<PAGE>
As filed with the Securities and Exchange Commission on April 19, 1999.
File No. 333-66935
811-07622
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM N-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
Pre-Effective Amendment No. 1 [X]
Post-Effective Amendment No. [ ]
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 25 [X]
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
Hartford Life
P. O. Box 2999
Hartford, CT 06104-2999
(Name and Address of Agent for Service)
Approximate Date of Proposed Public Offering: As soon as practicable after
the effective date of the registration statement.
It is proposed that this filing will become effective:
_____ immediately upon filing pursuant to paragraph (b) of Rule 485
_____ on ______, 1999 pursuant to paragraph (b) of Rule 485 60 days
_____ after filing pursuant to paragraph (a)(1) of Rule 485 on _______,
_____ 1999 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) UNDER THE INVESTMENT COMPANY ACT OF 1940, THE
REGISTRANT HAS REGISTERED AN INDEFINITE AMOUNT OF SECURITIES.
The registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this
registration statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until the registration shall
become effective on such date as the Commission, acting pursuant to Section
8(a), may determine.
<PAGE>
CROSS REFERENCE SHEET
PURSUANT TO RULE 495(A)
<TABLE>
<CAPTION>
N-4 ITEM NO. PROSPECTUS HEADING
------------------------------------------------------------------------
<S> <C> <C>
1. Cover Page Putnam Capital Manager Trust
Separate Account Two
2. Definitions Glossary of Special Terms
3. Synopsis or Highlights Summary
4. Condensed Financial Yield Information
Information
5. General Description of Hartford Life and Annuity Insurance
The Funds
Registrant The Separate Account, The Fixed Account, and
The Funds
6. Deductions Contract Charges
7. General Description of The Contract, The Separate
Annuity Contracts Account, Fixed Account, and Surrenders
8. Annuity Period Settlement Provisions
9. Death Benefit Death Benefits
10. Purchases and Contract Value The Contract, The Contract Offered, and
Contract Value
11. Redemptions Surrenders
12. Taxes Federal Tax Considerations
13. Legal Proceedings Legal Matters and Experts
14. Table of Contents of the Table of Contents to
Statement of Additional Statement of Additional
Information Information
15. Cover Page Part B; Statement of Additional
Information
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
N-4 ITEM NO. PROSPECTUS HEADING
------------------------------------------------------------------------
<S> <C> <C>
16. Table of Contents Table of Contents
17. General Information and History Summary
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 Settlement Provisions
23. Financial Statements Financial Statements
24. Financial Statements and Financial Statements and
Exhibits Exhibits
25. Directors and Officers of the Directors and Officers of the
Depositor Depositor
26. Persons Controlled by or Under Persons Controlled by or Under
Common Control with the Common Control with the Depositor
Depositor or Registrant or Registrant
27. Number of Contract Owners Number of Contract Owners
28. Indemnification Indemnification
29. Principal Underwriters Principal Underwriters
30. Location of Accounts and Location of Accounts and Records
Records
31. Management Services Management Services
32. Undertakings Undertakings
</TABLE>
<PAGE>
PART A
<PAGE>
HARTFORD LIFE AND ANNUITY INSURANCE COMPANY
[PRODUCT NAME]
PUTNAM CAPITAL MANAGER TRUST
SEPARATE ACCOUNT TWO
P.O. Box 5085
Hartford, Connecticut 06102-5085
Telephone: 1-800-521-0538 (Contract Owners)
- --------------------------------------------------------------------------------
This Prospectus describes information you should know before you purchase
[PRODUCT NAME] variable annuity. Please read it carefully.
[PRODUCT NAME] variable annuity is a contract between you and Hartford Life and
Annuity Insurance Company where you agree to make at least one payment to us and
we agree to make a series of annuity payments to you at a later date. This
annuity is a flexible premium, tax-deferred, variable annuity offered to both
individuals and groups. It is:
x Flexible, because you may add premium payments at any time.
x Tax-deferred, which means you don't pay taxes until you take money out or
until we start to make annuity payments to you.
x Variable, because the value of your annuity will fluctuate with the
performance of the underlying funds.
At the time you purchase, you allocate your Net Premium Payment, which is any
purchase payment less the sales charge and any premium taxes, to "sub-accounts".
These are subdivisions of our separate account, an account that keeps your
annuity assets separate from our company assets. The sub-accounts then purchase
shares of mutual funds set up exclusively for variable annuity or variable life
insurance products. These funds are not the same mutual funds that you buy
through your stockbroker or through a retail mutual fund. They may have similar
investment strategies and the same portfolio managers as retail mutual funds.
This annuity offers you funds with investment strategies ranging from
conservative to aggressive and you may pick those funds that meet your
investment goals and risk tolerance. The sub-accounts and the funds are listed
below:
- - Putnam Asia Pacific Growth Sub-Account which purchases Class IB shares of
Putnam VT Asia Pacific Growth Fund of Putnam Variable Trust
- - Putnam Diversified Income Sub-Account which purchases Class IB shares of
Putnam VT Diversified Income Fund of Putnam Variable Trust
- - Putnam The George Putnam Fund of Boston Sub-Account which purchases Class IB
shares of Putnam VT The George Putnam Fund of Boston of Putnam Variable Trust
- - Putnam Global Asset Allocation Sub-Account which purchases Class IB shares of
Putnam VT Global Asset Allocation Fund of Putnam Variable Trust
- - Putnam Global Growth Sub-Account which purchases Class IB shares of Putnam VT
Global Growth Fund of Putnam Variable Trust
- - Putnam Growth and Income Sub-Account which purchases Class IB shares of Putnam
VT Growth and Income Fund of Putnam Variable Trust
- - Putnam Health Sciences Sub-Account which purchases Class IB shares of Putnam
VT Health Sciences Fund of Putnam Variable Trust
- - Putnam High Yield Sub-Account which purchases Class IB shares of Putnam VT
High Yield Fund of Putnam Variable Trust
- - Putnam Income Sub-Account (formerly Putnam U.S. Government and High Quality
Bond Sub-Account) which purchases Class IB shares of Putnam VT Income Fund
(formerly Putnam VT U.S. Government and High Quality Bond Fund) of Putnam
Variable Trust
- - Putnam International Growth Sub-Account which purchases Class IB shares of
Putnam VT International Growth Fund of Putnam Variable Trust
- - Putnam International Growth and Income Sub-Account which purchases Class IB
shares of Putnam VT International Growth and Income Fund of Putnam Variable
Trust
1 - PROSPECTUS
<PAGE>
- - Putnam International New Opportunities Sub-Account which purchases Class IB
shares of Putnam VT International New Opportunities Fund of Putnam Variable
Trust
- - Putnam Investors Sub-Account which purchases Class IB shares of Putnam VT
Investors Fund of Putnam Variable Trust
- - Putnam Money Market Sub-Account which purchases Class IB shares of Putnam VT
Money Market Fund of Putnam Variable Trust
- - Putnam New Opportunities Sub-Account which purchases Class IB shares of Putnam
VT New Opportunities Fund of Putnam Variable Trust
- - Putnam New Value Sub-Account which purchases Class IB shares of Putnam VT New
Value Fund of Putnam Variable Trust
- - Putnam OTC & Emerging Growth Sub-Account which purchases Class IB shares of
Putnam VT OTC & Emerging Growth Fund of Putnam Variable Trust
- - Putnam Research Sub-Account which purchases Class IB shares of Putnam VT
Research Fund of the Putnam Variable Trust
- - Putnam Small Cap Value Sub-Account which purchases Class IB shares of Putnam
VT Small Cap Value Fund of Putnam Variable Trust
- - Putnam Utilities Growth and Income Sub-Account which purchases Class IB shares
of Putnam VT Utilities Growth and Income Fund of Putnam Variable Trust
- - Putnam Vista Sub-Account which purchases Class IB shares of Putnam VT Vista
Fund of Putnam Variable Trust
- - Putnam Voyager Sub-Account which purchases Class IB shares of Putnam VT
Voyager Fund of Putnam Variable Trust
You may also allocate some or all of your Net Premium Payment to one of the
"Fixed Accumulation Features", which pays an interest rate guaranteed for a
certain time period from the time the payment is made. Net Premium Payments put
in a Fixed Accumulation Feature are not segregated from our company assets like
the assets of the separate account.
If you decide to buy this annuity, you should keep this Prospectus for your
records. You can also call us at 1-800-521-0538 to get a Statement of Additional
Information, free of charge. The Statement of Additional Information contains
more information about this annuity and, like this Prospectus, is filed with the
Securities and Exchange Commission. We have included the Table of Contents for
the Statement of Additional Information at the end of this Prospectus.
Although we file the Prospectus and the Statement of Additional Information with
the Securities and Exchange Commission, the Commission doesn't approve or
disapprove these securities or determine if the information is truthful or
complete. Anyone who represents that the Securities and Exchange Commission does
these things may be guilty of a criminal offense.
This Prospectus and the Statement of Additional Information can also be obtained
from the Securities and Exchange Commission's website (HTTP://WWW.SEC.GOV).
This annuity IS NOT:
- - A bank deposit or obligation
- - Federally insured
- - Endorsed by any bank or governmental agency
This annuity may not be available for sale in all states
Prospectus Dated: May 3, 1999
Statement of Additional Information Dated: May 3, 1999
2 - PROSPECTUS
<PAGE>
TABLE OF CONTENTS
-------------------------------------------------------------------
<TABLE>
<CAPTION>
Page
----------------------------------------------------------------------------
<S> <C>
Glossary Of Special Terms 4
----------------------------------------------------------------------------
Fee Table 5
----------------------------------------------------------------------------
Annual Fund Operating Expenses 5
----------------------------------------------------------------------------
Summary 7
----------------------------------------------------------------------------
Hartford Life And Annuity Insurance Company 8
----------------------------------------------------------------------------
The Separate Account 9
----------------------------------------------------------------------------
The Funds 9
----------------------------------------------------------------------------
Performance Related Information 11
----------------------------------------------------------------------------
The Fixed Accumulation Features 12
----------------------------------------------------------------------------
The Contract 13
----------------------------------------------------------------------------
Contract Value - Before The Annuity Commencement Date 14
----------------------------------------------------------------------------
Contract Value Transfers Before And After The Annuity
Commencement Date 14
----------------------------------------------------------------------------
<CAPTION>
Page
<S> <C>
----------------------------------------------------------------------------
Surrenders 15
----------------------------------------------------------------------------
Contract Charges 16
----------------------------------------------------------------------------
Death Benefits 18
----------------------------------------------------------------------------
Settlement Provisions 19
----------------------------------------------------------------------------
Annuity Payments 20
----------------------------------------------------------------------------
Federal Tax Considerations 22
----------------------------------------------------------------------------
Miscellaneous 26
----------------------------------------------------------------------------
How Contracts Are Sold 26
----------------------------------------------------------------------------
Legal Matters And Experts 28
----------------------------------------------------------------------------
More Information 28
----------------------------------------------------------------------------
Appendix I - Information Regarding Tax-Qualified Retirement Plans 29
----------------------------------------------------------------------------
Table of Contents of Statement of Additional Information 32
----------------------------------------------------------------------------
</TABLE>
3 - PROSPECTUS
<PAGE>
GLOSSARY OF SPECIAL TERMS
-------------------------------------------------------------------
ACCOUNT: Any of the Sub-Accounts or Fixed Accumulation Features.
ACCUMULATION UNIT: A unit of measure we use to calculate values before we begin
to make annuity payments to you.
ADMINISTRATIVE OFFICE: Located at 200 Hopmeadow Street, Simsbury, CT 06089. The
mailing address is Post Office Box 5085, Hartford, CT 06104-5085.
ANNIVERSARY VALUE: The value of your contract determined each year on the date
we issued your annuity. Each year we increase your anniversary value by any Net
Premium Payments made to us and reduce your value for any money taken out that
year.
ANNUAL MAINTENANCE FEE: An annual $30 charge for annuities having a value of
less than $50,000 on the most recent Contract Anniversary or when the annuity is
surrendered in full. The charge is deducted proportionately from the funds in
use at the time.
ANNUITANT: The person on whose life the Contract is based. The Annuitant may not
be changed.
ANNUITY CALCULATION DATE: The date we calculate your first annuity payment.
ANNUITY UNIT: A unit of measure we use to calculate the value of the annuity
payments we make to you.
ASSUMED INVESTMENT RETURN ("AIR"): The investment return, either 3%, 5% or 6%,
which we base your variable dollar amount payments on. You select the AIR before
we start to make annuity payments.
BENEFICIARY: The person or persons you designate to receive payment of the death
benefit upon the death of the Contract Owner.
CODE: The Internal Revenue Code of 1986, as amended.
CONTINGENT ANNUITANT: The person you may designate to become the Annuitant if
the original Annuitant dies before we begin making annuity payments.
CONTRACT An individual Annuity contract and any endorsements or riders. If you
have a group annuity, you will receive a certificate rather than a contract.
CONTRACT ANNIVERSARY: The annual anniversary of the date we issued your annuity.
If your contract anniversary falls on a day that is not a Valuation Day, then
the next Valuation Day will be your Contract Anniversary for that year.
CONTRACT VALUE: The total value of your Annuity that we get by adding up the
value of each of your Sub-Accounts and Fixed Accumulation Features.
CONTRACT YEAR: The 12 months following the date you purchased your annuity and
from any Contract Anniversary.
DOLLAR COST AVERAGING ("DCA"): Systematic transfers from one Account to another.
DCA PROGRAM FIXED ACCUMULATION FEATURES: Fixed Accumulation Features we
establish to use for dollar cost averaging programs. These are part of our
General Account.
DEATH BENEFIT: The amount we pay when the Contract Owner or the Annuitant dies.
FIXED ACCUMULATION FEATURE: This is an account that is part of our General
Account. You may allocate all or a portion of your Net Premium Payments or
transfer of Contract Value to this account.
GENERAL ACCOUNT: Our General Account that includes our company assets and your
annuity assets allocated to any of the Fixed Accumulation Features or DCA
Program Fixed Accumulation Features.
HARTFORD OR WE: Hartford Life and Annuity Insurance Company. Only Hartford is
capitalized in this prospectus.
MAXIMUM ANNIVERSARY VALUE: This is the highest value your annuity reached on any
Contract Anniversary date prior to the deceased's 81st birthday, reduced by any
subsequent surrenders and increased by any subsequent additional Net Premium
Payments.
NET PREMIUM PAYMENT: This is your premium payment minus any sales charge or
premium tax, or any other fee that we take prior to allocating payments
according to your instructions.
PAYEE: The person or party designated by you to receive annuity payments.
PREMIUM TAX: A tax charged by a state or municipality on premium payments.
SALES CHARGE: The charge you pay for this annuity when you purchase it and when
you make additional premium payments.
SEPARATE ACCOUNT: An account that we establish to separate the assets for your
annuity Sub-Accounts from our company assets. For this annuity, the separate
account is the Hartford Life and Annuity Insurance Company Separate Account One.
SUB-ACCOUNT: Divisions established within the Separate Account.
SURRENDER: A complete or partial withdrawal from your annuity.
SURRENDER VALUE: What we pay you if you terminate your annuity before we begin
to make annuity payments.
VALUATION DAY: Every day the New York Stock Exchange is open for trading. The
value of the Separate Account is determined as of the close of the New York
Stock Exchange (generally 4:00 p.m. Eastern Time).
VALUATION PERIOD: The period between the close of business on successive
Valuation Days.
4 - PROSPECTUS
<PAGE>
FEE TABLE
-------------------------------------------------------------------
CONTRACT OWNER TRANSACTION EXPENSES
<TABLE>
<S> <C>
- ---------------------------------------------------------------------------------------------------------------------------------
Maximum Sales Charge Imposed on Purchases (as a percentage of premium payments): 5.5%
- ---------------------------------------------------------------------------------------------------------------------------------
Range of Sales Charges Imposed on Purchases (as a percentage of premium payments):
Premium Payment Sales Charge
- ---------------------------------------------------------------------------------------------------------------------------------
Up to $49,999.99 5.5 %
- ---------------------------------------------------------------------------------------------------------------------------------
$50,000 to $99,999.99 4.5 %
- ---------------------------------------------------------------------------------------------------------------------------------
$100,000 to $249,999.99 3.5 %
- ---------------------------------------------------------------------------------------------------------------------------------
$250,000 to $499,999.99 2.5 %
- ---------------------------------------------------------------------------------------------------------------------------------
$500,000 to $999,999.99 2.0 %
- ---------------------------------------------------------------------------------------------------------------------------------
$1,000,000 and over 1.0 %
- ---------------------------------------------------------------------------------------------------------------------------------
Annual Maintenance Fee (1) $30
- ---------------------------------------------------------------------------------------------------------------------------------
SEPARATE ACCOUNT ANNUAL EXPENSES (As percentage of average sub-account value)
Mortality and Expense Risk Charge 0.80 %
- ---------------------------------------------------------------------------------------------------------------------------------
Total Separate Account Annual Expenses 0.80 %
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The Annual Maintenance Fee is a single $30 charge deducted only when the
Contract Value is less than $50,000 on the Contract Anniversary or upon
request for full Surrender. It is deducted proportionally from the
investment options in use at the time of the charge.
The purpose of this table is to assist you in understanding various costs you
will bear directly or indirectly. The table reflects expenses of the Separate
Account and underlying Funds. Premium Taxes, if applicable, have been taken into
account. This EXAMPLE should not be considered a representation of past or
future expenses and actual expenses may be greater or less than those shown.
Pursuant to 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 approximately a 0.06% annual asset charge based on the experience of the
Contracts.
ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE NET ASSETS)
<TABLE>
<CAPTION>
Management
Fees
including 12b-1
waivers Fees
<S> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------------
Putnam VT Asia Pacific Growth Fund 0.800% 0.150%
- --------------------------------------------------------------------------------------------------------------------------------
Putnam VT Diversified Income Fund 0.670% 0.150%
- --------------------------------------------------------------------------------------------------------------------------------
Putnam VT The George Putnam Fund of Boston(2) 0.490% 0.150%
- --------------------------------------------------------------------------------------------------------------------------------
Putnam VT Global Asset Allocation Fund 0.650% 0.150%
- --------------------------------------------------------------------------------------------------------------------------------
Putnam VT Global Growth Fund 0.600% 0.150%
- --------------------------------------------------------------------------------------------------------------------------------
Putnam VT Growth and Income Fund 0.460% 0.150%
- --------------------------------------------------------------------------------------------------------------------------------
Putnam VT Health Sciences Fund(2) 0.560% 0.150%
- --------------------------------------------------------------------------------------------------------------------------------
Putnam VT High Yield Fund 0.640% 0.150%
- --------------------------------------------------------------------------------------------------------------------------------
Putnam VT Income Fund (formerly Putnam VT U.S. Government and High Quality Bond Fund) 0.600% 0.150%
- --------------------------------------------------------------------------------------------------------------------------------
Putnam VT International Growth Fund 0.800% 0.150%
- --------------------------------------------------------------------------------------------------------------------------------
Putnam VT International Growth and Income Fund 0.800% 0.150%
- --------------------------------------------------------------------------------------------------------------------------------
Putnam VT International New Opportunities Fund(2) 0.920% 0.150%
- --------------------------------------------------------------------------------------------------------------------------------
Putnam VT Investors Fund (2) 0.520% 0.150%
- --------------------------------------------------------------------------------------------------------------------------------
Putnam VT Money Market Fund 0.450% 0.150%
- --------------------------------------------------------------------------------------------------------------------------------
Putnam VT New Opportunities Fund 0.560% 0.150%
- --------------------------------------------------------------------------------------------------------------------------------
Putnam VT New Value Fund 0.700% 0.150%
- --------------------------------------------------------------------------------------------------------------------------------
Putnam VT OTC & Emerging Growth Fund(2) 0.560% 0.150%
- --------------------------------------------------------------------------------------------------------------------------------
Putnam VT Research Fund(1)(2) 0.370% 0.150%
- --------------------------------------------------------------------------------------------------------------------------------
Putnam VT Small Cap Value Fund(1) 0.800% 0.150%
- --------------------------------------------------------------------------------------------------------------------------------
Putnam VT Utilities Growth and Income Fund 0.650% 0.150%
- --------------------------------------------------------------------------------------------------------------------------------
Putnam VT Vista Fund 0.650% 0.150%
- --------------------------------------------------------------------------------------------------------------------------------
Putnam VT Voyager Fund 0.540% 0.150%
- --------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Other
Expenses
<S> <C>
- -----------------------------------------------------------------------------------------------------
Putnam VT Asia Pacific Growth Fund 0.320%
- -----------------------------------------------------------------------------------------------------
Putnam VT Diversified Income Fund 0.110%
- -----------------------------------------------------------------------------------------------------
Putnam VT The George Putnam Fund of Boston(2) 0.360%
- -----------------------------------------------------------------------------------------------------
Putnam VT Global Asset Allocation Fund 0.130%
- -----------------------------------------------------------------------------------------------------
Putnam VT Global Growth Fund 0.120%
- -----------------------------------------------------------------------------------------------------
Putnam VT Growth and Income Fund 0.040%
- -----------------------------------------------------------------------------------------------------
Putnam VT Health Sciences Fund(2) 0.340%
- -----------------------------------------------------------------------------------------------------
Putnam VT High Yield Fund 0.070%
- -----------------------------------------------------------------------------------------------------
Putnam VT Income Fund (formerly Putnam VT U.S. Government and High Quality Bond Fund) 0.070%
- -----------------------------------------------------------------------------------------------------
Putnam VT International Growth Fund 0.270%
- -----------------------------------------------------------------------------------------------------
Putnam VT International Growth and Income Fund 0.190%
- -----------------------------------------------------------------------------------------------------
Putnam VT International New Opportunities Fund(2) 0.680%
- -----------------------------------------------------------------------------------------------------
Putnam VT Investors Fund (2) 0.330%
- -----------------------------------------------------------------------------------------------------
Putnam VT Money Market Fund 0.080%
- -----------------------------------------------------------------------------------------------------
Putnam VT New Opportunities Fund 0.050%
- -----------------------------------------------------------------------------------------------------
Putnam VT New Value Fund 0.110%
- -----------------------------------------------------------------------------------------------------
Putnam VT OTC & Emerging Growth Fund(2) 0.340%
- -----------------------------------------------------------------------------------------------------
Putnam VT Research Fund(1)(2) 0.480%
- -----------------------------------------------------------------------------------------------------
Putnam VT Small Cap Value Fund(1) 0.590%
- -----------------------------------------------------------------------------------------------------
Putnam VT Utilities Growth and Income Fund 0.070%
- -----------------------------------------------------------------------------------------------------
Putnam VT Vista Fund 0.120%
- -----------------------------------------------------------------------------------------------------
Putnam VT Voyager Fund 0.040%
- -----------------------------------------------------------------------------------------------------
<CAPTION>
Total Fund
Operating
Expenses
including waivers(1)
- -----------------------------------------------------------------------------------------------------
Putnam VT Asia Pacific Growth Fund 1.270%
- -----------------------------------------------------------------------------------------------------
Putnam VT Diversified Income Fund 0.930%
- -----------------------------------------------------------------------------------------------------
Putnam VT The George Putnam Fund of Boston(2) 1.000%
- -----------------------------------------------------------------------------------------------------
Putnam VT Global Asset Allocation Fund 0.930%
- -----------------------------------------------------------------------------------------------------
Putnam VT Global Growth Fund 0.870%
- -----------------------------------------------------------------------------------------------------
Putnam VT Growth and Income Fund 0.650%
- -----------------------------------------------------------------------------------------------------
Putnam VT Health Sciences Fund(2) 1.050%
- -----------------------------------------------------------------------------------------------------
Putnam VT High Yield Fund 0.860%
- -----------------------------------------------------------------------------------------------------
Putnam VT Income Fund (formerly Putnam VT U.S. Government and High Quality Bond Fund) 0.820%
- -----------------------------------------------------------------------------------------------------
Putnam VT International Growth Fund 1.220%
- -----------------------------------------------------------------------------------------------------
Putnam VT International Growth and Income Fund 1.140%
- -----------------------------------------------------------------------------------------------------
Putnam VT International New Opportunities Fund(2) 1.750%
- -----------------------------------------------------------------------------------------------------
Putnam VT Investors Fund (2) 1.000%
- -----------------------------------------------------------------------------------------------------
Putnam VT Money Market Fund 0.680%
- -----------------------------------------------------------------------------------------------------
Putnam VT New Opportunities Fund 0.760%
- -----------------------------------------------------------------------------------------------------
Putnam VT New Value Fund 0.960%
- -----------------------------------------------------------------------------------------------------
Putnam VT OTC & Emerging Growth Fund(2) 1.050%
- -----------------------------------------------------------------------------------------------------
Putnam VT Research Fund(1)(2) 1.000%
- -----------------------------------------------------------------------------------------------------
Putnam VT Small Cap Value Fund(1) 1.540%
- -----------------------------------------------------------------------------------------------------
Putnam VT Utilities Growth and Income Fund 0.870%
- -----------------------------------------------------------------------------------------------------
Putnam VT Vista Fund 0.920%
- -----------------------------------------------------------------------------------------------------
Putnam VT Voyager Fund 0.730%
- -----------------------------------------------------------------------------------------------------
</TABLE>
(1) Expenses shown are based on estimated expenses for the first fiscal year.
The Class IB 12b-1 plans provide for payments by each Fund to Putnam Mutual
Funds at the annual rate of up to 0.35%. The Trustees currently limit 12b-1
payments on Class IB shares to 0.15% of average net assets.
5 - PROSPECTUS
<PAGE>
(2) 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>
Management
Fees
including 12b-1
waivers Fees
<S> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------------
Putnam VT The George Putnam Fund of Boston 0.650% 0.150%
- -----------------------------------------------------------------------------------------------------------------------------------
Putnam VT Health Sciences Fund 0.700% 0.150%
- -----------------------------------------------------------------------------------------------------------------------------------
Putnam VT International New Opportunities Fund 1.200% 0.150%
- -----------------------------------------------------------------------------------------------------------------------------------
Putnam VT Investors Fund 0.650% 0.150%
- -----------------------------------------------------------------------------------------------------------------------------------
Putnam VT OTC & Emerging Growth Fund 0.700% 0.150%
- -----------------------------------------------------------------------------------------------------------------------------------
Putnam VT Research Fund 0.650% 0.150%
- -----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Other
Expenses
<S> <C>
- --------------------------------------------------------------------------------------------------------
Putnam VT The George Putnam Fund of Boston 0.360%
- --------------------------------------------------------------------------------------------------------
Putnam VT Health Sciences Fund 0.340%
- --------------------------------------------------------------------------------------------------------
Putnam VT International New Opportunities Fund 0.680%
- --------------------------------------------------------------------------------------------------------
Putnam VT Investors Fund 0.330%
- --------------------------------------------------------------------------------------------------------
Putnam VT OTC & Emerging Growth Fund 0.340%
- --------------------------------------------------------------------------------------------------------
Putnam VT Research Fund 0.480%
- --------------------------------------------------------------------------------------------------------
<CAPTION>
Total Fund
Operating
Expenses
including waivers
- --------------------------------------------------------------------------------------------------------
Putnam VT The George Putnam Fund of Boston 1.160%
- --------------------------------------------------------------------------------------------------------
Putnam VT Health Sciences Fund 1.190%
- --------------------------------------------------------------------------------------------------------
Putnam VT International New Opportunities Fund 2.030%
- --------------------------------------------------------------------------------------------------------
Putnam VT Investors Fund 1.130%
- --------------------------------------------------------------------------------------------------------
Putnam VT OTC & Emerging Growth Fund 1.190%
- --------------------------------------------------------------------------------------------------------
Putnam VT Research Fund 1.280%
- --------------------------------------------------------------------------------------------------------
</TABLE>
EXAMPLE
<TABLE>
<CAPTION>
If you Surrender your Contract at the end If you annuitize your Contract at the end
of the applicable time period you would of the applicable time period you would
pay the following expenses on a $1,000 pay the following expenses on a $1,000
investment, assuming a 5% annual return on investment, assuming a 5% annual return on
assets: assets:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------
Sub-Account 1 year 3 years 5 years 10 years 1 year 3 years 5 years 10 years
- -----------------------------------------------------------------------------------------------------------------------------
Putnam Asia Pacific Growth $81 $123 $169 $293 $80 $123 $168 $293
- -----------------------------------------------------------------------------------------------------------------------------
Putnam Diversified Income 78 117 158 272 78 116 157 271
- -----------------------------------------------------------------------------------------------------------------------------
The George Putnam Fund 79 119 161 280 78 118 161 279
- -----------------------------------------------------------------------------------------------------------------------------
Putnam Global Asset Allocation 78 117 158 272 78 116 157 271
- -----------------------------------------------------------------------------------------------------------------------------
Putnam Global Growth 78 115 155 265 77 114 154 265
- -----------------------------------------------------------------------------------------------------------------------------
Putnam Growth and Income 75 108 143 241 75 107 142 240
- -----------------------------------------------------------------------------------------------------------------------------
Putnam Health Sciences 80 121 164 285 79 120 163 284
- -----------------------------------------------------------------------------------------------------------------------------
Putnam High Yield Fund 78 115 154 264 77 114 153 264
- -----------------------------------------------------------------------------------------------------------------------------
Putnam International Growth 81 126 173 303 81 125 172 302
- -----------------------------------------------------------------------------------------------------------------------------
Putnam International Growth and
Income 81 123 169 294 80 123 168 294
- -----------------------------------------------------------------------------------------------------------------------------
Putnam International New
Opportunities 87 142 200 357 86 141 199 357
- -----------------------------------------------------------------------------------------------------------------------------
Putnam Investors 79 119 161 280 78 118 161 279
- -----------------------------------------------------------------------------------------------------------------------------
Putnam Money Market 76 109 145 245 75 108 144 244
- -----------------------------------------------------------------------------------------------------------------------------
Putnam New Opportunities 77 111 149 253 76 111 148 253
- -----------------------------------------------------------------------------------------------------------------------------
Putnam New Value 79 118 159 275 78 117 159 274
- -----------------------------------------------------------------------------------------------------------------------------
Putnam OTC & Emerging Growth 80 121 164 285 79 120 163 284
- -----------------------------------------------------------------------------------------------------------------------------
Putnam Income 77 113 152 260 77 113 151 259
- -----------------------------------------------------------------------------------------------------------------------------
Putnam Utilities Growth and Income 78 115 155 265 77 114 154 265
- -----------------------------------------------------------------------------------------------------------------------------
Putnam Vista 78 116 157 271 78 116 157 270
- -----------------------------------------------------------------------------------------------------------------------------
Putnam Voyager 76 111 147 250 76 110 146 249
- -----------------------------------------------------------------------------------------------------------------------------
Putnam Research 79 119 N/A N/A 78 118 N/A N/A
- -----------------------------------------------------------------------------------------------------------------------------
Putnam Small Cap Value 85 136 N/A N/A 84 135 N/A N/A
- -----------------------------------------------------------------------------------------------------------------------------
<CAPTION>
would pay the following expenses on a
$1,000 investment, assuming a 5% annual
return on assets:
<S> <C> <C> <C> <C>
- -------------------------------------
Sub-Account 1 year 3 years 5 years 10 years
- -------------------------------------
Putnam Asia Pacific Growth $81 $123 $169 $293
- -------------------------------------
Putnam Diversified Income 78 117 158 272
- -------------------------------------
The George Putnam Fund 79 119 161 280
- -------------------------------------
Putnam Global Asset Allocation 78 117 158 272
- -------------------------------------
Putnam Global Growth 78 115 155 265
- -------------------------------------
Putnam Growth and Income 75 108 143 241
- -------------------------------------
Putnam Health Sciences 80 121 164 285
- -------------------------------------
Putnam High Yield Fund 78 115 154 264
- -------------------------------------
Putnam International Growth 81 126 173 303
- -------------------------------------
Putnam International Growth and
Income 81 123 169 294
- -------------------------------------
Putnam International New
Opportunities 87 142 200 357
- -------------------------------------
Putnam Investors 79 119 161 280
- -------------------------------------
Putnam Money Market 76 109 145 245
- -------------------------------------
Putnam New Opportunities 77 111 149 253
- -------------------------------------
Putnam New Value 79 118 159 275
- -------------------------------------
Putnam OTC & Emerging Growth 80 121 164 285
- -------------------------------------
Putnam Income 77 113 152 260
- -------------------------------------
Putnam Utilities Growth and Income 78 115 155 265
- -------------------------------------
Putnam Vista 78 116 157 271
- -------------------------------------
Putnam Voyager 76 111 147 250
- -------------------------------------
Putnam Research 79 119 N/A N/A
- -------------------------------------
Putnam Small Cap Value 85 136 N/A N/A
- -------------------------------------
</TABLE>
6 - PROSPECTUS
<PAGE>
SUMMARY
-------------------------------------------------------------------
HOW DO I PURCHASE THIS ANNUITY?
You must complete our application or order request and submit it to us for
approval with your first premium payment. Your first premium payment must be at
least $1,000 and subsequent premium payments must be at least $500.
- - For a limited time, usually within ten days after you receive your annuity,
you may cancel your annuity without paying a sales charge. You bear the
investment risk for your premium payment prior to our receipt of your request
for cancellation.
WHAT TYPE OF SALES CHARGE WILL I PAY?
You pay a sales charge when you purchase your annuity and when you make
additional premium payments to your annuity. The percent of the sales charge
depends on the size of your premium payment to date. The bigger your premium
payment to date, the less the percentage your sales charge is:
<TABLE>
<CAPTION>
Cumulative
Premium Payment Sales Charge
- --------------------- -------------
<S> <C>
Up to $49,999.99 5.5%
$50,000 to $99,999.99 4.5%
$100,000 to
$249,999.99 3.5%
$250,000 to
$499,999.99 2.5%
$500,000 to
$999,999.99 2.0%
$1,000,000 and over 1.0%
</TABLE>
You might be able to lower the sales charge you pay when you purchase your
annuity by signing a LETTER OF INTENT. This is a contract between us where you
decide how much you want to invest in the 13 months from the date you purchase
this annuity. On the date you purchase your annuity, we deduct the sales charge
based on the total amount you plan on investing over the following 13 months.
This usually results in a lower percentage sales charge than if you made one
initial investment and several premium payments later on. Think about the
planned premium payments for your Letter of Intent carefully. If you don't make
all the payments you plan on making, we will recalculate the sales charge for
the amounts we actually received in the 13 month period. If the percentage sales
charge on the actual amount received is more than the percentage sales charge we
actually deducted; we will deduct the outstanding sales charge proportionally
from all your Accounts.
If you have other annuities with us, under a program called "RIGHTS OF
ACCUMULATION", we might include those assets when determining your sales charge
for this annuity. Ask your financial consultant or call us to see if your other
annuities qualify.
IS THERE AN ANNUAL MAINTENANCE FEE?
Yes. We deduct this $30.00 fee each year on your Contract Anniversary or when
you completely Surrender your annuity, if, on either of those dates, the value
of your annuity is less than $50,000.
WHAT CHARGES WILL I PAY ON AN ANNUAL BASIS?
In addition to the Annual Maintenance Fee, you pay two different types of
charges each year. The first type of charge is the fee you pay for insurance.
This charge is:
A mortality and expense risk charge that is subtracted daily and is equal to an
annual charge of 0.80% of your Contract Value invested in the funds.
The second type of charge is the fee you pay for the funds.
Currently, fund charges range from 0.500% to 1.600% of the average daily value
of the amount you have invested in the funds. See the Annual Operation Expense
Table for more complete information and the Funds' prospectuses attached to this
Prospectus.
CAN I TAKE OUT ANY OF MY MONEY?
You may Surrender all or part of the amounts you have invested at any time
before we start making annuity payments to you.
- - You may have to pay tax on the money you take out and, if you take money out
before you are age 59 1/2, you may have to pay an income tax penalty.
WILL HARTFORD PAY A DEATH BENEFIT?
There is a death benefit if you, your joint owner or your Annuitant, die before
we begin to make annuity payments. The death benefit will be calculated as of
the date we receive Due Proof of Death and will be the greater of:
- - The total Premium Payments you have made to us minus any amounts you have
taken out, or
- - The Contract Value of your annuity, or
- - Your maximum anniversary value, which is the highest value your annuity
reached on any Contract Anniversary date prior the deceased's 81st birthday,
reduced by any subsequent surrenders and increased by any subsequent
additional premium payments.
This amount will remain invested in the Sub-Accounts according to your last
instructions and will be subject to market fluctuations.
7 - PROSPECTUS
<PAGE>
WHAT ANNUITY PAYMENT OPTIONS ARE AVAILABLE?
When you purchase your annuity, you may choose one of the following annuity
payment options, or receive a lump sum payment:
LIFE ANNUITY where we make scheduled payments for the rest of the Annuitant's
life.
- - Payments under this option stop upon the death of the Annuitant, even if the
Annuitant dies after one payment.
LIFE ANNUITY WITH CASH REFUND where we make payments during the life of the
Annuitant and when the Annuitant dies, we pay the remaining value to the
Beneficiary. The remaining value is calculated by subtracting the annuity
payments already made from the Contract Value at the time we receive Due Proof
of Death.
- - This option is only available if you select a variable dollar amount payment
with the 5% AIR or fixed dollar amount annuity payments.
LIFE ANNUITY WITH PAYMENTS FOR A PERIOD CERTAIN where we make payments for the
life of the Annuitant but you are at least guaranteed payments for a time period
you select which is a minimum of 5 years and a maximum of 100 years minus your
Annuitant's age. If the Annuitant dies before the end of the period selected, we
will continue to make payments until the end of the period selected.
JOINT AND LAST SURVIVOR ANNUITY where we make payments during the lifetime of
the Annuitant and another designated individual called the Joint Annuitant and
then throughout the remaining lifetime of the survivor.
JOINT AND LAST SURVIVOR LIFE ANNUITY WITH PAYMENTS FOR A PERIOD CERTAIN where we
make payments during the lifetime of the Annuitant and a Joint Annuitant, and we
guarantee that those payments for a time period you select which is a minimum of
5 years and a maximum 100 years minus your Annuitant's age. If both the
Annuitant and your Joint Annuitant die before the time we guarantee to make
payments is up, we will pay the remaining value to your Beneficiary. Payments
during the lifetime of the surviving Annuitant can be lower than the original
payments.
- - Upon the death of the Annuitant and the Joint Annuitant, we will pay the
value of the remaining payments to your Beneficiary.
PAYMENTS FOR A PERIOD CERTAIN where we agree to make payments for a specified
time between 5 and 30 years. If the Annuitant dies before the end of the
specified time, we pay the Beneficiary the present value of the annuity in one
lump sum or continue making the remaining payments to the Beneficiary.
- - If you select this option, YOU MAY SURRENDER YOUR ANNUITY after annuity
payments have started and we will give you the present value of the remaining
payments.
You must begin to take payments before the Annuitant's 90th birthday or the end
of the 10th Contract Year, which ever comes later. If you do not tell us what
payment option you want before that time, we will pay you under the Life Annuity
with a 10 year period certain. You and Hartford can agree to start payments at a
later date if the laws in effect allow us to defer payment and we agree to allow
you to defer.
HARTFORD LIFE AND ANNUITY INSURANCE COMPANY
-------------------------------------------------------------------
Hartford Life and Annuity Insurance Company is a stock life insurance company
engaged in the business of writing life insurance and annuities, both individual
and group, in all states of the United States, the District of Columbia and
Puerto Rico, except New York. On January 1, 1998, Hartford's name changed from
ITT Hartford Life and Annuity Insurance Company to Hartford Life and Annuity
Insurance Company. We were originally incorporated under the laws of Wisconsin
on January 9, 1956, and subsequently redomiciled to Connecticut. Our offices are
located in Simsbury, Connecticut; however, our mailing address is P.O. Box 2999,
Hartford, CT 06104-2999. We are ultimately controlled by The Hartford Financial
Services Group, Inc., one of the largest financial service providers in the
United States.
HARTFORD'S RATINGS
<TABLE>
<CAPTION>
Effective
Date of
Rating Agency Rating Rating Basis of Rating
<S> <C> <C> <C>
- --------------------------------------------------------------------
A.M. Best and
Company, Inc. 1/1/99 A+ Financial performance
- --------------------------------------------------------------------
Standard & Insurer financial
Poor's 6/1/98 AA strength
- --------------------------------------------------------------------
Duff & Phelps 12/21/98 AA + Claims paying ability
- --------------------------------------------------------------------
</TABLE>
8 - PROSPECTUS
<PAGE>
THE SEPARATE ACCOUNT
-------------------------------------------------------------------
The Separate Account is where we set aside and invest the assets of some of our
annuity contracts, including this Contract. The Separate Account was established
on March 1, 1993 and is registered as a unit investment trust under the
Investment Company Act of 1940. This registration does not involve supervision
by the Commission of the management or the investment practices of the Separate
Account or Hartford. The Separate Account meets the definition of "separate
account" under federal securities law. This Separate Account holds only assets
for variable annuity contracts. The Separate Account:
- - Holds assets for the benefit of you and other Contract Owners, and the persons
entitled to the payments described in the Contract.
- - Is not subject to the liabilities arising out of any other business Hartford
may conduct.
- - Is not affected by the rate of return of Hartford's General Account or by the
investment performance of any of Hartford's other separate accounts.
- - May be subject to liabilities from a Sub-Account of the Separate Account which
holds assets of other variable annuity contracts or variable life insurance
policies offered by the Separate Account which are not described in this
Prospectus.
- - Is credited with income and gains, and takes losses, whether or not realized,
from the assets it holds.
We do not guarantee the investment results of the Separate Account. There is no
assurance that the value of your Annuity will equal the total of the payments
you make to us.
THE FUNDS
-------------------------------------------------------------------
The Sub-Accounts purchase shares of Putnam Variable Trust, an open-end series
investment company with multiple portfolios ("Funds"). Putnam Investment
Management, Inc. ("Putnam Management") serves as the investment manager for the
Funds. Putnam Management is ultimately controlled by Marsh & McLennan Companies,
Inc., a publicly owned holding company whose principal businesses are
international insurance brokerage and employee benefit consulting.
We do not guarantee the investment results of any of the underlying Funds. Since
each underlying Fund has different investment objectives, each is subject to
different risks. These risks and the Funds' expenses are more fully described in
the accompanying prospectus for the Funds, and the Statement of Additional
Information, which may be ordered from us. The Funds' prospectus should be read
in conjunction with this Prospectus before investing.
The Funds may not be available in all states.
The investment goals of each of the Funds are as follows:
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.
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 primarily
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
9 - PROSPECTUS
<PAGE>
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 INCOME FUND (formerly Putnam VT U.S. Government and High Quality Bond
Fund) Seeks high current income consistent with what Putnam Management believes
to be prudent risk. The Fund will normally invest mostly in bonds and other debt
securities, and, to a lesser degree, in preferred stocks.
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 Putnam Management believes offer potential for capital growth and
may, when consistent with its investment objectives, invest in common stocks
that Putnam Management believes 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 stocks, convertible preferred stocks, convertible 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 RESEARCH FUND Seeks capital appreciation. The Fund is not intended to
be a complete investment program, and there is no assurance it will achieve its
objective.
PUTNAM VT SMALL CAP VALUE FUND Seeks capital appreciation. The Fund will
generally invest in value stocks, which stocks are those that Putnam Management
believes are currently undervalued compared to their true worth.
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.
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.
The Funds 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.
Subject to the general oversight of the Trustees of Putnam Variable 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 Funds prospectus for a more
complete description of Putnam Management and the respective fees of the Funds.
MIXED AND SHARED FUNDING. Shares of the Funds are sold to our other separate
accounts and our insurance company affiliates or other unaffiliated insurance
companies to serve as the underlying investment for both variable annuity
contracts and variable life insurance contracts, a practice
10 - PROSPECTUS
<PAGE>
known as "mixed and shared funding." As a result, there is a possibility that a
material conflict may arise between the interests of Contract Owners, and of
owners of other contracts whose contract values are allocated to one or more of
these other separate accounts investing in any one of the Funds. In the event of
any such material conflicts, we will consider what action may be appropriate,
including removing the Fund from the Separate Account or replacing the Fund with
another Fund. There are certain risks associated with mixed and shared funding,
as disclosed in the Funds' prospectus.
VOTING RIGHTS. We are the legal owners of all Fund shares held in the Separate
Account and we have the right to vote at the Fund's shareholder meetings. To the
extent required by federal securities laws or regulations, we will:
- - Notify you of any Fund shareholders' meeting if the shares held for your
Contract may be voted.
- - Send proxy materials and a form of instructions that you can use to tell us
how to vote the Fund shares held for your Contract.
- - Arrange for the handling and tallying of proxies received from Contract
Owners.
- - Vote all Fund shares attributable to your Contract according to instructions
received from you, and
- - Vote all Fund shares for which no voting instructions are received in the same
proportion as shares for which instructions have been received.
If any federal securities laws or regulations, or their present interpretation,
change to permit us to vote Fund shares on our own, we may decide to do so. You
may attend any Shareholder Meeting at which shares held for your Contract may be
voted. After we begin to make Annuity Payouts to you, the number of votes you
have will decrease.
SUBSTITUTIONS, ADDITIONS, OR DELETIONS OF FUNDS. We reserve the right, subject
to any applicable law, to make certain changes to the Funds offered under Your
Contract. We may, in our sole discretion, establish new Funds. New Funds will be
will be made available to existing Contract Owners as we determined appropriate.
We may also close one or more Funds to additional Payments or transfers from
existing Sub-Accounts.
We reserve the right to eliminate the shares of any of the Funds for any reason
and to substitute shares of another registered investment company for the shares
of any Fund already purchased or to be purchased in the future by the Separate
Account. To the extent required by the 1940 Act, substitutions of shares
attributable to your interest in a Fund will not be made until we have the
approval of the Commission and we have notified you of the change.
In the event of any substitution or change, We may, by appropriate endorsement,
make such changes in the Contract as may be necessary or appropriate to reflect
such substitution or change. If we decide that it is in the best interest of the
Contracts Owners, the Separate Account may be operated as a management company
under the 1940 Act or any other form permitted by law, may be de-registered
under the 1940 Act in the event such registration is no longer required, or may
be combined with one or more other separate accounts.
PERFORMANCE RELATED INFORMATION
-------------------------------------------------------------------
The Separate Account may advertise certain performance-related information
concerning the Sub-Accounts. Performance information about a Sub-Account is
based on the Sub-Account's past performance only and is no indication of future
performance.
When a Sub-Account advertises its STANDARDIZED TOTAL RETURN, it will usually be
calculated for one year, five years, and ten years or some other relevant
periods if the Sub-Account has not been in existence for at least ten years.
Total return is measured by comparing the value of an investment in the
Sub-Account at the beginning of the relevant period to the value of the
investment at the end of the period.
The Separate Account may also advertise NON-STANDARD TOTAL RETURNS THAT PRE-DATE
THE INCEPTION DATE OF THE SEPARATE ACCOUNT. These non-standardized total returns
are calculated by assuming that the Sub-Accounts have been in existence for the
same periods as the underlying Funds and by taking deductions for charges equal
to those currently assessed against the Sub-Accounts. These non-standardized
returns must be accompanied by standardized total returns.
If applicable, the Sub-Accounts may advertise YIELD IN ADDITION TO TOTAL RETURN.
The yield will be computed in the following manner: The net investment income
per unit earned during a recent one month period, divided by the unit value on
the last day of the period. This figure reflects the
11 - PROSPECTUS
<PAGE>
recurring charges at the Separate Account level including the Annual Maintenance
Fee.
The Money Market Fund Sub-Account may ADVERTISE YIELD AND EFFECTIVE YIELD. The
yield of a Sub-Account is based upon the income earned by the Sub-Account over a
seven-day period and then annualized, i.e. the income earned in the period is
assumed to be earned every seven days over a 52-week period and stated as a
percentage of the investment. Effective yield is calculated similarly but when
annualized, the income earned by the investment is assumed to be reinvested in
Sub-Account units and thus compounded in the course of a 52-week period. Yield
and effective yield reflect the recurring charges at the Separate Account level
including the Annual Maintenance Fee.
The Separate Account may also disclose yield for periods prior to the date the
Separate Account commenced operations. For periods prior to the date the
Separate Account commenced operations, performance information for the Sub-
Accounts will be calculated based on the performance of the underlying Funds and
the assumption that the Sub-Accounts were in existence for the same periods as
those of the underlying Funds, with a level of charges equal to those currently
assessed against the Sub-Accounts. No yield disclosure for periods prior to the
date of the Separate Account will be used without the yield disclosure for
periods as of the inception of the Separate Account.
We may provide information on various topics to Contract Owners and prospective
Contract Owners in advertising, sales literature or other materials. These
topics may include the relationship between sectors of the economy 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-deferred
and taxable instruments, customer profiles and hypothetical purchase scenarios,
financial management and tax and retirement planning, and other investment
alternatives, including comparisons between the Contracts and the
characteristics of and market for such alternatives.
THE FIXED ACCUMULATION FEATURES
-------------------------------------------------------------------
IMPORTANT INFORMATION YOU SHOULD KNOW: THIS PORTION OF THE CONTRACT RELATING TO
THE FIXED ACCUMULATION FEATURES IS NOT REGISTERED UNDER THE SECURITIES ACT OF
1933 ("1933 ACT") AND THE FIXED ACCUMULATION FEATURES ARE NOT REGISTERED AS
INVESTMENT COMPANIES UNDER THE INVESTMENT COMPANY ACT OF 1940 ("1940 ACT"). NONE
OF THE FIXED ACCUMULATION FEATURES OR ANY OF THEIR INTERESTS ARE SUBJECT TO THE
PROVISIONS OR RESTRICTIONS OF THE 1933 ACT OR THE 1940 ACT, AND THE STAFF OF THE
SECURITIES AND EXCHANGE COMMISSION HAS NOT REVIEWED THE DISCLOSURE REGARDING THE
FIXED ACCUMULATION FEATURES. THE FOLLOWING DISCLOSURE ABOUT THE FIXED
ACCUMULATION FEATURES MAY BE SUBJECT TO CERTAIN GENERALLY APPLICABLE PROVISIONS
OF THE FEDERAL SECURITIES LAWS REGARDING THE ACCURACY AND COMPLETENESS OF
DISCLOSURE.
Payments and Contract Values allocated to a Fixed Accumulation Feature become a
part of our general assets. We invest the assets of the General Account in
accordance with applicable law governing the investments of insurance company
General Accounts. We have more than one Fixed Accumulation Feature. The standard
Fixed Accumulation Feature (the "Fixed Accumulation Feature") and then a number
of DCA Program Fixed Accumulation Features, which we collectively refer to as
the "Fixed Accumulation Features".
Currently, we guarantee that we will credit interest at a rate of not less than
3% per year, compounded annually, to amounts you allocate to the Fixed
Accumulation Feature. We reserve the right to change the rate subject only to
applicable state insurance law. We may credit interest at a rate in excess of 3%
per year. We will periodically publish the Fixed Accumulation Feature interest
rates currently in effect. There is no specific formula for the determination of
interest rates. Some of the factors that we may consider in determining whether
to credit excess interest; are general economic trends, rates of return
currently available and anticipated on our investments, regulatory and tax
requirements and competitive factors. We will account for any deductions,
surrenders or transfers from the Fixed Accumulation Feature on a "first-in",
"first-out" basis".
IMPORTANT: ANY INTEREST CREDITED TO AMOUNTS YOU ALLOCATE TO THE FIXED
ACCUMULATION FEATURE IN EXCESS OF 3% PER YEAR WILL BE DETERMINED AT OUR SOLE
DISCRETION. YOU ASSUME THE RISK THAT INTEREST CREDITED TO THE FIXED ACCUMULATION
FEATURE MAY NOT EXCEED THE MINIMUM GUARANTEE OF 3% FOR ANY GIVEN YEAR.
From time to time, we may credit increased interest rates to Contract Owners
under certain programs established at our sole discretion.
12 - PROSPECTUS
<PAGE>
DOLLAR COST AVERAGING PROGRAMS: These programs will use designated DCA Program
Fixed Accumulation Features. Currently, Contract Owners may enroll in a special
pre-authorized transfer program known as our Dollar Cost Averaging Plus Program
(the "Program"). Under this Program, Contract Owners who enroll may allocate a
minimum of $5,000 of their Payment into the appropriate DCA Program Fixed
Accumulation Feature (we 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 Payments
and accrued interest must be transferred from the DCA Program Fixed Accumulation
Feature in use 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 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 we receive the
initial Program Payment and complete enrollment instructions. If We do not
receive complete Program enrollment instructions within 15 days of receipt of
the initial Program Payment, the Program will be voided and the entire balance
in the Program will be transferred to the Accounts designated by you. If you do
not designate an Account, we will transfer any remaining amounts to the Fixed
Accumulation Feature and you will receive the Fixed Accumulation Feature's
current effective interest rate. Any subsequent Payments we receive within the
Program period selected will be allocated to the Sub-Accounts over the remainder
of that Program transfer period, unless otherwise directed by You.
You may only have one dollar cost averaging program in place at one time, this
means one standard dollar cost averaging plan or one Dollar Cost Averaging Plus
Program.
You may elect to terminate the pre-authorized transfers by calling or writing us
of your intent to cancel enrollment in the Program. Upon cancellation of
enrollment in the Program, You will no longer receive the increased interest
rate and unless we receive instructions to the contrary, the amounts remaining
in the DCA Program Fixed Accumulation Feature may be transferred to the Fixed
Accumulation Feature and accrue the interest rate currently in effect.
We reserve 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 us to determine if it is
available in your state.
THE CONTRACT
-------------------------------------------------------------------
THE CONTRACT OFFERED -- The Contracts are individual or group tax-deferred
variable annuity contracts. They are designed for retirement planning purposes
and may be purchased by any individual, group or trust, including; (a) any
trustee or custodian for a retirement plan qualified under Sections 401(a) or
403(a) of the Internal Revenue Code; (b) annuity purchase plans adopted by
public school systems and certain tax-exempt organizations according to Section
403(b) of the Code; (c) Individual Retirement Annuities adopted according to
Section 408 of the Code; (d) 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 (e) certain eligible
deferred compensation plans as defined in Section 457 of the Code ("Qualified
Contracts").
PURCHASING A CONTRACT -- A prospective Contract Owner may purchase a Contract by
completing and submitting an application or an order request along with an
initial premium payment to the Administrative Office of the Company. THE MAXIMUM
AGE FOR ANNUITANTS ON THE CONTRACT ISSUE DATE IS 85. Generally, the minimum
Premium Payment is $1,000. The minimum subsequent premium payment is $500.
Certain plans may be allowed to make smaller periodic premium payments. Unless
we give our prior approval, we will not accept a Premium Payment in excess of
$1,000,000. Each Net Premium Payment, which is your premium payment after the
deduction of the Sales Charge and/or Premium Taxes, may be split among the
various Sub-Accounts subject to minimum amounts then in effect. We will send You
a confirmation notice upon receipt and acceptance of Your Premium Payment.
RIGHT TO EXAMINE THE CONTRACT -- If you are NOT SATISFIED WITH YOUR PURCHASE,
you may cancel the Contract by returning it within 10 days (or longer in some
states) after you receive it. You must send a WRITTEN REQUEST for cancellation
along with the Contract. We will, without
13 - PROSPECTUS
<PAGE>
deduction for any charges normally assessed thereunder, pay you an amount equal
to the Contract Value plus any applicable Sales Charge or applicable Premium Tax
on the date we receive your request for cancellation. YOU BEAR THE INVESTMENT
RISK DURING THE PERIOD PRIOR TO OUR RECEIPT OF YOUR REQUEST FOR CANCELLATION. We
will refund the premium paid only for Individual Retirement Annuities, if
returned within seven days of receipt, and in those states where required by
law.
CREDITING AND VALUATION -- Your Net Premium Payment, which is the balance
remaining after the deduction of any applicable Sales Charge and/or Premium Tax,
is credited to your Contract within two business days of receipt by us at our
Administrative Office of a properly completed application or an order to
purchase a Contract and the premium payment. The Payment will be credited to the
Sub-Account(s) and/or the Fixed Accumulation Features according to the
instructions we receive from you.
If your application or other information is incomplete when received, your
Payment will be credited to the Sub-Account(s) or the Fixed Accumulation
Features within five business days of receipt of complete information. If the
Payment is not credited within five business days, it will be immediately
returned to you unless you have been informed of the delay and tell us not to
return it.
Subsequent Premium Payments are priced on the Valuation Day we receive it in our
Administrative Office, provided we receive it before the New York Stock Exchange
closes. Unless otherwise specified, We will allocate any subsequent Payments to
Sub-Accounts or Fixed Accumulation Features according to your most recent
instructions.
CONTRACT VALUE - BEFORE THE ANNUITY COMMENCEMENT DATE
Your Contract Value reflects interest rate credited any amounts allocated to the
Fixed Accumulation Features and the investment performance of the Sub-Accounts
where you have Payments allocated.
SUB-ACCOUNT VALUES -- Your Sub-Account Values on the date we issue your Contract
is the amount of your Net Premium Payment allocated to any Sub-Account. After
that, we determine your Sub-Account value by determining the Accumulation Unit
value for each Sub-Account, and then multiplying that value by the number of
those units. Sub-Account Value reflects any variation of the interest income,
dividends, net capital gains or losses, realized or unrealized, and any amounts
transferred into or out of that Sub-Account.
ACCUMULATION UNITS -- The number of Accumulation Units credited to a Sub-Account
you have is determined by dividing the dollar amount you allocated to that
Sub-Account by the value of one Accumulation Unit for that Sub-Account. A
Payment or portion of a Payment allocated to or Contract Values transferred to a
Sub-Account increase the number of Accumulation Units of that Sub-Account
credited to the Contract. And, Surrenders, transfers out of a Sub-Account, the
death of the Contract Owner or the Annuitant before the Annuity Commencement
Date, and the application of Contract Value less Premium Tax to an Annuity
payment option on the Annuity Calculation Date all result in a decrease in the
number of Accumulation Units of one or more Sub-Accounts. Accumulation Units are
valued as of the end of the Valuation Period.
ACCUMULATION UNIT VALUE -- The Accumulation Unit value for each Sub-Account was
arbitrarily set initially at $1 when the Sub-Account began operations. After
that, the Accumulation Unit value for each Sub-Account will equal (a) the
Accumulation Unit value at the end of the preceding Valuation Day multiplied by
(b) the Net Investment Factor (see the definition below) for the Valuation Day
for which the Accumulation Unit value is being calculated.
You will be advised, at least semiannually, of the number of Accumulation Units
credited to each Sub-Account, the current Accumulation Unit values, and the
total value of your Contract.
THE NET INVESTMENT FACTOR (BEFORE AND AFTER THE ANNUITY COMMENCEMENT DATE) --
The Net Investment Factor is an index applied to measure the investment
performance of a Sub-Account from one Valuation Period to the next. For each
Sub-Account, the Net Investment Factor reflects the investment performance of
the Fund in which that Sub-Account invests and the charges assessed against that
Sub-Account for a Valuation Period. The Net Investment Factor is calculated by
dividing (a) by (b) and subtracting (c) from the result, where:
(a) Is the Net Asset Value of the Fund held in that Sub-Account, determined at
the end of the current Valuation Period (plus the per share amount of any
dividends or capital gains distributions made by that Fund);
(b) Is the Net Asset Value of the Fund held in the Sub-Account, determined at
the beginning of the Valuation Period;
(c) Is a daily factor representing the mortality and expense risk charge and any
applicable administration charge deducted from the Sub-Account, adjusted for
the number of days in the Valuation Period.
CONTRACT VALUE TRANSFERS BEFORE AND AFTER THE ANNUITY COMMENCEMENT DATE
You may transfer the your Contract Values from one or more Accounts to another
Account free of charge. WE RESERVE THE RIGHT TO LIMIT THE NUMBER OF TRANSFERS TO
12 PER CONTRACT YEAR, WITH NO 2 TRANSFERS OCCURRING ON
14 - PROSPECTUS
<PAGE>
CONSECUTIVE VALUATION DAYS. Transfers by telephone may be made by You or by your
attorney-in-fact pursuant to a power of attorney by calling us at (800) 862-6668
or by the agent of record by calling (800) 862-7155. Telephone transfers may not
be permitted by some states. There may be limitations on transfers to and from
the Fixed Accumulation Features that are described in your Contract. Some states
may allow us to limit the dollar amount transferred.
We, or our agents and affiliates will not be responsible for losses resulting
from acting upon telephone requests reasonably believed to be genuine. We will
employ reasonable procedures to confirm that instructions communicated by
telephone are genuine. The procedure we follow for transactions initiated by
telephone include requirements that callers provide certain information for
identification purposes. All transfer instructions by telephone are
tape-recorded.
We may permit You to preauthorize transfers among Accounts and between
Sub-Accounts under certain circumstances. Transfers between the Accounts may be
made both before and after the Annuity Commencement Date. Generally, the minimum
allocation to any Sub-Account may not be less than $500. All percentage (%)
allocations must be in whole numbers (e.g., 1%). No minimum balance is presently
required in any Sub-Account.
IT IS YOUR RESPONSIBILITY TO VERIFY THE ACCURACY OF ALL CONFIRMATIONS OF
TRANSFERS AND TO PROMPTLY ADVISE US IN OUR ADMINISTRATIVE OFFICES OF ANY
INACCURACIES WITHIN 30 DAYS OF THE DATE YOU RECEIVE YOUR CONFIRMATION.
The right to reallocate Contract Values is subject to modification if we
determine, in our sole opinion, that the exercise of that right by one or more
Contract Owners is, or would be, to the disadvantage of other Contract Owners.
Any modification could be applied to transfers to or from some or all of the
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 by
You at any one time. SUCH RESTRICTIONS MAY BE APPLIED IN ANY MANNER REASONABLY
DESIGNED TO PREVENT ANY USE OF THE TRANSFER RIGHT WHICH WE CONSIDER TO BE TO THE
DISADVANTAGE OF OTHER CONTRACT OWNERS.
For Contracts issued in THE STATE OF FLORIDA, MARYLAND OR OREGON, the
reservation of rights set forth in the preceding paragraph is limited to: (i)
requiring up to a maximum of 10 Valuation Days between each transfer; (ii)
limiting the amount to be transferred on any one Valuation Day to no more than
$2 million; and (iii) upon 30 days prior written notice, to only accepting
transfer instructions from You and not from Your representative, agent or person
acting under a power of attorney for You.
Currently, and with respect to Contracts issued in all states, the only
restriction in effect is that we will not accept instructions from agents acting
under a power of attorney of multiple Contract Owners whose accounts aggregate
more than $2 million, unless the agent has entered into a third party transfer
services agreement with us.
These restrictions do not include any transfers through our DCA Plus or DCA
Programs.
SURRENDERS
Contract Owners should consult their tax adviser regarding the tax consequences
of a Surrender.
- - A Surrender made before age 59 1/2 may result in adverse tax consequences,
including the imposition of a penalty tax of 10% of the taxable portion of
the Surrender value. (See "Federal Tax Considerations")
FULL SURRENDERS PRIOR TO THE ANNUITY COMMENCEMENT DATE -- At any time prior to
the Annuity Commencement Date, You have the right to fully Surrender the
Contract. In such event, the Surrender value of the Contract may be taken in the
form of a lump sum cash settlement.
The Surrender value of the Contract is equal to the Contract Value less any
Premium Taxes, and the Annual Maintenance Fee, if applicable. The Surrender
value may be more or less than the amount of the Payments made to a Contract.
PARTIAL SURRENDERS PRIOR TO THE ANNUITY COMMENCEMENT DATE -- You may make a
partial surrender of your Contract Value at any time prior to the Annuity
Commencement Date so long as the amount Surrendered is at least equal to our
minimum amount rules then in effect. Additionally, if the remaining Contract
Value following a Surrender is less than $500, we may terminate the Contract and
pay the Surrender value. For Contracts issued in TEXAS, the Contract will not be
terminated when the remaining Contract Value after a surrender is less than $500
unless there were no Payments made during the previous 2 Contract Years.
WHEN REQUESTING A PARTIAL SURRENDER, YOU SHOULD SPECIFY THE ACCOUNT(S) FROM
WHICH THE PARTIAL SURRENDER WILL BE TAKEN; OTHERWISE, THE SURRENDER WILL BE
EFFECTED ON A PRO RATA BASIS ACCORDING TO THE VALUE IN EACH SUB-ACCOUNT.
We may permit You to preauthorize partial surrenders subject to certain
limitations then in effect. You may request a partial surrender by telephone
provided certain requirements are met. We permit partial surrenders by telephone
subject to dollar amount limitations in effect at the time You request
15 - PROSPECTUS
<PAGE>
the surrender. TO REQUEST PARTIAL SURRENDERS BY TELEPHONE, YOU MUST HAVE
COMPLETED AND RETURNED TO US A TELEPHONE REDEMPTION PROGRAM ENROLLMENT FORM
AUTHORIZING TELEPHONE SURRENDERS. If there are joint Contract Owners, both must
authorize us to accept telephone instructions and agree that We may accept
telephone instructions for partial surrenders from either Contract Owner.
Partial surrender requests will not be honored until we receive all required
documents in proper form.
Telephone authorization will remain valid until (a) we receive written notice of
revocation by You, or, in the case of joint Contract Owners, written notice from
either Contract Owner; (b) we discontinue the privilege; or (c) we have reason
to believe that You have entered into a market timing agreement with an
investment adviser and/or broker/dealer.
We may record any telephone calls to verify data concerning transactions and may
adopt other procedures to confirm that telephone instructions are genuine. We
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, We must receive
telephone surrender instructions prior to the close of trading on the New York
Stock Exchange (generally 4:00 p.m.).
WE MAY MODIFY, SUSPEND, OR TERMINATE TELEPHONE TRANSACTION PRIVILEGES AT ANY
TIME.
SURRENDERS AFTER THE ANNUITY COMMENCEMENT DATE -- You may fully Surrender your
Contract on or after the Annuity Commencement Date if you elect the Payment For
a Period Certain Settlement Option. We pay you the Commuted Value that is equal
to the value of the remaining payments we are scheduled to make. The Commuted
Value is determined as of the date we receive your written request for Surrender
at our Administrative Office.
PARTIAL SURRENDERS ARE PERMITTED AFTER THE ANNUITY COMMENCEMENT DATE IF YOU
ELECT THE PAYMENTS FOR A PERIOD CERTAIN SETTLEMENT OPTION, BUT CHECK WITH YOUR
TAX ADVISOR BECAUSE THERE MAY BE ADVERSE TAX CONSEQUENCES.
PAYMENT OF SURRENDER AMOUNTS -- Payment of any request for a full or partial
surrender from the Sub-Accounts will be made as soon as possible and in any
event no later than seven days after we receive the request at our
Administrative Office.
There may be postponement in the payment of Surrender Amounts whenever (a) the
New York Stock Exchange is closed; (b) trading on the New York Stock Exchange is
restricted as determined by the Commission; (c) the Commission permits
postponement and so orders; or (d) the Commission determines that an emergency
exists making valuation of the amounts or disposal of securities not reasonably
practicable.
IMPORTANT TAX INFORMATION: THERE ARE CERTAIN RESTRICTIONS ON SECTION 403(B)
TAX-SHELTERED ANNUITIES. AS OF DECEMBER 31, 1988, ALL SECTION 403(B) ANNUITIES
HAVE LIMITS ON FULL AND PARTIAL SURRENDERS. CONTRIBUTIONS TO THE CONTRACT MADE
AFTER DECEMBER 31, 1988 AND ANY INCREASES IN CASH VALUE AFTER DECEMBER 31, 1988
MAY NOT BE DISTRIBUTED UNLESS THE CONTRACT OWNER/EMPLOYEE HAS A) ATTAINED AGE
59 1/2, B) SEPARATED FROM SERVICE, C) DIED, D) BECOME DISABLED OR E) EXPERIENCED
FINANCIAL HARDSHIP (CASH VALUE INCREASES MAY NOT BE DISTRIBUTED FOR HARDSHIPS
PRIOR TO AGE 59 1/2). DISTRIBUTIONS PRIOR TO AGE 59 1/2 DUE TO FINANCIAL
HARDSHIP OR SEPARATION FROM SERVICE MAY STILL BE SUBJECT TO A PENALTY TAX OF
10%.
WE WILL NOT ASSUME ANY RESPONSIBILITY FOR 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 CONTRACT
VALUES. ANY FULL OR PARTIAL SURRENDER DESCRIBED ABOVE MAY AFFECT THE CONTINUING
TAX-QUALIFIED STATUS OF SOME CONTRACTS OR PLANS AND MAY RESULT IN ADVERSE TAX
CONSEQUENCES TO THE CONTRACT OWNER. THE CONTRACT OWNER, THEREFORE, SHOULD
CONSULT WITH A TAX ADVISER BEFORE UNDERTAKING ANY SUCH SURRENDER. (SEE "FEDERAL
TAX CONSIDERATIONS")
CONTRACT CHARGES
SALES CHARGES -- The purpose of the Sales Charge is to cover expenses relating
to the sale and distribution of the Contracts, including commissions paid to
distributing organizations and their sales personnel, the cost of preparing
sales literature and other promotional activities. If the Sales Charge is not
sufficient to cover sales and distribution expenses, We pay them from our
general assets, including surplus. Surplus might include profits resulting from
unused mortality and expense risk charges.
You pay a Sales Charge when you purchase your annuity and when you make
additional premium payments to your annuity. The amount of the Sales Charge
depends on the size of your premium payment. The bigger your premium payment,
the less your Sales Charge is:
<TABLE>
<CAPTION>
Cumulative
Premium Payment Sales Charge
- --------------------- -------------
<S> <C>
Up to $49,999.99 5.5%
$50,000 to $99,999.99 4.5%
$100,000 to
$249,999.99 3.5%
$250,000 to
$499,999.99 2.5%
$500,000 to
$999,999.99 2.0%
$1,000,000 and over 1.0%
</TABLE>
If you have other annuities with us, under a program called "Rights of
Accumulation", we might include those assets
16 - PROSPECTUS
<PAGE>
when determining your sales charge for this annuity. Ask your financial
consultant or call us to see if your other annuities qualify.
You might be able to lower the Sales Charge you pay when you purchase your
annuity by signing a LETTER OF INTENT. This is a contract between us where you
decide how much you want to invest in the 13 months from the date you purchase
this annuity. On the date you purchase your annuity, we deduct the sales charge
based on the total amount you plan on investing over the following 13 months.
This usually results in a lower sales charge than if you made one initial
investment and several premium payments later on. Think about the planned
premium payments for your Letter of Intent carefully. If you don't make all the
premium payments you plan on making, we will recalculate the sales charge for
the amounts we received in the 13 month period. If it turns out you owe us
additional money, will deduct this amount proportionally from your Accounts.
MORTALITY AND EXPENSE RISK CHARGE -- For assuming risks under the Contract, We
deduct a daily charge at the rate of 0.80% per annum against all Contract Values
held in the Sub-Accounts during the life of the Contract. Although variable
annuity payments made under the Contracts will vary in accordance with the
investment performance of the underlying Fund shares held in the Sub-Account(s),
the payments will not be affected by (a) our actual mortality experience among
Annuitants before or after the Annuity Commencement Date or (b) our actual
expenses, if greater than the deductions provided for in the Contracts because
of the expense and mortality undertakings by us.
There are two types of mortality risks: those made during the accumulation or
deferral phase and those made during the annuity payout phase. The mortality
risk we take in the accumulation phase is that we may experience a loss
resulting from the assumption of the mortality risk relative to the death
benefit in event of the death of an Annuitant or Contract Owner before
commencement of Annuity payments, in periods of declining value. The mortality
risk we take during the annuity payout phase 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. We also assumes the liability for payment of a minimum death benefit under
the Contract. These mortality undertakings are based on our determination of
expected mortality rates among all Annuitants. If actual experience among
Annuitants during the Annuity payment period deviates from our actuarial
determination of expected mortality rates among Annuitants because, as a group,
their longevity is longer than anticipated, we must provide amounts from our
general funds to fulfill our contractual obligations. We will bear the loss in
such a situation.
During the accumulation phase, we also provide an expense undertaking. Hartford
assumes the risk that the Annual Maintenance Fee for maintaining the Contracts
prior to the Annuity Commencement Date may be insufficient to cover the actual
cost of providing such items.
ANNUAL MAINTENANCE FEE -- Each year, on each Contract Anniversary on or before
the Annuity Commencement Date, we will deduct an Annual Maintenance Fee, if
applicable, from Contract Values to reimburse us for expenses relating to the
maintenance of the Contract, the Fixed Accumulation Features, and the
Sub-Accounts. If during a Contract Year the Contract is surrendered for its full
value, we will deduct the Annual Maintenance Fee at the time of such surrender.
The fee is a flat fee that will be due in the full amount regardless of the time
of the Contract Year that Contract Values are surrendered. The Annual
Maintenance Fee is $30.00 per Contract Year for Contracts with less than $50,000
Contract Value on the Contract Anniversary. Fees will be deducted on a pro rata
basis according to the value in each Sub-Account and the Fixed Accumulation
Features under a Contract.
WAIVERS OF THE ANNUAL MAINTENANCE FEE -- Annual Maintenance Fees are waived for
Contracts with Contract Value equal to or greater than $50,000. In addition, we
will waive one Annual Maintenance Fee for Contract Owners who own one or more
Contracts with a combined Contract Value of $50,000 up to $100,000. If You have
multiple contracts with a combined Contract Value of $100,000 or greater, we
will waive the Annual Maintenance Fee on all Contracts. However, we reserve the
right to limit the number of Annual Maintenance Fee waivers to a total of six
Contracts. We reserve the right to waive the Annual Maintenance Fee under other
conditions.
PREMIUM TAXES -- Charges are also deducted for Premium Tax, if applicable,
imposed by state or other governmental entity. Certain states impose a Premium
Tax, currently ranging up to 3.5%. Some states assess the tax at the time
purchase payments are made; others assess the tax at the time of annuitization.
We will pay Premium Taxes at the time imposed under applicable law. At our sole
discretion, we may deduct Premium Taxes at the time we pay such taxes to the
applicable taxing authorities, at the time the Contract is surrendered, at the
time a death benefit is paid, or at the time the Contract annuitizes.
CHARGES AGAINST THE FUNDS -- The Separate Account purchases shares of the Funds
at net asset value. The net asset value of the Fund shares reflects investment
advisory fees and administrative expenses already deducted from the
17 - PROSPECTUS
<PAGE>
assets of the Funds. These charges are described in the Funds' prospectuses
accompanying this Prospectus.
EXCEPTIONS TO CHARGES UNDER THE CONTRACT -- We may offer, at our discretion,
reduced fees and charges including, but not limited to, Sales Charges, the
mortality and expense risk charge and the Annual Maintenance Fee for certain
sales (including employer sponsored savings plans) under circumstances which may
result in savings of certain costs and expenses. Reductions in these fees and
charges will not be unfairly discriminatory against any Contract Owner.
DEATH BENEFITS
DEATH BEFORE THE ANNUITY COMMENCEMENT DATE
DETERMINATION OF THE BENEFICIARY -- If the Contract Owner or the Annuitant dies
before the Annuity Commencement Date, we will pay a Death Benefit to the
Beneficiary.
- - IF THE CONTRACT OWNER DIES before the Annuity Commencement Date, any surviving
joint Contract Owner becomes the Beneficiary. If there is no surviving joint
Contract Owner, the designated Beneficiary will be the Beneficiary. If the
Contract Owner's spouse is the sole Beneficiary and the Annuitant is living,
the spouse may elect, in lieu of receiving the Contract Value, to be treated
as the Contract Owner. If no Beneficiary designation is in effect or if the
Beneficiary has predeceased the Contract Owner, the Contract Owner's estate
will be the Beneficiary.
- - IF THE ANNUITANT DIES before the Annuity Commencement Date, the Contingent
Annuitant will become the Annuitant. If either (a) there is no Contingent
Annuitant, (b) the Contingent Annuitant predeceases the Annuitant, or (c) if
any sole Contract Owner dies before the Annuity Commencement Date, the
Beneficiary, as determined under the Contract control provisions, will receive
the Death Benefit. However, if the Annuitant dies prior to the Annuity
Commencement Date and the Contract Owner is living, the Contract Owner shall
be the Beneficiary. In that case, the rights of any designated Beneficiary
shall be void.
DETERMINATION OF THE DEATH BENEFIT -- If the deceased HAD NOT REACHED HIS OR HER
81ST BIRTHDAY, the Death Benefit is the greatest of:
(a) The Contract Value, or
(b) 100% of the total Payments made to such Contract, reduced by any prior
Surrenders, or
(c) The Maximum Anniversary Value immediately preceding the date of death.
The MAXIMUM ANNIVERSARY VALUE is equal to the greatest Contract Anniversary
value determined from the following: we will calculate a Contract Anniversary
value for each Contract Anniversary prior to the deceased's 81st birthday. The
Contract Anniversary value is equal to the Contract Value on a Contract
Anniversary, increased by the dollar amount of any Net Premium Payments made
since that anniversary and reduced by the dollar amount of any partial
surrenders since that anniversary.
IF THE DECEASED REACHED HIS OR HER 81ST BIRTHDAY, then the Death Benefit is the
greatest of:
(a) The Contract Value, or
(b) 100% of the total Payments made to such Contract, reduced by any prior
surrenders, or
(c) The Maximum Anniversary Value prior to the deceased's 81st birthday, reduced
by any prior surrenders and increased by Net Premium Payments.
CALCULATION OF THE DEATH BENEFIT -- If the Contract Owner or Annuitant dies
before the Annuity Commencement Date and a Death Benefit is payable to the
Beneficiary, the Death Benefit will be calculated as of the date we receive
written notification of Due Proof of Death. THE DEATH BENEFIT REMAINS INVESTED
IN THE SEPARATE ACCOUNT ACCORDING TO YOUR LAST INSTRUCTIONS UNTIL THE PROCEEDS
ARE PAID OR WE RECEIVE NEW SETTLEMENT INSTRUCTIONS FROM THE BENEFICIARY. DURING
THE TIME PERIOD BETWEEN OUR RECEIPT OF WRITTEN NOTIFICATION OF DUE PROOF OF
DEATH AND OUR RECEIPT OF THE COMPLETE SETTLEMENT INSTRUCTIONS, THE CALCULATED
DEATH BENEFIT WILL BE SUBJECT TO MARKET FLUCTUATIONS. UPON RECEIPT OF COMPLETE
SETTLEMENT INSTRUCTIONS, WE WILL CALCULATE THE PAYABLE AMOUNT.
Any Annuity payments made or after the date of death, but before receipt of
written notification of Due Proof of Death will be recovered by us from the
Payee.
DEATH ON OR AFTER THE ANNUITY COMMENCEMENT DATE
If, on or after the Annuity Commencement Date, the Contract Owner dies and the
Annuitant is living, the Beneficiary becomes the Contract Owner. If the
Annuitant dies and the Contract Owner is living, the Contract Owner becomes the
Beneficiary.
If the Annuitant dies on or after the Annuity Commencement Date, we will make
the payments described below to the Beneficiary under the following Annuity
payment options:
x Life Annuity with Cash Refund
x Life Annuity with Payments for a Period Certain
x Joint and Last Survivor Annuity
x Joint and Last Survivor Life Annuity with Payments for a Period Certain and
x Life Annuity with Payments for a Period Certain.
THE ANNUITY PROCEEDS SETTLEMENT OPTION -- Proceeds from the Death Benefit may be
left with us for at least 5
18 - PROSPECTUS
<PAGE>
years from the date of the Contract Owner's death if the death occurs 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 Surrenders may be made at any time. In the
event of a complete Surrender, the remaining value will equal the Contract Value
of the proceeds left with us, minus any partial Surrenders. This option may not
be available under certain Contracts issued in connection with Qualified Plans.
SETTLEMENT PROVISIONS
-------------------------------------------------------------------
You select an Annuity Commencement Date which will not be deferred beyond the
Valuation Day immediately following the later of the Annuitant's 90th birthday
or the end of the tenth Contract Year. You may elect a later Annuity
Commencement Date if we allow and subject to the laws and regulations then in
effect. If the Contract is sold as part of a Charitable Remainder Trust, the
Annuity Commencement Date may be deferred to the Annuitant's 100th birthday. The
Annuity Commencement Date and may be changed from time to time, but ANY CHANGE
MUST BE WITHIN 30 DAYS PRIOR TO THE DATE ON WHICH ANNUITY PAYMENTS ARE SCHEDULED
TO BEGIN.
You also elect in writing an annuity payment option, which may be any of the
options described below or any annuity payment option then being offered by us.
The annuity payment option may not be changed on or after the Annuity
Commencement Date.
The Contract contains the six annuity payment options described below and the
Annuity Proceeds Settlement Option. Annuity payment options Life Annuity with
Payments for a Period Certain, Joint and Last Survivor Life Annuity with
Payments for a Period Certain and Payments for a Period Certain are each
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. The Annuity Proceeds Settlement Option is available to Qualified
Contracts only if the guaranteed payment period is less than the life expectancy
of the Beneficiary at the time the option becomes effective. Such life
expectancies are computed on the basis of the mortality table prescribed by the
IRS, or if none is prescribed, the mortality table then in use by us.
With respect to Non-Qualified Contracts, if you do not elect otherwise, fixed
dollar amount annuity payments will automatically begin on the Annuity
Commencement Date under the annuity payment option Life Annuity with Payments
for a Period Certain with a 10 year Period Certain. For Qualified Contracts and
Contracts issued in Texas, if you do not elect otherwise, fixed dollar amount
annuity payments will begin automatically on the Annuity Commencement Date,
under the Life Annuity payment option.
ANNUITY PAYMENT OPTIONS
OPTION 1 -- LIFE ANNUITY where we make Annuity payments for as long as the
Annuitant lives.
- - Payments under this option STOP UPON THE DEATH OF THE ANNUITANT, even if the
Annuitant dies after one payment.
OPTION 2 -- LIFE ANNUITY WITH CASH REFUND where we make payments during the life
of the Annuitant and when the Annuitant dies, we pay the remaining value to the
Beneficiary. The remaining value is calculated by subtracting the annuity
payments already made and any applicable Premium Taxes from the Contract Value
at the time we receive Due Proof of Death.
- - This option is only available if you select payments using a VARIABLE DOLLAR
AMOUNT PAYMENT OPTION WITH THE 5% AIR OR FIXED DOLLAR AMOUNT ANNUITY
PAYMENTS.
OPTION 3 -- LIFE ANNUITY WITH PAYMENTS FOR A PERIOD CERTAIN where we make
payments to you for the life of the Annuitant but you are at least guaranteed
payments for a time period you select which is a minimum of 5 years and a
maximum of 100 years minus your Annuitant's age. If the Annuitant dies before
the end of the period selected, we will continue to make payments until the end
of the period selected.
OPTION 4 -- JOINT AND LAST SURVIVOR ANNUITY where we make payments during the
lifetime of the Annuitant and another designated individual called the Joint
Annuitant and then throughout the remaining lifetime of the survivor.
OPTION 5 -- JOINT AND LAST SURVIVOR LIFE ANNUITY WITH PAYMENTS FOR A PERIOD
CERTAIN where we make payments during the lifetime of you and a Joint Annuitant,
and we guarantee that those payments for a time period you select which is not
less than 5 years and no more than 100 years minus your Annuitant's age. If both
you and your Joint Annuitant die before the time we guarantee to make payments
is up, we will pay the remaining value to your Beneficiary.
- - Upon the death of the Annuitant and Joint Annuitant we will give your
Beneficiary the present value of the remaining payments.
19 - PROSPECTUS
<PAGE>
OPTION 6 -- PAYMENTS FOR A PERIOD CERTAIN where we agree to make payments for a
specified time between 5 and 30 years. If the Annuitant dies before the end of
the specified time, we pay the Beneficiary the present value of the annuity in
one lump sum or continue making the remaining payments to the Beneficiary.
- - If you select this option and select to have your payments made through a
variable annuity option, YOU MAY SURRENDER YOUR ANNUITY after payments have
started and we will give you the ANNUITY PROCEEDS SETTLEMENT OPTION
WE MAY OFFER OTHER ANNUITY PAYMENT OPTIONS FROM TIME TO TIME.
ANNUITY PAYMENTS
When your decide to begin to take payments, we calculate your Contract Value
minus any Premium Tax which we must pay and, unless you instruct us otherwise,
we apply that amount to a variable annuity with the same Sub-Account values. You
may however, choose to have your Contract Value applied to a fixed annuity
instead.
IMPORTANT: YOU SHOULD CONSIDER THE QUESTION OF ALLOCATION OF CONTRACT VALUES
(LESS APPLICABLE PREMIUM TAXES) AMONG SUB-ACCOUNTS AND THE FIXED ACCUMULATION
FEATURES TO MAKE CERTAIN THAT ANNUITY PAYMENTS ARE BASED ON THE INVESTMENT
ALTERNATIVE BEST SUITED TO YOUR NEEDS FOR RETIREMENT.
ANNUITY PAYMENTS -- The minimum Annuity payment is $50. No election may be made
which results in a first payment of less than $50. If at any time Annuity
payments are or become less than $50, we have the right to change the frequency
of payment to intervals so that payments will at least be $50. If any amount due
is less than the minimum amount per year, we make such other settlement as may
be equitable to the Payee.
All Annuity payments under any option will occur the same day of the month as
the Annuity Commencement Date, based on the payment frequency selected by You.
Available payment frequencies include monthly, quarterly, semi-annual and
annual. The payment frequency may be changed within 30 days prior to the
anniversary of your Annuity Commencement Date.
ANNUITY COMMENCEMENT DATE -- You select the Annuity Commencement Date in your
application or order request. The Annuity Calculation Date will be no more than
five Valuation Days before the Annuity Commencement Date.
ANNUITY CALCULATION DATE -- On the Annuity Calculation Date, Your Contract Value
less any applicable Premium Tax is applied to purchase Annuity Units of the
Sub-Accounts selected by You. The first Annuity payment is computed using the
value of these Annuity Units as of the Annuity Calculation Date.
INCOME PAYMENT DATES -- All Annuity payments after the first Annuity payment are
computed and payable as of the Income Payment Dates. These dates are the same
day of the month as the Annuity Commencement Date, based on the Annuity payment
frequency selected by You. They are also shown on the specification page of your
Contract. You may choose from monthly, quarterly, semi-annual and annual
payments. The Annuity payment frequency may not be changed once selected by You.
IN THE EVENT THAT YOU DO NOT SELECT A PAYMENT FREQUENCY, ANNUITY PAYMENTS WILL
BE MADE MONTHLY.
VARIABLE ANNUITY PAYMENTS
THE FIRST VARIABLE ANNUITY PAYMENT -- Variable Annuity payments are periodic
payments we pay to your designated Payee, the amount of which varies from one
Income Payment Date to the next as a function of the net investment performance
of the Sub-Accounts selected by You. The dollar amount of the first Variable
Annuity payment depends on the Annuity payment option chosen, the age of the
Annuitant, the gender of the Annuitant (if applicable), the amount of Contract
Value applied to purchase the Annuity payments, and the applicable annuity
purchase rates based on the 1983a Individual Annuity Mortality table using
projection scale G projected to the year 2000 and an AIR of not less than 3.0%.
The dollar amount of the first Variable Annuity payment attributable to each
Sub-Account is determined by dividing the dollar amount of the Contract Value
less applicable Premium Tax applied to that Sub-Account on the Annuity
Calculation Date by $1,000 and multiplying the result by the payment factor in
the Contract for the selected Annuity payment option. The dollar value of the
first Variable Annuity payment is the sum of the first Variable Annuity payments
attributable to each Sub-Account.
ANNUITY UNITS -- The number of Annuity Units attributable to a Sub-Account is
derived by dividing the first Variable Annuity payment attributable to that
Sub-Account by the Annuity Unit value for that Sub-Account for the Valuation
Period ending on the Annuity Calculation Date or during which the Annuity
Calculation Date falls if the Valuation Period does not end on such date. The
number of Annuity Units attributable to each Sub-Account under a Contract
remains fixed unless there is a transfer of Annuity Units between Sub-Accounts.
SUBSEQUENT VARIABLE ANNUITY PAYMENTS -- The dollar amount of each subsequent
Variable Annuity payment attributable to each Sub-Account is calculated on the
Income
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Payment Date. It is determined by multiplying (a) by (b) and adding (c), where:
(a) is the number of Annuity Units of each Sub-Account credited under the
Contract;
(b) is the Annuity Unit value (described below) for that Sub-Account; and
(c) Is the result of each Sub-Account calculation.
The total subsequent Variable Annuity payments equal the sum of the amounts
attributable to each Sub-Account.
When an Income Payment Date falls on a day that is not a Valuation Day, the
Income Payment is computed as of the prior Valuation Day. If the date of the
month elected does not occur in a given month, i.e., the 29th, 30th, or 31st of
a month, the payment will be computed as of the last Valuation Day of the month.
The Annuity Unit value of each Sub-Account for any Valuation Period is equal to
(a) multiplied by (b) multiplied by (c) where:
(a) is the Net Investment Factor for the Valuation Period for which the Annuity
Unit value is being calculated;
(b) is the Annuity Unit value for the preceding Valuation Period; and
(c) is the Annuity Unit Factor
The Annuity Unit Factor neutralizes the AIR percentage (3%, 5%, or 6%). The
daily Annuity Unit Factor corresponding to the AIR percentages of 3%, 5%, and 6%
are 0.999919, 0.999866, and 0.999840, respectively.
THE ASSUMED INVESTMENT RETURN (AIR). The Annuity Unit value will increase or
decrease from one Income Payment Date to the next in direct proportion to the
net investment return of the Sub-Account or Sub-Accounts supporting the Variable
Annuity payments, less an adjustment to neutralize the selected AIR. Dividing
what would otherwise be the Annuity Unit value by the AIR factor is necessary in
order to adjust the change in the Annuity Unit value (resulting from the Net
Investment Factor) so that the Annuity Unit value only changes to the extent
that the Net Investment Factor represents a rate of return greater than or less
than the AIR selected by You. Without this adjustment, the Net Investment Factor
would decrease the Annuity Unit value to the extent that such value represented
an annualized rate of return of less than 0.0% and increase the Annuity Unit
value to the extent that such value represented an annualized rate of return of
greater than 0.0%.
The Contract permits Contract Owners to select one of three AIRs: 3%, 5% or 6%.
A higher AIR will result in a higher initial payment, a more slowly rising
series of subsequent payments when actual investment performance (minus any
deductions and expenses) exceeds the AIR, and a more rapid drop in subsequent
payments when actual investment performance (minus any deductions and expenses)
is less than the AIR. The following examples may help clarify the impact of
selecting one AIR over another:
- - If You select a 3% AIR and if the net investment return of the Sub-Account for
an Annuity payment period is equal to the pro-rated portion of the 3% AIR, the
Variable Annuity payment attributable to that Sub-Account for that period will
equal the Annuity payment for the prior period. To the extent that such net
investment return exceeds an annualized rate of return of 3% for a payment
period, the Annuity payment for that period will be greater than the Annuity
payment for the prior period and to the extent that such return for a period
falls short of an annualized rate of 3%, the Annuity payment for that period
will be less than the Annuity payment for the prior period.
- - If You select a 5% AIR and if the net investment return of the Sub-Account for
an Annuity payment period is equal to the pro-rated portion of the 5% AIR, the
Variable Annuity payment attributable to that Sub-Account for that period will
equal the Annuity payment for the prior period. To the extent that such net
investment return exceeds an annualized rate of return of 5% for a payment
period, the Annuity payment for that period will be greater than the Annuity
payment for the prior period and to the extent that such return for a period
falls short of an annualized rate of 5%, the Annuity payment for that period
will be less than the Annuity payment for the prior period.
- - If You select a 6% AIR and if the net investment return of the Sub-Account for
an Annuity payment period is equal to the pro-rated portion of the 6% AIR, the
Variable Annuity payment attributable to that Sub-Account for that period will
equal the Annuity payment for the prior period. To the extent that such net
investment return exceeds an annualized rate of return of 6% for a payment
period, the Annuity payment for that period will be greater than the Annuity
Payment for the prior period and to the extent that such return for a period
falls short of an annualized rate of 6%, the Annuity payment for that period
will be less than the Annuity payment for the prior period.
LEVEL VARIABLE ANNUITY PAYMENTS WOULD BE PRODUCED IF THE INVESTMENT RATE RETURNS
REMAINED CONSTANT AND EQUAL TO THE AIR. IN FACT, PAYMENTS WILL VARY UP OR DOWN
AS THE INVESTMENT RATE VARIES UP OR DOWN FROM THE AIR.
EXCHANGE (TRANSFER) OF ANNUITY UNITS. After the Annuity Calculation Date, You
may exchange (i.e., transfer) the dollar value of a designated number of Annuity
Units of a particular Sub-Account for an equivalent dollar amount of Annuity
Units of another Sub-Account. On the date of the transfer, the dollar amount of
a Variable Annuity payment
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generated from the Annuity Units of either Sub-Account would be the same.
Transfers are executed as of the day Hartford receives a written request for a
transfer. For guidelines refer to Sub-Account Value Transfers Before and After
the Annuity Commencement Date.
FIXED DOLLAR ANNUITY. Fixed Annuity payments are determined at annuitization by
multiplying the Contract Value (less applicable Premium Taxes) by a rate to be
determined by Hartford which is no less than the rate specified in the Fixed
Annuity option tables in the Contract. The Annuity payment will remain level for
the duration of the Annuity. Any Fixed Annuity allocation may not be changed.
OTHER INFORMATION
ASSIGNMENT -- Ownership of this Contract is generally assignable. However, if
the Contracts are issued pursuant to some form of Qualified Plan, it is possible
that the ownership of the Contracts may not be transferred or assigned depending
on the type of tax-qualified retirement plan involved. An assignment of a
Non-Qualified Contract may subject the Contract values or assignment proceeds to
income taxes and certain penalty taxes.
CONTRACT MODIFICATION -- The Annuitant may not be changed; however, the
Contingent Annuitant may be changed at any time prior to the Annuity
Commencement Date by sending us written notice. We may modify the Contract, but
no modification will effect the amount or term of any Contract unless a
modification is required to conform the Contract to applicable Federal or State
law. No modification will effect the method by which Contract Values are
determined.
FEDERAL TAX CONSIDERATIONS
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What are some of the federal tax consequences which affect these Contracts?
A. GENERAL
Since federal tax law is complex, the tax consequences of purchasing this
contract will vary depending on your situation. You may need tax or legal advice
to help you determine whether purchasing this contract is right for you.
Our general discussion of the tax treatment of this contract is based on our
understanding of federal income tax laws as they are currently interpreted. A
detailed description of all federal income tax consequences regarding the
purchase of this contract cannot be made in the prospectus. We also do not
discuss state, municipal or other tax laws that may apply to this contract. For
detailed information, you should consult with a qualified tax adviser familiar
with your situation.
B. TAXATION OF HARTFORD AND THE SEPARATE ACCOUNT
The Separate Account is taxed as part of Hartford which is taxed as a life
insurance company in accordance with the Internal Revenue Code of 1986, as
amended (the "Code"). Accordingly, the Separate Account will not be taxed as a
"regulated investment company" under subchapter M of Chapter 1 of the Code.
Investment income and any realized capital gains on the assets of the Separate
Account are reinvested and are taken into account in determining the value of
the Accumulation and Annuity Units (See "Value of Accumulation Units"). As a
result, such investment income and realized capital gains are automatically
applied to increase reserves under the Contract.
No taxes are due on interest, dividends and short-term or long-term capital
gains earned by the Separate Account with respect to Qualified or Non-Qualified
Contracts.
C. TAXATION OF ANNUITIES - GENERAL PROVISIONS AFFECTING PURCHASERS OTHER THAN
QUALIFIED RETIREMENT PLANS
Section 72 of the Code governs the taxation of annuities in general.
1. NON-NATURAL PERSONS, CORPORATIONS, ETC. Code Section 72 contains provisions
for contract owners which are not natural persons. Non-natural persons include
corporations, trusts, limited liability companies, partnerships and other types
of legal entities. The tax rules for contracts owned by non-natural persons are
different from the rules for contracts owned by individuals. For example, the
annual net increase in the value of the contract is currently includible in the
gross income of a non-natural person, unless the non-natural person holds the
contract as an agent for a natural person. There are additional exceptions from
current inclusion for:
- - certain annuities held by structured settlement companies,
- - certain annuities held by an employer with respect to a terminated qualified
retirement plan and
- - certain immediate annuities.
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A non-natural person which is a tax-exempt entity for federal tax purposes will
not be subject to income tax as a result of this provision.
If the contract owner is a non-natural person, the primary annuitant is treated
as the contract owner in applying mandatory distribution rules. These rules
require that certain distributions be made upon the death of the contract owner.
A change in the primary annuitant is also treated as the death of the contract
owner.
2. OTHER CONTRACT OWNERS (NATURAL PERSONS). A Contract Owner is not taxed on
increases in the value of the Contract until an amount is received or deemed
received, e.g., in the form of a lump sum payment (full or partial value of a
Contract) or as Annuity payments under the settlement option elected.
The provisions of Section 72 of the Code concerning distributions are summarized
briefly below. Also summarized are special rules affecting distributions from
Contracts obtained in a tax-free exchange for other annuity contracts or life
insurance contracts which were purchased prior to August 14, 1982.
a. DISTRIBUTIONS PRIOR TO THE ANNUITY COMMENCEMENT DATE.
i. Total premium payments less amounts received which were not includable in
gross income equal the "investment in the contract" under Section 72 of the
Code.
ii. To the extent that the value of the Contract (ignoring any surrender
charges except on a full surrender) exceeds the "investment in the
contract," such excess constitutes the "income on the contract."
iii. Any amount received or deemed received prior to the Annuity Commencement
Date (e.g., upon a partial surrender) is deemed to come first from any
such "income on the contract" and then from "investment in the contract,"
and for these purposes such "income on the contract" shall be computed by
reference to any aggregation rule in subparagraph 2.c. below. As a result,
any such amount received or deemed received (1) shall be includable in
gross income to the extent that such amount does not exceed any such
"income on the contract," and (2) shall not be includable in gross income
to the extent that such amount does exceed any such "income on the
contract." If at the time that any amount is received or deemed received
there is no "income on the contract" (e.g., because the gross value of the
Contract does not exceed the "investment in the contract" and no
aggregation rule applies), then such amount received or deemed received
will not be includable in gross income, and will simply reduce the
"investment in the contract."
iv. The receipt of any amount as a loan under the Contract or the assignment or
pledge of any portion of the value of the Contract shall be treated as an
amount received for purposes of this subparagraph a. and the next
subparagraph b.
v. In general, the transfer of the Contract, without full and adequate
consideration, will be treated as an amount received for purposes of this
subparagraph a. and the next subparagraph b. This transfer rule does not
apply, however, to certain transfers of property between spouses or incident
to divorce.
b. DISTRIBUTIONS AFTER ANNUITY COMMENCEMENT DATE. Annuity payments made
periodically after the Annuity Commencement Date are includable in gross income
to the extent the payments exceed the amount determined by the application of
the ratio of the "investment in the contract" to the total amount of the
payments to be made after the Annuity Commencement Date (the "exclusion ratio").
i. When the total of amounts excluded from income by application of the
exclusion ratio is equal to the investment in the contract as of the Annuity
Commencement Date, any additional payments (including surrenders) will be
entirely includable in gross income.
ii. If the annuity payments cease by reason of the death of the Annuitant and,
as of the date of death, the amount of annuity payments excluded from gross
income by the exclusion ratio does not exceed the investment in the
contract as of the Annuity Commencement Date, then the remaining portion of
unrecovered investment shall be allowed as a deduction for the last taxable
year of the Annuitant.
iii. Generally, non-periodic amounts received or deemed received after the
Annuity Commencement Date are not entitled to any exclusion ratio and
shall be fully includable in gross income. However, upon a full surrender
after such date, only the excess of the amount received (after any
surrender charge) over the remaining "investment in the contract" shall be
includable in gross income (except to the extent that the aggregation rule
referred to in the next subparagraph c. may apply).
c. AGGREGATION OF TWO OR MORE ANNUITY CONTRACTS. Contracts issued after
October 21, 1988 by the same insurer (or affiliated insurer) to the same
Contract Owner within the same calendar year (other than certain contracts held
in connection with a tax-qualified retirement arrangement) will be treated as
one annuity Contract for the purpose of determining the taxation of
distributions prior to the Annuity Commencement Date. An annuity contract
received in a tax-free exchange for another annuity contract or life insurance
contract may be treated as a new Contract for this purpose. Hartford believes
that for any annuity subject to
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such aggregation, the values under the Contracts and the investment in the
contracts will be added together to determine the taxation under subparagraph
2.a., above, of amounts received or deemed received prior to the Annuity
Commencement Date. Withdrawals will first be treated as withdrawals of income
until all of the income from all such Contracts is withdrawn. As of the date of
this Prospectus, there are no regulations interpreting this provision.
d. 10% PENALTY TAX - APPLICABLE TO CERTAIN WITHDRAWALS AND ANNUITY
PAYMENTS.
i. If any amount is received or deemed received on the Contract (before or
after the Annuity Commencement Date), the Code applies a penalty tax equal
to ten percent of the portion of the amount includable in gross income,
unless an exception applies.
ii. The 10% penalty tax will not apply to the following distributions
(exceptions vary based upon the precise plan involved):
1. Distributions made on or after the date the recipient has attained the
age of 59 1/2.
2. Distributions made on or after the death of the holder or where the
holder is not an individual, the death of the primary annuitant.
3. Distributions attributable to a recipient's becoming disabled.
4. A distribution that is part of a scheduled series of substantially equal
periodic payments (not less frequently than annually) for the life (or
life expectancy) of the recipient (or the joint lives or life
expectancies of the recipient and the recipient's designated
Beneficiary).
5. Distributions of amounts which are allocable to the "investment in the
contract" prior to August 14, 1982 (see next subparagraph e.).
e. SPECIAL PROVISIONS AFFECTING CONTRACTS OBTAINED THROUGH A TAX-FREE
EXCHANGE OF OTHER ANNUITY OR LIFE INSURANCE CONTRACTS PURCHASED PRIOR TO AUGUST
14, 1982. If the Contract was obtained by a tax-free exchange of a life
insurance or annuity Contract purchased prior to August 14, 1982, then any
amount received or deemed received prior to the Annuity Commencement Date shall
be deemed to come (1) first from the amount of the "investment in the contract"
prior to August 14, 1982 ("pre-8/14/82 investment") carried over from the prior
Contract, (2) then from the portion of the "income on the contract" (carried
over to, as well as accumulating in, the successor Contract) that is
attributable to such pre-8/14/82 investment, (3) then from the remaining "income
on the contract" and (4) last from the remaining "investment in the contract."
As a result, to the extent that such amount received or deemed received does not
exceed such pre-8/14/82 investment, such amount is not includable in gross
income., In addition, to the extent that such amount received or deemed received
does not exceed the sum of (a) such pre-8/14/82 investment and (b) the "income
on the contract" attributable thereto, such amount is not subject to the 10%
penalty tax. In all other respects, amounts received or deemed received from
such post-exchange Contracts are generally subject to the rules described in
this subparagraph 3.
f. REQUIRED DISTRIBUTIONS
i. Death of Contract Owner or Primary Annuitant
Subject to the alternative election or spouse beneficiary provisions in ii or
iii below:
1. If any Contract Owner dies on or after the Annuity Commencement Date and
before the entire interest in the Contract has been distributed, the
remaining portion of such interest shall be distributed at least as
rapidly as under the method of distribution being used as of the date of
such death;
2. If any Contract Owner dies before the Annuity Commencement Date, the
entire interest in the Contract will be distributed within 5 years after
such death; and
3. If the Contract Owner is not an individual, then for purposes of 1. or
2. above, the primary annuitant under the Contract shall be treated as
the Contract Owner, and any change in the primary annuitant shall be
treated as the death of the Contract Owner. The primary annuitant is the
individual, the events in the life of whom are of primary importance in
affecting the timing or amount of the payout under the Contract.
ii.Alternative Election to Satisfy Distribution Requirements
If any portion of the interest of a Contract Owner described in i. above is
payable to or for the benefit of a designated beneficiary, such beneficiary may
elect to have the portion distributed over a period that does not extend beyond
the life or life expectancy of the beneficiary. The election must be made and
payments must begin within a year of the death.
iii. Spouse Beneficiary
If any portion of the interest of a Contract Owner is payable to or for the
benefit of his or her spouse, and the Annuitant or Contingent Annuitant is
living, such spouse shall be treated as the Contract Owner of such portion for
purposes of section i. above. This spousal continuation shall apply only once
for this contract.
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3. DIVERSIFICATION REQUIREMENTS. The Code requires that investments supporting
your contract be adequately diversified. Code Section 817 provides that a
variable annuity contract will not be treated as an annuity contract for any
period during which the investments made by the separate account or underlying
fund are not adequately diversified. If a contract is not treated as an annuity
contract, the contract owner will be subject to income tax on annual increases
in cash value.
The Treasury Department's diversification regulations require, among other
things, that:
- - no more than 55% of the value of the total assets of the segregated asset
account underlying a variable contract is represented by any one investment,
- - no more than 70% is represented by any two investments,
- - no more than 80% is represented by any three investments and
- - no more than 90% is represented by any four investments.
In determining whether the diversification standards are met, all securities of
the same issuer, all interests in the same real property project, and all
interests in the same commodity are each treated as a single investment. In the
case of government securities, each government agency or instrumentality is
treated as a separate issuer.
A separate account must be in compliance with the diversification standards on
the last day of each calendar quarter or within 30 days after the quarter ends.
If an insurance company inadvertently fails to meet the diversification
requirements, the company may still comply within a reasonable period and avoid
the taxation of contract income on an ongoing basis. However, either the company
or the contract owner must agree to pay the tax due for the period during which
the diversification requirements were not met.
We monitor the diversification of investments in the separate accounts and test
for diversification as required by the Code. We intend to administer all
contracts subject to the diversification requirements in a manner that will
maintain adequate diversification.
4. OWNERSHIP OF THE ASSETS IN THE SEPARATE ACCOUNT. In order for a variable
annuity contract to qualify for tax deferral, assets in the separate accounts
supporting the contract must be considered to be owned by the insurance company
and not by the contract owner. It is unclear under what circumstances an
investor is considered to have enough control over the assets in the separate
account to be considered the owner of the assets for tax purposes.
The IRS has issued several rulings discussing investor control. These rulings
say that certain incidents of ownership by the contract owner, such as the
ability to select and control investments in a separate account, will cause the
contract owner to be treated as the owner of the assets for tax purposes.
In its explanation of the diversification regulations, the Treasury Department
recognized that the temporary regulations "do not provide guidance concerning
the circumstances in which investor control of the investments of a segregated
asset account may cause the investor, rather than the insurance company, to be
treated as the owner of the assets in the account." The explanation further
indicates that "the temporary regulations provide that in appropriate cases a
segregated asset account may include multiple sub-accounts, but do not specify
the extent to which policyholders may direct their investments to particular
sub-accounts without being treated as the owners of the underlying assets.
Guidance on this and other issues will be provided in regulations or revenue
rulings under Section 817(d), relating to the definition of variable contract."
The final regulations issued under Section 817 did not provide guidance
regarding investor control, and as of the date of this prospectus, guidance has
yet to be issued. We do not know if additional guidance will be issued. If
guidance is issued, we do not know if it will have a retroactive effect.
Due to the lack of specific guidance on investor control, there is some
uncertainty about when a contract owner is considered the owner of the assets
for tax purposes. We reserve the right to modify the contract, as necessary, to
prevent you from being considered the owner of assets in the separate account.
D. FEDERAL INCOME TAX WITHHOLDING
The portion of a distribution which is taxable income to the recipient will be
subject to federal income tax withholding, pursuant to Section 3405 of the Code.
The application of this provision is summarized below:
1. NON-PERIODIC DISTRIBUTIONS. The portion of a non-periodic distribution which
constitutes taxable income will be subject to federal income tax withholding
unless the recipient elects not to have taxes withheld. If there is no election
to waive withholding, 10% of the taxable distribution will be withheld as
federal income tax. Election forms will be provided at the time distributions
are requested. If the necessary election forms are not submitted to Hartford,
Hartford will automatically withhold 10% of the taxable distribution.
2. PERIODIC DISTRIBUTIONS (DISTRIBUTIONS PAYABLE OVER A PERIOD GREATER THAN ONE
YEAR). The portion of a periodic distribution which constitutes taxable income
will be subject to federal income tax withholding as if the recipient were
married claiming three exemptions. A recipient may elect not to have income
taxes withheld or have income taxes withheld
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at a different rate by providing a completed election form. Election forms will
be provided at the time distributions are requested.
E. GENERAL PROVISIONS AFFECTING QUALIFIED RETIREMENT PLANS
The Contract may be used for a number of qualified retirement plans. If the
Contract is being purchased with respect to some form of qualified retirement
plan, please refer to Appendix I for information relative to the types of plans
for which it may be used and the general explanation of the tax features of such
plans.
F. ANNUITY PURCHASES BY NONRESIDENT ALIENS AND FOREIGN CORPORATIONS
The discussion above provides general information regarding U.S. federal income
tax consequences to annuity purchasers that are U.S. citizens or residents.
Purchasers that are not U.S. citizens or residents will generally be subject to
U.S. federal income tax and withholding on annuity distributions at a 30% rate,
unless a lower treaty rate applies. In addition, purchasers may be subject to
state premium tax, other state and/or municipal taxes, and taxes that may be
imposed by the purchaser's country of citizenship or residence. Prospective
purchasers are advised to consult with a qualified tax adviser regarding U.S.,
state, and foreign taxation with respect to an annuity purchase.
MISCELLANEOUS
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HOW CONTRACTS ARE SOLD
Hartford Securities Distribution Company, Inc. ("HSD") serves as Principal
Underwriter for the securities issued with respect to the Separate Account. HSD
is an affiliate of Hartford. Both HSD and Hartford are ultimately controlled by
The Hartford Financial Services Group, Inc. The principal business address of
HSD is the same as that of Hartford.
The securities will be sold by 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.
The Contract may be sold directly to certain individuals under certain
circumstances that do not involve payment of any sales compensation to a
registered representative. In such case, no Sales Charges will be accessed on
premium payments. The following class of individuals are eligible for this
feature: (1) current or retired officers, directors, trustees and employees (and
their families) of the ultimate parent and affiliates of Hartford; and (2)
employees and registered representatives (and their families) of registered
broker-dealers (or financial institutions affiliated therewith) that have a
sales agreement with Hartford and its principal underwriter to sell the
Contracts.
YEAR 2000
IN GENERAL The Year 2000 issue relates to the ability or inability of computer
hardware, software and other information technology (IT) systems, as well as
non-IT systems, such as equipment and machinery with imbedded chips and
microprocessors, to properly process information and data containing or related
to dates beginning with the year 2000 and beyond. The Year 2000 issue exists
because, historically, many IT and non-IT systems that are in use today were
developed years ago when a year was identified using a two-digit date field
rather than a four-digit date field. As information and data containing or
related to the century
26 - PROSPECTUS
<PAGE>
date are introduced to date sensitive systems, these systems may recognize the
year 2000 as "1900", or not at all, which may result in systems processing
information incorrectly. This, in turn, may significantly and adversely affect
the integrity and reliability of information databases of IT systems, may cause
the malfunctioning of certain non-IT systems, and may result in a wide variety
of adverse consequences to a company. In addition, Year 2000 problems that occur
with third parties with which a company does business, such as suppliers,
computer vendors, distributors and others, may also adversely affect any given
company.
The integrity and reliability of Hartford's IT systems, as well as the
reliability of its non-IT systems, are integral aspects of Hartford's business.
Hartford issues insurance policies, annuities, mutual funds and other financial
products to individual and business customers, nearly all of which contain date
sensitive data, such as policy expiration dates, birth dates and premium payment
dates. In addition, various IT systems support communications and other systems
that integrate Hartford's various business segments and field offices. Hartford
also has business relationships with numerous third parties that affect
virtually all aspects of Hartford's business, including, without limitation,
suppliers, computer hardware and software vendors, insurance agents and brokers,
securities broker-dealers and other distributors of financial products, many of
which provide date sensitive data to Hartford, and whose operations are
important to Hartford's business.
INTERNAL YEAR 2000 EFFORTS AND TIMETABLE Beginning in 1990, Hartford began
working on making its IT systems Year 2000 ready, either through installing new
programs or replacing systems. Since January 1998, Hartford's Year 2000 efforts
have focused on the remaining Year 2000 issues related to IT and non-IT systems
in all of Hartford's business segments. These Year 2000 efforts include the
following five main initiatives: (1) identifying and assessing Year 2000 issues;
(2) taking actions to remediate IT and non-IT systems so that they are Year 2000
ready; (3) testing IT and non-IT systems for Year 2000 readiness; (4) deploying
such remediated and tested systems back into their respective production
environments; and (5) conducting internal and external integrated testing of
such systems. As of December 31, 1998, Hartford substantially completed
initiatives (1) through (4) of its internal Year 2000 efforts. Hartford has
begun initiative (5) and management currently anticipates that such activity
will continue into the fourth quarter of 1999.
THIRD PARTY YEAR 2000 EFFORTS AND TIMETABLE Hartford's Year 2000 efforts include
assessing the potential impact on Hartford of third parties' Year 2000
readiness. Hartford's third party Year 2000 efforts include the following three
main initiatives: (1) identifying third parties which have significant business
relationships with Hartford, including, without limitation, insurance agents,
brokers, third party administrators, banks and other distributors and servicers
of financial products, and inquiring of such third parties regarding their Year
2000 readiness; (2) evaluating such third parties' responses to Hartford's
inquiries; and (3) based on the evaluation of third party responses (or a third
party's failure to respond) and the significance of the business relationship,
conducting additional activities with respect to third parties as determined to
be necessary in each case. These activities may include conducting additional
inquiries, more in-depth evaluations of Year 2000 readiness and plans, and
integrated IT systems testing. Hartford has completed the first third party
initiative and, as of early 1999, had substantially completed evaluating third
party responses received. Hartford has begun conducting the additional
activities described in initiative (3) and management currently anticipates that
it will continue to do so through the end of 1999. However, notwithstanding
these third party Year 2000 efforts, Hartford does not have control over these
third parties and, as a result, Hartford cannot currently determine to what
extent future operating results may be adversely affected by the failure of
these third parties to adequately address their Year 2000 issues.
YEAR 2000 COSTS The costs of Hartford's Year 2000 program that were incurred
through the year ended December 31, 1997 were not material to Hartford's
financial condition or results of operations. The after-tax costs of Hartford's
Year 2000 efforts for the year ended December 31, 1998 were approximately $3
million. Management currently estimates that after-tax costs related to the Year
2000 program to be incurred in 1999 will be less than $10 million. These costs
are being expensed as incurred.
RISKS AND CONTINGENCY PLANS If significant Year 2000 problems arise, including
problems arising with third parties, failures of IT and non-IT systems could
occur, which in turn could result in substantial interruptions in Hartford's
business. In addition, Hartford's investing activities are an important aspect
of its business and Hartford may be exposed to the risk that issuers of
investments held by it will be adversely impacted by Year 2000 issues. Given the
uncertain nature of Year 2000 problems that may arise, especially those related
to the readiness of third parties discussed above, management cannot determine
at this time whether the consequences of Year 2000 related problems that could
arise will have a material impact on Hartford's financial condition or results
of operations.
Hartford is in the process of developing certain contingency plans so that if,
despite its Year 2000 efforts, Year 2000 problems ultimately arise, the impact
of such problems may be avoided or minimized. These contingency plans are being
developed based on, among other things, known or reasonably anticipated
circumstances and potential vulnerabilities.
27 - PROSPECTUS
<PAGE>
The contingency planning also includes assessing the dependency of Hartford's
business on third parties and their Year 2000 readiness. Hartford currently
anticipates that internal and external contingency plans will be substantially
complete by the end of the second quarter of 1999. However, in many contexts,
Year 2000 issues are dynamic, and ongoing assessments of business functions,
vulnerabilities and risks must be made. As such, new contingency plans may be
needed in the future and/or existing plans may need to be modified as
circumstances warrant.
LEGAL MATTERS AND EXPERTS
There are no material legal proceedings pending to which the Separate Account is
a party.
Counsel with respect to federal laws and regulations applicable to the issue and
sale of the Contracts and with respect to Connecticut law is Lynda Godkin,
Senior Vice President, General Counsel and Corporate Secretary, Hartford Life
and Annuity Insurance Company, P.O. Box 2999, Hartford, Connecticut 06104-2999.
The audited financial statements included in this registration statement have
been audited by Arthur Andersen LLP, independent public accountants, as
indicated in their reports with respect thereto, and are included herein in
reliance upon the authority of said firm as experts in giving said reports.
Reference is made to the report on the statutory financial statements of
Hartford Life and Annuity Insurance Company which states the statutory financial
statements are presented in accordance with statutory accounting practices
prescribed or permitted by the National Association of Insurance Commissioners
and the State of Connecticut Insurance Department, and are not presented in
accordance with generally accepted accounting principles. The principal business
address of Arthur Andersen LLP is One Financial Plaza, Hartford, Connecticut
06103.
MORE INFORMATION
You may call your Representative if you have any questions or write or call us
at the address below:
Hartford Life and Annuity Insurance Company
Attn: Individual Annuity Services
P.O. Box 5085
Hartford, Connecticut 06102-5085.
Telephone: (800) 521-0538 (Contract Owners)
28 - PROSPECTUS
<PAGE>
APPENDIX I - INFORMATION REGARDING TAX-QUALIFIED RETIREMENT PLANS
-------------------------------------------------------------------
This summary does not attempt to provide more than general information about the
federal income tax rules associated with use of a Contract by a tax-qualified
retirement plan. Because of the complexity of the federal tax rules, owners,
participants and beneficiaries are encouraged to consult their own tax advisors
as to specific tax consequences.
The federal tax rules applicable to owners of Contracts under tax-qualified
retirement plans vary according to the type of plan as well as the terms and
conditions of the plan itself. Contract owners, plan participants and
beneficiaries are cautioned that the rights and benefits of any person may be
controlled by the terms and conditions of the tax-qualified retirement plan
itself, regardless of the terms and conditions of a Contract. We are not bound
by the terms and conditions of such plans to the extent such terms conflict with
a Contract, unless we specifically consent to be bound.
Some tax-qualified retirement plans are subject to distribution and other
requirements that are not incorporated into our administrative procedures.
Contract owners, participants and beneficiaries are responsible for determining
that contributions, distributions and other transactions comply with applicable
law. Tax penalties may apply to transactions with respect to tax-qualified
retirement plans if applicable federal income tax rules and restrictions are not
carefully observed.
We do not currently offer the Contracts in connection with all of the types of
tax-qualified retirement plans discussed below and may not offer the Contracts
for all types of tax-qualified retirement plans in the future.
1. TAX-QUALIFIED PENSION OR PROFIT-SHARING PLANS
Eligible employers can establish certain tax-qualified pension and
profit-sharing plans under section 401 of the Code. Rules under section 401(k)
of the Code govern certain "cash or deferred arrangements" under such plans.
Rules under section 408(k) govern "simplified employee pensions". Tax-qualified
pension and profit-sharing plans are subject to limitations on the amount that
may be contributed, the persons who may be eligible to participate and the time
when distributions must commence. Employers intending to use the Contracts in
connection with tax-qualified pension or profit-sharing plans should seek
competent tax and other legal advice.
2. TAX SHELTERED ANNUITIES UNDER SECTION 403(B)
Public schools and certain types of charitable, educational and scientific
organizations, as specified in section 501(c)(3) of the Code, can purchase
tax-sheltered annuity contracts for their employees. Tax-deferred contributions
can be made to tax-sheltered annuity contracts under section 403(b) of the Code,
subject to certain limitations. Generally, such contributions may not exceed the
lesser of $10,000 (indexed) or 20% of the employee's "includable compensation"
for such employee's most recent full year of employment, subject to other
adjustments. Special provisions under the Code may allow some employees to elect
a different overall limitation.
Tax-sheltered annuity programs under section 403(b) are subject to a PROHIBITION
AGAINST DISTRIBUTIONS FROM THE CONTRACT ATTRIBUTABLE TO CONTRIBUTIONS MADE
PURSUANT TO A SALARY REDUCTION AGREEMENT, unless such distribution is made:
- - after the participating employee attains age 59 1/2;
- - upon separation from service;
- - upon death or disability; or
- - in the case of hardship (and in the case of hardship, any income attributable
to such contributions may not be distributed).
Generally, the above restrictions do not apply to distributions attributable to
cash values or other amounts held under a section 403(b) contract as of December
31, 1988.
3. DEFERRED COMPENSATION PLANS UNDER SECTION 457
A governmental employer or a tax-exempt employer other than a governmental unit
can establish a Deferred Compensation Plan under section 457 of the Code. For
these purposes, a "governmental employer" is a State, a political subdivision of
a State, or an agency or an instrumentality of a State or political subdivision
of a State. Employees and independent contractors performing services for a
governmental or tax-exempt employer can elect to have contributions made to a
Deferred Compensation Plan of their employer in accordance with the employer's
plan and section 457 of the Code.
Deferred Compensation Plans that meet the requirements of section 457(b) of the
Code are called "eligible" Deferred Compensation Plans. Section 457(b) limits
the amount of contributions that can be made to an eligible Deferred
Compensation Plan on behalf of a participant. Generally, the limitation on
contributions is 33 1/3% of a participant's includable compensation (typically
25% of gross compensation) or, for 1999, $8,000 (indexed), whichever is less.
The plan may provide for additional "catch-up" contributions during the three
taxable years ending before the year in which the participant attains normal
retirement age.
All of the assets and income of an eligible Deferred Compensation Plan
established by a governmental employer after August 20, 1996, must be held in
trust for the
29 - PROSPECTUS
<PAGE>
exclusive benefit of participants and their beneficiaries. For this purpose,
custodial accounts and certain annuity contracts are treated as trusts. Eligible
Deferred Compensation Plans that were in existence on August 20, 1996 may be
amended to satisfy the trust and exclusive benefit requirements any time prior
to January 1, 1999, and must be amended not later than that date to continue to
receive favorable tax treatment. The requirement of a trust does not apply to
amounts under a Deferred Compensation Plan of a tax-exempt (non-governmental)
employer. In addition, the requirement of a trust does not apply to amounts
under a Deferred Compensation Plan of a governmental employer if the Deferred
Compensation Plan is not an eligible plan within the meaning of section 457(b)
of the Code. In the absence of such a trust, amounts under the plan will be
subject to the claims of the employer's general creditors.
In general, distributions from an eligible Deferred Compensation Plan are
prohibited under section 457 of the Code unless made after the participating
employee:
- - attains age 70 1/2,
- - separates from service,
- - dies, or
- - suffers an unforeseeable financial emergency as defined in the Code.
Under present federal tax law, amounts accumulated in a Deferred Compensation
Plan under section 457 of the Code cannot be transferred or rolled over on a
tax-deferred basis except for certain transfers to other Deferred Compensation
Plans under section 457 in limited cases.
4. INDIVIDUAL RETIREMENT ANNUITIES ("IRAS") UNDER SECTION 408
TRADITIONAL IRAS. Eligible individuals can establish individual retirement
programs under section 408 of the Code through the purchase of an IRA. Section
408 imposes limits with respect to IRAs, including limits on the amount that may
be contributed to an IRA, the amount of such contributions that may be deducted
from taxable income, the persons who may be eligible to contribute to an IRA,
and the time when distributions commence from an IRA. Distributions from certain
tax-qualified retirement plans may be "rolled-over" to an IRA on a tax-deferred
basis.
SIMPLE IRAS. Eligible employees may establish SIMPLE IRAs in connection with a
SIMPLE IRA plan of an employer under section 408(p) of the Code. Special
rollover rules apply to SIMPLE IRAs. Amounts can be rolled over from one SIMPLE
IRA to another SIMPLE IRA. However, amounts can be rolled over from a SIMPLE IRA
to a Traditional IRA only after two years have expired since the employee first
commenced participation in the employer's SIMPLE IRA plan. Amounts cannot be
rolled over to a SIMPLE IRA from a qualified plan or a Traditional IRA. Hartford
is a non-designated financial institution for purposes of the SIMPLE IRA rules.
ROTH IRAS. Eligible individuals may establish Roth IRAs under section 408A of
the Code. Contributions to a Roth IRA are not deductible. Subject to special
limitations, a Traditional IRA may be converted into a Roth IRA or a
distribution from a Traditional IRA may be rolled over to a Roth IRA. However, a
conversion or a rollover from a Traditional IRA to a Roth IRA is not excludable
from gross income. If certain conditions are met, qualified distributions from a
Roth IRA are tax-free.
5. FEDERAL TAX PENALTIES AND WITHHOLDING
Distributions from tax-qualified retirement plans are generally taxed as
ordinary income under section 72 of the Code. Under these rules, a portion of
each distribution may be excludable from income. The excludable amount is the
portion of the distribution that bears the same ratio as the after-tax
contributions bear to the expected return.
(A) PENALTY TAX ON EARLY DISTRIBUTIONS Section 72(t) of the Code imposes an
additional penalty tax equal to 10% of the taxable portion of a distribution
from certain tax-qualified retirement plans. However, the 10% penalty tax does
not apply to a distributions that is:
- - Made on or after the date on which the employee reaches age 59 1/2;
- - Made to a beneficiary (or to the estate of the employee) on or after the death
of the employee;
- - Attributable to the employee's becoming disabled (as defined in the Code);
- - Part of a series of substantially equal periodic payments (not less frequently
than annually) made for the life (or life expectancy) of the employee or the
joint lives (or joint life expectancies) of the employee and his or her
designated beneficiary;
- - Except in the case of an IRA, made to an employee after separation from
service after reaching age 55; or
- - Not greater than the amount allowable as a deduction to the employee for
eligible medical expenses during the taxable year.
In addition, the 10% penalty tax does not apply to a distribution from an IRA
that is:
- - Made after separation from employment to an unemployed IRA owner for health
insurance premiums, if certain conditions are met;
30 - PROSPECTUS
<PAGE>
- - Not in excess of the amount of certain qualifying higher education expenses,
as defined by section 72(t)(7) of the Code; or
- - A qualified first-time homebuyer distribution meeting the requirements
specified at section 72(t)(8) of the Code.
If you are a participant in a SIMPLE IRA plan, you should be aware that the 10%
penalty tax is increased to 25% with respect to non-exempt early distributions
made from your SIMPLE IRA during the first two years following the date you
first commenced participation in any SIMPLE IRA plan of your employer.
(B) MINIMUM DISTRIBUTION PENALTY TAX If the amount distributed is less than the
minimum required distribution for the year, the Participant is subject to a 50%
penalty tax on the amount that was not properly distributed.
An individual's interest in a tax-qualified retirement plan generally must be
distributed, or begin to be distributed, not later than the Required Beginning
Date. Generally, the Required Beginning Date is April 1 of the calendar year
following the later of:
- - the calendar year in which the individual attains age 70 1/2; or
- - the calendar year in which the individual retires from service with the
employer sponsoring the plan.
The Required Beginning Date for an individual who is a five (5) percent owner
(as defined in the Code), or who is the owner of an IRA, is April 1 of the
calendar year following the calendar year in which the individual attains age
70 1/2.
The entire interest of the Participant must be distributed beginning no later
than the Required Beginning Date over:
- - the life of the Participant or the lives of the Participant and the
Participant's designated beneficiary, or
- - over a period not extending beyond the life expectancy of the Participant or
the joint life expectancy of the Participant and the Participant's designated
beneficiary.
Each annual distribution must equal or exceed a "minimum distribution amount"
which is determined by dividing the account balance by the applicable life
expectancy. This account balance is generally based upon the account value as of
the close of business on the last day of the previous calendar year. In
addition, minimum distribution incidental benefit rules may require a larger
annual distribution.
If an individual dies before reaching his or her Required Beginning Date, the
individual's entire interest must generally be distributed within five years of
the individual's death. However, this rule will be deemed satisfied, if
distributions begin before the close of the calendar year following the
individual's death to a designated beneficiary and distribution is over the life
of such designated beneficiary (or over a period not extending beyond the life
expectancy of the beneficiary). If the beneficiary is the individual's surviving
spouse, distributions may be delayed until the individual would have attained
age 70 1/2.
If an individual dies after reaching his or her Required Beginning Date or after
distributions have commenced, the individual's interest must generally be
distributed at least as rapidly as under the method of distribution in effect at
the time of the individual's death.
(C) WITHHOLDING In general, regular wage withholding rules apply to
distributions from IRAs and plans described in section 457 of the Code. Periodic
distributions from other tax-qualified retirement plans that are made for a
specified period of 10 or more years or for the life or life expectancy of the
participant (or the joint lives or life expectancies of the participant and
beneficiary) are generally subject to federal income tax withholding as if the
recipient were married claiming three exemptions. The recipient of periodic
distributions may generally elect not to have withholding apply or to have
income taxes withheld at a different rate by providing a completed election
form.
Mandatory federal income tax withholding at a flat rate of 20% will generally
apply to other distributions from such other tax-qualified retirement plans
unless such distributions are:
- - the non-taxable portion of the distribution;
- - required minimum distributions; or
- - direct transfer distributions.
Direct transfer distributions are direct payments to an IRA or to another
eligible retirement plan under Code section 401(a)(31).
Certain states require withholding of state taxes when federal income tax is
withheld.
31 - PROSPECTUS
<PAGE>
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>
32 - PROSPECTUS
<PAGE>
This form must be completed for all tax sheltered annuities.
SECTION 403(B)(11) ACKNOWLEDGMENT FORM
- ---------------------------------------------------------------
The Hartford Variable Annuity Contract which you have recently purchased is
subject to certain restrictions imposed by the Tax Reform Act of 1986.
Contributions to the Contract after December 31, 1988 and any increases in cash
value after December 31, 1988 may not be distributed to you unless you have:
a. attained age 59 1/2,
b. separated from service,
c. died, or
d. become disabled.
Distributions of post December 31, 1988 contributions (excluding any income
thereon) may also be made if you have experienced a financial hardship.
Also, there may be a 10% penalty tax for distributions made prior to age 59 1/2
because of financial hardship or separation from service.
Also, please be aware that your 403(b) Plan may also offer other financial
alternatives other than the [PRODUCT NAME]. Please refer to your Plan.
Please complete the following and return to:
Hartford Life and Annuity Insurance Company
Individual Annuity Services
P.O. Box 5085
Hartford, CT 06102-5085
Name of Contract Owner/Participant _____________________
Address ________________________________________________
City or Plan/School District ___________________________
Date: __________________________________________________
Contract No: ___________________________________________
Signature: _____________________________________________
- --------------------------------------------------------------------------------
To obtain a Statement of Additional Information, please complete the form below
and mail to:
Hartford Life and Annuity Insurance Company
Attn: Individual Annuity Services
P.O. Box 5085
Hartford, CT 06102-5085
Please send a Statement of Additional Information for [Product Name] Variable
Annuity to me at the following address:
- -------------------------------------------------------
Name
- -------------------------------------------------------
Address
- -------------------------------------------------------
City/State Zip Code
<PAGE>
PART B
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
HARTFORD LIFE AND ANNUITY INSURANCE COMPANY
PUTNAM CAPITAL MANAGER TRUST SEPARATE ACCOUNT TWO
[PRODUCT NAME]
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 Services, P.O. Box 5085, Hartford,
CT 06102-5085.
Date of Prospectus: May 3, 1999
Date of Statement of Additional Information: May 3, 1999
333-66935
<PAGE>
-2-
TABLE OF CONTENTS
SECTION Page
DESCRIPTION OF HARTFORD LIFE AND ANNUITY INSURANCE COMPANY................. 3
SAFEKEEPING OF ASSETS ..................................................... 3
INDEPENDENT PUBLIC ACCOUNTANTS ............................................ 4
DISTRIBUTION OF CONTRACTS.................................................. 4
CALCULATION OF YIELD AND RETURN............................................ 5
PERFORMANCE COMPARISONS.................................................... 11
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, the District of
Columbia and Puerto Rico, except New York. On January 1, 1998, Hartford's
name changed from ITT Hartford Life and Annuity Insurance Company to Hartford
Life and Annuity Insurance Company. We were originally incorporated under the
laws of Wisconsin on January 9, 1956, and subsequently redomiciled to
Connecticut. Our offices are located in Simsbury, Connecticut; however, our
mailing address is P.O. Box 2999, Hartford, CT 06104-2999. We are ultimately
controlled by The Hartford Financial Services Group, Inc., one of the largest
financial service providers in the United States.
HARTFORD'S RATINGS
- -------------------------------------------------------------------------------
Rating Agency Effective Rating Basis of Rating
Date of Rating
- -------------------------------------------------------------------------------
A.M. Best and Company, Inc. 1/1/99 A+ Financial performance
- -------------------------------------------------------------------------------
Standard & Poor's 6/1/98 AA Insurer financial strength
- -------------------------------------------------------------------------------
Duff & Phelps 12/21/98 AA+ Claims paying ability
- -------------------------------------------------------------------------------
SAFEKEEPING OF ASSETS
Title to the assets of the Separate Account is held by Hartford. The assets are
kept physically segregated and are held separate and apart from Hartford's
general corporate assets. Records are maintained of all purchases and
redemptions of Fund shares held in each of the Sub-Accounts.
<PAGE>
-4-
INDEPENDENT PUBLIC ACCOUNTANTS
The audited financial statements included in this registration statement have
been audited by Arthur Andersen LLP, independent public accountants, as
indicated in their reports with respect thereto, and are included herein in
reliance upon the authority of said firm as experts in giving said reports.
Reference is made to the report on the statutory financial statements of
Hartford Life and Annuity Insurance Company which states the statutory
financial statements are presented in accordance with statutory accounting
practices prescribed or permitted by the National Association of Insurance
Commissioners and the State of Connecticut Insurance Department, and are not
presented in accordance with generally accepted accounting principles. The
principal business address of Arthur Andersen LLP is One Financial Plaza,
Hartford, Connecticut 06103.
DISTRIBUTION OF CONTRACTS
Hartford Securities Distribution Company, Inc. ("HSD") serves as Principal
Underwriter for the securities issued with respect to the Separate Account.
HSD is an affiliate of Hartford. Both HSD and Hartford are ultimately
controlled by The Hartford Financial Services Group, Inc. The principal
business address of HSD is the same as that of Hartford.
The securities will be sold by 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 the prospectus.
<PAGE>
-5-
In addition, a broker-dealer or financial institution may also receive
additional compensation for, among other things, training, marketing or other
services provided. HSD, its affiliates or Hartford may also make compensation
arrangements with certain broker-dealers or financial institutions based on
total sales by the broker-dealer or financial institution of insurance
products. These payments, which may be different for different broker-dealers
or financial institutions, will be made by HSD, its affiliates or Hartford
out of their own assets and will not effect the amounts paid by the
policyholders or contract owners to purchase, hold or surrender variable
insurance products.
The Contract may be sold directly to certain individuals under certain
circumstances that do not involve payment of any sales compensation to a
registered representative. In such case, no Sales Charges will be accessed on
premium payments. The following class of individuals are eligible for this
feature: (1) current or retired officers, directors, trustees and employees
(and their families) of the ultimate parent and affiliates of Hartford; and
(2) employees and registered representatives (and their families) of
registered broker-dealers (or financial institutions affiliated therewith)
that have a sales agreement with Hartford and its principal underwriter to
sell the Contracts.
Hartford currently pay HSD underwriting commissions for its role as Principal
Underwriter of all variable annuities associated with this Separate Account.
For the past three years, the aggregate dollar amount of underwriting
commissions paid to HSD in its role as Principal Underwriter has been: 1998:
$67,003,507; 1997: $97,513,541, and 1996: $154,325,791. HSD has retained none
of these commissions.
CALCULATION OF YIELD AND RETURN
YIELD OF THE PUTNAM MONEY MARKET FUND SUB-ACCOUNT. As summarized in the
prospectus under the heading "Performance Related Information," the yield of
the Putnam Money Market Fund Sub-Account for a seven day period (the "base
period") will be computed by determining the "net change in value"
(calculated as set forth below) of a hypothetical account having a balance of
one accumulation unit of the Sub-Account at the beginning of the period,
subtracting a hypothetical charge reflecting deductions from Contract Owner
accounts, and dividing the difference by the value of the account at the
beginning of the base period to obtain the base period return, and then
multiplying the base period return by (365/7) with the resulting yield figure
carried to the nearest hundredth of one percent. Net changes in value of a
hypothetical account will include net investment income of the account
(accrued daily dividends as declared by the underlying funds, less daily
expense charges of the account) for the period, but will not include realized
gains or losses or unrealized appreciation or depreciation on the underlying
fund shares.
<PAGE>
The effective yield is calculated by compounding the base period return by
adding 1, raising the sum to a power equal to 365 divided by 7 and
subtracting 1 from the result, according to the following formula:
365/7
Effective Yield = [(Base Period Return + 1) ] - 1
The yield and effective yield for the seven day period ending December 31,
1998 for the Putnam Money Market Fund Sub-Account is as follows:
($30 Annual Maintenance Fee)
- -------------------------------------------------------------------------------
SUB-ACCOUNT YIELD EFFECTIVE YIELD
- -------------------------------------------------------------------------------
Putnam Money Market* 3.92% 4.00%
- -------------------------------------------------------------------------------
* Yield and effective yield for the seven day period ending December 31, 1998.
THE PUTNAM MONEY MARKET FUND SUB-ACCOUNT'S YIELD AND EFFECTIVE YIELD WILL
VARY IN RESPONSE TO FLUCTUATIONS IN INTEREST RATES AND IN THE EXPENSES OF THE
SUB-ACCOUNT. THE CURRENT YIELD AND EFFECTIVE YIELD REFLECT RECURRING CHARGES
ON THE SEPARATE ACCOUNT LEVEL, INCLUDING THE MAXIMUM ANNUAL MAINTENANCE FEE.
YIELDS OF THE PUTNAM DIVERSIFIED INCOME, PUTNAM GROWTH AND INCOME, PUTNAM
INTERNATIONAL GROWTH AND INCOME, PUTNAM HIGH YIELD AND PUTNAM INCOME
SUB-ACCOUNTS. As summarized in the prospectus under the heading "Performance
Related Information," yields of these two Sub-Accounts will be computed by
annualizing a recent month's net investment income, divided by a Fund share's
net asset value on the last trading day of that month. Net changes in the
value of a hypothetical account will assume the change in the underlying
fund's "net asset value per share" for the same period in addition to the
daily expense charge assessed at the sub-account level for the respective
period. These Sub-Accounts' yields will vary from time to time depending upon
market conditions and the composition of the underlying funds' portfolios.
Yield should also be considered relative to changes in the value of the
Sub-Accounts' shares and to the relative risks associated with the investment
objectives and policies of the Funds.
THE YIELD REFLECTS RECURRING CHARGES ON THE SEPARATE ACCOUNT LEVEL, INCLUDING
THE ANNUAL MAINTENANCE FEE.
<PAGE>
-7-
Yield calculations of the Sub-Accounts used for illustration purposes reflect
the interest earned by the Sub-Accounts, less applicable asset based charges
assessed under the Contract over the base period. Yield quotations based on a
30 day period ended December 31, 1998 were computed by dividing the dividends
and interest earned during the period by the maximum offering price per unit
on the last day of the period, according to the following formula:
Example:
6
Current Yield Formula for the Sub-Account 2[((A-B)/(CD) + 1) - 1]
Where A = Dividends and interest earned during the period.
B = Expenses accrued for the period (net of reimbursements).
C = The average daily number of units outstanding during the
period that were entitled to receive dividends.
D = The maximum offering price per unit on the last day of the period.
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.
- -------------------------------------------------------------------------------
SUB-ACCOUNT YIELD
- -------------------------------------------------------------------------------
Putnam Growth and Income** 0.61%
- -------------------------------------------------------------------------------
Putnam Global Asset Allocation** 1.17%
- -------------------------------------------------------------------------------
Putnam High Yield** 9.63%
- -------------------------------------------------------------------------------
Putnam Utilities Growth and Income** 1.90%
- -------------------------------------------------------------------------------
Putnam Income** 4.95%
- -------------------------------------------------------------------------------
Putnam Diversified Income** 6.51%
- -------------------------------------------------------------------------------
** Yield quotation based on a 30 day period ended December 31, 1998.
CALCULATION OF TOTAL RETURN. As summarized in the prospectus under the
heading "Performance Related Information," total return is a measure of the
change in value of an investment in a Sub-Account over the period covered.
The formula for total return used herein includes three steps: (1)
calculating the value of the hypothetical initial investment of $1,000 as of
the end of the period by multiplying the total number of units owned at the
end of the period by the unit value per unit on the last trading day of the
period; (2) assuming redemption at the end of the period and deducting any
applicable contingent deferred sales charge and (3) dividing this account
value for the hypothetical investor by the initial $1,000 investment and
annualizing the result for periods of less than one year. Total return will
be calculated for one year, five years and ten years or some other relevant
periods if a Sub-Account has not been in existence for at least ten years.
<PAGE>
-8-
The following are the standardized average annual total return quotations for
the Sub-Accounts for the 1 year, 5 years, and since inception periods ended
December 31, 1998. (These returns assume a mortality and risk expense charge
of 1.50% and an Annual Maintenance Fee of $30.) There is no information for
Putnam Small Cap Value Sub-Account because as of December 31, 1998, the
Sub-Account had not commenced operation.
STANDARDIZED AVERAGE ANNUAL TOTAL RETURN FOR YEAR ENDED
DECEMBER 31, 1998
- -------------------------------------------------------------------------------
SUB-ACCOUNT INCEPTION 1 YEAR 5 YEAR 10 YEAR SINCE INCEPTION
DATE
- -------------------------------------------------------------------------------
Putnam Asia Pacific
Growth 5/1/95 -14.43% N/A N/A -8.75%
- -------------------------------------------------------------------------------
Putnam Diversified
Income Fund 9/15/93 -10.74% 0.40% N/A 0.22%
- -------------------------------------------------------------------------------
Putnam The George
Putnam Fund of Boston 5/1/98 N/A N/A N/A -5.83%
- -------------------------------------------------------------------------------
Putnam Global Asset
Allocation 2/1/88 3.44% 8.70% N/A 8.99%
- -------------------------------------------------------------------------------
Putnam Global Growth 5/1/90 18.55% 9.51% N/A 9.85%
- -------------------------------------------------------------------------------
Putnam Growth and
Income 2/1/88 5.09% 14.10% N/A 12.28%
- -------------------------------------------------------------------------------
Putnam Health Sciences 5/1/98 N/A N/A N/A -0.17%
- -------------------------------------------------------------------------------
Putnam High Yield 2/1/88 -14.78% 2.24% N/A 7.94%
- -------------------------------------------------------------------------------
Putnam International
Growth 1/2/97 8.07% N/A N/A 10.14%
- -------------------------------------------------------------------------------
Putnam International
Growth and Income 1/2/97 1.26% N/A N/A 8.21%
- -------------------------------------------------------------------------------
Putnam International New
Opportunities 1/2/97 16.91% N/A N/A 5.78%
- -------------------------------------------------------------------------------
Putnam Investors 5/1/98 N/A N/A N/A 5.71%
- -------------------------------------------------------------------------------
Putnam New
Opportunities 5/2/94 13.46% N/A N/A 18.14%
- -------------------------------------------------------------------------------
Putnam New Value 1/2/97 -3.52% N/A N/A 4.77%
- -------------------------------------------------------------------------------
Putnam OTC & Emerging
Growth 5/1/98 N/A N/A N/A -8.32%
- -------------------------------------------------------------------------------
Research 10/1/98 N/A N/A N/A 15.15%
- -------------------------------------------------------------------------------
Putnam Income 2/1/88 -1.55% 1.77% N/A 4.12%
- -------------------------------------------------------------------------------
Putnam Utilities Growth
and Income Bond 5/1/92 4.68% 10.38% N/A 9.97%
- -------------------------------------------------------------------------------
Putnam Vista Fund 1/2/97 9.04% N/A N/A 14.14%
- -------------------------------------------------------------------------------
Putnam Voyager 2/1/88 13.45% 15.32% N/A 16.39%
- -------------------------------------------------------------------------------
Putnam Money Market 2/1/88 -4.40% -0.26% N/A -0.48%
- -------------------------------------------------------------------------------
<PAGE>
-10-
In addition to the standardized total return, the Sub-Account may advertise a
non-standardized total return. This figure will usually be calculated for one
year, and five years, or other periods. Non-standardized total return is
measured in the same manner as the standardized total return described above,
except that the Annual Maintenance Fee is not deducted and the time periods
used to calculate return is based on the inception date of the underlying
Funds. Therefore, non-standardized total return for a Sub-Account is higher
than standardized total return for a Sub-Account.
The following are the non-standardized annualized total return quotations for
the Sub-Accounts for the 1year, 5 years, 10 years and since inception periods
ended December 31, 1998. (These returns assume a mortality and risk expense
charge of 1.45% and an Annual Maintenance Fee of $30.) There is no
information for Putnam Small Cap Value Sub-Account because as of December 31,
1998, the Sub-Account had not commenced operation.
NON-STANDARDIZED ANNUALIZED TOTAL RETURN THAT PRE-DATE THE
INCEPTION DATE OF THE SEPARATE ACCOUNT FOR YEAR ENDED
DECEMBER 31, 1998
- -------------------------------------------------------------------------------
SUB-ACCOUNT INCEPTION 1 YEAR 5 YEAR 10 YEAR SINCE INCEPTION
DATE
- -------------------------------------------------------------------------------
Putnam Asia Pacific
Growth 5/1/95 -6.28% N/A N/A -3.73%
- -------------------------------------------------------------------------------
Putnam Diversified
Income Fund 9/15/93 -2.38% 4.61% N/A 4.74%
- -------------------------------------------------------------------------------
Putnam The George
Putnam Fund of Boston 5/1/98 N/A N/A N/A 2.83%
- -------------------------------------------------------------------------------
Putnam Global Asset
Allocation 2/1/88 12.64 12.7 11.63% N/A
- -------------------------------------------------------------------------------
Putnam Global Growth 5/1/90 28.62 13.7 N/A 11.62%
- -------------------------------------------------------------------------------
Putnam Growth and
Income 2/1/88 14.38 17.9 14.94% N/A
- -------------------------------------------------------------------------------
Putnam Health Sciences 5/1/98 N/A N/A N/A 8.82%
- -------------------------------------------------------------------------------
Putnam High Yield 2/1/88 -6.64 6.32 8.87% N/A
- -------------------------------------------------------------------------------
Putnam International
Growth 1/2/97 17.54 N/A N/A 16.33%
- -------------------------------------------------------------------------------
Putnam International
Growth and Income 1/2/97 10.32 N/A N/A 14.29%
- -------------------------------------------------------------------------------
Putnam International New
Opportunities 1/2/97 26.88 N/A N/A 12.09%
- -------------------------------------------------------------------------------
Putnam Investors 5/1/98 N/A N/A N/A 15.04%
- -------------------------------------------------------------------------------
Putnam New
Opportunities 5/2/94 23.24 N/A N/A 22.04%
- -------------------------------------------------------------------------------
Putnam New Value 1/2/97 5.27 N/A N/A 10.77%
- -------------------------------------------------------------------------------
Putnam OTC & Emerging
Growth 5/1/98 N/A N/A N/A 0.19%
- -------------------------------------------------------------------------------
Research 10/1/98 N/A N/A N/A 25.03%
- -------------------------------------------------------------------------------
Putnam Income 2/1/88 7.35 6.02 8.19% N/A
- -------------------------------------------------------------------------------
Putnam Utilities Growth
and Income Bond 5/1/92 13.95 14.5 N/A 13.68%
- -------------------------------------------------------------------------------
Putnam Vista Fund 1/2/97 18.56 N/A N/A 20.36%
- -------------------------------------------------------------------------------
Putnam Voyager 2/1/88 23.23 19.2 19.02% N/A
- -------------------------------------------------------------------------------
Putnam Money Market 2/1/88 4.34 4.01 4.43% N/A
- -------------------------------------------------------------------------------
<PAGE>
-11-
PERFORMANCE COMPARISONS
YIELD AND TOTAL RETURN. Each Sub-Account may from time to time include its
total return in advertisements or in information furnished to present or
prospective shareholders. Each Sub-Account may from time to time include its
yield and total return in advertisements or information furnished to present
or prospective shareholders. Each Sub-Account may from time to time include
in advertisements its total return (and yield in the case of certain
Sub-Accounts) the ranking of those performance figures relative to such
figures for groups of other annuities analyzed by Lipper Analytical Services
and Morningstar, Inc. as having the same investment objectives.
The total return and yield may also be used to compare the performance of the
Sub-Accounts against certain widely acknowledged outside standards or indices
for stock and bond market performance. The Standard & Poor's Composite Index
of 500 Stocks (the "S&P 500") is a market value-weighted and unmanaged index
showing the changes in the aggregate market value of 500 stocks relative to
the base period 1941-43. The S&P 500 is composed almost entirely of common
stocks of companies listed on the New York Stock Exchange, although the
common stocks of a few companies listed on the American Stock Exchange or
traded over-the-counter are included. The 500 companies represented include
about 400 industrial, 60 transportation and 40 financial services concerns.
The S&P 500 represents about 80% of the market value of all issues traded on
the New York Stock Exchange.
The NASDAQ-OTC Composite Price Index (The "NASDAQ Index") is a market
value-weighted and unmanaged index showing the changes in the aggregate
market value of approximately 3,500 stocks relative to the base measure of
100.00 on February 5, 1971. The NASDAQ Index is composed entirely of common
stocks of companies traded over-the-counter and often through the National
Association of Securities Dealers Automated Quotations ("NASDAQ") system.
Only those over-the-counter stocks having only one market maker or traded on
exchanges are excluded.
The Morgan Stanley Capital International EAFE Index (the "EAFE Index") is an
unmanaged index, which includes over 1,000 companies representing the stock
markets of Europe, Australia, New Zealand, and the Far East. The EAFE Index
is weighted by market capitalization, and therefore, it has a heavy
representation in countries with large stock markets, such as Japan.
The Shearson Lehman Government Bond Index (the "SL Government Index") is a
measure of the market value of all public obligations of the U.S. Treasury;
all publicly issued debt of all agencies of the U.S. Government and all
quasi-federal corporations; and all corporate debt guaranteed by the U.S.
Government. Mortgage-backed securities, flower bonds and foreign targeted
issues are not included in the SL Government Index.
The Shearson Lehman Government/Corporate Bond Index (the "SL Government/
Corporate Index") is a measure of the market value of approximately 5,300
bonds with a face value currently in excess of $1.3 trillion. To be included
in the SL Government/ Corporate Index, an issue must have amounts outstanding
in excess of $1 million, have at least one year to maturity and be rated
"Baa" or higher ("investment grade") by a nationally recognized rating agency.
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To 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 statements of assets and liabilities of
Hartford Life and Annuity Insurance Company Putnam Capital Manager Trust
Separate Account (Asia Pacific Growth, Diversified Income, The George Putnam
Fund of Boston, Global Asset Allocation, Global Growth, Growth and Income,
Health Sciences, High Yield, International Growth, International Growth and
Income, International New Opportunities, Investors, Money Market, New
Opportunities, New Value, OTC & Emerging Growth, Research, U.S. Government
and High Quality Bond, Utilities Growth and Income, Vista, and Voyager),
(collectively, the Account) as of December 31, 1998, and the related
statements of operations and the statements of changes in net assets for the
periods presented. These financial statements are the responsibility of the
Account's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the Account as of December 31,
1998, and the results of their operations and the changes in their net assets
for the periods presented in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Hartford, Connecticut
February 15, 1999
SA-1 PROSPECTUS
<PAGE>
<TABLE>
<CAPTION>
PUTNAM CAPITAL MANAGER TRUST SEPARATE ACCOUNT TWO -- HARTFORD LIFE AND ANNUITY INSURANCE COMPANY
STATEMENTS OF ASSETS & LIABILITIES
- ---------------------------------------------------------------------------------------------------------------------------------
December 31, 1998 Asia Pacific Diversified The Global Asset Global Growth
Growth Income George Putnam Allocation Growth and Income
Sub-Account Sub-Account Fund of Boston Sub-Account Sub-Account Sub-Account
ASSETS Sub-Account
Investments:
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
PUTNAM VT ASIA PACIFIC GROWTH FUND
CLASS IA
Shares 6,388,057
Cost $66,631,023
- ---------------------------------------------------------------------------------------------------------------------------------
Market Value: $53,212,517 $ -- $ -- $ -- $ -- $ --
- ---------------------------------------------------------------------------------------------------------------------------------
CLASS IB
Shares 12,087
Cost $96,019
- ---------------------------------------------------------------------------------------------------------------------------------
Market Value: 100,683 -- -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
PUTNAM VT DIVERSIFIED INCOME FUND
CLASS IA
Shares 28,261,627
Cost $297,722,682
- ---------------------------------------------------------------------------------------------------------------------------------
Market Value: -- 296,464,466 -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
CLASS IB
Shares 107,801
Cost $1,112,875
- ---------------------------------------------------------------------------------------------------------------------------------
Market Value: -- 1,128,676 -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
PUTNAM VT THE GEORGE PUTNAM FUND
OF BOSTON
CLASS IA
Shares 6,225,164
Cost $61,223,385
- ---------------------------------------------------------------------------------------------------------------------------------
Market Value: -- -- 63,994,682 -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
CLASS IB
Shares 180,343
Cost $1,782,294
- ---------------------------------------------------------------------------------------------------------------------------------
Market Value: -- -- 1,853,926 -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
PUTNAM VT GLOBAL ASSET ALLOCATION FUND
CLASS IA
Shares 26,622,033
Cost $412,181,624
- ---------------------------------------------------------------------------------------------------------------------------------
Market Value: -- -- -- 504,487,535 -- --
- ---------------------------------------------------------------------------------------------------------------------------------
CLASS IB
Shares 65,033
Cost $1,127,359
- ---------------------------------------------------------------------------------------------------------------------------------
Market Value: -- -- -- 1,233,028 -- --
- ---------------------------------------------------------------------------------------------------------------------------------
PUTNAM VT GLOBAL GROWTH FUND
CLASS IA
Shares 52,404,540
Cost $788,976,723
- ---------------------------------------------------------------------------------------------------------------------------------
Market Value: -- -- -- -- 1,062,764,073 --
- ---------------------------------------------------------------------------------------------------------------------------------
CLASS IB
Shares 33,238
Cost $602,630
- ---------------------------------------------------------------------------------------------------------------------------------
Market Value: -- -- -- -- 674,077 --
- ---------------------------------------------------------------------------------------------------------------------------------
PUTNAM VT GROWTH AND INCOME FUND
CLASS IA
Shares 163,058,940
Cost $3,675,227,316
- ---------------------------------------------------------------------------------------------------------------------------------
Market Value: -- -- -- -- -- 4,691,205,714
- ---------------------------------------------------------------------------------------------------------------------------------
CLASS IB
Shares 234,290
Cost $6,296,495
- ---------------------------------------------------------------------------------------------------------------------------------
Market Value: -- -- -- -- -- 6,735,843
- ---------------------------------------------------------------------------------------------------------------------------------
Due from Hartford Life Insurance
Company -- -- 208,685 14,907 -- 33,597
- ---------------------------------------------------------------------------------------------------------------------------------
Receivable from fund shares sold 18,448 69,660 -- 85,714 144,954 459,285
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS 53,331,648 297,662,802 66,057,293 505,821,184 1,063,583,104 4,698,434,439
- ---------------------------------------------------------------------------------------------------------------------------------
LIABILITIES
Due to Hartford Life Insurance Company 17,857 69,906 -- 86,015 145,390 461,290
- ---------------------------------------------------------------------------------------------------------------------------------
Payable for fund shares purchased -- -- 208,708 11,377 -- 35,147
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 17,857 69,906 208,708 97,392 145,390 496,437
- ---------------------------------------------------------------------------------------------------------------------------------
NET ASSETS (VARIABLE ANNUITY
CONTRACT LIABILITIES) $53,313,791 $297,592,896 $65,848,585 $505,723,792 $1,063,437,714 $4,697,938,002
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
SA-2 PROSPECTUS
<PAGE>
<TABLE>
<CAPTION>
PUTNAM CAPITAL MANAGER TRUST SEPARATE ACCOUNT TWO -- HARTFORD LIFE AND ANNUITY INSURANCE COMPANY
STATEMENTS OF ASSETS & LIABILITIES (CONTINUED)
- ---------------------------------------------------------------------------------------------------------------------------------
December 31, 1998 Health High Yield International International International Investors
Sciences Sub-Account Growth Growth New Sub-Account
Sub-Account Sub-Account and Income Opportunities
ASSETS Sub-Account Sub-Account
Investments:
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
PUTNAM VT HEALTH SCIENCES FUND
CLASS IA
Shares 7,089,304
Cost $70,110,307
- ---------------------------------------------------------------------------------------------------------------------------------
Market Value: $77,556,988 $ -- $ -- $ -- $ -- $ --
- ---------------------------------------------------------------------------------------------------------------------------------
CLASS IB
Shares 190,319
Cost $1,920,565
- ---------------------------------------------------------------------------------------------------------------------------------
Market Value: 2,080,191 -- -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
PUTNAM VT HIGH YIELD FUND
CLASS IA
Shares 47,903,751
Cost $591,093,786
- ---------------------------------------------------------------------------------------------------------------------------------
Market Value: -- 560,473,888 -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
CLASS IB
Shares 139,867
Cost $1,629,910
- ---------------------------------------------------------------------------------------------------------------------------------
Market Value: -- 1,636,444 -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
PUTNAM VT INTERNATIONAL GROWTH FUND
CLASS IA
Shares 12,722,293
Cost $153,692,188
- ---------------------------------------------------------------------------------------------------------------------------------
Market Value: -- -- 172,005,403 -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
CLASS IB
Shares 77,197
Cost $957,995
- ---------------------------------------------------------------------------------------------------------------------------------
Market Value: -- -- 1,042,938 -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
PUTNAM VT INTERNATIONAL GROWTH
AND INCOME FUND
CLASS IA
Shares 14,827,216
Cost $173,516,087
- ---------------------------------------------------------------------------------------------------------------------------------
Market Value: -- -- -- 181,485,123 -- --
- ---------------------------------------------------------------------------------------------------------------------------------
CLASS IB
Shares 60,689
Cost $715,953
- ---------------------------------------------------------------------------------------------------------------------------------
Market Value: -- -- -- 742,829 -- --
- ---------------------------------------------------------------------------------------------------------------------------------
PUTNAM VT INTERNATIONAL NEW
OPPORTUNITIES FUND
CLASS IA
Shares 6,959,903
Cost $73,370,833
- ---------------------------------------------------------------------------------------------------------------------------------
Market Value: -- -- -- -- 79,969,286 --
- ---------------------------------------------------------------------------------------------------------------------------------
CLASS IB
Shares 6,194
Cost $66,057
- ---------------------------------------------------------------------------------------------------------------------------------
Market Value: -- -- -- -- 71,104 --
- ---------------------------------------------------------------------------------------------------------------------------------
PUTNAM VT INVESTORS FUND
CLASS IA
Shares 11,392,509
Cost $116,633,839
- ---------------------------------------------------------------------------------------------------------------------------------
Market Value: -- -- -- -- -- 132,722,732
- ---------------------------------------------------------------------------------------------------------------------------------
CLASS IB
Shares 213,684
Cost $2,149,684
- ---------------------------------------------------------------------------------------------------------------------------------
Market Value: -- -- -- -- -- 2,487,279
- ---------------------------------------------------------------------------------------------------------------------------------
Due from Hartford Life Insurance
Company 225,602 6,941 289,019 512 -- 638,943
- ---------------------------------------------------------------------------------------------------------------------------------
Receivable from fund shares sold -- 58,888 -- 83,387 35,170 --
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS 79,862,781 562,176,161 173,337,360 182,311,851 80,075,560 135,848,954
- ---------------------------------------------------------------------------------------------------------------------------------
LIABILITIES
Due to Hartford Life Insurance
Company -- 53,922 -- 80,257 35,154 --
- ---------------------------------------------------------------------------------------------------------------------------------
Payable for fund shares purchased 225,088 6,927 287,184 -- -- 638,446
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 225,088 60,849 287,184 80,257 35,154 638,446
- ---------------------------------------------------------------------------------------------------------------------------------
NET ASSETS (VARIABLE ANNUITY
CONTRACT LIABILITIES) $79,637,693 $562,115,312 $173,050,176 $182,231,594 $80,040,406 $135,210,508
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
SA-3 PROSPECTUS
<PAGE>
<TABLE>
<CAPTION>
PUTNAM CAPITAL MANAGER TRUST SEPARATE ACCOUNT TWO -- HARTFORD LIFE AND ANNUITY INSURANCE COMPANY
STATEMENTS OF ASSETS & LIABILITIES (CONTINUED)
- ---------------------------------------------------------------------------------------------------------------------------------
December 31, 1998 Money New New OTC & Research U.S.Government
Market Opportunities Value Emerging Growth Sub-Account and High
Sub-Account Sub-Account Sub-Account Sub-Account Quality Bond
ASSETS Sub-Account
Investments:
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
PUTNAM VT MONEY MARKET FUND
CLASS IA
Shares 273,373,599
Cost $273,373,599
- ---------------------------------------------------------------------------------------------------------------------------------
Market Value: $273,373,599 $ -- $ -- $ -- $ -- $ --
- ---------------------------------------------------------------------------------------------------------------------------------
CLASS IB
Shares 12,656,586
Cost $12,656,586
- ---------------------------------------------------------------------------------------------------------------------------------
Market Value: 12,656,585 -- -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
PUTNAM VT NEW OPPORTUNITIES FUND
CLASS IA
Shares 59,816,632
Cost $992,113,291
- ---------------------------------------------------------------------------------------------------------------------------------
Market Value: -- 1,558,821,427 -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
CLASS IB
Shares 43,318
Cost $936,589
- ---------------------------------------------------------------------------------------------------------------------------------
Market Value: -- 1,128,002 -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
PUTNAM VT NEW VALUE FUND
CLASS IA
Shares 12,887,644
Cost $143,502,659
- ---------------------------------------------------------------------------------------------------------------------------------
Market Value: -- -- 155,038,358 -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
CLASS IB
Shares 18,657
Cost $206,967
- ---------------------------------------------------------------------------------------------------------------------------------
Market Value: -- -- 224,252 -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
PUTNAM VT OTC & EMERGING GROWTH FUND
CLASS IA
Shares 1,653,462
Cost $14,748,695
- ---------------------------------------------------------------------------------------------------------------------------------
Market Value: -- -- -- 16,683,430 -- --
- ---------------------------------------------------------------------------------------------------------------------------------
CLASS IB
Shares 48,916
Cost $415,544
- ---------------------------------------------------------------------------------------------------------------------------------
Market Value: -- -- -- 493,560 -- --
- ---------------------------------------------------------------------------------------------------------------------------------
PUTNAM RESEARCH FUND
CLASS IA
Shares 1,147,289
Cost $12,355,706
- ---------------------------------------------------------------------------------------------------------------------------------
Market Value: -- -- -- -- 13,687,159 --
- ---------------------------------------------------------------------------------------------------------------------------------
CLASS IB
Shares 18,821
Cost $204,746
- ---------------------------------------------------------------------------------------------------------------------------------
Market Value: -- -- -- -- 224,341 --
- ---------------------------------------------------------------------------------------------------------------------------------
PUTNAM VT U.S. GOVERNMENT AND HIGH
QUALITY BOND FUND
CLASS IA
Shares 25,420,057
Cost $336,197,989
- ---------------------------------------------------------------------------------------------------------------------------------
Market Value: -- -- -- -- -- 349,017,376
- ---------------------------------------------------------------------------------------------------------------------------------
CLASS IB
Shares 137,993
Cost $1,873,096
- ---------------------------------------------------------------------------------------------------------------------------------
Market Value: -- -- -- -- -- 1,894,644
- ---------------------------------------------------------------------------------------------------------------------------------
Due from Hartford Life Insurance
Company -- 1,568 -- 41,307 115,842 945,695
- ---------------------------------------------------------------------------------------------------------------------------------
Receivable from fund shares sold 2,035,322 6,807 167,595 20 -- 79
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS 288,065,506 1,559,957,804 155,430,205 17,218,317 14,027,342 351,857,794
- ---------------------------------------------------------------------------------------------------------------------------------
LIABILITIES
Due to Hartford Life Insurance
Company 2,035,119 5,286 167,457 73 -- 62
- ---------------------------------------------------------------------------------------------------------------------------------
Payable for fund shares purchased -- 1,545 -- 41,516 115,821 946,239
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 2,035,119 6,831 167,457 41,589 115,821 946,301
- ---------------------------------------------------------------------------------------------------------------------------------
NET ASSETS (VARIABLE ANNUITY
CONTRACT LIABILITIES) $286,030,387 $1,559,950,973 $155,262,748 $17,176,728 $13,911,521 $350,911,493
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
SA-4 PROSPECTUS
<PAGE>
<TABLE>
<CAPTION>
PUTNAM CAPITAL MANAGER TRUST SEPARATE ACCOUNT TWO -- HARTFORD LIFE AND ANNUITY INSURANCE COMPANY
STATEMENTS OF ASSETS & LIABILITIES (CONTINUED)
- ---------------------------------------------------------------------------------------------------------------------------------
December 31, 1998 Utilities Vista Voyager
Growth Sub-Account Sub-Account
and Income
ASSETS Sub-Account
Investments:
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
PUTNAM VT UTILITIES GROWTH AND
INCOME FUND
CLASS IA
Shares 24,618,304
Cost $320,807,135
- ---------------------------------------------------------------------------------------------------------------------------------
Market Value: $447,806,941 $ -- $ --
- ---------------------------------------------------------------------------------------------------------------------------------
CLASS IB
Shares 89,840
Cost $1,562,625
- ---------------------------------------------------------------------------------------------------------------------------------
Market Value: 1,634,191 -- --
- ---------------------------------------------------------------------------------------------------------------------------------
PUTNAM VT VISTA FUND
CLASS IA
Shares 12,339,530
Cost $146,197,300
- ---------------------------------------------------------------------------------------------------------------------------------
Market Value: -- 181,637,888 --
- ---------------------------------------------------------------------------------------------------------------------------------
CLASS IB
Shares 42,513
Cost $522,139
- ---------------------------------------------------------------------------------------------------------------------------------
Market Value: -- 626,213 --
- ---------------------------------------------------------------------------------------------------------------------------------
PUTNAM VT VOYAGER FUND
CLASS IA
Shares 62,720,082
Cost $1,876,228,270
- ---------------------------------------------------------------------------------------------------------------------------------
Market Value: -- -- 2,875,715,767
- ---------------------------------------------------------------------------------------------------------------------------------
CLASS IB
Shares 63,839
Cost $2,526,164
- ---------------------------------------------------------------------------------------------------------------------------------
Market Value: -- -- 2,924,462
- ---------------------------------------------------------------------------------------------------------------------------------
Due from Hartford Life Insurance
Company 277,116 11,311 431,404
- ---------------------------------------------------------------------------------------------------------------------------------
Receivable from fund shares sold -- 74,875 --
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS 449,718,248 182,350,287 2,879,071,633
- ---------------------------------------------------------------------------------------------------------------------------------
LIABILITIES
Due to Hartford Life Insurance Company -- 74,909 --
- ---------------------------------------------------------------------------------------------------------------------------------
Payable for fund shares purchased 284,203 11,403 426,808
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 284,203 86,312 426,808
- ---------------------------------------------------------------------------------------------------------------------------------
NET ASSETS (VARIABLE ANNUITY
CONTRACT LIABILITIES) $449,434,045 $182,263,975 $2,878,644,825
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
SA-5 PROSPECTUS
<PAGE>
<TABLE>
<CAPTION>
PUTNAM CAPITAL MANAGER TRUST SEPARATE ACCOUNT TWO -- HARTFORD LIFE AND ANNUITY INSURANCE COMPANY
- ---------------------------------------------------------------------------------------------------------------------------------
STATEMENTS OF ASSETS AND LIABILITIES (CONTINUED)
- ---------------------------------------------------------------------------------------------------------------------------------
December 31, 1998 Units Unit Contract
Owned by Price Liability
Participants
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Deferred annuity contracts in the accumulation period:
- ---------------------------------------------------------------------------------------------------------------------------------
Asia Pacific Growth Fund Class IA 6,219,008 $ 8.552078 $ 53,185,441
- ---------------------------------------------------------------------------------------------------------------------------------
Asia Pacific Growth Fund Class IB 9,503 10.544040 100,199
- ---------------------------------------------------------------------------------------------------------------------------------
Diversified Income Fund Class IA 23,713,424 12.488636 296,148,326
- ---------------------------------------------------------------------------------------------------------------------------------
Diversified Income Fund Class IB 119,009 9.483976 1,128,676
- ---------------------------------------------------------------------------------------------------------------------------------
George Putnam Fund Class IA 6,246,649 10.242185 63,979,337
- ---------------------------------------------------------------------------------------------------------------------------------
George Putnam Fund Class IB 178,303 10.397822 1,853,967
- ---------------------------------------------------------------------------------------------------------------------------------
Global Asset Allocation Class IA 16,653,005 30.255566 503,846,085
- ---------------------------------------------------------------------------------------------------------------------------------
Global Asset Allocation Class IB 121,343 10.190632 1,236,558
- ---------------------------------------------------------------------------------------------------------------------------------
Global Growth Fund Class IA 42,487,420 24.939571 1,059,618,022
- ---------------------------------------------------------------------------------------------------------------------------------
Global Growth Fund Class IB 64,555 10.425449 673,010
- ---------------------------------------------------------------------------------------------------------------------------------
Growth and Income Fund Class IA 102,727,427 45.567032 4,680,983,975
- ---------------------------------------------------------------------------------------------------------------------------------
Growth and Income Fund Class IB 644,858 10.443057 6,734,293
- ---------------------------------------------------------------------------------------------------------------------------------
Health Sciences Fund Class IA 7,148,320 10.848771 77,550,485
- ---------------------------------------------------------------------------------------------------------------------------------
Health Sciences Fund Class IB 192,842 10.784889 2,079,778
- ---------------------------------------------------------------------------------------------------------------------------------
High Yield Fund Class IA 23,582,095 23.742124 559,889,015
- ---------------------------------------------------------------------------------------------------------------------------------
High Yield Fund Class IB 183,968 8.895343 1,636,458
- ---------------------------------------------------------------------------------------------------------------------------------
International Growth Fund Class IA 12,814,996 13.402515 171,753,170
- ---------------------------------------------------------------------------------------------------------------------------------
International Growth Fund Class IB 109,559 9.510657 1,041,975
- ---------------------------------------------------------------------------------------------------------------------------------
International Growth and Income Fund Class IA 14,001,923 12.922223 180,935,970
- ---------------------------------------------------------------------------------------------------------------------------------
International Growth and Income Fund Class IB 78,056 9.523514 743,371
- ---------------------------------------------------------------------------------------------------------------------------------
International New Opportunities Fund Class IA 7,123,179 11.225771 79,963,182
- ---------------------------------------------------------------------------------------------------------------------------------
International New Opportunities Fund Class IB 7,437 9.530122 70,874
- ---------------------------------------------------------------------------------------------------------------------------------
Investors Fund Class IA 11,569,190 11.431551 132,253,787
- ---------------------------------------------------------------------------------------------------------------------------------
Investors Fund Class IB 229,527 10.837505 2,487,495
- ---------------------------------------------------------------------------------------------------------------------------------
Money Market Fund Class IA 177,635,093 1.538127 273,225,333
- ---------------------------------------------------------------------------------------------------------------------------------
Money Market Fund Class IB 12,479,981 1.014151 12,656,585
- ---------------------------------------------------------------------------------------------------------------------------------
New Opportunities Fund Class IA 62,748,813 24.804633 1,556,461,288
- ---------------------------------------------------------------------------------------------------------------------------------
New Opportunities Fund Class IB 106,695 10.572464 1,128,025
- ---------------------------------------------------------------------------------------------------------------------------------
New Value Fund Class IA 12,726,607 12.151266 154,644,382
- ---------------------------------------------------------------------------------------------------------------------------------
New Value Fund Class IB 21,769 10.301448 224,249
- ---------------------------------------------------------------------------------------------------------------------------------
OTC & Emerging Fund Class IA 1,671,708 9.979745 16,683,221
- ---------------------------------------------------------------------------------------------------------------------------------
OTC & Emerging Fund Class IB 48,025 10.276087 493,507
- ---------------------------------------------------------------------------------------------------------------------------------
Research Fund Class IA 1,095,266 12.496667 13,687,180
- ---------------------------------------------------------------------------------------------------------------------------------
Research Fund Class IB 17,975 12.480896 224,341
- ---------------------------------------------------------------------------------------------------------------------------------
U.S. Government and High Quality Bond Fund Class IA 16,353,442 21.305270 348,414,599
- ---------------------------------------------------------------------------------------------------------------------------------
U.S. Government and High Quality Bond Fund Class IB 184,000 10.297077 1,894,658
- ---------------------------------------------------------------------------------------------------------------------------------
Utilities Growth and Income Fund Class IA 19,597,995 22.825900 447,341,870
- ---------------------------------------------------------------------------------------------------------------------------------
Utilities Growth and Income Fund Class IB 147,712 11.063684 1,634,241
- ---------------------------------------------------------------------------------------------------------------------------------
Vista Fund Class IA 12,672,159 14.316454 181,420,383
- ---------------------------------------------------------------------------------------------------------------------------------
Vista Fund Class IB 61,101 10.247290 626,121
- ---------------------------------------------------------------------------------------------------------------------------------
Voyager Fund Class IA 51,741,607 55.426380 2,867,849,956
- ---------------------------------------------------------------------------------------------------------------------------------
Voyager Fund Class IB 272,289 10.741598 2,924,820
- ---------------------------------------------------------------------------------------------------------------------------------
Sub-total 13,761,428,208
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
SA-6 PROSPECTUS
<PAGE>
<TABLE>
<CAPTION>
PUTNAM CAPITAL MANAGER TRUST SEPARATE ACCOUNT TWO -- HARTFORD LIFE AND ANNUITY INSURANCE COMPANY
- ---------------------------------------------------------------------------------------------------------------------------------
STATEMENTS OF ASSETS AND LIABILITIES (CONTINUED)
- ---------------------------------------------------------------------------------------------------------------------------------
December 31, 1998 Units Unit Contract
Owned by Price Liability
Participants
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------------
Annuity contracts in the annuity period:
- ---------------------------------------------------------------------------------------------------------------------------------
Asia Pacific Growth Fund Class IA 3,292 $ 8.552078 $ 28,151
- ---------------------------------------------------------------------------------------------------------------------------------
Diversified Income Fund Class IA 25,294 12.488636 315,894
- ---------------------------------------------------------------------------------------------------------------------------------
George Putnam Fund Class IA 1,492 10.242185 15,281
- ---------------------------------------------------------------------------------------------------------------------------------
Global Asset Allocation Class IA 21,191 30.255566 641,149
- ---------------------------------------------------------------------------------------------------------------------------------
Global Growth Fund Class IA 126,172 24.939571 3,146,682
- ---------------------------------------------------------------------------------------------------------------------------------
Growth and Income Fund Class IA 224,279 45.567032 10,219,734
- ---------------------------------------------------------------------------------------------------------------------------------
Health Sciences Fund Class IA 685 10.848771 7,430
- ---------------------------------------------------------------------------------------------------------------------------------
High Yield Fund Class IA 24,844 23.742124 589,839
- ---------------------------------------------------------------------------------------------------------------------------------
International Growth Fund Class IA 19,029 13.402515 255,031
- ---------------------------------------------------------------------------------------------------------------------------------
International Growth and Income Fund Class IA 42,737 12.922223 552,253
- ---------------------------------------------------------------------------------------------------------------------------------
International New Opportunities Fund Class IA 566 11.225771 6,350
- ---------------------------------------------------------------------------------------------------------------------------------
Investors Fund Class IA 41,047 11.431551 469,226
- ---------------------------------------------------------------------------------------------------------------------------------
Money Market Fund Class IA 96,526 1.538127 148,469
- ---------------------------------------------------------------------------------------------------------------------------------
New Opportunities Fund Class IA 95,210 24.804633 2,361,660
- ---------------------------------------------------------------------------------------------------------------------------------
New Value Fund Class IA 32,434 12.151266 394,117
- ---------------------------------------------------------------------------------------------------------------------------------
U.S. Government and High Quality Bond Fund Class IA 28,267 21.305270 602,236
- ---------------------------------------------------------------------------------------------------------------------------------
Utilities Growth and Income Fund Class IA 20,062 22.825900 457,934
- ---------------------------------------------------------------------------------------------------------------------------------
Vista Fund Class IA 15,190 14.316454 217,471
- ---------------------------------------------------------------------------------------------------------------------------------
Voyager Fund Class IA 141,991 55.426380 7,870,049
- ---------------------------------------------------------------------------------------------------------------------------------
Sub-total: 28,298,956
- ---------------------------------------------------------------------------------------------------------------------------------
GRAND TOTAL: $13,789,727,164
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
SA-7 PROSPECTUS
<PAGE>
<TABLE>
<CAPTION>
PUTNAM CAPITAL MANAGER TRUST SEPARATE ACCOUNT TWO -- HARTFORD LIFE AND ANNUITY INSURANCE COMPANY
STATEMENTS OF OPERATIONS
- ------------------------------------------------------------------------------------------------------------------------------------
For the Year Ended Asia Pacific Diversified The Global Asset Global Growth Health
December 31, 1998 Growth Income George Putnam Allocation Growth and Income Science Fund
Sub-Account Sub-Account Fund of Boston Sub-Account Sub-Account Sub-Account Sub-Account*
Sub-Account*
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends $ 2,790,742 $ 11,792,328 $ 530,716 $ 10,393,787 $ 23,916,125 $ 68,860,353 $ 68,282
- ------------------------------------------------------------------------------------------------------------------------------------
EXPENSES:
Mortality and expense
undertakings (806,888) (4,018,646) (240,323) (6,736,188) (13,255,293) (59,271,918) (334,254)
- ------------------------------------------------------------------------------------------------------------------------------------
Capital gains income -- 5,008,700 -- 44,644,942 119,580,624 449,520,386 --
- ------------------------------------------------------------------------------------------------------------------------------------
NET REALIZED AND
UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized gain (loss)
on security transactions (2,643,384) (10,560) (77) (1,101,556) (2,048,000) (2,692,306) (40,455)
- ------------------------------------------------------------------------------------------------------------------------------------
Net unrealized appreciation
(depreciation) of investments
during the period (4,019,185) (21,217,526) 2,842,929 5,910,330 103,901,524 87,694,015 7,606,308
- ------------------------------------------------------------------------------------------------------------------------------------
Net gain (loss) on investments (6,662,569) (21,228,086) 2,842,852 4,808,774 101,853,524 85,001,709 7,565,853
- ------------------------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE)
IN NET ASSETS RESULTING
FROM OPERATIONS $(4,678,715) $ (8,445,704) $3,133,245 $53,111,315 $232,094,980 $544,110,530 $7,299,881
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
*From inception, April 30, 1998, to December 31, 1998.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
SA-8 PROSPECTUS
<PAGE>
<TABLE>
<CAPTION>
PUTNAM CAPITAL MANAGER TRUST SEPARATE ACCOUNT TWO -- HARTFORD LIFE AND ANNUITY INSURANCE COMPANY
STATEMENTS OF OPERATIONS (CONTINUED)
- ------------------------------------------------------------------------------------------------------------------------------------
For the Year Ended High Yield International International International Investors Money New
December 31, 1998 Sub-Account Growth Growth New Sub-Account* Market Opportunities
Sub-Account and Income Opportunities Sub-Account Sub-Account
Sub-Account Sub-Account
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends $ 45,592,119 $ 580,162 $ 2,337,743 $ 137,187 $ 160,987 $11,677,659 $ --
- ------------------------------------------------------------------------------------------------------------------------------------
EXPENSES:
Mortality and expense
undertakings (8,201,543) (1,795,827) (2,213,903) (1,022,200) (490,875) (3,234,132) (18,820,230)
- ------------------------------------------------------------------------------------------------------------------------------------
Capital gains income 7,154,195 -- 6,025,944 -- -- -- 18,663,729
- ------------------------------------------------------------------------------------------------------------------------------------
NET REALIZED AND
UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized gain (loss)
on security transactions (441,473) 925,343 1,131,061 643,101 9,797 -- (5,582,249)
- ------------------------------------------------------------------------------------------------------------------------------------
Net unrealized appreciation
(depreciation) of investments
during the period (87,363,215) 16,747,707 4,828,897 10,000,358 16,426,490 -- 284,218,314
- ------------------------------------------------------------------------------------------------------------------------------------
Net gain (loss) on investments (87,804,688) 17,673,050 5,959,958 10,643,459 16,436,287 -- 278,636,065
- ------------------------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE)
IN NET ASSETS RESULTING
FROM OPERATIONS $(43,259,917) $16,457,385 $12,109,742 $ 9,758,446 $16,106,399 $ 8,443,527 $278,479,564
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
*From inception, April 30, 1998, to December 31, 1998.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
SA-9 PROSPECTUS
<PAGE>
<TABLE>
<CAPTION>
PUTNAM CAPITAL MANAGER TRUST SEPARATE ACCOUNT TWO -- HARTFORD LIFE AND ANNUITY INSURANCE COMPANY
STATEMENTS OF OPERATIONS (CONTINUED)
- ------------------------------------------------------------------------------------------------------------------------------------
For the Year Ended New OTC & Research U.S.Government Utilities Vista Voyager
December 31, 1998 Value Emerging Growth Sub-Account** and High Growth Sub-Account Sub-Account
Sub-Account Sub-Account* Quality Bond and Income
Sub-Account Sub-Account
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends $ 2,744,638 $ 6,377 $ 19,993 $13,027,436 $10,871,792 $ -- $ 5,723,028
- ------------------------------------------------------------------------------------------------------------------------------------
EXPENSES:
Mortality and expense
undertakings (1,965,660) (69,884) (24,098) (3,919,589) (5,415,814) (1,899,386) (34,285,802)
- ------------------------------------------------------------------------------------------------------------------------------------
Capital gains income 2,710,447 -- 1,054 339,070 18,737,853 -- 139,641,873
- ------------------------------------------------------------------------------------------------------------------------------------
NET REALIZED AND
UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized gain (loss)
on security transactions (77,945) (5,586) (25) (333) (18,444) (244,730) (6,215,151)
- ------------------------------------------------------------------------------------------------------------------------------------
Net unrealized appreciation
(depreciation) of investments
during the period 3,462,804 2,012,751 1,351,047 8,314,527 26,881,495 24,961,915 407,773,124
- ------------------------------------------------------------------------------------------------------------------------------------
Net gain (loss) on investments 3,384,859 2,007,165 1,351,022 8,314,194 26,863,051 24,717,185 401,557,973
- ------------------------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE)
IN NET ASSETS RESULTING
FROM OPERATIONS $ 6,874,284 $1,943,658 $1,347,971 $17,761,111 $51,056,882 $22,817,799 $512,637,072
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
*From inception, April 30, 1998, to December 31, 1998.
**From inception, October 1, 1998, to December 31, 1998.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
SA-10 PROSPECTUS
<PAGE>
<TABLE>
<CAPTION>
PUTNAM CAPITAL MANAGER TRUST SEPARATE ACCOUNT TWO -- HARTFORD LIFE AND ANNUITY INSURANCE COMPANY
STATEMENTS OF CHANGES IN NET ASSETS
- ------------------------------------------------------------------------------------------------------------------------------------
For the Year Ended Asia Pacific Diversified The Global Asset Global Growth Health
December 31, 1998 Growth Income George Putnam Allocation Growth and Income Sciences
Sub-Account Sub-Account Fund of Boston Sub-Account Sub-Account Sub-Account Sub-Account*
Sub-Account*
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment income
(loss) $ 1,983,854 $ 7,773,682 $ 290,393 $ 3,657,599 $ 10,660,832 $ 9,588,435 $ (265,972)
- ------------------------------------------------------------------------------------------------------------------------------------
Capital gains income -- 5,008,700 -- 44,644,942 119,580,624 449,520,386 --
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized gain (loss)
on security transactions (2,643,384) (10,560) (77) (1,101,556) (2,048,000) (2,692,306) (40,455)
- ------------------------------------------------------------------------------------------------------------------------------------
Net unrealized appreciation
(depreciation) of
investments during the
period (4,019,185) (21,217,526) 2,842,929 5,910,330 103,901,524 87,694,015 7,606,308
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease)
in net assets resulting
from operations (4,678,715) (8,445,704) 3,133,245 53,111,315 232,094,980 544,110,530 7,299,881
- ------------------------------------------------------------------------------------------------------------------------------------
UNIT TRANSACTIONS:
Purchases 3,701,343 33,956,636 22,958,516 24,919,757 40,146,277 391,563,606 26,776,582
- ------------------------------------------------------------------------------------------------------------------------------------
Net transfers (11,415,291) 17,449,089 40,402,664 (3,015,745) (16,693,380) 178,476,225 46,345,740
- ------------------------------------------------------------------------------------------------------------------------------------
Surrenders (2,634,973) (15,560,109) (660,976) (20,755,078) (42,527,743) (203,033,706) (791,265)
- ------------------------------------------------------------------------------------------------------------------------------------
Net annuity transactions 7,452 108,092 15,136 38,867 780,680 3,076,200 6,755
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease)
in net assets resulting
from unit transactions (10,341,469) 35,953,708 62,715,340 1,187,801 (18,294,166) 370,082,325 72,337,812
- ------------------------------------------------------------------------------------------------------------------------------------
Total increase (decrease)
in net assets (15,020,184) 27,508,004 65,848,585 54,299,116 213,800,814 914,192,855 79,637,693
- ------------------------------------------------------------------------------------------------------------------------------------
NET ASSETS
Beginning of period 68,333,975 270,084,892 -- 451,424,676 849,636,900 3,783,745,147 --
- ------------------------------------------------------------------------------------------------------------------------------------
END OF PERIOD $ 53,313,791 $297,592,896 $65,848,585 $505,723,792 $1,063,437,714 $4,697,938,002 $79,637,693
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
*From inception, April 30, 1998, to December 31, 1998.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
SA-11 PROSPECTUS
<PAGE>
<TABLE>
<CAPTION>
PUTNAM CAPITAL MANAGER TRUST SEPARATE ACCOUNT TWO -- HARTFORD LIFE AND ANNUITY INSURANCE COMPANY
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
- ------------------------------------------------------------------------------------------------------------------------------------
For the Year Ended High Yield International International International Investors Money New
December 31, 1998 Sub-Account Growth Growth New Sub-Account* Market Opportunities
Sub-Account and Income Opportunities Sub-Account Sub-Account
Sub-Account Sub-Account
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment income
(loss) $ 37,390,576 $ (1,215,665) $ 123,840 $ (885,013) $ (329,888) $ 8,443,527 $ (18,820,230)
- ------------------------------------------------------------------------------------------------------------------------------------
Capital gains income 7,154,195 -- 6,025,944 -- -- -- 18,663,729
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized gain (loss)
on security transactions (441,473) 925,343 1,131,061 643,101 9,797 -- (5,582,249)
- ------------------------------------------------------------------------------------------------------------------------------------
Net unrealized appreciation
(depreciation) of
investments during the
period (87,363,215) 16,747,707 4,828,897 10,000,358 16,426,490 -- 284,218,314
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease)
in net assets resulting
from operations (43,259,917) 16,457,385 12,109,742 9,758,446 16,106,399 8,443,527 278,479,564
- ------------------------------------------------------------------------------------------------------------------------------------
UNIT TRANSACTIONS:
Purchases 72,624,888 33,867,169 28,578,698 8,986,296 36,748,793 69,440,184 100,408,112
- ------------------------------------------------------------------------------------------------------------------------------------
Net transfers 12,770,669 46,801,653 30,062,010 22 83,171,689 84,802,844 18,404,946
- ------------------------------------------------------------------------------------------------------------------------------------
Surrenders (33,136,210) (3,887,820) (5,364,128) (2,835,620) (1,228,854) (57,809,657) (50,246,741)
- ------------------------------------------------------------------------------------------------------------------------------------
Net annuity transactions 51,619 185,497 110,000 5,654 412,481 105,102 103,931
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease)
in net assets resulting
from unit transactions 52,310,966 76,966,499 53,386,580 6,156,352 119,104,109 96,538,473 68,670,248
- ------------------------------------------------------------------------------------------------------------------------------------
Total increase (decrease)
in net assets 9,051,049 93,423,884 65,496,322 15,914,798 135,210,508 104,982,000 347,149,812
- ------------------------------------------------------------------------------------------------------------------------------------
NET ASSETS
Beginning of period 553,064,263 79,626,292 116,735,272 64,125,608 -- 181,048,387 1,212,801,161
- ------------------------------------------------------------------------------------------------------------------------------------
END OF PERIOD $562,115,312 $173,050,176 $182,231,594 $80,040,406 $135,210,508 $286,030,387 $1,559,950,973
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
*From inception, April 30, 1998, to December 31, 1998.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
SA-12 PROSPECTUS
<PAGE>
<TABLE>
<CAPTION>
PUTNAM CAPITAL MANAGER TRUST SEPARATE ACCOUNT TWO -- HARTFORD LIFE AND ANNUITY INSURANCE COMPANY
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
- ------------------------------------------------------------------------------------------------------------------------------------
For the Year Ended New OTC & Research U.S.Government Utilities Vista Voyager
December 31, 1998 Value Emerging Growth Sub-Account** and High Growth Sub-Account Sub-Account
Sub-Account Sub-Account* Quality Bond and Income
Sub-Account Sub-Account
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment income
(loss) $ 778,978 $ (63,507) $ (4,105) $ 9,107,847 $ 5,455,978 $ (1,899,386) $ (28,562,774)
- ------------------------------------------------------------------------------------------------------------------------------------
Capital gains income 2,710,447 -- 1,054 339,070 18,737,853 -- 139,641,873
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized gain (loss)
on security transactions (77,945) (5,586) (25) (333) (18,444) (244,730) (6,215,151)
- ------------------------------------------------------------------------------------------------------------------------------------
Net unrealized
appreciation
(depreciation) of
investments during the
period 3,462,804 2,012,751 1,351,047 8,314,527 26,881,495 24,961,915 407,773,124
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease)
in net assets resulting
from operations 6,874,284 1,943,658 1,347,971 17,761,111 51,056,882 22,817,799 512,637,072
- ------------------------------------------------------------------------------------------------------------------------------------
UNIT TRANSACTIONS:
Purchases 24,038,360 4,950,556 1,647,789 37,202,879 35,162,888 35,890,384 199,996,300
- ------------------------------------------------------------------------------------------------------------------------------------
Net transfers 11,223,213 10,400,668 10,968,597 83,756,988 29,486,383 30,156,192 84,727,443
- ------------------------------------------------------------------------------------------------------------------------------------
Surrenders (5,866,336) (118,154) (52,836) (21,228,886) (20,582,321) (4,767,016) (106,034,590)
- ------------------------------------------------------------------------------------------------------------------------------------
Net annuity transactions 42,793 -- -- 379,477 138,914 171,740 1,865,032
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease)
in net assets resulting
from unit transactions 29,438,030 15,233,070 12,563,550 100,110,458 44,205,864 61,451,300 180,554,185
- ------------------------------------------------------------------------------------------------------------------------------------
Total increase (decrease)
in net assets 36,312,314 17,176,728 13,911,521 117,871,569 95,262,746 84,269,099 693,191,257
- ------------------------------------------------------------------------------------------------------------------------------------
NET ASSETS
Beginning of period 118,950,434 -- -- 233,039,924 354,171,299 97,994,876 2,185,453,568
- ------------------------------------------------------------------------------------------------------------------------------------
END OF PERIOD $155,262,748 $17,176,728 $13,911,521 $350,911,493 $449,434,045 $182,263,975 $2,878,644,825
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
*From inception, April 30, 1998, to December 31, 1998.
**From inception, October 1, 1998, to December 31, 1998.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
SA-13 PROSPECTUS
<PAGE>
<TABLE>
<CAPTION>
PUTNAM CAPITAL MANAGER TRUST SEPARATE ACCOUNT TWO -- HARTFORD LIFE AND ANNUITY INSURANCE COMPANY
STATEMENTS OF CHANGES IN NET ASSETS
- ----------------------------------------------------------------------------------------------------------------------------
For the Year Ended Asia Pacific Diversified Global Asset Global Growth High Yield
December 31, 1997 Growth Income Allocation Growth and Income Sub-Account
Sub-Account Sub-Account Sub-Account Sub-Account Sub-Account
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment income
(loss) $ 459,948 $ 9,555,318 $ 6,371,232 $ 6,003,571 $ 11,159,629 $ 23,677,407
- ----------------------------------------------------------------------------------------------------------------------------
Capital gains income -- 2,048,961 20,499,937 18,664,210 135,341,577 3,515,165
- ----------------------------------------------------------------------------------------------------------------------------
Net realized gain (loss)
on security transactions 381,797 4,201 42,533 (70,313) (14,039) (4,814)
- ----------------------------------------------------------------------------------------------------------------------------
Net unrealized appreciation
(depreciation) of investments
during the period (13,132,923) 2,897,636 36,929,311 66,628,239 464,399,235 30,275,390
- ----------------------------------------------------------------------------------------------------------------------------
Net increase (decrease)
in net assets resulting
from operations (12,291,178) 14,506,116 63,843,013 91,225,707 610,886,402 57,463,148
- ----------------------------------------------------------------------------------------------------------------------------
UNIT TRANSACTIONS:
Purchases 15,296,904 55,905,675 53,215,802 94,655,178 653,735,175 119,907,763
- ----------------------------------------------------------------------------------------------------------------------------
Net transfers (8,269,677) (9,769,014) 23,676,122 8,639,167 243,532,477 11,079,099
- ----------------------------------------------------------------------------------------------------------------------------
Surrenders (2,530,242) (12,309,013) (18,260,579) (29,632,010) (121,451,891) (22,220,046)
- ----------------------------------------------------------------------------------------------------------------------------
Net annuity transactions 8,025 146,954 145,121 886,113 3,412,370 452,320
- ----------------------------------------------------------------------------------------------------------------------------
Net increase (decrease)
in net assets resulting
from unit transactions 4,505,010 33,974,602 58,776,466 74,548,448 779,228,131 109,219,136
- ----------------------------------------------------------------------------------------------------------------------------
Total increase (decrease)
in net assets (7,786,168) 48,480,718 122,619,479 165,774,155 1,390,114,533 166,682,284
- ----------------------------------------------------------------------------------------------------------------------------
NET ASSETS:
Beginning of period 76,120,143 221,604,174 328,805,196 683,862,745 2,393,630,614 386,381,979
- ----------------------------------------------------------------------------------------------------------------------------
END OF PERIOD $ 68,333,975 $270,084,892 $451,424,675 $849,636,900 $3,783,745,147 $553,064,263
- ----------------------------------------------------------------------------------------------------------------------------
<CAPTION>
- ---------------------------------------------------------------
For the Year Ended International International
December 31, 1997 Growth Growth
Sub-Account* and Income
Sub-Account*
- ---------------------------------------------------------------
<S> <C> <C>
OPERATIONS:
Net investment income
(loss) $ 647,298 $ 3,014,762
- ---------------------------------------------------------------
Capital gains income -- --
- ---------------------------------------------------------------
Net realized gain (loss)
on security transactions 112,426 254,024
- ---------------------------------------------------------------
Net unrealized appreciation
(depreciation) of investments
during the period 1,650,451 3,167,015
- ---------------------------------------------------------------
Net increase (decrease)
in net assets resulting
from operations 2,410,175 6,435,801
- ---------------------------------------------------------------
UNIT TRANSACTIONS:
Purchases 42,465,632 60,593,915
- ---------------------------------------------------------------
Net transfers 35,605,842 50,937,686
- ---------------------------------------------------------------
Surrenders (916,342) (1,623,364)
- ---------------------------------------------------------------
Net annuity transactions 60,985 391,234
- ---------------------------------------------------------------
Net increase (decrease)
in net assets resulting
from unit transactions 77,216,117 110,299,471
- ---------------------------------------------------------------
Total increase (decrease)
in net assets 79,626,292 116,735,272
- ---------------------------------------------------------------
NET ASSETS:
Beginning of period -- --
- ---------------------------------------------------------------
END OF PERIOD $79,626,292 $116,735,272
- ---------------------------------------------------------------
</TABLE>
*From inception, January 2, 1997 to December 31, 1997.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
SA-14 PROSPECTUS
<PAGE>
<TABLE>
<CAPTION>
PUTNAM CAPITAL MANAGER TRUST SEPARATE ACCOUNT TWO -- HARTFORD LIFE AND ANNUITY INSURANCE COMPANY
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
- -----------------------------------------------------------------------------------------------------------------------------------
For the Year Ended International Money New New U.S. Government Utilities
December 31, 1997 New Market Opportunities Value and High Growth
Opportunities Sub-Account Sub-Account Sub-Account* Quality Bond and Income
Sub-Account* Sub-Account Sub-Account
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment income (loss) $ (428,750) $ 7,935,793 $ (14,288,485) $ (930,950) $ 10,317,213 $ 6,148,884
- -----------------------------------------------------------------------------------------------------------------------------------
Capital gains income -- -- -- -- -- 14,052,925
- -----------------------------------------------------------------------------------------------------------------------------------
Net realized gain (loss)
on security transactions 93,448 -- (674,928) (53,025) 92,811 316,145
- -----------------------------------------------------------------------------------------------------------------------------------
Net unrealized appreciation
(depreciation) of investments
during the period (3,396,856) -- 216,776,192 8,090,180 4,496,793 50,135,725
- -----------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease)
in net assets resulting
from operations (3,732,158) 7,935,793 201,812,779 7,106,205 14,906,817 70,653,679
- -----------------------------------------------------------------------------------------------------------------------------------
UNIT TRANSACTIONS:
Purchases 35,294,318 159,829,719 173,232,758 55,890,696 30,608,860 30,748,249
- -----------------------------------------------------------------------------------------------------------------------------------
Net transfers 33,818,005 (163,808,043) 23,002,452 58,041,788 (7,633,402) (8,439,229)
- -----------------------------------------------------------------------------------------------------------------------------------
Surrenders (1,254,557) (33,923,982) (34,774,552) (2,436,634) (12,023,717) (12,334,942)
- -----------------------------------------------------------------------------------------------------------------------------------
Net annuity transactions -- (59,424) 525,040 348,379 87,519 116,058
- -----------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease)
in net assets resulting
from unit transactions 67,857,766 (37,961,730) 161,985,698 111,844,229 11,039,260 10,090,136
- -----------------------------------------------------------------------------------------------------------------------------------
Total increase (decrease)
in net assets 64,125,608 (30,025,937) 363,798,477 118,950,434 25,946,077 80,743,815
- -----------------------------------------------------------------------------------------------------------------------------------
NET ASSETS:
Beginning of period -- 211,074,324 849,002,685 -- 207,093,847 273,427,484
- -----------------------------------------------------------------------------------------------------------------------------------
END OF PERIOD $64,125,608 $ 181,048,387 $1,212,801,162 $118,950,434 $233,039,924 $354,171,299
- -----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
- -------------------------------------------------------------------
For the Year Ended Vista Voyager
December 31, 1997 Sub-Account* Sub-Account
- -------------------------------------------------------------------
<S> <C> <C>
OPERATIONS:
Net investment income (loss) $ (718,048) $ (22,244,283)
- -------------------------------------------------------------------
Capital gains income -- 71,707,177
- -------------------------------------------------------------------
Net realized gain (loss)
on security transactions (41,487) (808,610)
- -------------------------------------------------------------------
Net unrealized appreciation
(depreciation) of investments
during the period 10,582,747 357,032,488
- -------------------------------------------------------------------
Net increase (decrease)
in net assets resulting
from operations 9,823,212 405,686,772
- -------------------------------------------------------------------
UNIT TRANSACTIONS:
Purchases 48,980,888 288,568,056
- -------------------------------------------------------------------
Net transfers 40,279,408 63,585,706
- -------------------------------------------------------------------
Surrenders (1,114,398) (65,966,528)
- -------------------------------------------------------------------
Net annuity transactions 25,767 1,321,830
- -------------------------------------------------------------------
Net increase (decrease)
in net assets resulting
from unit transactions 88,171,665 287,509,064
- -------------------------------------------------------------------
Total increase (decrease)
in net assets 97,994,877 693,195,836
- -------------------------------------------------------------------
NET ASSETS:
Beginning of period -- 1,492,257,732
- -------------------------------------------------------------------
END OF PERIOD $97,994,877 $2,185,453,568
- -------------------------------------------------------------------
</TABLE>
*From inception, January 2, 1997 to December 31, 1997.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
SA-15 PROSPECTUS
<PAGE>
PUTNAM CAPITAL MANAGER TRUST SEPARATE ACCOUNT TWO -- HARTFORD LIFE AND
ANNUITY INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
December 31, 1998
1. ORGANIZATION:
Putnam Capital Manager Trust Separate Account Two (the Account) is a separate
investment account within 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
is 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 investments in shares of the Funds are valued at
the closing net asset value per share as determined by the appropriate Fund
as of December 31, 1998.
C) FEDERAL INCOME TAXES -- The operations of the Account form a part of, and
are taxed with, the total operations of the Company, which is taxed as an
insurance company under the Internal Revenue Code. Under current law, no
federal income taxes are payable with respect to the operations of the
Account.
D) USE OF ESTIMATES -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities as of the date of the financial statements and the reported
amounts of income and expenses during the period. Operating results in the
future could vary from the amounts derived from management's estimates.
SA-16 PROSPECTUS
<PAGE>
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 1.50% 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. These
expenses are reflected in surrenders on the accompanying statements of
changes in net assets.
SA-17 PROSPECTUS
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Board of Directors of
Hartford Life and Annuity Insurance Company:
We have audited the accompanying statutory balance sheets of Hartford Life and
Annuity Insurance Company (a Connecticut Corporation and wholly owned subsidiary
of Hartford Life Insurance Company) (the Company) as of December 31, 1998 and
1997, and the related statutory statements of operations, changes in capital and
surplus, and cash flows for each of the three years in the period ended December
31, 1998. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these statutory
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
The Company presents its financial statements in conformity with statutory
accounting practices as described in Note 1 of notes to statutory financial
statements. When statutory financial statements are presented for purposes other
than for filing with a regulatory agency, generally accepted auditing standards
require that an auditors' report on them state whether they are presented in
conformity with generally accepted accounting principles. The accounting
practices used by the Company vary from generally accepted accounting principles
as explained and quantified in Note 1.
In our opinion, because of the effects of the matter discussed in the preceding
paragraph, the statutory financial statements referred to above do not present
fairly, in conformity with generally accepted accounting principles, the
financial position of the Company as of December 31, 1998 and 1997, and the
results of its operations and its cash flows for each of the three years in the
period ended December 31, 1998.
However, in our opinion, the statutory financial statements referred to above
present fairly, in all material respects, the financial position of the Company
as of December 31, 1998 and 1997, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1998 in
conformity with statutory accounting practices as described in Note 1.
ARTHUR ANDERSEN LLP
Hartford, Connecticut
January 26, 1999
F-1 PROSPECTUS
<PAGE>
HARTFORD LIFE AND ANNUITY INSURANCE COMPANY
BALANCE SHEETS
(STATUTORY BASIS)
($000)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
-------------------------
1998 1997
----------- -----------
<S> <C> <C>
Assets
Bonds........................................... $ 1,453,792 $ 1,501,311
Common stocks................................... 40,650 64,408
Mortgage loans.................................. 59,548 85,103
Policy loans.................................... 47,212 36,533
Cash and short-term investments................. 469,955 309,432
Other invested assets........................... 2,188 20,942
----------- -----------
Total cash and invested assets................ 2,073,345 2,017,729
Investment income due and accrued............... 20,126 15,878
Premium balances receivable..................... 333 389
Receivables from affiliates..................... -- 1,269
Other assets.................................... 45,358 22,788
Separate account assets......................... 32,876,278 23,208,728
----------- -----------
Total Assets.................................. $35,015,440 $25,266,781
----------- -----------
----------- -----------
Liabilities
Aggregate reserves for future benefits.......... $ 579,140 $ 605,183
Policy and contract claims...................... 5,667 5,672
Liability for premium and other deposit funds... 2,011,672 1,795,149
Asset valuation reserve......................... 21,782 13,670
Payable to affiliates........................... 19,271 20,972
Other liabilities............................... (974,882) (754,393)
Separate account liabilities.................... 32,876,278 23,208,728
----------- -----------
Total liabilities............................. 34,538,928 24,894,981
----------- -----------
Capital and Surplus
Common stock.................................... 2,500 2,500
Gross paid-in and contributed surplus........... 226,043 226,043
Unassigned funds................................ 247,969 143,257
----------- -----------
Total capital and surplus..................... 476,512 371,800
----------- -----------
Total liabilities, capital and surplus............ $35,015,440 $25,266,781
----------- -----------
----------- -----------
</TABLE>
The accompanying notes are an integral part of these statutory basis financial
statements.
F-2 PROSPECTUS
<PAGE>
HARTFORD LIFE AND ANNUITY INSURANCE COMPANY
STATEMENTS OF OPERATIONS
(STATUTORY BASIS)
($000)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
---------------------------------------
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Revenues
Premiums and annuity considerations............. $ 469,343 $ 296,645 $ 250,244
Annuity and other fund deposits................. 2,051,251 1,981,246 1,897,347
Net investment income........................... 129,982 102,285 98,441
Commissions and expense allowances on
reinsurance ceded.............................. 444,241 396,921 370,637
Reserve adjustment on reinsurance ceded......... 3,185,590 3,672,076 3,864,395
Other revenues.................................. 458,190 288,632 161,906
----------- ----------- -----------
Total revenues................................ 6,738,597 6,737,805 6,642,970
----------- ----------- -----------
Benefits and expenses
Death and annuity benefits...................... 43,390 66,176 60,194
Disability and other benefit payments........... 6,114 7,316 6,555
Surrenders...................................... 739,663 454,417 270,165
Commissions and other expenses.................. 666,515 564,077 491,637
Increase (Decrease) in aggregate reserves for
future benefits................................ (26,043) 33,213 27,351
Increase in liability for premium and other
deposit funds.................................. 216,523 640,006 207,156
Net transfers to separate accounts.............. 4,956,007 4,914,980 5,492,964
----------- ----------- -----------
Total benefits and expenses................... 6,602,169 6,680,185 6,556,022
----------- ----------- -----------
Net gain from operations
Before federal income tax (benefit) expense..... 136,428 57,620 86,948
Federal income tax (benefit) expense............ 35,887 (14,878) 19,360
----------- ----------- -----------
Net gain from operations.......................... 100,541 72,498 67,588
Net realized capital gains, after tax........... 2,085 1,544 407
----------- ----------- -----------
Net income........................................ $ 102,626 $ 74,042 $ 67,995
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of these statutory basis financial
statements.
F-3 PROSPECTUS
<PAGE>
Hartford Life and Annuity Insurance Company
STATEMENTS OF CHANGES IN CAPITAL AND SURPLUS
(STATUTORY BASIS)
($000)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
---------------------------------------
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Common stock,
Beginning and end of year....................... $ 2,500 $ 2,500 $ 2,500
----------- ----------- -----------
Gross paid-in and contributed surplus,
Beginning and end of year....................... $ 226,043 $ 226,043 $ 226,043
----------- ----------- -----------
Unassigned funds
Balance, beginning of year...................... $ 143,257 $ 74,570 $ 9,791
Net income...................................... 102,626 74,042 67,995
Change in net unrealized capital gains (losses)
on common stocks and other invested assets..... 1,688 2,186 (5,171)
Change in asset valuation reserve............... (8,112) (6,228) 568
Change in non-admitted assets................... (1,277) (1,313) 1,387
Credit on reinsurance ceded..................... 9,787 -- --
----------- ----------- -----------
Balance, end of year............................ $ 247,969 $ 143,257 $ 74,570
----------- ----------- -----------
Capital and surplus,
End of year..................................... $ 476,512 $ 371,800 $ 303,113
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of these statutory basis financial
statements.
F-4 PROSPECTUS
<PAGE>
HARTFORD LIFE AND ANNUITY INSURANCE COMPANY
STATEMENTS OF CASH FLOWS
(STATUTORY BASIS)
($000)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
---------------------------------------
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Operations
Premiums and annuity considerations............. $ 2,520,655 $ 2,277,874 $ 2,147,627
Investment income............................... 127,425 101,991 106,178
Other income.................................... 4,092,964 4,381,718 4,396,892
----------- ----------- -----------
Total income.................................. 6,741,044 6,761,583 6,650,697
----------- ----------- -----------
Benefits paid................................... 790,051 529,733 338,998
Federal income taxes (received) paid on
operations..................................... 25,780 (14,499) 28,857
Other expenses.................................. 5,859,063 5,754,725 6,254,139
----------- ----------- -----------
Total benefits and expenses................... 6,674,894 6,269,959 6,621,994
----------- ----------- -----------
Net cash from operations...................... 66,150 491,624 28,703
----------- ----------- -----------
Proceeds from investments
Bonds........................................... 633,926 614,413 871,019
Common stocks................................... 34,010 11,481 72,100
Mortgage loans.................................. 85,275 -- --
Other........................................... 127 152 10
----------- ----------- -----------
Net investment proceeds....................... 753,338 626,046 943,129
----------- ----------- -----------
Taxes paid on capital gains..................... -- -- 936
Other cash provided............................. 1,269 -- 41,998
----------- ----------- -----------
Total proceeds................................ 820,757 1,117,670 1,012,894
----------- ----------- -----------
Cost of investments acquired
Bonds........................................... 586,913 848,267 914,523
Common stocks................................... 7,012 28,302 82,495
Mortgage loans.................................. 59,702 85,103 --
Other........................................... 1,168 18,548 130
----------- ----------- -----------
Total investments acquired.................... 654,795 980,220 997,148
----------- ----------- -----------
Other cash applied
Other........................................... 5,439 4,848 12,220
----------- ----------- -----------
Total other cash applied...................... 5,439 4,848 12,220
----------- ----------- -----------
Total applications............................ 660,234 985,068 1,009,368
----------- ----------- -----------
Net change in cash and short-term investments..... 160,523 132,602 3,526
Cash and short-term investments, beginning of
year............................................. 309,432 176,830 173,304
----------- ----------- -----------
Cash and short-term investments, end of year...... $ 469,955 $ 309,432 $ 176,830
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of these statutory basis financial
statements.
F-5 PROSPECTUS
<PAGE>
NOTES TO FINANCIAL STATEMENTS
(STATUTORY BASIS)
DECEMBER 31, 1998
(AMOUNTS IN THOUSANDS UNLESS OTHERWISE STATED)
- --------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
ORGANIZATION
Hartford Life and Annuity Insurance Company ("ILA" or "the Company"), formerly
known as ITT Hartford Life and Annuity Insurance Company, is a wholly owned
subsidiary of Hartford Life Insurance Company ("HLIC"), which is an indirect
subsidiary of Hartford Life, Inc. ("HLI"), which is majority owned by The
Hartford Financial Services Group, Inc. ("The Hartford"), formerly a wholly
owned subsidiary of ITT Corporation ("ITT"). On February 10, 1997, HLI filed a
registration statement, as amended, with the Securities and Exchange Commission
relating to the initial public offering of HLI Class A Common Stock (the
"Offering"). Pursuant to the Offering on May 22, 1997, HLI sold to the public 26
million shares, representing 18.6% of the equity ownership of HLI. On December
19, 1995, ITT Corporation distributed all the outstanding shares of The Hartford
to ITT shareholders of record in an action known herein as the "Distribution".
As a result of the Distribution, The Hartford became an independent, publicly
traded company. During 1996, ILA re-domesticated from the State of Wisconsin to
the State of Connecticut.
ILA offers a complete line of ordinary and universal life insurance, individual
annuities and certain supplemental accident and health benefit coverages.
BASIS OF PRESENTATION
The accompanying ILA statutory basis financial statements were prepared in
conformity with statutory accounting practices prescribed or permitted by the
National Association of Insurance Commissioners ("NAIC"), the State of
Connecticut Department of Insurance and the State of Wisconsin for the 1996
period, as applicable. Certain prior year amounts and balances have been
reclassified to conform with current year presentation.
Current prescribed statutory accounting practices include accounting
publications of the National Association of Insurance Commissioners ("NAIC"), as
well as state laws, regulations and general administrative rules. Permitted
statutory accounting practices encompass accounting practices approved by State
Insurance Departments. The Company does not follow any permitted statutory
accounting practices that have a material effect on statutory surplus, statutory
net income or risk-based capital.
Final approval of the NAIC's proposed "Comprehensive Guide" on statutory
accounting principles was distributed in 1998. The requirements are effective
January 1, 2001, and are not expected to have a material impact on statutory
surplus of the Company.
The preparation of financial statements in conformity with statutory accounting
principles requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the reported amounts
of revenues and expenses during the reported period. Actual results could differ
from those estimates. The most significant estimates include those used in
determining the liability for aggregate reserves for future benefits and the
liability for premium and other deposit funds. Although some variability is
inherent in these estimates, management believes the amounts provided are
adequate.
Statutory accounting practices and generally accepted accounting principles
("GAAP") differ in certain significant respects. These differences principally
involve:
(1) treatment of policy acquisition costs (commissions, underwriting and selling
expenses, premium taxes, etc.) which are charged to expense when incurred
for statutory purposes rather than on a pro-rata basis over the expected
life of the policy for GAAP purposes;
(2) recognition of premium revenues, which for statutory purposes are generally
recorded as collected or when due during the premium paying period of the
contract and which for GAAP purposes, for universal life policies and
investment products, generally, are only recorded for policy charges for the
cost of insurance, policy administration and surrender charges assessed to
policy account balances. Also, for GAAP purposes, premiums for traditional
life insurance policies are recognized as revenues when they are due from
policyholders and the retrospective deposit method is used in accounting for
universal life and other types of contracts where the payment pattern is
irregular or surrender charges are a significant source of profit. The
prospective deposit method is used for GAAP purposes where investment
margins are the primary source of profit;
(3) development of liabilities for future policy benefits, which for statutory
purposes predominantly use interest rate and mortality assumptions
prescribed by the NAIC which may vary considerably from interest and
mortality assumptions used for GAAP financial reporting;
(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;
F-6 PROSPECTUS
<PAGE>
(5) excluding certain GAAP assets designated as non-admitted assets (e.g.,
negative Interest Maintenance Reserve, past due agents' balances and
furniture and equipment) from the balance sheet for statutory purposes by
directly charging surplus;
(6) establishing accruals for post-retirement and post-employment health care
benefits currently, or using a twenty year phase-in approach, whereas GAAP
liabilities are recorded upon adoption of the applicable standard;
(7) establishing a formula reserve for realized and unrealized losses due to
default and equity risk associated with certain invested assets (Asset
Valuation Reserve); as well as the deferral and amortization of realized
gains and losses, motivated by changes in interest rates during the period
the asset is held, into income over the remaining life to maturity of the
asset sold (Interest Maintenance Reserve); whereas on a GAAP basis, no such
formula reserve is required and realized gains and losses are recognized in
the period the asset is sold;
(8) the reporting of reserves and benefits net of reinsurance ceded, where risk
transfer has taken place, whereas on a GAAP basis, reserves are reported
gross of reinsurance with reserve credits presented as recoverable assets;
as well as, the accounting for retroactive reinsurance which is immediately
charged to surplus for statutory accounting purposes whereas GAAP precludes
immediate gain recognition unless the ceding enterprise's liability to its
policyholders is extinguished; as well as reinsurance ceded that fails to
meet GAAP risk transfer guidelines would result in deposit accounting for
GAAP where as for statutory, reserves ceded and assumed would be reflected
in the statutory basis statements of operations;
(9) the reporting of fixed maturities at amortized cost, whereas GAAP requires
that fixed maturities be classified as "held-to-maturity",
"available-for-sale" or "trading", based on the Company's intentions with
respect to the ultimate disposition of the security and its ability to
affect those intentions. The Company's bonds were classified on a GAAP basis
as "available-for-sale" and accordingly, those investments and common stocks
were reflected at fair value with the corresponding impact included as a
component of Stockholder's Equity designated as "Net unrealized capital
gains (losses) on securities net of tax". For statutory reporting purposes,
Change in Net Unrealized Capital Gains (Losses) on Common Stocks and Other
Invested Assets includes the change in unrealized gains (losses) on common
stock reported at fair value; and
(10) separate account liabilities are valued on the Commissioner's Annuity
Reserve Valuation Method ("CARVM"), with the surplus generated recorded as a
liability to the general account (and a contra liability on the balance
sheet of the general account), whereas GAAP liabilities are valued at
account value.
As of and for the years ended December 31, the significant differences between
Statutory and GAAP basis net income and capital and surplus for the Company are
as follows:
<TABLE>
<CAPTION>
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
GAAP Net Income.................... $ 74,525 $ 58,050 $ 41,202
Amortization and deferral of policy
acquisition costs, net............ (331,882) (345,657) (341,571)
Change in unearned revenue
reserve........................... 22,131 4,641 55,504
Deferred taxes..................... 2,476 47,092 2,090
Separate accounts.................. 259,287 282,818 306,978
Asset impairments and write-
downs............................. 17,250 -- --
Benefit reserve adjustment......... 32,759 24,666 (1,013)
Deposit accounting for Lyndon
reinsurance (Note 3).............. 24,627 -- --
Other, net......................... 1,453 2,432 4,805
------------ ------------ ------------
Statutory Net Income............... $ 102,626 $ 74,042 $ 67,995
------------ ------------ ------------
------------ ------------ ------------
GAAP Capital and Surplus........... $ 648,097 $ 570,469 $ 503,887
Deferred policy acquisition
costs............................. (1,615,653) (1,283,771) (938,114)
Unearned revenue reserve........... 156,920 134,789 130,148
Deferred taxes..................... 68,936 64,522 12,823
Separate accounts.................. 1,183,642 924,355 640,101
Asset impairments and write-
downs............................. 17,250 -- --
Unrealized gains on bonds.......... (26,119) (21,451) (7,978)
Benefit reserve adjustment......... 65,029 16,378 7,035
Asset valuation reserve............ (21,782) (13,670) (7,442)
Adjustment relating to Lyndon
contribution (Note 3)............. -- (23,671) (36,126)
Other, net......................... 192 3,850 (1,221)
------------ ------------ ------------
Statutory Capital and Surplus...... $ 476,512 $ 371,800 $ 303,113
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
As more fully described in Note 3, Lyndon Insurance Company (Lyndon) was
contributed to the Company on June 30, 1995. The GAAP net assets contributed
exceeded the statutory basis net assets by $41,277 as of December 31, 1995,
relating primarily to statutory reserves for future benefits, GAAP deposit
accounting receivables and deferred tax liabilities. In 1998, the majority of
the former Lyndon's assumed business was recaptured by the unaffiliated direct
writer.
AGGREGATE RESERVES FOR FUTURE BENEFITS AND LIABILITY FOR PREMIUM AND OTHER
DEPOSIT FUNDS
Aggregate reserves for payment of future life, health and annuity benefits were
computed in accordance with actuarial standards. Reserves for life insurance
policies are generally based on the 1958 and 1980 Commissioner's Standard
Ordinary Mortality Tables and various valuation rates ranging from 2.5% to 6%.
Accumulation and on-benefit annuity reserves are based principally on individual
annuity tables at various rates ranging from 2.5% to 8.75% and using CARVM.
Accident and health reserves are established using a two year preliminary term
method and morbidity tables based on Company experience.
ILA has established separate accounts to segregate the assets and liabilities of
certain annuity contracts that must be segregated from the Company's general
assets under the terms of the contracts. The assets consist primarily of
marketable securities reported at market value. Premiums, benefits and expenses
of
F-7 PROSPECTUS
<PAGE>
these contracts are reported in the statutory basis statements of operations.
INVESTMENTS
Investments in bonds are carried at amortized cost. Bonds that are deemed
ineligible to be held at amortized cost by the NAIC Securities Valuation Office
("SVO") are carried at the appropriate SVO published value. When a permanent
reduction in the value of publicly traded securities occurs, the decrease is
reported as a realized loss and the carrying value is adjusted accordingly.
Short-term investments consist of money market funds and are stated at cost,
which approximates fair value. Common stocks are carried at fair value with the
current year change in the difference from cost reflected in surplus. Other
invested assets are generally recorded at fair value.
The Company uses a variety of derivative financial instruments as part of an
overall risk management strategy. These instruments, including interest rate and
foreign currency swaps, caps, and floors are used as a means of hedging exposure
to price, foreign currency and/or interest rate risk on planned investment
purchases or existing assets and liabilities. The Company does not hold or issue
derivative financial instruments for trading purposes. Derivatives must be
designated at inception as a hedge measured for effectiveness both at inception
and on an ongoing basis. The Company's correlation threshold for hedge
designation is 80% to 120%. If correlation, which is assessed monthly and
measured based on a rolling three month average, falls outside the 80% to 120%
range, hedge accounting will be terminated.
Interest rate swaps involve the periodic exchange of payments without the
exchange of underlying principal or notional amounts. Net receipts or payments
are accrued and recognized over the life of the swap agreement as an adjustment
to net investment income. Should the swap be terminated the gains or losses are
adjusted into the basis of the asset or liability and amortized over the
remaining life. Should the hedged asset be sold or liability terminated without
terminating the swap position, any swap gains or losses are immediately
recognized in net investment income. Interest rate swaps purchased in
anticipation of an asset purchase ("anticipatory transaction") are recognized
consistent with the underlying asset components such that the settlement
component is recognized in the statutory basis statements of operations while
the change in market value is recognized as an unrealized gain or loss. Foreign
currency swaps are similar to interest rate swaps except there is an initial
exchange of principal in two currencies and an agreement to re-exchange the
currencies at a future date, at an agreed upon exchange rate.
Premiums paid on purchased floor or cap agreements and the premium received on
issued cap or floor agreements (used for risk management) are adjusted into the
basis of the applicable asset and amortized over the asset life. Gains or losses
on termination of such positions are adjusted into the basis of the asset or
liability and amortized over the remaining asset life. Net payments are
recognized as an adjustment to income or basis adjusted and amortized depending
on the specific hedge strategy.
Derivatives used to create a synthetic asset must meet synthetic accounting
criteria, including designation at inception and consistency of terms between
the synthetic and the instrument being replicated. Consistent with industry
practice, synthetic instruments are accounted for like the financial instrument
they are intended to replicate. Derivatives which fail to meet risk management
criteria subsequent to acquisition, are accounted for at fair market value with
the impact reflected in the statutory basis statements of operations.
Open forward commitment contracts are marked to market through surplus. Such
contracts are accounted for at settlement by recording the purchase of specified
securities at the previously committed price. Gains or losses resulting from
termination of the forward commitment contracts before the delivery of the
securities are recognized immediately in the statutory basis statements of
operations as a component of Net Realized Capital Gains, after tax.
The Asset Valuation Reserve ("AVR") is designed to provide a standardized
reserving process for realized and unrealized losses due to default and equity
risks associated with invested assets. The reserve increased $8,112 and $6,228
in 1998 and 1997, respectively and decreased $(568) in 1996. Additionally, the
Interest Maintenance Reserve ("IMR") captures net realized capital gains and
losses, net of applicable income taxes, resulting from changes in interest rates
and amortizes these gains or losses into income over the life of the mortgage
loan or bond sold. The IMR balance as of December 31, 1998 and December 31, 1997
was $452 and $(193), respectively and is reflected in Other Liabilities and as a
component of non-admitted assets in Unassigned Funds for each of the years then
ended. For the years ended December 31, 1998, 1997 and 1996, amortization of IMR
is included in Other Revenues and was $(207), $(85) and $(392), respectively.
Realized capital gains and losses, net of taxes not included in IMR are reported
in the statutory basis statements of operations. Realized investment gains and
losses are determined on a specific identification basis.
OTHER LIABILITIES
The amount reflected in other liabilities includes a receivable from the
separate accounts of $1,187 million and $923 million as of December 31, 1998 and
1997, respectively. The balances are classified in accordance with NAIC
prescribed practices.
MORTGAGE LOANS
Mortgage loans, which are carried at cost and approximate fair value, include
investments in assets backed by mortgage loan pools.
F-8 PROSPECTUS
<PAGE>
2. INVESTMENTS:
(A) COMPONENTS OF NET INVESTMENT INCOME
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Interest income from bonds and
short-term investments............ $ 123,370 $ 100,475 $ 89,940
Interest income from policy
loans............................. 3,133 1,958 1,846
Interest and dividends from other
investments....................... 4,482 1,005 7,864
--------- --------- ---------
Gross investment income............ 130,985 103,438 99,650
Less: investment expenses.......... 1,003 1,153 1,209
--------- --------- ---------
Net investment income.............. $ 129,982 $ 102,285 $ 98,441
--------- --------- ---------
--------- --------- ---------
</TABLE>
(B) COMPONENTS OF NET UNREALIZED CAPITAL GAINS (LOSSES) ON COMMON STOCKS
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Gross unrealized capital gains.... $ 2,204 $ 537 $ 713
Gross unrealized capital losses... (1,871) (1,820) (4,160)
--------- --------- ---------
Net unrealized capital
(losses)/gains................... 333 (1,283) (3,447)
Balance, beginning of year........ (1,283) (3,447) 1,724
--------- --------- ---------
Change in net unrealized capital
gains (losses) on Common
stocks........................... $ 1,616 $ 2,164 $ (5,171)
--------- --------- ---------
--------- --------- ---------
</TABLE>
(C) COMPONENTS OF NET UNREALIZED CAPITAL GAINS (LOSSES) ON BONDS AND
SHORT-TERM INVESTMENTS
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Gross unrealized capital
gains.......................... $ 10,905 $ 23,357 $ 11,821
Gross unrealized capital
losses......................... (833) (1,906) (3,842)
--------- --------- ---------
Net unrealized capital gains.... 10,072 21,451 7,979
Balance, beginning of year...... 21,451 7,979 20,877
--------- --------- ---------
Change in net unrealized capital
gains on bonds and short-term
investments.................... $ (11,379) $ 13,472 $ (12,898)
--------- --------- ---------
--------- --------- ---------
</TABLE>
(D) COMPONENTS OF NET REALIZED CAPITAL GAINS (LOSSES)
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Bonds and short-term investments.... $ 1,314 $ (120) $ 2,756
Common stocks....................... 1,624 -- --
Real estate and other............... (1) 114 --
--------- --------- ---------
Realized capital (losses) gains..... 2,937 (6) 2,756
Capital gains (benefit) tax......... -- (831) 936
--------- --------- ---------
Net realized capital gains.......... 2,937 825 1,820
Amounts transferred to IMR.......... 852 (719) 1,413
--------- --------- ---------
Net realized capital gains.......... $ 2,085 $ 1,544 $ 407
--------- --------- ---------
--------- --------- ---------
</TABLE>
(E) OFF-BALANCE SHEET INVESTMENTS
The Company had no significant financial instruments with off-balance sheet risk
as of December 31, 1998.
(F) CONCENTRATION OF CREDIT RISK
The Company has invested in securities of a single issuer, Bankers Trust
Corporation, in an amount greater than 10% of the Company's statutory capital
and surplus. The statement value of this investment was $105,221 as of December
31, 1998. The NAIC ratings on these holdings were 1z and 2. Excluding this and
U.S. government and government agency investments, the Company had no other
significant concentrations of credit risk as of December 31, 1998.
(G) BONDS, SHORT-TERM INVESTMENTS AND COMMON STOCKS
<TABLE>
<CAPTION>
1998
------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
COST GAINS LOSSES FAIR VALUE
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
U.S. government and government agencies and authorities:
-- Guaranteed and sponsored.................................... $ 4,982 $ 35 $ (2) $ 5,015
-- Guaranteed and sponsored -- asset-backed.................... 75,615 -- -- 75,615
States, municipalities and political subdivisions................ 10,402 415 -- 10,817
International governments........................................ 7,466 568 -- 8,034
Public utilities................................................. 94,475 1,330 (39) 95,766
All other corporate.............................................. 607,679 8,473 (792) 615,360
All other corporate -- asset-backed.............................. 505,900 -- -- 505,900
Short-term investments........................................... 343,783 -- -- 343,783
Certificates of deposit.......................................... 130,216 84 -- 130,300
Parents, subsidiaries and affiliates............................. 117,057 -- -- 117,057
---------- ---------- ----- ----------
Total bonds and short-term investments........................... $1,897,575 $10,905 $(833) $1,907,647
---------- ---------- ----- ----------
---------- ---------- ----- ----------
</TABLE>
F-9 PROSPECTUS
<PAGE>
<TABLE>
<CAPTION>
GROSS GROSS
UNREALIZED UNREALIZED ESTIMATED
COST GAINS LOSSES FAIR VALUE
--------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Common stock -- unaffiliated................................. $ 4,933 $ 290 $ (50) $ 5,173
Common stock -- affiliated................................... 35,384 1,914 (1,821) 35,477
--------- ---------- ---------- ----------
Total common stocks.......................................... $40,317 $2,204 $(1,871) $40,650
--------- ---------- ---------- ----------
--------- ---------- ---------- ----------
</TABLE>
<TABLE>
<CAPTION>
1997
------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
COST GAINS LOSSES FAIR VALUE
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
U.S. government and government agencies and authorities:
-- Guaranteed and sponsored.................................... $ 11,114 $ 55 $ (51) $ 11,118
-- Guaranteed and sponsored -- asset-backed.................... 55,506 1,056 (269) 56,293
States, municipalities and political subdivisions................ 26,404 329 -- 26,733
International governments........................................ 7,609 500 -- 8,109
Public utilities................................................. 73,024 754 (132) 73,646
All other corporate.............................................. 517,715 14,110 (704) 531,121
All other corporate -- asset-backed.............................. 630,069 5,005 (739) 634,335
Short-term investments........................................... 277,330 33 (8) 277,355
Certificates of deposit.......................................... 93,770 1,515 (3) 95,282
Parents, subsidiaries and affiliates............................. 86,100 -- -- 86,100
---------- ---------- ---------- ----------
Total bonds and short-term investments........................... $1,778,641 $23,357 $(1,906) $1,800,092
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
<TABLE>
<CAPTION>
GROSS GROSS
UNREALIZED UNREALIZED ESTIMATED
COST GAINS LOSSES FAIR VALUE
--------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Common stock -- unaffiliated................................. $30,307 $537 $ -- $30,844
Common stock -- affiliated................................... 35,384 -- (1,820) 33,564
--------- ----- ---------- ----------
Total common stocks.......................................... $65,691 $537 $(1,820) $64,408
--------- ----- ---------- ----------
--------- ----- ---------- ----------
</TABLE>
The amortized cost and estimated fair value of bonds and short-term investments
as of December 31, 1998 by estimated maturity year are shown below. Asset-backed
securities, including mortgage backed securities and collaterialized mortgage
obligations, are distributed to maturity year based on ILA's estimates of the
rate of future prepayments of principal over the remaining lives of the
securities. Expected maturities differ from contractual maturities due to call
or repayment provisions.
<TABLE>
<CAPTION>
AMORTIZED ESTIMATED
MATURITY COST FAIR VALUE
- ----------------------------------- ------------ ------------
<S> <C> <C>
One year or less................... $ 788,845 $ 792,826
Over one year through five years... 689,025 692,811
Over five years through ten
years............................. 308,661 310,357
Over ten years..................... 111,044 111,653
------------ ------------
Total.............................. $ 1,897,575 $ 1,907,647
------------ ------------
------------ ------------
</TABLE>
Proceeds from sales and maturities of investments in bonds and short-term
investments during 1998, 1997 and 1996 were $1,354,563, $1,435,820 and
$1,139,073, respectively, resulting in gross realized gains of $1,705, $964 and
$3,675, respectively, and gross realized losses of $391, $1,084 and $919,
respectively, before transfers to IMR.
(H) FAIR VALUE OF FINANCIAL INSTRUMENTS BALANCE SHEET ITEMS (IN MILLIONS):
<TABLE>
<CAPTION>
1998 1997
-------------------------- --------------------------
CARRYING ESTIMATED CARRYING ESTIMATED
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Assets
Bonds and short-term
investments..................... $ 1,898 $ 1,908 $ 1,779 $ 1,800
Common stocks.................... 41 41 64 64
Policy loans..................... 47 47 37 37
Mortgage loans................... 60 60 85 85
Other invested assets............ 2 2 21 21
Liabilities
Liabilities on investment
contracts....................... $ 2,053 $ 2,129 $ 1,911 $ 1,835
</TABLE>
The estimated fair value of bonds and short-term investments was determined by
the Company primarily using NAIC market values. The carrying amounts for policy
loans approximates fair value. The fair value of mortgage loans was determined
by discounting future
F-10 PROSPECTUS
<PAGE>
expected cash flows using interest rates currently being offered for similar
loans. The fair value of liabilities on investment contracts is determined by
forecasting future cash flows and discounting the forecasted cash flows at
current market interest rates.
3. AGGREGATE RESERVES FOR FUTURE BENEFITS
The Company's existing reserves consist of life, health, annuity and
supplementary contracts. The Company cedes and assumes insurance to and from
non-affiliated insurers in order to limit its maximum loss. Such transfers do
not relieve the Company or the unaffiliated reinsured of their primary
liabilities. The Company cedes to RGA Reinsurance Company and its affiliate
Employers Reassurance Corporation, on a modified coinsurance basis, 80% of the
variable annuity business written since 1994 and 100% of the variable life and
variable universal life excess sales load refund obligation effective 1998.
There were no material reinsurance recoverables from reinsurers outstanding as
of, and for the years ended, December 31, 1998 and 1997.
A summary of reinsurance information as of and for the years ended December 31,
follows:
<TABLE>
<CAPTION>
1998 DIRECT ASSUMED CEDED NET
- ----------------------------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Premium and Annuity
Considerations.................... $ 483,328 $ 24,954 $ (38,939) $ 469,343
Death, Annuity, Disability and
Other Benefits.................... $ 64,331 $ 1,574 $ (16,401) $ 49,504
Surrenders......................... $ 739,663 $ -- $ -- $ 739,663
Aggregate Reserves for Future
Benefits.......................... $ 713,425 $ -- $ (134,285) $ 579,140
Policy and Contract Claims......... $ 5,895 $ 85 $ (313) $ 5,667
<CAPTION>
1997 DIRECT ASSUMED CEDED NET
- ----------------------------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Premium and Annuity
Considerations.................... $ 266,427 $ 51,630 $ (21,412) $ 296,645
Death, Annuity, Disability and
Other Benefits.................... $ 79,779 $ 839 $ (7,126) $ 73,492
Surrenders......................... $ 454,417 $ -- $ -- $ 454,417
Aggregate Reserves for Future
Benefits.......................... $ 651,820 $ -- $ (46,637) $ 605,183
Policy and Contract Claims......... $ 5,861 $ 157 $ (346) $ 5,672
<CAPTION>
1996 DIRECT ASSUMED CEDED NET
- ----------------------------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Premium and Annuity
Considerations.................... $ 226,612 $ 33,817 $ (10,185) $ 250,244
Death, Annuity, Disability and
Other Benefits.................... $ 34,950 $ 35,138 $ (3,339) $ 66,749
Surrenders......................... $ 270,165 $ -- $ -- $ 270,165
</TABLE>
In connection with the distribution described in Note 1, on June 30, 1995, the
assets of Lyndon were contributed to the Company. The statutory basis assets in
excess of statutory basis liabilities was approximately $112 million and was
reflected as an increase in Gross Paid-In and Contributed Surplus at December
31, 1995. In 1998, the majority of former Lyndon's assumed business was
recaptured by the unaffiliated direct writer. A ceding commission of $25,622 and
change in reserve of $26,404 for the year ended December 31, 1998, is reflected
in Other Revenue and Increase/(Decrease) in Aggregate Reserves for Future
Benefits in the statutory basis statements of operations, respectively.
Analysis of Annuity Actuarial Reserves and Deposit Liabilities by Withdrawal
Characteristics as of December 31, 1998 (including general and separate account
liabilities) are as follows:
<TABLE>
<CAPTION>
% OF
SUBJECT TO DISCRETIONARY WITHDRAWAL: AMOUNT TOTAL
- --------------------------------------- ----------- ---------
<S> <C> <C>
With market value adjustment........... $ 4,563 0.0%
At book value less current surrender
charge of 5% or more.................. 1,378,056 4.1%
At market value........................ 31,087,511 93.8%
----------- ---------
Total with adjustment or at market
value................................. 32,470,130 97.9%
At book value without adjustment
(minimal or no charge or
adjustment)........................... 665,159 2.0%
Not subject to discretionary
withdrawal............................ 19,739 0.1%
----------- ---------
Reinsurance ceded...................... 33,155,028
Total, net......................... $33,155,028
-----------
-----------
</TABLE>
4. RELATED PARTY TRANSACTIONS:
Transactions between the Company and its affiliates within The Hartford relate
principally to tax settlements, reinsurance, rental and service fees, capital
contributions and payments of dividends. The Company has also invested in bonds
of its affiliates, Hartford Financial Services Corporation and HL Investment
Advisors, Inc., and common stock of its subsidiary, ITT Hartford Life, LTD.
5. FEDERAL INCOME TAXES:
The Company and The Hartford have entered into a tax sharing agreement under
which each member in the consolidated U.S. Federal income tax return will make
payments between them such that, with respect to any period, the amount of taxes
to be paid by the Company, subject to certain adjustments, generally will be
determined as though the Company were filing separate Federal, state and local
income tax returns.
As long as The Hartford continues to own at least 80% of the combined voting
power and 80% of the value of the outstanding capital stock of HLI, the Company
will be included for Federal income tax purposes in the consolidated group of
which The Hartford is the common parent. It is the intention of The Hartford and
its non-life subsidiaries to file a single consolidated Federal income tax
return. The life insurance companies will file a separate consolidated Federal
income tax return. Federal income taxes (received) paid by the Company for
operations and capital gains were $25,780, $(14,499) and $29,793 in 1998,
F-11 PROSPECTUS
<PAGE>
1997 and 1996, respectively. The effective tax rate was 26%, (26)% and 22% in
1998, 1997 and 1996, respectively.
The Company is currently under audit by the Internal Revenue Service (IRS) for
the three year tax period ending 1995. The audit is not yet complete. As of
December 31, 1998, the Company does not currently expect any material
adjustments to arise from this audit.
The following schedule provides a reconciliation of the tax provision at the
U.S. Federal Statutory rate to Federal income tax (benefit) expense (in
millions):
<TABLE>
<CAPTION>
1998 1997 1996
----- ----- -----
<S> <C> <C> <C>
Tax provision at U.S. Federal statutory
rate.................................. $ 48 $ 20 $ 30
Tax deferred acquisition costs......... 25 25 27
Statutory to tax reserve differences... 8 1 --
Unrealized gain on separate accounts... (41) (44) (21)
Investments and other.................. (4) (17) (17)
--- --- ---
Federal income tax (benefit) expense... $ 36 $ (15) $ 19
--- --- ---
--- --- ---
</TABLE>
6. CAPITAL AND SURPLUS AND SHAREHOLDER DIVIDEND RESTRICTIONS:
The maximum amount of dividends which can be paid, without prior approval, by
State of Connecticut insurance companies to shareholders is generally restricted
to the greater of 10% of surplus as of the preceding December 31st or the net
gain from operations for the previous year. Dividends are paid as determined by
the Board of Directors and are not cumulative. No dividends were paid in 1998,
1997 and 1996. The amount available for dividend in 1999 is $100,541.
7. PENSION PLANS AND OTHER POST-RETIREMENT AND POST-EMPLOYMENT BENEFITS:
HLI's employees are included in The Hartford's non-contributory defined benefit
pension plans. These plans provide pension benefits that are based on years of
service and the employee's compensation during the last ten years of employment.
HLI's funding policy is to contribute annually an amount between the minimum
funding requirements set forth in the Employee Retirement Income Security Act of
1974, as amended, and the maximum amount that can be deducted for U.S. Federal
income tax purposes. Generally, pension costs are funded through the purchase of
affiliated group pension contracts. The cost to HLI was approximately $9,000 in
1998 and $7,000 in both 1997 and 1996.
HLI also provides, through The Hartford, certain health care and life insurance
benefits for eligible retired employees. A substantial portion of HLI's
employees may become eligible for these benefits upon retirement. HLI's
contribution for health care benefits will depend on the retiree's date of
retirement and years of service. In addition, the plan has a defined dollar cap
which limits average company contributions. HLI has prefunded a portion of the
health care and life insurance obligations through trust funds where such
prefunding can be accomplished on a tax effective basis. Postretirement health
care and life insurance benefits expense, allocated by The Hartford, was
immaterial to the results of operations for 1998, 1997 and 1996.
The assumed rate in the per capita cost of health care (the health care trend
rate) was 7.8% for 1998, decreasing ratably to 5.0% in the year 2003. Increasing
the health care trend rates by one percent per year would have an immaterial
impact on the accumulated postretirement benefit obligation and the annual
expense. To the extent that the actual experience differs from the inherent
assumptions, the effect will be amortized over the average future service of
covered employees.
8. SEPARATE ACCOUNTS:
The Company maintains separate account assets and liabilities totaling $32.9
billion and $23.2 billion as of December 31, 1998 and 1997, respectively.
Separate account assets are reported at fair value and separate account
liabilities are determined in accordance with CARVM, which approximates the
market value less applicable surrender charges. Separate account assets are
segregated from other investments, the policyholder assumes the investment risk,
and the investment income and gains and losses accrue directly to the
policyholder. Separate account management fees, net of minimum guarantees, were
$360 million, $252 million and $144 million in 1998, 1997 and 1996,
respectively, and are recorded as a component of other revenues on the statutory
basis statements of operations.
9. COMMITMENTS AND CONTINGENCIES:
As of December 31, 1998, the Company had no material contingent liabilities, nor
had the Company committed any surplus funds for any contingent liabilities or
arrangements. The Company is involved in pending and threatened litigation in
the normal course of its business in which claims for monetary and punitive
damages have been asserted. Although there can be no assurances, at the present
time the Company does not anticipate that the ultimate liability arising from
such pending or threatened litigation, after consideration of provisions made
for potential losses and costs of defense, will have a material adverse effect
on the statutory capital and surplus of the Company.
As discussed in Note 5, issues may potentially be raised by the IRS in future
audits of open years. Management does not believe that possible audit
adjustments will have a material effect on the statutory capital and surplus of
the Company.
Under insurance guaranty fund laws in each state, insurers licensed to do
business can be assessed up to prescribed limits for policyholder losses
incurred by insolvent companies. The amount of any future assessments on ILA
under these laws cannot be reasonably estimated. Most of the laws do provide,
however, that an assessment may be excused or deferred if it would threaten an
insurer's own financial strength. Additionally, guaranty fund assessments are
used to reduce state premium taxes paid by the Company in certain states. ILA
paid guaranty fund assessments of $1,043, $1,544 and $1,262 in 1998, 1997 and
1996, respectively. ILA incurred guaranteed fund expense of $548 in 1998, 1997
and 1996.
F-12 PROSPECTUS
<PAGE>
PART C
<PAGE>
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) All financial statements are included in Part A and Part B of the
Registration Statement.
(b) (1) Resolution of the board of directors of Hartford Life 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.(3)
(6) (b) Bylaws of Hartford.(2)
(7) Not applicable.
(8) Not applicable.
(9) Opinion and Consent of Lynda Godkin, Senior Vice President,
General Counsel and Corporate Secretary.
(10) Consent of Arthur Andersen LLP, Independent Public Accountants.
__________________________
(1) Incorporated by reference to Post-Effective Amendment No. 2, to the
Registration Statement File No. 33-73572, dated May 1, 1995.
(2) Incorporated by reference to Post-Effective Amendment No. 3, to the
Registration Statement File No. 33-73572, dated May 1, 1996.
(3) Incorporated by reference to the Initial Filing, to the Registration
Statement File No. 333-45303, dated January 1, 1998.
<PAGE>
-2-
(11) No financial statements are omitted.
(12) Not applicable.
(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, Director*
- -------------------------------------------------------------------------------
Peter W. Cummins Senior Vice President
- -------------------------------------------------------------------------------
Timothy M. Fitch Vice President & Actuary
- -------------------------------------------------------------------------------
Mary Jane B. Fortin Vice President & Chief Accounting Officer
- -------------------------------------------------------------------------------
David T. Foy Senior Vice President & Treasurer
- -------------------------------------------------------------------------------
Lynda Godkin Senior Vice President, General Counsel, and
Corporate Secretary, Director*
- -------------------------------------------------------------------------------
Lois W. Grady Senior Vice President
- -------------------------------------------------------------------------------
Stephen T. Joyce Vice President
- -------------------------------------------------------------------------------
Michael D. Keeler Vice President
- -------------------------------------------------------------------------------
Robert A. Kerzner Senior Vice President
- -------------------------------------------------------------------------------
Thomas M. Marra Executive Vice President, Director*
- -------------------------------------------------------------------------------
Steven L. Matthiesen Vice President
- -------------------------------------------------------------------------------
Craig R. Raymond Senior Vice President and Chief Actuary
- -------------------------------------------------------------------------------
Lowndes A. Smith President and Chief Executive Officer, Director*
- -------------------------------------------------------------------------------
David M. Znamierowski Senior Vice President, Director*
- -------------------------------------------------------------------------------
Unless otherwise indicated, the principal business address of each of the above
individuals is P.O. Box 2999, Hartford, CT 06104-2999.
*Denotes date of election to Board of Directors.
<PAGE>
-3-
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 March 31, 1999 there were 235,924 Contract Owners.
Item 28. Indemnification
Under Section 33-772 of the Connecticut General Statutes, unless
limited by its certificate of incorporation, the Registrant must
indemnify a director who was wholly successful, on the merits or
otherwise, in the defense of any proceeding to which he was a
party because he is or was a director of the corporation against
reasonable expenses incurred by him in connection with the
proceeding.
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 become 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 threaten 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.
<PAGE>
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 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.
<PAGE>
-4-
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 Insurance Company - Separate Account Seven
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
Alpine Life Insurance Company - Separate Account One
Alpine Life Insurance Company - Separate Account Two
American Maturity Life Insurance Company - Separate Account AMLVA
Royal Life Insurance Company - Separate Account One
Royal Life Insurance Company - Separate Account Two
(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
Thomas M. Marra Executive Vice President, Director
Robert A. Kerzner Executive Vice President
Lynda Godkin Senior Vice President, General
Counsel and Corporate Secretary, Director
Peter W. Cummins Senior Vice President
David T. Foy 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>
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. Registrant has
complied with conditions one through four of the no-action letter.
<PAGE>
SIGNATURES
As required by the Securities Act of 1933 and the Investment Company Act of
1940, the Registrant has caused this Registration Statement to be signed on its
behalf, in the Town of Simsbury, and State of Connecticut on this 9th day of
April, 1999.
HARTFORD LIFE AND ANNUITY INSURANCE COMPANY
PUTNAM CAPITAL MANAGER TRUST SEPARATE ACCOUNT TWO
(Registrant)
*By: THOMAS M. MARRA *By: /s/ MARIANNE O'DOHERTY
------------------------------------------ -----------------------
Thomas M. Marra, Executive Vice President Marianne O'Doherty
Attorney-in-Fact
HARTFORD LIFE AND ANNUITY INSURANCE COMPANY
(Depositor)
*By: THOMAS M. MARRA
------------------------------------------
Thomas M. Marra, Executive Vice President
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,
Director*
Lynda Godkin, Senior Vice President, *By: /s/ MARIANNE O'DOHERTY
General Counsel, and Corporate Secretary -----------------------
Director* Marianne O'Doherty
Thomas M. Marra, Executive Vice Attorney-in-Fact
President, Director*
Lowndes A. Smith, President and Dated: April 9, 1999
Chief Executive Officer, Director *
David M. Znamierowski, Senior Vice President,
Director*
<PAGE>
EXHIBIT INDEX
(9) Opinion and Consent of Lynda Godkin, Senior Vice President, General Counsel
and Corporate Secretary.
(10) Consent of Arthur Andersen LLP, Independent Public Accountants.
(15) Copy of Power of Attorney
(16) Organizational Chart
<PAGE>
EXHIBIT 9
[LOGO]
HARTFORD LIFE
April 9, 1999 Lynda Godkin, Senior Vice President,
General Counsel & Corporate Secretary
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
Dear Sir/Madam:
I have acted as General Counsel to Hartford Life and Annuity Insurance
Company (the "Company"), a Connecticut insurance company, and 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.
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>
EXHIBIT 10
ARTHUR ANDERSEN LLP
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our reports
(and to all references to our Firm) included in or made a part of this
Registration Statement File No. 333-66935 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 12, 1999
<PAGE>
HARTFORD LIFE AND ANNUITY INSURANCE COMPANY
POWER OF ATTORNEY
-----------------
Gregory A. Boyko
David T. Foy
Lynda Godkin
Thomas M. Marra
Lowndes A. Smith
David M. Znamierowski
do hereby jointly and severally authorize Lynda Godkin, Christine Repasy,
Marianne O'Doherty, Thomas S. Clark and Brian Lord 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, and do hereby ratify any such signatures heretofore made
by such persons.
IN WITNESS WHEREOF, the undersigned have executed this Power of Attorney for
the purpose herein set forth.
/s/ Gregory A. Boyko Dated as of January 15, 1999
- ------------------------------
Gregory A. Boyko
/s/ David T. Foy Dated as of January 15, 1999
- ------------------------------
David T. Foy
/s/ Lynda Godkin Dated as of January 15, 1999
- ------------------------------
Lynda Godkin
/s/ Thomas M. Marra Dated as of January 15, 1999
- ------------------------------
Thomas M. Marra
/s/ Lowndes A. Smith Dated as of January 15, 1999
- ------------------------------
Lowndes A. Smith
/s/ David M. Znamierowski Dated as of January 15, 1999
- ------------------------------
David M. Znamierowski
<PAGE>
ORGANIZATIONAL CHART
<TABLE>
<CAPTION>
<S> <C>
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
(DELAWARE)
|
---------------------------------------------
NUTMEG INSURANCE COMPANY |
(CONNECTICUT) THE HARTFORD INVESTMENT
| MANAGEMENT COMPANY
HARTFORD FIRE INSURANCE COMPANY (DELAWARE)
(CONNECTICUT) |
| |
HARTFORD ACCIDENT AND INDEMNITY COMPANY HARTFORD INVESTMENT
(CONNECTICUT) SERVICES, INC.
| (CONNECTICUT)
HARTFORD LIFE, INC.
(DELAWARE)
|
HARTFORD LIFE & ACCIDENT INSURANCE COMPANY
(CONNECTICUT)
|
|
|
-------------------------------------------------------------------------------------------------------------------------
| | | | | | | | |
ITT HARTFORD LIFE | | | | | | HLIC PLANCO
INTERNATIONAL LTD. | | | | | | CANADA FINANCIAL
(CONNECTICUT) | | | | | | HOLDINGS, INC. SERVICES,
| | | | | | | (CANADA) INCORPORATED
| | | | | | | | (PENNSYLVANIA)
| | | | | | | | |
| | ALPINE LIFE HARTFORD FINANCIAL HARTFORD LIFE HARTFORD AMERICAN | |
| | INSURANCE SERVICES LIFE INSURANCE COMPANY FINANCIAL MATURITY LIFE | |
| | COMPANY INSURANCE CO. (CONNECTICUT) SERVICES, LLC INSURANCE COMPANY | |
| | (CONNECTICUT) (CONNECTICUT) | (DELAWARE) (CONNECTICUT) | PLANCO, INC.
| | | | | | (PENNSYLVANIA)
| | ------------------------------------- | AML FINANCIAL, INC. |
HARTFORD CALMA | | | | | (CONNECTICUT) |
COMPANY | ROYAL LIFE HARTFORD HARTFORD | HARTFORD
(FLORIDA) | INSURANCE INTERNATIONAL LIFE AND | LIFE INSURANCE
| COMPANY LIFE REASSURANCE ANNUITY INSURANCE | COMPANY
| OF AMERICA CORP. COMPANY | OF CANADA
|(CONNECTICUT) (CONNECTICUT) (CONNECTICUT) | (CANADA)
| | |
| | |
| ITT HARTFORD |
| LIFE, LTD. |
| (BERMUDA) |
| |
| |
----------| ---------------------------------------------------------------------------------------------
| | | | | |
INTERNATIONAL MS FUND HL INVESTMENT HARTFORD HARTFORD SECURITIES HARTFORD COMP. EMP.
CORPORATE AMERICA 1993-K ADVISORS, LLC EQUITY SALES DISTRIBUTION BENEFITS SERVICE
MARKETING GROUP, INC. SPE, INC. (CONNECTICUT) COMPANY, INC. COMPANY, INC. COMPANY
(CONNECTICUT) (DELAWARE) | (CONNECTICUT) (CONNECTICUT) (CONNECTICUT)
| |
| |
THE EVERGREEN HARTFORD INVESTMENT
GROUP, INC. FINANCIAL SERVICES
(NEW YORK) COMPANY
(DELAWARE)
</TABLE>
<PAGE>
<TABLE>
<S> <C>
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
(DELAWARE)
|
NUTMEG INSURANCE COMPANY
(CONNECTICUT)
|
HARTFORD FIRE INSURANCE COMPANY
(CONNECTICUT)
|
----------------------------------------------------------------------------------------------------------------------------
| | |
| | ITT HARTFORD LIFE
| | -------INTERNATIONAL LTD.
| | | (CONNECTICUT)
| | | |
| | | ITT HARTFORD
| | | ----SUDAMERICANA
| | | | HOLDING S.A.
| | | | (ARGENTINA)
| | | |------------------------------------------------------
| | | | | |
| | | | HARTFORD GALICIA INSTITUTO DE
| | | | SEGUROS VIDA COMPANIA SALTA COMPANIA DE
| | | |--------DE VIDA DE SEGUROS S.A. SEGUROS DE VIDA S.A.
| | | | (URUGUAY) (ARGENTINA) (ARGENTINA)
| | | |
| | ICATU | | ITT HARTFORD
| | HARTFORD | |-----SEGUROS DE VIDA
| | SEGUROS S.A.----------| | (ARGENTINA)
| | (BRAZIL) | |
| | | | |
| | | | | ITT HARTFORD
| | -- ----------| | |------SEGUROS DE
| | | | | | RETIRO S.A.
| | | | | | (ARGENTINA)
|-----------|----------------|---------------|---|--------------------------------------------------------------------------
| | | | | |
| | | ICATU HARTFORD | | CONSULTORA DE CAPITALES
| | | FUNDO DE PENSAO | | S.A. SOCIEDAD GERENTE
| | | (BRAZIL) | |----DE FONDOS COMUNES
| | | | | | DE ENVERSION
| | | | | | (ARGENTINA)
| | | ICATU HARTFORD | |
| | | CAPITALIZACAO S.A. | | CLARIDAD
| | | (BRAZIL) | | ADMINISTRADORA DE
| | | | | |---FONDOS DE JUBILACIONES
| | | BRAZILCAP | | Y PENSIONES S.A.
| | | CAPITALIZACAO S.A. | | (ARGENTINA)
| | | (BRAZIL) | |
| | | | |
| | -------------------------- | |
| |--------------- | | |
| | | | |
HARTFORD FIRE HARTFORD FIRE | | |------- SEGPOOL S.A.
INTERNATIONAL------------INTERNATIONAL, LTD. | | | (ARGENTINA)
(GERMANY) GMBH (CONNECTICUT) | | |
(WEST GERMANY) | | |
| | |
ICATU HARTFORD | | | THESIS S.A.
ADMINISTRACAO | | |-------- (ARGENTINA)
DE BENEFICIOS LTDA-- | | |
(BRAZIL) | |
| |
----------------- |
| |
CAB |--------- U.O.R., S.A.
CORPORATION (ARGENTINA)
(BRITISH VIRGIN ISLANDS)
</TABLE>
<PAGE>
<TABLE>
<S> <C>
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
(DELAWARE)
|
NUTMEG INSURANCE COMPANY
(CONNECTICUT)
|
HARTFORD FIRE INSURANCE COMPANY
(CONNECTICUT)
|
- --------------------------------------------------------------------------------------------------------------------------------|
| |
THE HARTFORD INTERNATIONAL |
|-----------------------------------------------------------------------FINANCIAL SERVICES GROUP, INC. |
| | | (DELAWARE) |
| | | ----------------------|----------------- |
| | | | | | | |
ZWOLSCHE | | ITT HARTFORD LONDON AND | HARTFORD |
ALGEMEENE N.V. | | INTERNATIONAL, LTD. EDINBURGH | EUROPE, INC. |
(NETHERLANDS) | | (U.K.) INSURANCE GROUP, LTD.| (DELAWARE) |
| | | (U.K.) | |
| | | | | |
| | | ------------- | |
| | | | | |
| ITT ASSURANCES HARTFORD INTERNATIONAL | LONDON AND --ITT ERCOS |
| S.A. INSURANCE CO., N.V. |--- EDINBURGH DE SEGUROS Y |
| ZWOLSCHE ALGEMEENE (FRANCE) (BELGIUM) | INSURANCE CO., LTD. REASEGUROS S.A.|
|----SCHADEVERZEKERING | | (U.K.) (SPAIN) |
--------| N.V.----------------------------------- | | | |
| | (NETHERLANDS) | | | | |
Z.A. | | | | EXCESS INSURANCE |
- --VERZEKERINGEN | | | | COMPANY LTD. |
| N.V. | ZWOLSCHE ALGEMEENE | | | (U.K.) |
| (BELGIUM) |------HERVERZEKERING B.V. | | | |
| | -----| (NETHERLANDS) | | | LONDON AND |
| | | | | | |--- EDINBURGH LIFE |
| Z.A. LUX S.A. | | | | ASSURANCE CO., LTD. |
| (LUXEMBURG) | ZWOLSCHE ALGEMEENE | | | (U.K.) |
| |--LEVENS-VERZEKERING N.V.------------ | | | |
| | (NETHERLANDS) | | | | |
- ----------------|------------------------------------|------------|------|--------------|---------------------------------------|
| | | | | | |
| -------- | | | | |
| | | | | | | |
| ZWOLSCHE | ZWOLSCHE ALGEMEENE ZWOLSCHE ALGEMEENE | | | |
| ALGEMEENE |-----HYPOTHEKEN N.V. BELEGGINGEN III B.V. | | | |
| EUROPA B.V. | (NETHERLANDS) (NETHERLANDS) | | | |
| (NETHERLANDS) | ---------- | | |
- --------| | | | | |
| EXPLOITATIEMAAT- BELEGGINGSMAAT- | | |
|----- SCHAPPIJ SCHAPPIJ | | |
| BUIZERDLAAN B.V. BUIZERDLAAN B.V. | | |
| (NETHERLANDS) (NETHERLANDS) | | |
| | | |
| | | -----
| HOLLAND | |-------------------------- |
|---- BELEGGINGSGROEP B.V. | | | |
(NETHERLANDS) | |----------------- | |
| -------| | | |
| | | | | |
| | | | | |
F.A. KNIGHT | MACALISTER & LONDON AND | HARTFORD FIRE
& SON N.V. | DUNDAS, LTD. EDINBURGH | INTERNATIONAL
(BELGIUM) | (SCOTLAND) TRUSTEES, LTD. | SERVICIOS
| (U.K.) | (SPAIN)
------------------------- -----------
| | |
FENCOURT QUOTEL LONDON AND
PRINTERS, LTD. INSURANCE EDINBURGH
(U.K.) SYSTEMS, LTD. SERVICES, LTD.
(U.K.) (U.K.)
|
EUROSURE
INSURANCE
MARKETING, LTD.
(U.K.)
</TABLE>
