ROTH IRA or a
distribution from a regular IRA may be rolled over to a ROTH IRA. However,
a conversion or a rollover from a regular IRA to a ROTH IRA is not
excludable from gross income. If certain conditions are met, qualified
distributions from a ROTH IRA are tax-free.
E. FEDERAL TAX PENALTIES AND WITHHOLDING Distributions from retirement plans
are generally taxed under Section 72 of the Code. Under these rules, a
portion of each distribution may be excludable from income. The excludable
amount is the portion of the distribution which bears the same ratio as the
after-tax contributions bear to the expected return.
1. PREMATURE DISTRIBUTION Distributions from a tax-qualified plan before
the Participant attains age 59 1/2 are generally subject to an
additional penalty tax equal to 10% of the taxable portion of the
distribution. The 10% penalty does
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not apply to distributions made after the employee's death, on account
of disability, for eligible medical expenses and distributions in the
form of a life annuity and, except in the case of an IRA, certain
distributions after separation from service after age 55. For these
purposes, a life annuity means a scheduled series of substantially
equal periodic payments for the life or life expectancy of the
Participant (or the joint lives or life expectancies of the
Participant and Beneficiary).
In addition, effective for distributions made from an IRA after
December 31, 1997, there is no such penalty tax on distributions that
do not exceed the amount of certain qualifying higher education
expenses, as defined by Section 72(t)(7) of the Code, or which are
qualified first-time homebuyer distributions meeting the requirements
of Section 72(t)(8) of the Code.
If you are a participant in a SIMPLE IRA plan, you should be aware
that the 10% penalty tax discussed above is increased to 25% with
respect to non-exempt premature distributions made from your SIMPLE
IRA during the first two years following the date you first commenced
participation in any SIMPLE IRA plan of your employer.
2. MINIMUM DISTRIBUTION TAX If the amount distributed is less than the
minimum required distribution for the year, the Participant is subject
to a 50% tax on the amount that was not properly distributed.
An individual's interest in a tax-qualified retirement plan generally
must be distributed, or begin to be distributed, not later than April
1 of the calendar year following the later of (i) the calendar year in
which the individual attains age 70 1/2 or (ii) the calendar year in
which the individual retires from service with the employer sponsoring
the plan ("required beginning date"). However, the required beginning
date for an individual who is a five (5) percent owner (as defined in
the Code), or who is the owner of an IRA, is April 1 of the calendar
year following the calendar year in which the individual attains age
70 1/2. The entire interest of the Participant must be distributed
beginning no later than the required beginning date over a period
which may not extend beyond a maximum of the life expectancy of the
Participant and a designated Beneficiary. Each annual distribution
must equal or exceed a "minimum distribution amount" which is
determined by dividing the account balance by the applicable life
expectancy. This account balance is generally based upon the account
value as of the close of business on the last day of the previous
calendar year. In addition, minimum distribution incidental benefit
rules may require a larger annual distribution.
If an individual dies before reaching his or her required beginning
date, the individual's entire interest must generally be distributed
within five years of the individual's death. However, this rule will
be deemed satisfied, if distributions
50
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begin before the close of the calendar year following the individual's
death to a designated Beneficiary (or over a period not extending
beyond the life expectancy of the beneficiary). If the Beneficiary is
the individual's surviving spouse, distributions may be delayed until
the individual would have attained age 70 1/2.
If an individual dies after reaching his or her required beginning
date or after distributions have commenced, the individual's interest
must generally be distributed at least as rapidly as under the method
of distribution in effect at the time of the individual's death.
3. WITHHOLDING In general, distributions from IRAs and plans described
in Section 457 of the Code are subject to regular wage withholding
rules. Periodic distributions from other tax-qualified retirement
plans that are made for a specified period of 10 or more years or for
the life or life expectancy of the participant (or the joint lives or
life expectancies of the participant and beneficiary) are generally
subject to federal income tax withholding as if the recipient were
married claiming three exemptions. The recipient of periodic
distributions may generally elect not to have withholding apply or to
have income taxes withheld at a different rate by providing a
completed election form.
Other distributions from such other tax-qualified retirement plans are
generally subject to mandatory income tax withholding at the flat rate
of 20% unless such distributions are:
a) the non-taxable portion of the distribution;
b) required minimum distributions; or
c) direct transfer distributions.
Direct transfer distributions are direct payments to an IRA or to another
eligible retirement plan under Code section 401(a)(31).
51
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TABLE OF CONTENTS TO STATEMENT OF ADDITIONAL INFORMATION
<TABLE>
<CAPTION>
SECTION PAGE
<S> <C>
DESCRIPTION OF HARTFORD LIFE AND ANNUITY INSURANCE COMPANY . . . . . .
SAFEKEEPING OF ASSETS. . . . . . . . . . . . . . . . . . . . . . . . .
INDEPENDENT PUBLIC ACCOUNTANTS . . . . . . . . . . . . . . . . . . . .
DISTRIBUTION OF CONTRACTS. . . . . . . . . . . . . . . . . . . . . . .
CALCULATION OF YIELD AND RETURN. . . . . . . . . . . . . . . . . . . .
PERFORMANCE COMPARISONS. . . . . . . . . . . . . . . . . . . . . . . .
FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . .
</TABLE>
52
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To Obtain a Statement of Additional Information, please complete the form below
and mail to:
Hartford Life and Annuity Insurance Company
Attn: Individual Annuity Operations
P.O. Box 5085
Hartford, CT 06102-5085
Please send a Statement of Additional Information for the Putnam Hartford
Capital Manager Variable Annuity to me at the following address:
-------------------------------------------
Name
-------------------------------------------
Address
-------------------------------------------
City/State Zip Code
<PAGE>
-1-
PART B
STATEMENT OF ADDITIONAL INFORMATION
HARTFORD LIFE AND ANNUITY INSURANCE COMPANY
PUTNAM CAPITAL MANAGER TRUST SEPARATE ACCOUNT TWO
This Statement of Additional Information is not a Prospectus. The information
contained herein should be read in conjunction with the Prospectus.
To obtain a Prospectus, send a written request to Hartford Life and Annuity
Insurance Company, Attn: Individual Annuity Operations, P.O. Box 5085,
Hartford, CT 06102-5085.
Date of Prospectus: May 1, 1998
Date of Statement of Additional Information: May 1, 1998
33-60702
<PAGE>
-2-
TABLE OF CONTENTS
SECTION PAGE
- ------- ----
DESCRIPTION OF HARTFORD LIFE AND ANNUITY
INSURANCE COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . . .
SAFEKEEPING OF ASSETS. . . . . . . . . . . . . . . . . . . . . . . . . . .
INDEPENDENT PUBLIC ACCOUNTANTS . . . . . . . . . . . . . . . . . . . . . .
DISTRIBUTION OF CONTRACTS. . . . . . . . . . . . . . . . . . . . . . . . .
CALCULATION OF YIELD AND RETURN. . . . . . . . . . . . . . . . . . . . . .
PERFORMANCE COMPARISONS. . . . . . . . . . . . . . . . . . . . . . . . . .
FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . .
<PAGE>
-3-
DESCRIPTION OF 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 and the District of
Columbia, except New York. Effective on January 1, 1998, Hartford's name
changed from ITT Hartford Life and Annuity Insurance Company to Hartford Life
and Annuity Insurance Company. Hartford was originally incorporated under the
laws of Wisconsin on January 9, 1956, and was subsequently redomiciled to
Connecticut. Its offices are located in Simsbury, Connecticut; however, its
mailing address is P.O. Box 2999, Hartford, CT 06104-2999. Hartford is a
subsidiary of Hartford Fire Insurance Company, one of the largest multiple lines
insurance carriers in the United States. Hartford is ultimately controlled by
The Hartford Financial Services Group, Inc., a Delaware corporation.
HARTFORD RATINGS
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
RATING AGENCY EFFECTIVE RATING BASIS OF RATING
DATE OF
RATING
- --------------------------------------------------------------------------------
A.M. Best and Company, Inc. 9/9/97 A+ Financial soundness and
operating performance.
- --------------------------------------------------------------------------------
Standard & Poor's 1/23/98 AA Claims paying ability
- --------------------------------------------------------------------------------
Duff & Phelps 1/23/98 AA+ Claims paying ability
- --------------------------------------------------------------------------------
</TABLE>
SAFEKEEPING OF ASSETS
Title to the assets of the Separate Account is held by Hartford. These assets
are kept physically segregated and are held separate and apart from Hartford's
general corporate assets. Records are maintained of all purchases and
redemptions of Fund shares held in each of the Sub-Accounts.
INDEPENDENT PUBLIC ACCOUNTANTS
The audited financial statements included in this prospectus and elsewhere in
the registration statement have been audited by Arthur Andersen LLP, independent
public accountants, as indicated in their reports with respect thereto, and are
included herein in reliance upon the authority of said firm as experts in giving
said reports. Reference is made to the report on the statutory-basis financial
statements of Hartford Life and Annuity Insurance Company (formerly ITT
Hartford Life and Annuity Insurance Company) which states the statutory-basis
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
<PAGE>
-4-
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 continuous basis.
HSD is a wholly-owned subsidiary of Hartford Life Insurance Company. The
principal business address of HSD is the same as Hartford.
The securities will be sold by salespersons of HSD who represent Hartford as
insurance and Variable Annuity agents and who are registered representatives of
Broker-Dealers who have entered into distribution agreements with HSD.
HSD is registered with the Securities and Exchange Commission under the
Securities and Exchange Act of 1934 as a Broker-Dealer and is a member of the
National Association of Securities Dealers, Inc. ("NASD").
CALCULATION OF YIELD AND RETURN
YIELD OF THE PUTNAM MONEY MARKET SUB-ACCOUNT. As summarized in the Prospectus
under the heading "Performance Related Information," the yield of the
Sub-Account for a seven day period (the "base period") will be computed by
determining the "net change in value" of a hypothetical account having a balance
of one unit at the beginning of the period, dividing the net change in account
value by the value of the account at the beginning of the base period to obtain
the base period return, and 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 dividends as declared by the underlying funds, less expense
and Contract 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 Putnam 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 Putnam VT Diversified Income Fund, Putnam VT Global Asset Allocation
Fund, Putnam VT Growth and Income Fund, Putnam VT High
<PAGE>
-5-
Yield Fund, Putnam VT Utilities Growth and Putnam VT Income Fund, and Putnam
VT U.S. Government and High Quality Bond Fund Sub-Accounts' yields will vary
from time to time depending upon market conditions and, the composition of the
underlying funds' portfolios. Yield should also be considered relative to
changes in the value of the Sub-Accounts' shares and to the relative risks
associated with the investment objectives and policies of the Funds.
CALCULATION OF TOTAL RETURN. As summarized in the Prospectus under the heading
"Performance Related Information", total return is a measure of the change in
value of an investment in a Sub-Account over the period covered. The formula
for total return used herein includes three steps: (1) calculating the value of
the hypothetical initial investment of $1,000 as of the end of the period by
multiplying the total number of units owned at the end of the period by the unit
value per unit on the last trading day of the period; (2) assuming redemption at
the end of the period and deducting any applicable contingent deferred sales
charge and (3) dividing this account value for the hypothetical investor by the
initial $1,000 investment and annualizing the result for periods of less than
one year. Total return will be calculated for one year, five years, and ten
years or some other relevant periods if a Sub-Account has not been in existence
for at least ten years.
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.
PERFORMANCE COMPARISONS
YIELD AND TOTAL RETURN. 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. Index performance is not representative of the performance of
the Putnam Money Market Sub-Account to which it is compared and is not
adjusted for commissions and other costs. Portfolio holdings of the Putnam
Money Market Sub-Account will differ from those of the index to which it is
compared. Performance comparison indices include the following:
The Consumer Price Index, prepared by the U.S. Bureau of Labor Statistics, is a
commonly used measure of the rate of inflation. The index shows the average
change in the cost of selected consumer goods and services and does not
represent a return on an investment vehicle.
The Dow Jones Industrial Average is an unmanaged list of 30 common stocks
frequently used as a general measure of stock market performance. Its
performance figures reflect changes of market prices and reinvestment of all
distributions.
Lehman Brothers Corporate Bond Index is an unmanaged list of publicly issued,
fixed-rate, non-convertible investment-grade domestic corporate debt
securities frequently used as a general measure of the performance of
fixed-income securities. The average quality of bonds included in the index
may be higher than the average quality of those bonds in which Putnam VT High
Yield Fund customarily invests. The index does not include bonds in certain
of the lower rating
<PAGE>
-6-
classifications in which the Fund may invest. The performance figures the index
reflect changes in market prices and reinvestment of all interest payments.
The Lehman Brothers 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 Lehman Brothers 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 index does not include bonds in certain of the lower-rating
classifications in which PCM High Yield Fund invests. Its performance figures
reflect changes in market prices and reinvestment of all interest payments.
Morgan Stanley Capital International World Index is an unmanaged list of
approximately 1,450 equity securities listed on the stock exchanges of the
United States, Europe, Canada, Australia, New Zealand and the Far East, with all
values expressed in U.S. dollars. Performance figures reflect changes in market
prices and reinvestment of distributions net of withholding taxes. The
securities in the index change over time to maintain representativeness.
The NASDAQ-OTC Industrial Average (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. Its performance figures reflect changes of market prices but do not
reflect reinvestment of cash dividends.
Salomon Brothers Long-Term High-Grade Corporate Bond Index is an unmanaged list
of publicly traded corporate bonds having a rating of at least AA by Standard &
Poors's or Aa by Moody's and is frequently used as general measure of the
performance of fixed-income securities. The average quality of bonds included
in the index may be higher than the average quality of those bonds in which PCM
High Yield customarily invests. The index does not include bonds in certain of
the lower rating classifications in which the Fund may invest. Performance
figures for the index reflect changes of market prices and reinvestment of all
distributions.
The Salomon Brothers 7-10 Year Government Bond Index is an unmanaged list of
U.S.
<PAGE>
-7-
Government and government agency securities with maturities of 7 to 10 years.
Performance figures for the index reflect changes of market prices and
reinvestment of all interest payments. The Standard & Poor's Composite Index
of 500 stocks (the "S&P 500") a market value-weighted and unmanaged index
showing changes in the aggregate market value of 500 stocks relative to the
base period 1941-43. The S&P 500 is composed almost entirely of common
stocks of companies listed on the New York Stock Exchange, although the
common stocks of a few companies listed on the American Stock Exchange or
traded over-the-counter are included. The 500 companies represented include
400 industrial, 60 transportation and 40 financial services concerns. The
S&P 500 represents about 80% of the market value of all issues traded on the
New York Stock Exchange. Its performance figures reflect changes of market
prices and reinvestment of all regular cash dividends.
The Standard & Poor's 40 Utilities Index is unmanaged list of 40 utility stocks.
The Index assumes reinvestment of all distributions and reflects changes in
market prices but does not take into account brokerage commissions or other
fees. PCM Utilities Growth and Income Fund's telephone and electric utility
stocks are generally held in the same proportion as the telephone and electric
stocks in the S&P Utilities Index. However, there are some utility stocks held
by the Fund that are not part of the Index.
<PAGE>
Report of Independent Public Accountants
To ITT Hartford Life and Annuity Insurance Company Putnam Capital
Manager Trust Separate Account Two and to the Owners of Units of
Interest therein:
We have audited the accompanying statement of assets and liabilities of
ITT Hartford Life and Annuity Insurance Company Putnam Capital Manager
Trust Separate Account Two (the Account) as of December 31, 1997, and
the related statements of operations for the year then ended and
statements of changes in net assets for each of the two years in the
period then ended. These financial statements are the responsibility of
the Account's management. Our responsibility is to express an opinion
on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of ITT Hartford
Life and Annuity Insurance Company Putnam Capital Manager Trust Separate
Account Two as of December 31, 1997, the results of its operations for
the year then ended and the changes in its net assets for each of the
two years in the period then ended in conformity with generally accepted
accounting principles.
ARTHUR ANDERSEN LLP
Hartford, Connecticut
February 16, 1998
<PAGE>
<TABLE>
PUTNAM CAPITAL MANAGER TRUST SEPARATE ACCOUNT TWO -- ITT HARTFORD LIFE AND ANNUITY INSURANCE COMPANY
<CAPTION>
Statement of Assets and Liabilities
- -------------------------------------------------------------------------------------------------------
December 31, 1997 Asia Pacific Diversified Global Asset Global
Growth Income Allocation Growth
Fund Fund Fund Fund
Sub-Account Sub-Account Sub-Account Sub-Account
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Assets
Investments:
.......................................................................................................
Putnam VT Asia Pacific
Growth Fund
Shares 7,427,606
Cost $77,728,628
.......................................................................................................
Market Value: $68,333,972 $ -- $ -- $ --
.......................................................................................................
Putnam VT Diversified
Income Fund
Shares 23,880,205
Cost $250,110,003
.......................................................................................................
Market Value: -- 270,085,114 -- --
.......................................................................................................
Putnam VT Global
Asset Allocation Fund
Shares 24,063,166
Cost $364,923,735
.......................................................................................................
Market Value: -- -- 451,424,985 --
.......................................................................................................
Putnam VT Global
Growth Fund
Shares 46,326,997
Cost $679,679,857
.......................................................................................................
Market Value: -- -- -- 849,637,130
.......................................................................................................
Putnam VT Growth and
Income Fund
Shares 133,607,004
Cost $2,855,026,616
.......................................................................................................
Market Value: -- -- -- --
.......................................................................................................
Putnam VT High Yield Fund
Shares 40,606,314
Cost $496,308,147
.......................................................................................................
Market Value: -- -- -- --
.......................................................................................................
Putnam VT International
Growth Fund
Shares 6,966,423
Cost $77,975,764
.......................................................................................................
Market Value: -- -- -- --
.......................................................................................................
Putnam VT International
Growth and Income Fund
Shares 10,124,438
Cost $113,567,754
.......................................................................................................
Market Value: -- -- -- --
.......................................................................................................
Due From ITT Hartford Life &
Annuity Insurance Company -- -- 73,206 --
.......................................................................................................
Receivable from fund
shares sold 3,089,245 267,880 -- 2,417,524
- -------------------------------------------------------------------------------------------------------
Total Assets 71,423,217 270,352,994 451,498,191 852,054,654
- -------------------------------------------------------------------------------------------------------
Liabilities
Due to ITT Hartford Life &
Annuity Insurance Company 3,089,242 268,102 -- 2,417,754
.......................................................................................................
Payable for fund
shares purchased -- -- 73,516 --
.......................................................................................................
Total Liabilities 3,089,242 268,102 73,516 2,417,754
- -------------------------------------------------------------------------------------------------------
Net Assets (variable
annuity contract
liabilities) $68,333,975 $270,084,892 $451,424,675 $849,636,900
- -------------------------------------------------------------------------------------------------------
<PAGE>
<CAPTION>
Statement of Assets and Liabilities (continued)
- -------------------------------------------------------------------------------------------------------
December 31, 1997 Growth High Yield International International
and Income Fund Growth Growth
Fund Sub-Account Fund and Income
Sub-Account Sub-Account Fund
Sub-Account
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Assets
Investments:
.......................................................................................................
Putnam VT Asia Pacific
Growth Fund
Shares 7,427,606
Cost $77,728,628
.......................................................................................................
Market Value: $ -- $ -- $ -- $ --
.......................................................................................................
Putnam VT Diversified
Income Fund
Shares 23,880,205
Cost $250,110,003
.......................................................................................................
Market Value: -- -- -- --
.......................................................................................................
Putnam VT Global
Asset Allocation Fund
Shares 24,063,166
Cost $364,923,735
.......................................................................................................
Market Value: -- -- -- --
.......................................................................................................
Putnam VT Global
Growth Fund
Shares 46,326,997
Cost $679,679,857
.......................................................................................................
Market Value: -- -- -- --
.......................................................................................................
Putnam VT Growth and
Income Fund
Shares 133,607,004
Cost $2,855,026,616
.......................................................................................................
Market Value: 3,783,750,348 -- -- --
.......................................................................................................
Putnam VT High Yield Fund
Shares 40,606,314
Cost $496,308,147
.......................................................................................................
Market Value: -- 553,058,000 -- --
.......................................................................................................
Putnam VT International
Growth Fund
Shares 6,966,423
Cost $77,975,764
.......................................................................................................
Market Value: -- -- 79,626,215 --
.......................................................................................................
Putnam VT International
Growth and Income Fund
Shares 10,124,438
Cost $113,567,754
.......................................................................................................
Market Value: -- -- -- 116,734,769
.......................................................................................................
Due From ITT Hartford Life &
Annuity Insurance Company 1,845,585 864,911 -- --
.......................................................................................................
Receivable from fund
shares sold -- -- 50,685 2,850,212
- -------------------------------------------------------------------------------------------------------
Total Assets 3,785,595,933 553,922,911 79,676,900 119,584,981
- -------------------------------------------------------------------------------------------------------
Liabilities
Due to ITT Hartford Life &
Annuity Insurance Company -- -- 50,608 2,849,709
.......................................................................................................
Payable for fund
shares purchased 1,850,786 858,648 -- --
.......................................................................................................
Total Liabilities 1,850,786 858,648 50,608 2,849,709
- -------------------------------------------------------------------------------------------------------
Net Assets (variable
annuity contract
liabilities) $3,783,745,147 $553,064,263 $79,626,292 $116,735,272
- -------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
PUTNAM CAPITAL MANAGER TRUST SEPARATE ACCOUNT TWO -- ITT HARTFORD LIFE AND ANNUITY INSURANCE COMPANY
<CAPTION>
Statement of Assets and Liabilities (continued)
- -------------------------------------------------------------------------------------------------------
December 31, 1997 International Money New New
New Market Opportunities Value
Opportunities Fund Fund Fund
Fund Sub-Account Sub-Account Sub-Account
Sub-Account
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Assets
Investments:
.......................................................................................................
Putnam VT International
New Opportunities Fund
Shares 6,438,325
Cost $67,522,570
.......................................................................................................
Market Value: $64,125,714 $ -- $ -- $ --
.......................................................................................................
Putnam VT Money
Market Fund
Shares 181,048,078
Cost $181,048,078
.......................................................................................................
Market Value: -- 181,048,078 -- --
.......................................................................................................
Putnam VT New
Opportunities Fund
Shares 57,126,747
Cost $930,119,603
.......................................................................................................
Market Value: -- -- 1,212,800,837 --
.......................................................................................................
Putnam VT New Value Fund
Shares 10,114,842
Cost $110,860,360
.......................................................................................................
Market Value: -- -- -- 118,950,540
.......................................................................................................
Putnam VT U.S. Government
and High Quality Fund
Shares 17,365,130
Cost $228,514,012
.......................................................................................................
Market Value: -- -- -- --
.......................................................................................................
Putnam VT Utilities
Growth & Income Fund
Shares 20,663,783
Cost $253,987,357
.......................................................................................................
Market Value: -- -- -- --
.......................................................................................................
Putnam VT Vista Fund
Shares 7,954,124
Cost $87,412,056
.......................................................................................................
Market Value: -- -- -- --
.......................................................................................................
Putnam VT Voyager Fund
Shares 55,922,468
Cost $1,593,337,360
.......................................................................................................
Market Value: -- -- -- --
.......................................................................................................
Due From ITT Hartford Life &
Annuity Insurance Company -- 15,480,961 -- --
.......................................................................................................
Receivable from fund
shares sold 1,437,373 -- 1,187,843 450,391
- -------------------------------------------------------------------------------------------------------
Total Assets 65,563,087 196,529,039 1,213,988,680 119,400,931
- -------------------------------------------------------------------------------------------------------
Liabilities
Due to ITT Hartford Life &
Annuity Insurance Company 1,437,479 -- 1,187,518 450,497
.......................................................................................................
Payable for fund
shares purchased -- 15,480,652 -- --
.......................................................................................................
Total Liabilities 1,437,479 15,480,652 1,187,518 450,497
- -------------------------------------------------------------------------------------------------------
Net Assets (variable
annuity contract
liabilities) $64,125,608 $181,048,387 $1,212,801,162 $118,950,434
- -------------------------------------------------------------------------------------------------------
<PAGE>
<CAPTION>
Statement of Assets and Liabilities (continued)
- -------------------------------------------------------------------------------------------------------
December 31, 1997 U.S. Government Utilities Vista Voyager
and High Growth Fund Fund
Quality Bond and Income Sub-Account Sub-Account
Fund Fund
Sub-Account Sub-Account
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Assets
Investments:
.......................................................................................................
Putnam VT International
New Opportunities Fund
Shares 6,438,325
Cost $67,522,570
.......................................................................................................
Market Value: $ -- $ -- $ -- $ --
.......................................................................................................
Putnam VT Money
Market Fund
Shares 181,048,078
Cost $181,048,078
.......................................................................................................
Market Value: -- -- -- --
.......................................................................................................
Putnam VT New
Opportunities Fund
Shares 57,126,747
Cost $930,119,603
.......................................................................................................
Market Value: -- -- -- --
.......................................................................................................
Putnam VT New Value Fund
Shares 10,114,842
Cost $110,860,360
.......................................................................................................
Market Value: -- -- -- --
.......................................................................................................
Putnam VT U.S. Government
and High Quality Fund
Shares 17,365,130
Cost $228,514,012
.......................................................................................................
Market Value: 233,040,047 -- -- --
.......................................................................................................
Putnam VT Utilities
Growth & Income Fund
Shares 20,663,783
Cost $253,987,357
.......................................................................................................
Market Value: -- 354,177,234 -- --
.......................................................................................................
Putnam VT Vista Fund
Shares 7,954,124
Cost $87,412,056
.......................................................................................................
Market Value: -- -- 97,994,803 --
.......................................................................................................
Putnam VT Voyager Fund
Shares 55,922,468
Cost $1,593,337,360
.......................................................................................................
Market Value: -- -- -- 2,185,450,030
.......................................................................................................
Due From ITT Hartford Life &
Annuity Insurance Company 1,547,195 -- 181,478 --
.......................................................................................................
Receivable from fund
shares sold -- 160,002 -- 3,770,589
- -------------------------------------------------------------------------------------------------------
Total Assets 234,587,242 354,337,236 98,176,281 2,189,220,619
- -------------------------------------------------------------------------------------------------------
Liabilities
Due to ITT Hartford Life &
Annuity Insurance Company -- 165,937 -- 3,767,051
.......................................................................................................
Payable for fund
shares purchased 1,547,318 -- 181,404 --
.......................................................................................................
Total Liabilities 1,547,318 165,937 181,404 3,767,051
- -------------------------------------------------------------------------------------------------------
Net Assets (variable
annuity contract
liabilities) $233,039,924 $354,171,299 $97,994,877 $2,185,453,568
- -------------------------------------------------------------------------------------------------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
</TABLE>
<PAGE>
<TABLE>
PUTNAM CAPITAL MANAGER TRUST SEPARATE ACCOUNT TWO -- ITT HARTFORD LIFE AND ANNUITY INSURANCE COMPANY
<CAPTION>
Statement of Assets and Liabilities (continued)
- -----------------------------------------------------------------------------------------------------------------------------
December 31, 1997 Units Unit Contract
Owned by Price Liability
Participants
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Deferred annuity contracts in the accumulation period:
Individual Sub-Accounts
.............................................................................................................................
Asia Pacific Growth Fund Sub-Account 7,444,698 $ 9.175966 $ 68,312,294
.............................................................................................................................
Diversified Income Fund Sub-Account 21,016,690 12.840701 269,869,032
.............................................................................................................................
Global Asset Allocation Fund Sub-Account 16,683,299 27.026081 450,884,185
.............................................................................................................................
Global Growth Fund Sub-Account 43,484,814 19.497474 847,844,030
.............................................................................................................................
Growth and Income Fund Sub-Account 94,356,271 40.036154 3,777,662,185
.............................................................................................................................
High Yield Fund Sub-Account 21,602,342 25.574900 552,477,745
.............................................................................................................................
International Growth Fund Sub-Account 6,948,348 11.450726 79,563,629
.............................................................................................................................
International Growth and Income Fund Sub-Account 9,877,972 11.776424 116,327,187
.............................................................................................................................
International New Opportunities Fund Sub-Account 6,510,337 9.849814 64,125,608
.............................................................................................................................
Money Market Fund Sub-Account 122,079,468 1.482672 181,003,809
.............................................................................................................................
New Opportunities Fund Sub-Account 59,879,474 20.223432 1,210,968,462
.............................................................................................................................
New Value Fund Sub-Account 10,225,618 11.597024 118,586,732
.............................................................................................................................
U.S. Government and High Quality Bond Fund Sub-Account 11,665,758 19.958881 232,835,474
.............................................................................................................................
Utilities Growth and Income Fund Sub-Account 17,569,252 20.143040 353,898,139
.............................................................................................................................
Vista Fund Sub-Account 8,062,390 12.151064 97,966,626
.............................................................................................................................
Voyager Fund Sub-Account 48,249,790 45.196582 2,180,725,590
.............................................................................................................................
Sub-total Individual Sub-Accounts 10,603,050,727
.............................................................................................................................
Annuity contracts in the annuity period:
.............................................................................................................................
Individual Sub-Accounts:
.............................................................................................................................
Asia Pacific Growth Fund Sub-Account 2,363 $ 9.175966 $21,681
.............................................................................................................................
Diversified Income Fund Sub-Account 16,811 12.840701 215,860
.............................................................................................................................
Global Asset Allocation Fund Sub-Account 19,999 27.026081 540,490
.............................................................................................................................
Global Growth Fund Sub-Account 91,954 19.497474 1,792,870
.............................................................................................................................
Growth and Income Fund Sub-Account 151,937 40.036154 6,082,962
.............................................................................................................................
High Yield Fund Sub-Account 22,933 25.574900 586,518
.............................................................................................................................
International Growth Fund Sub-Account 5,473 11.450726 62,663
.............................................................................................................................
International Growth and Income Fund Sub-Account 34,653 11.776424 408,085
.............................................................................................................................
Money Market Fund Sub-Account 30,066 1.482672 44,578
.............................................................................................................................
New Opportunities Fund Sub-Account 90,623 20.223432 1,832,700
.............................................................................................................................
New Value Fund Sub-Account 31,362 11.597024 363,702
.............................................................................................................................
U.S. Government and High Quality Bond Fund Sub-Account 10,244 19.958881 204,450
.............................................................................................................................
Utilities Growth and Income Fund Sub-Account 13,561 20.143040 273,160
.............................................................................................................................
Vista Fund Sub-Account 2,325 12.151064 28,251
.............................................................................................................................
Voyager Fund Sub-Account 104,609 45.196582 4,727,978
.............................................................................................................................
Sub-total Individual Sub-Accounts 17,185,948
- -----------------------------------------------------------------------------------------------------------------------------
Grand Total $10,620,236,675
- -----------------------------------------------------------------------------------------------------------------------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
</TABLE>
<PAGE>
<TABLE>
PUTNAM CAPITAL MANAGER TRUST SEPARATE ACCOUNT TWO -- ITT HARTFORD LIFE AND ANNUITY INSURANCE COMPANY
<CAPTION>
Statement of Operations
- ----------------------------------------------------------------------------------------------------------------
For the year ended Asia Pacific Diversified Global Asset Global
December 31, 1997 Growth Income Allocation Growth
Fund Fund Fund Fund
Sub-Account Sub-Account Sub-Account Sub-Account
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investment Income:
Dividends $ 1,583,349 $12,997,452 $11,993,572 $17,352,213
................................................................................................................
Expense:
Mortality and expense
undertakings (1,123,401) (3,442,134) (5,622,340) (11,348,642)
................................................................................................................
Capital gains income -- 2,048,961 20,499,937 18,664,210
................................................................................................................
Net realized and
unrealized gain (loss)
on investments:
................................................................................................................
Net realized gain (loss)
on security transactions 381,797 4,201 42,533 (70,313)
................................................................................................................
Net unrealized appreciation
(depreciation) of investments
during the period (13,132,923) 2,897,636 36,929,311 66,628,239
................................................................................................................
Net gain (loss) on investments (12,751,126) 2,901,837 36,971,844 66,557,926
- ----------------------------------------------------------------------------------------------------------------
Net increase (decrease)
in net assets resulting
from operations: $(12,291,178) $14,506,116 $63,843,013 $91,225,707
- ----------------------------------------------------------------------------------------------------------------
<CAPTION>
Statement of Operations (continued)
- ----------------------------------------------------------------------------------------------------------------
For the year ended Growth High Yield International International
December 31, 1997 and Income Fund Growth Growth
Fund Sub-Account Fund and Income
Sub-Account Sub-Account* Fund
Sub-Account*
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investment Income:
Dividends $ 55,603,806 $30,314,263 $1,197,977 $3,863,584
................................................................................................................
Expense:
Mortality and expense
undertakings (44,444,177) (6,636,856) (550,679) (848,822)
................................................................................................................
Capital gains income 135,341,577 3,515,165 -- --
................................................................................................................
Net realized and
unrealized gain (loss)
on investments:
................................................................................................................
Net realized gain (loss)
on security transactions (14,039) (4,814) 112,426 254,024
................................................................................................................
Net unrealized appreciation
(depreciation) of investments
during the period 464,399,235 30,275,390 1,650,451 3,167,015
................................................................................................................
Net gain (loss) on investments 464,385,196 30,270,576 1,762,877 3,421,039
- ----------------------------------------------------------------------------------------------------------------
Net increase (decrease)
in net assets resulting
from operations: $610,886,402 $57,463,148 $2,410,175 $6,435,801
- ----------------------------------------------------------------------------------------------------------------
*From inception, January 2, 1997 to December 31, 1997.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
</TABLE>
<PAGE>
<TABLE>
PUTNAM CAPITAL MANAGER TRUST SEPARATE ACCOUNT TWO -- ITT HARTFORD LIFE AND ANNUITY INSURANCE COMPANY
<CAPTION>
Statement of Operations (continued)
- ----------------------------------------------------------------------------------------------------------------
For the year ended International Money New New
December 31, 1997 New Market Opportunities Value
Opportunities Fund Fund Fund
Fund Sub-Account Sub-Account Sub-Account*
Sub-Account*
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investment Income:
Dividends $ 184,429 $10,950,891 $ -- $ --
................................................................................................................
Expense:
Mortality and expense
undertakings (613,179) (3,015,098) (14,288,485) (930,950)
................................................................................................................
Capital gains income -- -- -- --
................................................................................................................
Net realized and
unrealized gain (loss)
on investments:
................................................................................................................
Net realized gain (loss)
on security transactions 93,448 -- (674,928) (53,025)
................................................................................................................
Net unrealized appreciation
(depreciation) of investments
during the period (3,396,856) -- 216,776,192 8,090,180
................................................................................................................
Net gain (loss) on investments (3,303,408) -- 216,101,264 8,037,155
- ----------------------------------------------------------------------------------------------------------------
Net increase (decrease)
in net assets resulting
from operations: $(3,732,158) $ 7,935,793 $201,812,779 $7,106,205
- ----------------------------------------------------------------------------------------------------------------
<CAPTION>
Statement of Operations (continued)
- ----------------------------------------------------------------------------------------------------------------
For the year ended U.S. Government Utilities Vista Voyager
December 31, 1997 and High Growth Fund Fund
Quality Bond and Income Sub-Account* Sub-Account
Fund Fund
Sub-Account Sub-Account
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investment Income:
Dividends $13,324,652 $10,305,478 $ 7,736 $ 3,327,367
................................................................................................................
Expense:
Mortality and expense
undertakings (3,007,439) (4,156,594) (725,784) (25,571,650)
................................................................................................................
Capital gains income -- 14,052,925 -- 71,707,177
................................................................................................................
Net realized and
unrealized gain (loss)
on investments:
................................................................................................................
Net realized gain (loss)
on security transactions 92,811 316,145 (41,487) (808,610)
................................................................................................................
Net unrealized appreciation
(depreciation) of investments
during the period 4,496,793 50,135,725 10,582,747 357,032,488
................................................................................................................
Net gain (loss) on investments 4,589,604 50,451,870 10,541,260 356,223,878
- ----------------------------------------------------------------------------------------------------------------
Net increase (decrease)
in net assets resulting
from operations: $14,906,817 $70,653,679 $9,823,212 $405,686,772
- ----------------------------------------------------------------------------------------------------------------
*From inception, January 2, 1997 to December 31, 1997.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
</TABLE>
<PAGE>
<TABLE>
PUTNAM CAPITAL MANAGER TRUST SEPARATE ACCOUNT TWO -- ITT HARTFORD LIFE AND ANNUITY INSURANCE COMPANY
<CAPTION>
Statement of Changes in Net Assets
- ----------------------------------------------------------------------------------------------------------------
For the year ended Asia Pacific Diversified Global Asset Global
December 31, 1997 Growth Income Allocation Growth
Fund Fund Fund Fund
Sub-Account Sub-Account Sub-Account Sub-Account
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Operations:
Net investment income (loss) $ 459,948 $ 9,555,318 $ 6,371,232 $ 6,003,571
................................................................................................................
Capital gains income -- 2,048,961 20,499,937 18,664,210
................................................................................................................
Net realized gain(loss)
on security transactions 381,797 4,201 42,533 (70,313)
................................................................................................................
Net unrealized appreciation
(depreciation) of investments
during the period (13,132,923) 2,897,636 36,929,311 66,628,239
................................................................................................................
Net increase (decrease)
in net assets resulting
from operations (12,291,178) 14,506,116 63,843,013 91,225,707
................................................................................................................
Unit transactions:
Purchases 15,296,904 55,905,675 53,215,802 94,655,178
................................................................................................................
Net transfers (8,269,677) (9,769,014) 23,676,122 8,639,167
................................................................................................................
Surrenders (2,530,242) (12,309,013) (18,260,579) (29,632,010)
................................................................................................................
Net annuity transactions 8,025 146,954 145,121 886,113
................................................................................................................
Net increase (decrease)
in net assets resulting
from unit transactions 4,505,010 33,974,602 58,776,466 74,548,448
................................................................................................................
Total increase (decrease)
in net assets (7,786,168) 48,480,718 122,619,479 165,774,155
................................................................................................................
Net assets:
Beginning of period 76,120,143 221,604,174 328,805,196 683,862,745
- ----------------------------------------------------------------------------------------------------------------
End of period $68,333,975 $270,084,892 $451,424,675 $849,636,900
- ----------------------------------------------------------------------------------------------------------------
<CAPTION>
Statement of Changes in Net Assets (continued)
- ----------------------------------------------------------------------------------------------------------------
For the year ended Growth High Yield International International
December 31, 1997 and Income Fund Growth Growth
Fund Sub-Account Fund and Income
Sub-Account Sub-Account* Fund
Sub-Account*
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Operations:
Net investment income (loss) $ 11,159,629 $ 23,677,407 $ 647,298 $ 3,014,762
................................................................................................................
Capital gains income 135,341,577 3,515,165 -- --
................................................................................................................
Net realized gain(loss)
on security transactions (14,039) (4,814) 112,426 254,024
................................................................................................................
Net unrealized appreciation
(depreciation) of investments
during the period 464,399,235 30,275,390 1,650,451 3,167,015
................................................................................................................
Net increase (decrease)
in net assets resulting
from operations 610,886,402 57,463,148 2,410,175 6,435,801
................................................................................................................
Unit transactions:
Purchases 653,735,175 119,907,763 42,465,632 60,593,915
................................................................................................................
Net transfers 243,532,477 11,079,099 35,605,842 50,937,686
................................................................................................................
Surrenders (121,451,891) (22,220,046) (916,342) (1,623,364)
................................................................................................................
Net annuity transactions 3,412,370 452,320 60,985 391,234
................................................................................................................
Net increase (decrease)
in net assets resulting
from unit transactions 779,228,131 109,219,136 77,216,117 110,299,471
................................................................................................................
Total increase (decrease)
in net assets 1,390,114,533 166,682,284 79,626,292 116,735,272
................................................................................................................
Net assets:
Beginning of period 2,393,630,614 386,381,979 -- --
- ----------------------------------------------------------------------------------------------------------------
End of period $3,783,745,147 $553,064,263 $79,626,292 $116,735,272
- ----------------------------------------------------------------------------------------------------------------
*From inception, January 2, 1997 to December 31, 1997.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
</TABLE>
<PAGE>
<TABLE>
PUTNAM CAPITAL MANAGER TRUST SEPARATE ACCOUNT TWO -- ITT HARTFORD LIFE AND ANNUITY INSURANCE COMPANY
<CAPTION>
Statement of Changes in Net Assets (continued)
- ----------------------------------------------------------------------------------------------------------------
For the year ended International Money New New
December 31, 1997 New Market Opportunities Value
Opportunities Fund Fund Fund
Fund Sub-Account Sub-Account Sub-Account*
Sub-Account*
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Operations:
Net investment income (loss) $ (428,750) $ 7,935,793 $ (14,288,485) $ (930,950)
................................................................................................................
Capital gains income -- -- -- --
................................................................................................................
Net realized gain(loss)
on security transactions 93,448 -- (674,928) (53,025)
................................................................................................................
Net unrealized appreciation
(depreciation) of investments
during the period (3,396,856) -- 216,776,192 8,090,180
................................................................................................................
Net increase (decrease)
in net assets resulting
from operations (3,732,158) 7,935,793 201,812,779 7,106,205
................................................................................................................
Unit transactions:
Purchases 35,294,318 159,829,719 173,232,758 55,890,696
................................................................................................................
Net transfers 33,818,005 (163,808,043) 23,002,452 58,041,788
................................................................................................................
Surrenders (1,254,557) (33,923,982) (34,774,552) (2,436,634)
................................................................................................................
Net annuity transactions -- (59,424) 525,040 348,379
................................................................................................................
Net increase (decrease)
in net assets resulting
from unit transactions 67,857,766 (37,961,730) 161,985,698 111,844,229
................................................................................................................
Total increase (decrease)
in net assets 64,125,608 (30,025,937) 363,798,477 118,950,434
................................................................................................................
Net assets:
Beginning of period -- 211,074,324 849,002,685 --
- ----------------------------------------------------------------------------------------------------------------
End of period $64,125,608 $181,048,387 $1,212,801,162 $118,950,434
- ----------------------------------------------------------------------------------------------------------------
<CAPTION>
Statement of Changes in Net Assets (continued)
- ----------------------------------------------------------------------------------------------------------------
For the year ended U.S. Government Utilities Vista Voyager
December 31, 1997 and High Growth Fund Fund
Quality Bond and Income Sub-Account* Sub-Account
Fund Fund
Sub-Account Sub-Account
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Operations:
Net investment income (loss) $ 10,317,213 $ 6,148,884 $ (718,048) $ (22,244,283)
................................................................................................................
Capital gains income -- 14,052,925 -- 71,707,177
................................................................................................................
Net realized gain(loss)
on security transactions 92,811 316,145 (41,487) (808,610)
................................................................................................................
Net unrealized appreciation
(depreciation) of investments
during the period 4,496,793 50,135,725 10,582,747 357,032,488
................................................................................................................
Net increase (decrease)
in net assets resulting
from operations 14,906,817 70,653,679 9,823,212 405,686,772
................................................................................................................
Unit transactions:
Purchases 30,608,860 30,748,249 48,980,888 288,568,056
................................................................................................................
Net transfers (7,633,402) (8,439,229) 40,279,408 63,585,706
................................................................................................................
Surrenders (12,023,717) (12,334,942) (1,114,398) (65,966,528)
................................................................................................................
Net annuity transactions 87,519 116,058 25,767 1,321,830
................................................................................................................
Net increase (decrease)
in net assets resulting
from unit transactions 11,039,260 10,090,136 88,171,665 287,509,064
................................................................................................................
Total increase (decrease)
in net assets 25,946,077 80,743,815 97,994,877 693,195,836
................................................................................................................
Net assets:
Beginning of period 207,093,847 273,427,484 -- 1,492,257,732
- ----------------------------------------------------------------------------------------------------------------
End of period $233,039,924 $354,171,299 $97,994,877 $2,185,453,568
- ----------------------------------------------------------------------------------------------------------------
*From inception, January 2, 1997 to December 31, 1997.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
</TABLE>
<PAGE>
<TABLE>
PUTNAM CAPITAL MANAGER TRUST SEPARATE ACCOUNT TWO -- ITT HARTFORD LIFE AND ANNUITY INSURANCE COMPANY
<CAPTION>
Statement of Changes in Net Assets
- ----------------------------------------------------------------------------------------------------------------
For the year ended Asia Pacific Diversified Global Asset Global
December 31, 1996 Growth Income Allocation Growth
Fund Fund Fund Fund
Sub-Account Sub-Account Sub-Account Sub-Account
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Operations:
Net investment income (loss) $ (233,515) $ 6,318,740 $ 6,886,175 $ 2,049,900
................................................................................................................
Capital gains income -- -- 6,905,232 13,626,134
................................................................................................................
Net realized gain(loss)
on security transactions 503,364 (13,440) (5,880) 115,502
................................................................................................................
Net unrealized appreciation
(depreciation) of investments
during the period 3,413,284 7,205,260 21,830,738 60,644,344
................................................................................................................
Net increase (decrease)
in net assets resulting
from operations 3,683,133 13,510,560 35,616,265 76,435,880
................................................................................................................
Unit transactions:
Purchases 43,835,968 86,101,578 76,481,223 182,210,555
................................................................................................................
Net transfers 16,464,173 4,387,499 19,773,407 61,807,258
................................................................................................................
Surrenders (976,032) (6,844,044) (7,867,916) (13,688,662)
................................................................................................................
Net annuity transactions 9,557 45,237 49,595 357,636
................................................................................................................
Net increase (decrease)
in net assets resulting
from unit transactions 59,333,666 83,690,270 88,436,309 230,686,787
................................................................................................................
Total increase (decrease)
in net assets 63,016,799 97,200,830 124,052,574 307,122,667
................................................................................................................
Net assets:
Beginning of period 13,103,344 124,403,344 204,752,622 376,740,078
- ----------------------------------------------------------------------------------------------------------------
End of period $76,120,143 $221,604,174 $328,805,196 $683,862,745
- ----------------------------------------------------------------------------------------------------------------
<CAPTION>
Statement of Changes in Net Assets (continued)
- ----------------------------------------------------------------------------------------------------------------
For the year ended Growth High Yield Money New
December 31, 1996 and Income Fund Market Opportunities
Fund Sub-Account Fund Fund
Sub-Account Sub-Account Sub-Account
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Operations:
Net investment income (loss) $ 36,106,325 $ 13,520,455 $ 5,547,548 $ (8,148,912)
................................................................................................................
Capital gains income 27,273,294 -- -- --
................................................................................................................
Net realized gain(loss)
on security transactions (2,128) 3,557 -- (338,446)
................................................................................................................
Net unrealized appreciation
(depreciation) of investments
during the period 265,013,647 18,332,001 -- 22,918,086
................................................................................................................
Net increase (decrease)
in net assets resulting
from operations 328,391,138 31,856,013 5,547,548 14,430,728
................................................................................................................
Unit transactions:
Purchases 779,047,762 143,881,346 274,781,350 468,698,683
................................................................................................................
Net transfers 185,288,431 7,295,366 (147,255,813) 118,659,486
................................................................................................................
Surrenders (54,682,231) (12,925,712) (13,490,742) (13,631,981)
................................................................................................................
Net annuity transactions 850,976 66,417 (48,622) 669,701
................................................................................................................
Net increase (decrease)
in net assets resulting
from unit transactions 910,504,938 138,317,417 113,986,173 574,395,889
................................................................................................................
Total increase (decrease)
in net assets 1,238,896,076 170,173,430 119,533,721 588,826,617
................................................................................................................
Net assets:
Beginning of period 1,154,734,538 216,208,549 91,540,603 260,176,068
- ----------------------------------------------------------------------------------------------------------------
End of period $2,393,630,614 $386,381,979 $211,074,324 $849,002,685
- ----------------------------------------------------------------------------------------------------------------
<PAGE>
<CAPTION>
Statement of Changes in Net Assets (continued)
- ----------------------------------------------------------------------------------------------
For the year ended U.S. Government Utilities Voyager
December 31, 1996 and High Growth Fund
Quality Bond and Income Sub-Account
Fund Fund
Sub-Account Sub-Account
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operations:
Net investment income (loss) $ 8,015,651 $ 4,954,386 $ 1,737,117
..............................................................................................
Capital gains income -- -- 34,544,297
..............................................................................................
Net realized gain(loss)
on security transactions (15,593) 3,070 (111,435)
..............................................................................................
Net unrealized appreciation
(depreciation) of investments
during the period (5,205,099) 27,539,072 66,299,654
..............................................................................................
Net increase (decrease)
in net assets resulting
from operations 2,794,959 32,496,528 102,469,633
..............................................................................................
Unit transactions:
Purchases 58,254,930 54,540,316 537,341,531
..............................................................................................
Net transfers (9,888,428) (6,591,159) 122,185,850
..............................................................................................
Surrenders (9,247,533) (8,471,777) (31,687,683)
..............................................................................................
Net annuity transactions (34,898) 25,329 1,230,624
..............................................................................................
Net increase (decrease)
in net assets resulting
from unit transactions 39,084,071 39,502,709 629,070,322
..............................................................................................
Total increase (decrease)
in net assets 41,879,030 71,999,237 731,539,955
..............................................................................................
Net assets:
Beginning of period 165,214,817 201,428,247 760,717,777
- ----------------------------------------------------------------------------------------------
End of period $207,093,847 $273,427,484 $1,492,257,732
- ----------------------------------------------------------------------------------------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
</TABLE>
<PAGE>
PUTNAM CAPITAL MANAGER TRUST SEPARATE ACCOUNT TWO --
ITT HARTFORD LIFE AND ANNUITY INSURANCE
Notes to Financial Statements
December 31, 1997
1. ORGANIZATION:
Putnam Capital Manager Trust Separate Account Two (the Account) is a
separate investment account within ITT Hartford Life and 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 the
various mutual funds (the Funds) as directed by the contractholders.
2. SIGNIFICANT ACCOUNTING POLICIES:
The following is a summary of significant accounting policies of the
Account, which are in accordance with generally accepted accounting
principles in the investment company industry:
A) Security Transactions -- Security transactions are recorded on the
trade date (date the order to buy or sell is executed). Cost of
investments sold is determined on the basis of identified cost. Dividend
and capital gains income are accrued as of the ex-dividend date. Capital
gains income represents dividends from the Funds which are characterized
as capital gains under tax regulations.
B) Security Valuation -- The investment in shares of the Funds are
valued at the closing net asset value per share as determined by the
appropriate Fund as of December 31, 1997.
C) Federal Income Taxes -- The operations of the Account form a part of,
and are taxed with, the total operations of the Company, which is taxed
as an insurance company under the Internal Revenue Code. Under current
law, no federal income taxes are payable with respect to the operations
of the Account.
D) Use of Estimates -- The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities as of the date of the financial
statements and the reported amounts of income and expenses during the
period. Operating results in the future could vary from the amounts
derived from management's estimates.
3. ADMINISTRATION OF THE ACCOUNT AND RELATED CHARGES:
A) Mortality and Expense Undertakings -- The Company, as issuer of
variable annuity contracts, provides the mortality and expense
undertakings and, with respect to the Account, receives a maximum annual
fee of 1.25% of the Account's average daily net assets. The Company also
provides administrative services and receives an annual fee of 0.15% of
the Account's average daily net assets.
B) Deduction of Annual Maintenance Fees -- Annual maintenance fees are
deducted through termination of units of interest from applicable
contract owners' accounts, in accordance with the terms of the
contracts.
<PAGE>
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of ITT Hartford Life
and Annuity Insurance Company:
We have audited the accompanying statutory balance sheets of ITT Hartford Life
and Annuity Insurance Company (a Connecticut Corporation and wholly owned
subsidiary of Hartford Life Insurance Company) (the Company) as of December 31,
1997 and 1996, and the related statutory statements of income, changes in
capital and surplus, and cash flows for each of the three years in the period
ended December 31, 1997. 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 the differences in accounting practices as described in
Note 1 are material, the statutory financial statements referred to above do not
present fairly, in accordance with generally accepted accounting principles, the
financial position of the Company as of December 31, 1997 and 1996, and the
results of its operations and its cash flows for each of three years in the
period ended December 31, 1997.
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, 1997 and 1996, and the results of operations and its cash
flows for each of the three years in the period ended December 31, 1997 in
conformity with statutory accounting practices as described in Note 1.
ARTHUR ANDERSEN LLP
Hartford, Connecticut
January 27, 1998
<PAGE>
- --------------------------------------------------------------------------------
ITT HARTFORD LIFE AND ANNUITY INSURANCE COMPANY
STATUTORY STATEMENTS OF INCOME
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
----------------------------------
1997 1996 1995
---------- ---------- ----------
($000)
<S> <C> <C> <C>
Revenues
Premiums and annuity considerations............. $ 296,645 $ 250,244 $ 165,792
Annuity and other fund deposits................. 1,981,246 1,897,347 1,087,661
Net investment income........................... 102,285 98,441 78,787
Commissions and expense allowances on
reinsurance ceded.............................. 396,921 370,637 183,380
Reserve adjustment on reinsurance ceded......... 3,672,076 3,864,395 1,879,785
Other revenues.................................. 288,632 161,906 140,796
---------- ---------- ----------
Total Revenues................................ 6,737,805 6,642,970 3,536,201
---------- ---------- ----------
Benefits and Expenses
Death and annuity benefits...................... 66,013 60,111 53,029
Surrenders and other benefit payments........... 461,733 276,720 221,392
Commissions and other expenses.................. 564,240 491,720 236,202
Increase in aggregate reserves for future
benefits....................................... 33,213 27,351 94,253
Increase in liability for premium and other
deposit funds.................................. 640,006 207,156 460,124
Net transfers to Separate Accounts.............. 4,914,980 5,492,964 2,414,669
---------- ---------- ----------
Total Benefits and Expenses................... 6,680,185 6,556,022 3,479,669
---------- ---------- ----------
Net Gain from Operations Before Federal Income
Taxes............................................ 57,620 86,948 56,532
Federal income tax (benefit) expense............ (14,878) 19,360 14,048
---------- ---------- ----------
Net Gain from Operations.......................... 72,498 67,588 42,484
Net realized capital gains, after tax........... 1,544 407 374
---------- ---------- ----------
Net Income........................................ $ 74,042 $ 67,995 $ 42,858
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
The accompanying notes are an integral part of these statutory financial
statements.
<PAGE>
- --------------------------------------------------------------------------------
ITT HARTFORD LIFE AND ANNUITY INSURANCE COMPANY
STATUTORY BALANCE SHEETS
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
------------------------
1997 1996
----------- -----------
($000)
<S> <C> <C>
Assets
Bonds........................................... $ 1,501,311 $ 1,268,480
Common stocks................................... 64,408 44,996
Mortgage loans.................................. 85,103 0
Policy loans.................................... 36,533 28,853
Cash and short-term investments................. 309,432 176,830
Other invested assets........................... 20,942 2,858
----------- -----------
Total cash and invested assets................ 2,017,729 1,522,017
----------- -----------
Investment income due and accrued............... 15,878 14,555
Premium balances receivable..................... 389 373
Receivables from affiliates..................... 1,269 257
Other assets.................................... 22,788 19,099
Separate Account assets......................... 23,208,728 14,619,324
----------- -----------
Total Assets.................................. $25,266,781 $16,175,625
----------- -----------
----------- -----------
Liabilities
Aggregate reserves for future benefits.......... $ 605,183 $ 571,970
Policy and contract claims...................... 5,672 6,806
Liability for premium and other deposit funds... 1,795,149 1,155,143
Asset valuation reserve......................... 13,670 7,442
Payable to affiliates........................... 20,972 10,022
Other liabilities............................... (754,393) (498,195)
Separate Account liabilities.................... 23,208,728 14,619,324
----------- -----------
Total liabilities............................. 24,894,981 15,872,512
----------- -----------
Capital and Surplus
Common stock.................................... 2,500 2,500
Gross paid-in and contributed surplus........... 226,043 226,043
Unassigned funds................................ 143,257 74,570
----------- -----------
Total capital and surplus..................... 371,800 303,113
----------- -----------
Total liabilities, capital and surplus.......... $25,266,781 $16,175,625
----------- -----------
----------- -----------
</TABLE>
The accompanying notes are an integral part of these statutory financial
statements.
<PAGE>
- --------------------------------------------------------------------------------
ITT HARTFORD LIFE AND ANNUITY INSURANCE COMPANY
STATUTORY STATEMENTS OF CHANGES IN CAPITAL AND SURPLUS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
---------------------------------
1997 1996 1995
--------- --------- ---------
($000)
<S> <C> <C> <C>
Capital and surplus -- beginning of year $ 303,113 $ 238,334 $ 91,285
--------- --------- ---------
Net income...................................... 74,042 67,995 42,858
Change in net unrealized capital gains (losses)
on common stocks and other invested assets..... 2,186 (5,171) 1,709
Change in asset valuation reserve............... (6,228) 568 (5,588)
Change in non-admitted assets................... (1,313) 1,387 (1,944)
Aggregate write-ins for surplus (See Note 3).... 0 0 8,080
Dividends to shareholder........................ 0 0 (10,000)
Paid-in surplus................................. 0 0 111,934
--------- --------- ---------
Change in capital and surplus................... 68,687 64,779 147,049
--------- --------- ---------
Capital and surplus -- end of year.............. $ 371,800 $ 303,113 $ 238,334
--------- --------- ---------
--------- --------- ---------
</TABLE>
The accompanying notes are an integral part of these statutory financial
statements.
<PAGE>
- --------------------------------------------------------------------------------
ITT HARTFORD LIFE AND ANNUITY INSURANCE COMPANY
STATUTORY STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
---------------------------------------
1997 1996 1995
----------- ----------- -----------
($000)
<S> <C> <C> <C>
Operations
Premiums, annuity considerations and fund
deposits....................................... $ 2,277,874 $ 2,147,627 $ 1,253,511
Investment income............................... 101,991 106,178 78,328
Other income.................................... 4,381,718 4,396,892 2,253,466
----------- ----------- -----------
Total income.................................. 6,761,583 6,650,697 3,585,305
----------- ----------- -----------
Benefits Paid................................... 529,733 338,998 277,965
Federal income taxes (received) paid on
operations..................................... (14,499) 28,857 208,423
Other expenses.................................. 5,754,725 6,254,139 2,664,385
----------- ----------- -----------
Total benefits and expenses..................... 6,269,959 6,621,994 3,150,773
----------- ----------- -----------
Net cash from operations........................ 491,624 28,703 434,532
----------- ----------- -----------
Proceeds from Investments
Bonds........................................... 614,413 871,019 287,941
Common stocks................................... 11,481 72,100 52
Other........................................... 152 10 28
----------- ----------- -----------
Net investment proceeds....................... 626,046 943,129 288,021
----------- ----------- -----------
Taxes Paid on Capital Gains....................... 0 936 226
Paid-In Surplus................................... 0 0 111,934
Other Cash Provided............................. 0 41,998 28,199
----------- ----------- -----------
Total Proceeds................................ 1,117,670 1,012,894 862,460
----------- ----------- -----------
Cost of Investments Acquired
Bonds........................................... 848,267 914,523 720,521
Common stocks................................... 28,302 82,495 35,794
Mortgage loans.................................. 85,103 0 0
Miscellaneous applications...................... 18,548 130 2,146
----------- ----------- -----------
Total Investments Acquired.................... 980,220 997,148 758,461
----------- ----------- -----------
Other Cash Applied
Dividends paid to stockholders.................. 0 0 10,000
Other........................................... 4,848 12,220 5,007
----------- ----------- -----------
Total other cash applied...................... 4,848 12,220 15,007
----------- ----------- -----------
Total applications.......................... 985,068 1,009,368 773,468
----------- ----------- -----------
Net Change in Cash and Short-Term Investments..... 132,602 3,526 88,992
Cash and Short-Term Investments, Beginning of
Year........................................... 176,830 173,304 84,312
----------- ----------- -----------
Cash and Short-Term Investments, End of Year.... $ 309,432 $ 176,830 $ 173,304
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of these statutory financial
statements.
<PAGE>
- --------------------------------------------------------------------------------
ITT HARTFORD LIFE AND ANNUITY INSURANCE COMPANY
NOTES TO STATUTORY FINANCIAL STATEMENTS
DECEMBER 31, 1997
(AMOUNTS IN THOUSANDS UNLESS OTHERWISE STATED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
ITT Hartford Life and Annuity Insurance Company ("ILA" or "the Company"),
formerly known as ITT Life Insurance Corporation, 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 financial statements were prepared in
conformity with statutory accounting practices prescribed or permitted by the
National Association of Insurance Commissioners ("NAIC") and the State of
Connecticut Department of Insurance.
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 are
for 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;
(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;
(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., 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 on an option basis, using a twenty year phase-in approach, whereas
GAAP liabilities are recorded upon adoption of the applicable standard;
<PAGE>
- --------------------------------------------------------------------------------
(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;
(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, 1997, 1996 and 1995, the
significant differences between statutory and GAAP basis net income and capital
and surplus for the Company are summarized as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------------ ---------- ----------
<S> <C> <C> <C>
GAAP Net Income............... $ 58,050 $ 41,202 $ 38,821
Amortization and
deferral of policy
acquisition costs............ (345,658) (341,572) (174,341)
Change in unearned revenue
reserve...................... 4,641 55,504 32,300
Deferred taxes................ 47,113 2,090 2,801
Separate accounts............. 282,818 306,978 146,635
Other, net.................... 27,078 3,793 (3,358)
------------ ---------- ----------
Statutory Net Income.......... $ 74,042 $ 67,995 $ 42,858
------------ ---------- ----------
------------ ---------- ----------
<CAPTION>
1997 1996 1995
------------ ---------- ----------
<S> <C> <C> <C>
GAAP Capital and
Surplus...................... $ 570,469 $ 503,887 $ 455,541
Deferred policy acquisition
costs........................ (1,283,771) (938,114) (596,542)
Unearned revenue reserve...... 134,789 130,148 74,644
Deferred taxes................ 64,522 12,823 1,493
Separate accounts............. 923,040 640,101 333,123
Asset valuation reserve....... (13,670) (7,442) (8,010)
Unrealized gains (losses) on
bonds........................ 13,943 5,112 (1,696)
Adjustment relating to Lyndon
contribution (see Note 3).... (41,277) (41,277) (41,277)
Other, net.................... 3,755 (2,125) 21,058
------------ ---------- ----------
Statutory Capital and
Surplus...................... $ 371,800 $ 303,113 $ 238,334
------------ ---------- ----------
------------ ---------- ----------
</TABLE>
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 Statements of
Income.
INVESTMENTS
Investments in bonds are carried at amortized cost. Bonds which 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.
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 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 by $6,228 in 1997,
decreased by $568 in 1996 and increased by $5,588 in 1995. Additionally, the
Interest Maintenance Reserve
<PAGE>
- --------------------------------------------------------------------------------
("IMR") captures net realized capital gains and losses, net of applicable income
taxes, resulting from changes in interest rates and amortizes these gains or
losses into income over the remaining life of the mortgage loan or bond sold.
Realized capital gains and losses, net of taxes not included in IMR are reported
in the Statutory Statements of Income. Realized investment gains and losses are
determined on a specific identification basis. The amount of net capital losses
reclassified from the IMR was $719 in 1997 and the amount of net capital gains
reclassified was $1,413 and $39 in 1996 and 1995, respectively. The amount of
income amortized was $85, $392 and $256 in 1997, 1996 and 1995, respectively.
OTHER LIABILITIES
The amount reflected in other liabilities includes a receivable from the
separate accounts of $923 million and $640 million as of December 31, 1997 and
1996, respectively. The balances are classified in accordance with NAIC
accounting practices.
MORTGAGE LOANS
Mortgage loans, carried at cost, which approximates fair value, include
investments in assets backed by mortgage loan pools.
2. INVESTMENTS:
(A) COMPONENTS OF NET INVESTMENT INCOME
<TABLE>
<CAPTION>
1997 1996 1995
-------- ------- --------
<S> <C> <C> <C>
Interest income from bonds and
short-term investments....... $100,475 $89,940 $ 76,100
Interest income from policy
loans........................ 1,958 1,846 1,504
Interest and dividends from
other investments............ 1,005 7,864 2,288
-------- ------- --------
Gross investment income....... 103,438 99,650 79,892
Less: investment expenses..... 1,153 1,209 1,105
-------- ------- --------
Net investment income......... $102,285 $98,441 $ 78,787
-------- ------- --------
-------- ------- --------
</TABLE>
(B) COMPONENTS OF NET UNREALIZED CAPITAL GAINS (LOSSES) ON COMMON STOCKS
<TABLE>
<CAPTION>
1997 1996 1995
-------- ------- --------
<S> <C> <C> <C>
Gross unrealized capital gains at
end of year........................ $ 537 $ 713 $ 1,724
Gross unrealized capital losses at
end of year........................ (1,820) (4,160) 0
-------- ------- --------
Net unrealized capital (losses)
gains.............................. (1,283) (3,447) 1,724
Balance at beginning of year........ (3,447) 1,724 15
-------- ------- --------
Change in net unrealized capital
gains (losses) on common stocks.... $ 2,164 $(5,171) $ 1,709
-------- ------- --------
-------- ------- --------
</TABLE>
(C) COMPONENTS OF NET UNREALIZED CAPITAL GAINS (LOSSES) ON BONDS AND SHORT-TERM
INVESTMENTS
<TABLE>
<CAPTION>
1997 1996 1995
------- -------- --------
<S> <C> <C> <C>
Gross unrealized capital gains at
end of year........................ $23,357 $ 11,821 $ 22,251
Gross unrealized capital losses at
end of year........................ (1,906) (3,842) (1,374)
------- -------- --------
Net unrealized capital gains........ 21,451 7,979 20,877
Balance at beginning of year........ 7,979 20,877 33,732
------- -------- --------
Change in net unrealized capital
gains (losses) on bonds and
short-term investments............. $13,472 $(12,898) $ 54,609
------- -------- --------
------- -------- --------
</TABLE>
(D) COMPONENTS OF NET REALIZED CAPITAL GAINS
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- ------
<S> <C> <C> <C>
Bonds and short-term investments......... $ (120) $ 2,756 $ 56
Common stocks............................ 0 0 52
Real estate and other.................... 114 0 0
------- ------- ------
Realized capital (losses) gains.......... (6) 2,756 208
Capital gains (benefit) tax.............. (831) 936 (205)
------- ------- ------
Net realized capital gains, after tax.... 825 1,820 413
Less: IMR capital (losses) gains......... (719) 1,413 39
------- ------- ------
Net realized capital gains............... $ 1,544 $ 407 $ 374
------- ------- ------
------- ------- ------
</TABLE>
(E) OFF-BALANCE SHEET INVESTMENTS
The Company had no significant financial instruments with off-balance sheet
risk as of December 31, 1997 and 1996.
(F) CONCENTRATION OF CREDIT RISK
Excluding U.S. government and government agency investments, the Company is
not exposed to any significant concentration of credit risk.
<PAGE>
- --------------------------------------------------------------------------------
(G) BONDS, SHORT-TERM INVESTMENTS AND COMMON STOCKS
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
1997 COST GAINS LOSSES 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 0 26,733
International governments.................... 7,609 500 0 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 0 0 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 FAIR
1997 COST GAINS LOSSES VALUE
- --------------------------------------------- ----------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Common stock -- unaffiliated................. $ 30,307 $ 537 $ 0 $ 30,844
Common stock -- affiliated................... 35,384 0 (1,820) 33,564
----------- ---------- ---------- -----------
Total common stocks.......................... $ 65,691 $ 537 $(1,820) $ 64,408
----------- ---------- ---------- -----------
----------- ---------- ---------- -----------
</TABLE>
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
1997 COST GAINS LOSSES VALUE
- --------------------------------------------- ----------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
U.S. government and government agencies and
authorities:
Guaranteed and sponsored................... $ 58,761 $ 6 $ (195) $ 58,572
Guaranteed and sponsored -- asset-backed... 78,237 1,477 (609) 79,105
States, municipalities and political
subdivisions................................ 25,958 163 (2) 26,119
International governments.................... 7,447 205 0 7,652
Public utilities............................. 70,116 396 (424) 70,088
All other corporate.......................... 410,530 6,357 (1,355) 415,532
All other corporate -- asset-backed.......... 485,953 2,654 (1,081) 487,526
Short-term investments....................... 148,094 0 (66) 148,028
Certificates of deposit...................... 83,378 563 (110) 83,831
Parents, subsidiaries and affiliates......... 48,100 0 0 48,100
----------- ---------- ---------- -----------
Total bonds and short-term investments....... $ 1,416,574 $11,821 $(3,842) $ 1,424,553
----------- ---------- ---------- -----------
----------- ---------- ---------- -----------
</TABLE>
<TABLE>
<CAPTION>
GROSS GROSS
UNREALIZED UNREALIZED FAIR
1997 COST GAINS LOSSES VALUE
- --------------------------------------------- ----------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Common stock -- unaffiliated................. $ 13,064 $ 713 $ 0 $ 13,777
Common stock -- affiliated................... 35,379 0 (4,160) 31,219
----------- ---------- ---------- -----------
Total common stocks.......................... $ 48,443 $ 713 $(4,160) $ 44,996
----------- ---------- ---------- -----------
----------- ---------- ---------- -----------
</TABLE>
The amortized cost and estimated fair value of bonds and short-term
investments at December 31, 1997 by management's anticipated maturity are shown
below. Asset-backed securities are distributed to maturity year based on ILA's
estimate of the rate of future prepayments of principal
<PAGE>
- --------------------------------------------------------------------------------
over the remaining life of the securities. Expected maturities differ from
contractual maturities reflecting borrowers' rights to call or prepay their
obligations.
<TABLE>
<CAPTION>
AMORTIZED ESTIMATED
MATURITY COST FAIR VALUE
- --------------------------------------------- ---------- -----------
<S> <C> <C>
Due in one year or less...................... $ 424,518 $ 696,203
Due after one year through five years........ 586,980 708,365
Due after five years through ten years....... 451,963 295,896
Due after ten years.......................... 315,180 99,628
---------- -----------
Total...................................... $1,778,641 $ 1,800,092
---------- -----------
---------- -----------
</TABLE>
Proceeds from sales of investments in bonds and short-term investments
during 1997, 1996 and 1995 were $367,626, $668,078 and $313,961, respectively,
resulting in gross realized gains of $964, $3,675 and $1,419, respectively, and
gross realized losses of $1,084, $919 and $1,263, respectively, before transfers
to IMR. The Company had realized gains of $52 during 1995 from a capital gain
distribution.
(H) FAIR VALUE OF FINANCIAL INSTRUMENTS
BALANCE SHEET ITEMS (IN MILLIONS):
<TABLE>
<CAPTION>
1997 1996
------------------ ------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- ------- -------- -------
<S> <C> <C> <C> <C>
ASSETS
Bonds and short-term investments........... $1,778 $ 1,800 $1,417 $ 1,425
Common stocks.............................. 64 64 45 45
Policy loans............................... 37 37 29 29
Mortgage loans............................. 85 85 0 0
Other invested assets...................... 21 21 3 3
LIABILITIES
Liabilities on investment contracts........ $1,911 $ 1,835 $1,245 $ 1,191
</TABLE>
The carrying amounts for policy loans approximates fair value. The fair
value of liabilities on investment contracts are determined by forecasting
future cash flows and discounting the forecasted cash flows at current market
rates.
3. RELATED PARTY TRANSACTIONS:
Transactions between the Company and its affiliates within The Hartford
relate principally to tax settlements, reinsurance, service fees, capital
contributions and payments of dividends. The Company has also invested in bonds
of its subsidiaries, Hartford Financial Services Corporation and HL Investment
Advisors, Inc., and common stock of its subsidiary, ITT Hartford Life, LTD.
On June 30, 1995, the assets of Lyndon Insurance Company were contributed to
ILA. As a result, ILA received approximately $365 million in bonds and
short-term investments, common stocks and cash, $28 million in policy reserves,
$187 million of current tax liability, $26 million in IMR, $8 million in AVR
(offset by an aggregate write-in to surplus), and $4 million of other
liabilities. The assets in excess of liabilities of $112 million were recorded
as an increase to paid-in surplus.
For additional information, see Note 5.
4. 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 to file separate Federal, state and local
income tax returns.
As long as The Hartford continues to beneficially own, directly or
indirectly, at least 80% of the combined voting power and 80% of the value of
the outstanding capital stock of 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 current intention of The Hartford and its subsidiaries
to continue to file a single consolidated Federal income tax return. The Company
will continue to remit (receive from) The Hartford a current income tax
provision (benefit) computed in accordance with such tax sharing agreement.
Federal income taxes (received) paid by the Company were $(14,499), $29,792 and
$215,921 in 1997, 1996 and 1995, respectively. The effective tax rate was (26)%,
22% and 25% in 1997, 1996 and 1995, respectively. 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>
1997 1996 1995
----- ----- -----
<S> <C> <C> <C>
Tax provision at U.S. Federal statutory
rate........................................ $ 20 $ 30 $ 20
Tax deferred acquisition costs............... 25 27 8
Statutory to tax reserve differences......... 1 0 3
Unrealized gain on separate accounts......... (44) (21) (13)
Investments and other........................ (17) (17) (4)
----- ----- -----
Federal income tax (benefit) expense......... $ (15) $ 19 $ 14
----- ----- -----
----- ----- -----
</TABLE>
5. 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 subject to
restrictions relating to statutory surplus. Dividends are paid as determined by
the Board of Directors and are not cumulative. No dividends were paid in 1997 or
1996. ILA paid dividends of $10 million to its parent, HLIC, in 1995. As a
result of the Distribution by ITT, the assets of ITT Lyndon Insurance Company
(Lyndon) were contributed to ILA in June 1995. Substantially all the business
was removed from Lyndon prior to the contribution. The amount of assets which
<PAGE>
- --------------------------------------------------------------------------------
exceeded liabilities at the contribution date ($112 million) was included in
paid-in surplus.
6. PENSION PLANS AND OTHER POST-RETIREMENT AND POST-EMPLOYMENT BENEFITS:
The Company'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. The Company's funding policy is to contribute annually an
amount between the minimum funding requirements set forth in the Employee
Retirement Income Security Act of 1974 and the maximum amount that can be
deducted for Federal income tax purposes. Generally, pension costs are funded
through the purchase of HLIC's group pension contracts. Pension expense was
$265, $358, and $1,034 in 1997, 1996 and 1995, respectively. Liabilities for the
plan are held by The Hartford.
The Company also participates in The Hartford's Investment and Savings Plan,
which includes a deferred compensation option under IRC section 401(k) and an
ESOP allocation under IRC section 404(k). The liabilities for these plans are
included in the financial statements of The Hartford. The cost to ILA was not
material in 1997, 1996 and 1995.
The Company's employees are included in The Hartford's contributory defined
health care and life insurance benefit plans. These plans provide health care
and life insurance benefits for retired employees. Substantially all employees
may become eligible for those benefits if they reach normal or early retirement
age while still working for the Company. The Company has prefunded a portion of
the health care and life insurance obligations through trust funds where such
prefunding can be accomplished on a tax effective basis. Amounts allocated by
The Hartford for post-retirement health care and life insurance benefits expense
(not including provisions for accrual of post-retirement benefit obligations)
are immaterial. The assumed rate of future increases in the per capita cost of
health care (the health care trend rate) was 8.5% for 1997, decreasing ratably
to 6% in the year 2001. Increasing the health care trend rates by one percent
per year would have an immaterial impact on the accumulated post-retirement
benefit obligation and the annual expense. The cost to ILA was not material in
1997, 1996 and 1995.
Post-employment benefits are primarily comprised of obligations to provide
medical and life insurance to employees on long-term disability. Post-employment
benefit expense was not material in 1997, 1996 and 1995.
7. REINSURANCE:
The Company cedes insurance to non-affiliated insurers in order to limit its
maximum loss. Such transfer does not relieve ILA of its primary liability. ILA
also assumes insurance from other insurers.
Life insurance net retained premiums were comprised of the following:
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Direct premiums................... $266,427 $226,612 $159,918
Premiums assumed.................. 51,630 33,817 13,299
Premiums ceded.................... (21,412) (10,185) (7,425)
-------- -------- --------
Premiums and annuity
considerations................... $296,645 $250,244 $165,792
-------- -------- --------
-------- -------- --------
</TABLE>
The Company cedes to RGA Reinsurance Company, on a modified coinsurance
basis, 80% of the variable annuity business written since 1994.
8. SEPARATE ACCOUNTS:
The Company maintains separate account assets and liabilities totaling $23.2
billion and $14.6 billion at December 31, 1997 and 1996, 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 $252 million, $144
million and $72 million in 1997, 1996 and 1995, respectively, and are recorded
as a component of other revenues on the Statutory Statements of Income.
9. COMMITMENTS AND CONTINGENCIES:
As of December 31, 1997 and 1996, 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 various legal actions
which have arisen in the normal course of its business. In the opinion of
management, the ultimate liability with respect to such lawsuits as well as
other contingencies is not considered to be material in relation to the results
of operations and financial position of the Company.
Under insurance guaranty laws in most states, insurers doing business
therein 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 $1,544, $1,262 and $1,684 in 1997, 1996 and 1995,
respectively. ILA incurred guaranteed fund expense of $548 in 1997 and 1996 and
$0 in 1995.
<PAGE>
PART C
<PAGE>
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) All financial statements are included in Part A and Part B of the
Registration Statement.
(b) (1) Resolution of the Board of Directors of Hartford Life and Annuity
Insurance Company ("Hartford") authorizing the establishment of
the Separate Account. (1)
(2) Not applicable.
(3) (a) Principal Underwriter Agreement. (2)
(3) (b) Form of Dealer Agreement. (2)
(4) Form of Individual Flexible Premium Variable Annuity
Contract. (1)
(5) Form of Application. (1)
(6) (a) Certificate of Incorporation of Hartford.
(6) (b) Bylaws of Hartford. (2)
(7) Not applicable.
(8) Participation Agreement.
(9) Opinion and Consent of Lynda Godkin, General Counsel.
(10) Consent of Arthur Andersen LLP, Independent Public Accountants.
(11) No financial statements are omitted
(12) Not applicable.
- -----------------
(1) Incorporated by reference to Post-Effective No. 4, to the Registration
Statement File No. 33-60702, dated May 1, 1995.
(2) Incorporated by reference to Post-Effective Amendment No. 5, to the
Registration Statement File No. 33-60702, dated May 1, 1996.
<PAGE>
(13) Not applicable.
(14) Not applicable.
(15) Copy of Power of Attorney.
(16) Organizational Chart.
Item 25. Directors and Officers of the Depositor
- --------------------------------------------------------------------------------
NAME, AGE POSITION WITH HARTFORD
- --------------------------------------------------------------------------------
Wendell J. Bossen Vice President
- --------------------------------------------------------------------------------
Gregory A. Boyko Senior Vice President, Chief Financial
Officer, and Treasurer, Director*
- --------------------------------------------------------------------------------
Peter W. Cummins Senior Vice President
- --------------------------------------------------------------------------------
Ann M. deRaismes Senior Vice President
- --------------------------------------------------------------------------------
James R. Dooley Vice President
- --------------------------------------------------------------------------------
Timothy M. Fitch Vice President
- --------------------------------------------------------------------------------
David T. Foy Vice President
- --------------------------------------------------------------------------------
J. Richard Garrett Vice President and Assistant Treasurer
- --------------------------------------------------------------------------------
Donald J. Gillette Vice President
- --------------------------------------------------------------------------------
John P. Ginnetti Executive Vice President
- --------------------------------------------------------------------------------
William A. Godfrey, III Senior Vice President
- --------------------------------------------------------------------------------
Lynda Godkin Senior Vice President, General Counsel,
and Corporate Secretary, Director*
- --------------------------------------------------------------------------------
Lois W. Grady Senior Vice President
- --------------------------------------------------------------------------------
Christopher Graham Vice President
- --------------------------------------------------------------------------------
Mark E. Hunt Vice President
- --------------------------------------------------------------------------------
Stephen T. Joyce Vice President
- --------------------------------------------------------------------------------
Michael D. Keeler Vice President
- --------------------------------------------------------------------------------
Robert A. Kerzner Senior Vice President
- --------------------------------------------------------------------------------
David N. Levenson Vice President
- --------------------------------------------------------------------------------
<PAGE>
3
- --------------------------------------------------------------------------------
NAME, AGE POSITION WITH HARTFORD
- --------------------------------------------------------------------------------
William B. Malchodi, Jr. Vice President
- --------------------------------------------------------------------------------
Thomas M. Marra Executive Vice President and Director,
Individual Life and Annuity Division,
Director*
- --------------------------------------------------------------------------------
Steven L. Matthiesen Vice President
- --------------------------------------------------------------------------------
Michael C. O'Halloran Vice President
- --------------------------------------------------------------------------------
Daniel E. O'Sullivan Vice President
- --------------------------------------------------------------------------------
Craig D. Raymond Senior Vice President and Chief Actuary
- --------------------------------------------------------------------------------
David T. Schrandt Vice President
- --------------------------------------------------------------------------------
Lowndes A. Smith President and Chief Executive Officer,
Director*
- --------------------------------------------------------------------------------
Raymond P. Welnicki Senior Vice President
- --------------------------------------------------------------------------------
Walter C. Welsh Senior Vice President
- --------------------------------------------------------------------------------
Lizabeth H. Zlatkus Senior Vice President
- --------------------------------------------------------------------------------
David M. Znamierowski Senior Vice President, Director*
- --------------------------------------------------------------------------------
Unless otherwise indicated, the principal business address of each the above
individuals is P.O. Box 2999, Hartford, CT 06104-2999.
*Denotes date of election to Board of Directors.
Item 26. Persons Controlled By or Under Common Control with the Depositor or
Registrant
Filed herewith as Exhibit 16.
Item 27. Number of Contract Owners
As of February 28, 1998, there were 40,518 Contract Owners.
Item 28. Indemnification
Under Section 33-772 of the Connecticut General Statutes, unless limited by its
certificate of incorporation, the Registrant must indemnify a director who was
wholly successful, on the merits or otherwise, in the defense of any proceeding
to which he was a party because he is or was a director of the corporation
against reasonable expenses incurred by him in connection with
<PAGE>
4
the proceeding.
The Registrant may indemnify an individual made a party to a proceeding because
he is or was a director against liability incurred in the proceeding if he acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the Registrant, and, with respect to any criminal
proceeding, had no reason to believe his conduct was unlawful. Conn. Gen. Stat.
Section 33-771(a). Additionally, pursuant to Conn. Gen. Stat. Section 33-776,
the Registrant may indemnify officers and employees or agents for liability
incurred and for any expenses to which they becomes subject by reason of being
or having been an employees or officers of the Registrant. Connecticut law does
not prescribe standards for the indemnification of officers, employees and
agents and expressly states that their indemnification may be broader than the
right of indemnification granted to directors.
The foregoing statements are specifically made subject to the detailed
provisions of Section 33-770 et seq.
Notwithstanding the fact that Connecticut law obligates the Registrant to
indemnify only a director that was successful on the merits in a suit, under
Article VIII, Section 2 of the Registrant's bylaws, the Registrant must
indemnify both directors and officers of the Registrant who are parties or
threatened to be parties to a legal proceeding by reason of his being or having
been a director or officer of the Registrant for any expenses if he acted in
good faith and in a manner he reasonably believed to be in or not opposed to the
best interests of the company, and with respect to criminal proceedings, had no
reason to believe his conduct was unlawful. Unless otherwise mandated by a
court, no indemnification shall be made if such officer or director is adjudged
to be liable for negligence or misconduct in the performance of his duty to the
Registrant.
Additionally, the directors and officers of Hartford and Hartford Securities
Distribution Company, Inc. ("HSD") are covered under a directors and officers
liability insurance policy issued to The Hartford Financial Services Group, Inc.
and its subsidiaries. Such policy will reimburse the Registrant for any
payments that it shall make to directors and officers pursuant to law and will,
subject to certain exclusions contained in the policy, further pay any other
costs, charges and expenses and settlements and judgments arising from any
proceeding involving any director or officer of the Registrant in his past or
present capacity as such, and for which he may be liable, except as to any
liabilities arising from acts that are deemed to be uninsurable.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 (the "Act") may be permitted to directors, officers and controlling persons
of the Registrant pursuant to the foregoing provisions, the Registrant has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
<PAGE>
-5-
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
Item 29. Principal Underwriters
(a) HSD acts as principal underwriter for the following investment
companies:
Hartford Life Insurance Company - Separate Account One
Hartford Life Insurance Company - Separate Account Two
Hartford Life Insurance Company - Separate Account Two (DC Variable
Account I)
Hartford Life Insurance Company - Separate Account Two (DC Variable
Account II)
Hartford Life Insurance Company - Separate Account Two (QP Variable
Account)
Hartford Life Insurance Company - Separate Account Two (Variable
Account "A")
Hartford Life Insurance Company - Separate Account Two (NQ Variable
Account)
Hartford Life Insurance Company - Putnam Capital Manager Trust
Separate Account
Hartford Life Insurance Company - Separate Account Three
Hartford Life Insurance Company - Separate Account Five
Hartford Life and Annuity Insurance Company - Separate Account One
Hartford Life and Annuity Insurance Company - Putnam Capital Manager
Trust Separate Account Two
Hartford Life and Annuity Insurance Company - Separate Account Three
Hartford Life and Annuity Insurance Company - Separate Account Five
Hartford Life and Annuity Insurance Company - Separate Account Six
American Maturity Life Insurance Company - Separate Account AMLVA
b) Directors and Officers of HSD
Name and Principal Positions and Offices
Business Address With Underwriter
------------------ ---------------------
Lowndes A. Smith President and Chief Executive Officer,
Director
John P. Ginnetti Executive Vice President, Director
Thomas M. Marra Executive Vice President, Director
Lynda Godkin Senior Vice President, General Counsel
and Corporate Secretary
Peter W. Cummins Senior Vice President
Donald E. Waggaman, Jr. Treasurer
George R. Jay Controller
Unless otherwise indicated, the principal business address of each of
the above individuals is P. O. Box 2999, Hartford, Connecticut
06104-2999.
<PAGE>
-6-
Item 30. Location of Accounts and Records
All of the accounts, books, records or other documents required to be
kept by Section 31(a) of the Investment Company Act of 1940 and rules
thereunder, are maintained by Hartford at 200 Hopmeadow Street,
Simsbury, Connecticut 06089.
Item 31. Management Services
All management contracts are discussed in Part A and Part B of this
Registration Statement.
Item 32. Undertakings
(a) The Registrant hereby undertakes to file a post-effective
amendment to this Registration Statement as frequently as is
necessary to ensure that the audited financial statements in the
Registration Statement are never more than 16 months old so long
as payments under the variable annuity contracts may be accepted.
(b) The Registrant hereby undertakes to include either (1) as part of
any application to purchase a contract offered by the prospectus,
a space that an applicant can check to request a Statement of
Additional Information, or (2) a post card or similar written
communication affixed to or included in the prospectus that the
applicant can remove to send for a Statement of Additional
Information.
(c) The Registrant hereby undertakes to deliver any Statement of
Additional Information and any financial statements required to
be made available under this Form promptly upon written or oral
request.
(d) Hartford hereby represents that the aggregate fees and charges
under the Contract are reasonable in relation to the services
rendered, the expenses expected to be incurred and the risks
assumed by Hartford.
The Registrant is relying on the no-action letter issued by the
Division of Investment Management to American Counsel of Life
Insurance, Ref. No. IP-6-88, November 28, 1988. The Registrant
has complied with conditions one through four of the no-action
letter.
<PAGE>
SIGNATURES
As required by the Securities Act of 1933 and the Investment Company Act of
1940, the Registrant certifies that it meets all of the requirements for
effectiveness of this Registration Statement pursuant to Rule 485(b) under the
Securities Act of 1933 and duly caused this Registration Statement to be signed
on its behalf, in the City of Hartford, and State of Connecticut on this 10th
day of April, 1998.
HARTFORD LIFE AND ANNUITY INSURANCE COMPANY -
PUTNAM CAPITAL MANAGER TRUST
SEPARATE ACCOUNT TWO
(Registrant)
*By: /s/ Gregory A. Boyko *By: /s/ Lynda Godkin
------------------------ ------------------------
Gregory A. Boyko, Vice President Lynda Godkin
& Controller Attorney-in-Fact
HARTFORD LIFE AND ANNUITY INSURANCE COMPANY
(Depositor)
By: /s/ Gregory A. Boyko
---------------------------------------------
Gregory A. Boyko, Vice President & Controller
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed by the following persons and in the capacities and on
the dates indicated.
Gregory A. Boyko, Senior Vice President, Chief
Financial Officer, Director*
Lynda Godkin, Senior Vice President,
General Counsel and Corporate
Secretary, Director* *By: /s/ Lynda Godkin
Thomas M. Marra, Executive Vice -------------------------
President, Director * Lynda Godkin
Lowndes A. Smith, President & Attorney-in-fact
Chief Operating Officer, Director *
David M. Znamierowski, Senior Vice
President, Director* Dated: April 10, 1998
<PAGE>
EXHIBIT INDEX
(6)(a) Certificate of Incorporation
(9) Opinion and Consent of Lynda Godkin, Senior Vice President,
General Counsel and Corporate Secretary
(10) Consent of Arthur Andersen LLP, Independent Public Accountants
(15) Copy of Power of Attorney
(16) Organizational Chart
<PAGE>
EXHIBIT 6(a)
FILING #0001734855 PG 03 OF OS VOL B-00133
FILED 07/11/1997 11:32 AM PAGE 03683
SECRETARY OF THE STATE
CONNECTICUT SECRETARY OF THE STATE
FIRST AMENDMENT TO AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION BY ACTIONS OF THE
BOARD OF DIRECTORS AND THE SOLE SHAREHOLDER
1. The name of the Corporation is ITT Hartford Life and Annuity Insurance
Company (the "Company").
2. The Amended and Restated Certificate of Incorporation of the Company (the
"Certificate of Incorporation") is further amended by the following
resolution:
RESOLVED, that the Certificate of Incorporation be further amended
by deleting Section 1 in its entirety and replacing it with the
following, such amendment to become effective at January 1, 1998.
All other sections of the Certificate of Incorporation shall remain
unchanged and continue in full force and effect:
Section 1. Effective January 1, 1998, the name of the Company
is HARTFORD LIFE AND ANNUITY INSURANCE COMPANY.
3. The above resolution was adopted by each of the Company's Board of
Directors and its sole shareholder. The number of shares of the Company's
common capital stock entitled to vote thereon was 3,000 and the vote
required for adoption was 2,000 shares. The vote favoring adoption was
3,000 shares, which was the greatest vote required to pass the resolution.
Dated at Simsbury, Connecticut this 30 day of June, 1997.
We hereby declare, under penalty of false statement, that the statements made
in the foregoing Certificate are true.
HARTFORD LIFE AND ANNUITY
INSURANCE COMPANY
/s/ Thomas M. Marra
-----------------------------------------
Thomas M. Marra, Executive Vice President
/s/ Lynda Godkin
-----------------------------------------
Lynda Godkin, Senior Vice President,
General Counsel and Corporate Secretary
<PAGE>
FILING #0001681641 PG 04 OF 05 VOL B-00105
FILED 12/31/1996 10:00 AM PAGE 00897
SECRETARY OF STATE
CONNECTICUT SECRETARY OF THE STATE
CERTIFICATE AMENDING
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
BY ACTIONS OF THE BOARD OF DIRECTORS AND THE SOLE SHAREHOLDER
1. The name of the Corporation is ITT HARTFORD LIFE AND ANNUITY INSURANCE
COMPANY.
2. The Amended and Restated Certificate of Incorporation is amended by the
following resolution of each of the Board of Directors and the Sole
Shareholder:
RESOLVED, that the Amended and Restated Certificate of
Incorporation of the Company, as supplemented and amended to
date, is hereby amended by striking out Section 9 in its entirety
and adding the following Sections 9 and 10. All other sections
of the Amended and Restated Certificate of Incorporation shall
remain unchanged and continue in full force and effect.
"Section 9. The Board of Directors may, at any time, appoint
from among its own members such committees as it
may deem necessary for the proper conduct of the
business of the Company. The Board of Directors
shall be unrestricted as to the powers it may
confer upon such committees."
"Section 10. So much of the charter of said corporation, as
amended, as is inconsistent herewith is repealed,
provided that such repeal shall not invalidate or
otherwise affect any action taken pursuant to the
charter of the corporation, in accordance with its
terms, prior to the effective date of such
repeal."
3. The above resolutions were passed by the Board of Directors and the Sole
Shareholder of the Corporation. The number of shares of the Corporation's
common capital stock entitled to vote thereon was 3,000 and the vote
required for adoption was 2,000 shares. The vote favoring adoption was
3,000 shares, which was the greatest vote required to pass the resolution.
<PAGE>
2
Dated at Simsbury, Connecticut this 30th day of December, 1996.
We hereby declare, under penalty of false statement, that the statements made in
the foregoing Certificate are true.
ITT HARTFORD LIFE AND ANNUITY
INSURANCE COMPANY
/s/Thomas M. Marra
------------------------------------
Thomas M. Marra, Executive Vice
President and Director - Individual
Life and Annuity Division
/s/Lynda Godkin
------------------------------------
Lynda Godkin, General Counsel and
Corporate Secretary
<PAGE>
CERTIFICATE AMENDING AND RESTATING
THE CERTIFICATE OF INCORPORATION BY
ACTION OF THE BOARD OF DIRECTORS AND SHAREHOLDERS
The name of the Corporation is ITT HARTFORD LIFE AND ANNUITY INSURANCE COMPANY.
2. The Certificate of Incorporation is amended and restated by the following
resolution of the Board of Directors and Shareholder of the Corporation.
RESOLVED, that the Certificate of Incorporation of the Corporation, as
supplemented and amended to date, is further amended and restated to read
as follows:
Section 1. The name of the Corporation is ITT HARTFORD LIFE AND ANNUITY
INSURANCE COMPANY.
Section 2. The address of the Registered Office of the Corporation is
Hartford Plaza, Hartford, Connecticut 06104-2999.
Section 3. The Corporation is a body politic and corporate and shall
have all the powers granted by the general statutes, as now
enacted or hereinafter amended, to corporations formed under
the Stock Corporation Act.
Section 4. The Corporation shall have the purposes and powers to write
any and all forms of insurance which any other corporation
now or hereafter chartered in Connecticut and empowered to
do an insurance business may now or hereafter lawfully do;
to accept and to cede reinsurance; to issue policies and
contracts for any kind or combination of kinds of insurance;
to issue policies or contracts either with or without
participation in profits; to acquire and hold any or all of
the shares or other securities of any insurance corporation
or any other kind of corporation; and to engage in any
lawful act or activity for which corporations may be formed
under the Stock Corporation Act. The corporation is
authorized to exercise the powers herein granted in any
state, territory or jurisdiction of the United States or
in any foreign country.
Section 5. The Corporation shall obtain a license from the insurance
commissioner prior to the commencement of business and
shall be subject to all general statutes applicable to
insurance companies.
Section 6. The aggregate number of shares which the corporation shall
have authority to issue is 3,000 shares consisting of one
class only, designated as Common Shares, of the par value
of $1,250.
Section 7. No shareholder shall, because of his ownership of shares,
have a preemptive or other right to purchase, subscribe for,
or take any part of any shares or any
<PAGE>
2
part of the notes, debentures, bonds, or other securities
convertible into or carrying options or warrants to purchase
shares of this corporation issued, optioned, or sold by it
after its incorporation.
Section 8. The minimum amount of stated capital with which the
corporation shall commence business is One Thousand
Dollars ($1,000.00).
Section 9. So much of the charter of said corporation is amended, as is
inconsistent herewith is repealed, provided such repeal shall
not invalidate or otherwise affect any action taken pursuant
to the charter of the corporation, in accordance with its
terms, prior to the effective date of such repeal.
3. The above resolution was passed by the Board of Directors and the
Shareholder of the Corporation. The number of shares entitled to vote
thereon was 3,000 and the vote required for adoption was 2,000 shares.
The vote favoring adoption was 3,000 which was the greatest vote needed to
pass the resolution.
Dated at Simsbury, Connecticut this 30th day of April, 1996.
We hereby declare, under the penalties of false statement, that the
statements made in the foregoing Certificate are true.
ITT HARTFORD LIFE AND
ANNUITY INSURANCE COMPANY
/s/ Lowndes A. Smith
---------------------------------
Lowndes A. Smith, President
/s/ Lynda Godkin
----------------------------------
Lynda Godkin, General Counsel
and Corporate Secretary
<PAGE>
THE [LOGO]
HARTFORD
April 10, 1998 Lynda Godkin, Senior Vice
President, General Counsel &
Secretary Law Department
Board of Directors
Hartford Life and Annuity Insurance Company
200 Hopmeadow Street
Simsbury, CT 06089
RE: PUTNAM CAPITAL MANAGER TRUST SEPARATE ACCOUNT TWO
HARTFORD LIFE AND ANNUITY INSURANCE COMPANY
FILE NO. 33-60702
Dear Sir/Madam:
I have acted as General Counsel to Hartford Life and Annuity Insurance Company
(the "Company"), a Connecticut insurance company, and Hartford Life and Annuity
Insurance Company Putnam Capital Manager Trust Separate Account Two (the
"Account") in connection with the registration of an indefinite amount of
securities in the form of tax-deferred variable annuity contracts (the
"Contracts") with the Securities and Exchange Commission under the Securities
Act of 1933, as amended. I have examined such documents (including the Form N-4
Registration Statement) and reviewed such questions of law as I considered
necessary and appropriate, and on the basis of such examination and review, it
is my opinion that:
1. The Company is a corporation duly organized and validly existing as a stock
life insurance company under the laws of the State of Connecticut and is
duly authorized by the Insurance Department of the State of Connecticut to
issue the Contracts.
2. The Account is a duly authorized and validly existing separate account
established pursuant to the provisions of Section 38a-433 of the
Connecticut Statutes.
3. To the extent so provided under the Contracts, that portion of the assets
of the Account equal to the reserves and other contract liabilities with
respect to the Account will not be chargeable with liabilities arising out
of any other business that the Company may conduct.
<PAGE>
Board of Directors
Hartford Life and Annuity Insurance Company
April 10, 1998
Page 2
4. The Contracts, when issued as contemplated by the Form N-4 Registration
Statement, will constitute legal, validly issued and binding obligations of
the Company.
I hereby consent to the filing of this opinion as an exhibit to the Form N-4
Registration Statement for the Contracts and the Account.
Sincerely,
/s/ Lynda Godkin
Lynda Godkin
<PAGE>
ARTHUR ANDERSEN LLP
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our reports
(and to all references to our Firm) included in or made a part of this
Registration Statement File No. 33-60702 for Hartford Life and Annuity
Insurance Company Putnam Capital Manager Trust Separate Account Two on
Form N-4.
/s/ Arthur Andersen LLP
Hartford, Connecticut
April 13, 1998
<PAGE>
HARTFORD LIFE AND ANNUITY INSURANCE COMPANY
POWER OF ATTORNEY
Gregory A. Boyko
Lynda Godkin
Thomas M. Marra
Lowndes A. Smith
David M. Znamierowski
do hereby jointly and severally authorize Lynda Godkin, Marianne O'Doherty,
and Leslie T. Soler to sign as their agent, any Registration Statement,
pre-effective amendment, post-effective amendment and any application for
exemptive relief of the Hartford Life and Annuity Insurance Company under the
Securities Act of 1933 and/or the Investment Company Act of 1940.
IN WITNESS WHEREOF, the undersigned have executed this Power of Attorney for the
purpose herein set forth.
/s/ Gregory A. Boyko Dated as of March 16, 1998
- ------------------------------ --------------------------
Gregory A. Boyko
/s/ Lynda Godkin Dated as of March 16, 1998
- ------------------------------ --------------------------
Lynda Godkin
/s/ Thomas M. Marra Dated as of March 16, 1998
- ------------------------------ --------------------------
Thomas M. Marra
/s/ Lowndes A. Smith Dated as of March 16, 1998
- ------------------------------ --------------------------
Lowndes A. Smith
/s/ David M. Znamierowski Dated as of March 16, 1998
- ------------------------------ --------------------------
David M. Znamierowski
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
THE HARTFORD
The Hartford Financial Services Group, Inc.
(Delaware)
|
- -------------------------------------------------------------------------------------------------------------
Nutmeg Insurance Company The Hartford Investment
(Connecticut) Management Company
| (Delaware)
Hartford Fire Insurance Company |
(Connecticut) Hartford Investment
| Services, Inc.
Hartford Accident and Indemnity Company (Connecticut)
(Connecticut)
|
Hartford Life, Inc.
(Delaware)
|
Hartford Life and Accident Insurance Company
(Connecticut)
|
|
|
- -------------------------------------------------------------------------------------------------------------
Alpine Life Hartford Financial Hartford Life American Maturity ITT Hartford Canada
Insurance Services Life Insurance Company Life Insurance Holdings, Inc.
Company Insurance Co. (Connecticut) Company (Canada)
(New Jersey) (Connecticut) | (Connecticut) |
| | |
| AML Financial, Inc. |
| (Connecticut) Hartford Life
| Insurance Company
| of Canada
| (Canada)
|
|
- -------------------------------------------------------------------------------------------------------------
Hartford Life and Annuity ITT Hartford International Hartford Financial Services Royal Life
Insurance Company Life Reassurance Corporation Corporation Insurance
(Connecticut) (Connecticut) (Delaware) Company of
| | America
| | (Connecticut)
| |
ITT Hartford Life, Ltd. |
(Bermuda) |
|
|
- -------------------------------------------------------------------------------------------------------------
MS Fund HL Funding HL Investment Hartford Hartford Securities Hartford-Comp. Emp.
America Company, Inc. Advisors, Inc. Equity Sales Distribution Benefit Service
1993-K, Inc. (Connecticut) (Connecticut) Company, Inc. Company, Inc. Company
(Delaware) | (Connecticut) (Connecticut) (Connecticut)
|
Hartford Investment
Financial Services
Company
(Delaware)
</TABLE>
