<PAGE>
SEPARATE ACCOUNT THREE
- --------------------------------------------------------------------------------
HARTFORD LIFE & ANNUITY INSURANCE COMPANY
STATEMENTS OF ASSETS & LIABILITIES
DECEMBER 31, 1998
<TABLE>
<CAPTION>
NORTH AMERICAN
GOVERNMENT
MONEY SECURITIES
MARKET PORTFOLIO PORTFOLIO
SUB-ACCOUNT SUB-ACCOUNT
----------------- ---------------
<S> <C> <C>
ASSETS:
Investments in Dean
Witter Select
Dimensions Funds:
Money Market
Portfolio
Shares 108,750,992
Cost $108,750,992
Market Value....... $108,750,992 --
North American
Government
Securities Portfolio
Shares 743,033
Cost $7,512,350
Market Value....... -- $7,541,786
Balanced Growth
Portfolio
Shares 5,797,361
Cost $78,208,232
Market Value....... -- --
Utilities Portfolio
Shares 4,243,893
Cost $57,437,318
Market Value....... -- --
Dividend Growth
Portfolio
Shares 29,122,513
Cost $486,982,477
Market Value....... -- --
Value-Added Market
Portfolio
Shares 7,678,132
Cost $108,750,636
Market Value....... -- --
Growth Portfolio
Shares 2,622,153
Cost $36,924,259
Market Value....... -- --
American Value
Portfolio
Shares 14,276,821
Cost $233,572,499
Market Value....... -- --
Global Equity
Portfolio
Shares 7,429,316
Cost $89,457,600
Market Value....... -- --
Due from Hartford Life
and Annuity Insurance
Company............... -- --
Receivable from fund
shares sold........... 991,904 290
----------------- ---------------
Total Assets........... 109,742,896 7,542,076
----------------- ---------------
LIABILITIES:
Due to Hartford Life
and Annuity Insurance
Company............... 991,553 301
Payable for fund shares
purchased............. -- --
----------------- ---------------
Total Liabilities...... 991,553 301
----------------- ---------------
Net Assets (variable
annuity contract
liabilities).......... $108,751,343 $7,541,775
----------------- ---------------
----------------- ---------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
---------------------------------------------------- 2
----------------------------------------------------
<PAGE>
<TABLE>
<CAPTION>
VALUE-ADDED AMERICAN
BALANCED UTILITIES DIVIDEND GROWTH MARKET GROWTH VALUE
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
------------- ------------- ---------------- -------------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
Investments in Dean
Witter Select
Dimensions Funds:
Money Market
Portfolio
Shares 108,750,992
Cost $108,750,992
Market Value....... -- -- -- -- -- --
North American
Government
Securities Portfolio
Shares 743,033
Cost $7,512,350
Market Value....... -- -- -- -- -- --
Balanced Growth
Portfolio
Shares 5,797,361
Cost $78,208,232
Market Value....... $94,960,769 -- -- -- -- --
Utilities Portfolio
Shares 4,243,893
Cost $57,437,318
Market Value....... -- $79,403,235 -- -- -- --
Dividend Growth
Portfolio
Shares 29,122,513
Cost $486,982,477
Market Value....... -- -- $642,151,413 -- -- --
Value-Added Market
Portfolio
Shares 7,678,132
Cost $108,750,636
Market Value....... -- -- -- $ 147,343,353 -- --
Growth Portfolio
Shares 2,622,153
Cost $36,924,259
Market Value....... -- -- -- -- $47,801,852 --
American Value
Portfolio
Shares 14,276,821
Cost $233,572,499
Market Value....... -- -- -- -- -- $ 332,792,691
Global Equity
Portfolio
Shares 7,429,316
Cost $89,457,600
Market Value....... -- -- -- -- -- --
Due from Hartford Life
and Annuity Insurance
Company............... 48,060 229,885 166,667 -- 794 433,972
Receivable from fund
shares sold........... 18 13 44 27,473 4 35
------------- ------------- ---------------- -------------- ------------- --------------
Total Assets........... 95,008,847 79,633,133 642,318,124 147,370,826 47,802,650 333,226,698
------------- ------------- ---------------- -------------- ------------- --------------
LIABILITIES:
Due to Hartford Life
and Annuity Insurance
Company............... 18 13 44 27,478 4 35
Payable for fund shares
purchased............. 46,744 230,264 166,305 -- 795 434,244
------------- ------------- ---------------- -------------- ------------- --------------
Total Liabilities...... 46,762 230,277 166,349 27,478 799 434,279
------------- ------------- ---------------- -------------- ------------- --------------
Net Assets (variable
annuity contract
liabilities).......... $94,962,085 $79,402,856 $642,151,775 $ 147,343,348 $47,801,851 $ 332,792,419
------------- ------------- ---------------- -------------- ------------- --------------
------------- ------------- ---------------- -------------- ------------- --------------
<CAPTION>
GLOBAL
EQUITY
PORTFOLIO
SUB-ACCOUNT
--------------
<S> <C>
ASSETS:
Investments in Dean
Witter Select
Dimensions Funds:
Money Market
Portfolio
Shares 108,750,992
Cost $108,750,992
Market Value....... --
North American
Government
Securities Portfolio
Shares 743,033
Cost $7,512,350
Market Value....... --
Balanced Growth
Portfolio
Shares 5,797,361
Cost $78,208,232
Market Value....... --
Utilities Portfolio
Shares 4,243,893
Cost $57,437,318
Market Value....... --
Dividend Growth
Portfolio
Shares 29,122,513
Cost $486,982,477
Market Value....... --
Value-Added Market
Portfolio
Shares 7,678,132
Cost $108,750,636
Market Value....... --
Growth Portfolio
Shares 2,622,153
Cost $36,924,259
Market Value....... --
American Value
Portfolio
Shares 14,276,821
Cost $233,572,499
Market Value....... --
Global Equity
Portfolio
Shares 7,429,316
Cost $89,457,600
Market Value....... $ 109,136,654
Due from Hartford Life
and Annuity Insurance
Company............... 87,328
Receivable from fund
shares sold........... 3
--------------
Total Assets........... 109,223,985
--------------
LIABILITIES:
Due to Hartford Life
and Annuity Insurance
Company............... 3
Payable for fund shares
purchased............. 87,317
--------------
Total Liabilities...... 87,320
--------------
Net Assets (variable
annuity contract
liabilities).......... $ 109,136,665
--------------
--------------
</TABLE>
---------------------------------------------------- 3
----------------------------------------------------
<PAGE>
SEPARATE ACCOUNT THREE
- --------------------------------------------------------------------------------
HARTFORD LIFE & ANNUITY INSURANCE COMPANY
STATEMENTS OF ASSETS & LIABILITIES -- (CONTINUED)
DECEMBER 31, 1998
<TABLE>
<CAPTION>
DEVELOPING EMERGING
GROWTH MARKETS
PORTFOLIO PORTFOLIO
SUB-ACCOUNT SUB-ACCOUNT
----------- -----------
<S> <C> <C>
ASSETS:
Investments in Dean
Witter Select
Dimensions Funds:
Developing Growth
Portfolio
Shares 3,578,880
Cost $56,405,776
Market Value....... $74,476,490 --
Emerging Markets
Portfolio
Shares 1,528,452
Cost $16,180,728
Market Value....... -- $12,090,056
Diversified Income
Portfolio
Shares 8,133,256
Cost $82,730,409
Market Value....... -- --
Mid-Cap Growth
Portfolio
Shares 2,085,218
Cost $22,559,366
Market Value....... -- --
Investments in Morgan
Stanley Universal
Funds:
High Yield Portfolio
Shares 976,514
Cost $10,528,106
Market Value....... -- --
Mid-Cap Portfolio
Shares 498,912
Cost $6,985,481
Market Value....... -- --
Emerging Markets Debt
Portfolio
Shares 42,730
Cost $328,410
Market Value....... -- --
Investments in Van
Kampen Funds:
Strategic Stock
Portfolio
Shares 464,524
Cost $5,261,926
Market Value....... -- --
Enterprise Portfolio
Shares 193,425
Cost $3,847,144
Market Value....... -- --
Due from Hartford Life
and Annuity Insurance
Company............... 126,198 132
Receivable from fund
shares sold........... 2 1
----------- -----------
Total Assets........... 74,602,690 12,090,189
----------- -----------
LIABILITIES:
Due to Hartford Life
and Annuity Insurance
Company............... 2 1
Payable for fund shares
purchased............. 123,373 151
----------- -----------
Total Liabilities...... 123,375 152
----------- -----------
Net Assets (variable
annuity contract
liabilities).......... $74,479,315 $12,090,037
----------- -----------
----------- -----------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
---------------------------------------------------- 4
----------------------------------------------------
<PAGE>
<TABLE>
<CAPTION>
DIVERSIFIED MID-CAP EMERGING
INCOME GROWTH HIGH YIELD MID-CAP MARKETS DEBT STRATEGIC STOCK ENTERPRISE
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
----------- ----------- ----------- ------------ ------------- ---------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS:
Investments in Dean
Witter Select
Dimensions Funds:
Developing Growth
Portfolio
Shares 3,578,880
Cost $56,405,776
Market Value....... -- -- -- -- -- -- --
Emerging Markets
Portfolio
Shares 1,528,452
Cost $16,180,728
Market Value....... -- -- -- -- -- -- --
Diversified Income
Portfolio
Shares 8,133,256
Cost $82,730,409
Market Value....... $80,763,229 -- -- -- -- -- --
Mid-Cap Growth
Portfolio
Shares 2,085,218
Cost $22,559,366
Market Value....... -- $24,730,691 -- -- -- -- --
Investments in Morgan
Stanley Universal
Funds:
High Yield Portfolio
Shares 976,514
Cost $10,528,106
Market Value....... -- -- $10,106,921 -- -- -- --
Mid-Cap Portfolio
Shares 498,912
Cost $6,985,481
Market Value....... -- -- -- $7,418,821 -- -- --
Emerging Markets Debt
Portfolio
Shares 42,730
Cost $328,410
Market Value....... -- -- -- -- $ 260,654 -- --
Investments in Van
Kampen Funds:
Strategic Stock
Portfolio
Shares 464,524
Cost $5,261,926
Market Value....... -- -- -- -- -- $5,541,771 --
Enterprise Portfolio
Shares 193,425
Cost $3,847,144
Market Value....... -- -- -- -- -- -- $4,330,789
Due from Hartford Life
and Annuity Insurance
Company............... 155,793 55,025 6,044 181 5 4,648 25,755
Receivable from fund
shares sold........... -- 1 14 2 10 1 10
----------- ----------- ----------- ------------ ------------- ---------------- ------------
Total Assets........... 80,919,022 24,785,717 10,112,979 7,419,004 260,669 5,546,420 4,356,554
----------- ----------- ----------- ------------ ------------- ---------------- ------------
LIABILITIES:
Due to Hartford Life
and Annuity Insurance
Company............... -- 1 14 2 -- 1 10
Payable for fund shares
purchased............. 155,795 55,018 6,032 30 -- 4,639 25,838
----------- ----------- ----------- ------------ ------------- ---------------- ------------
Total Liabilities...... 155,795 55,019 6,046 32 -- 4,640 25,848
----------- ----------- ----------- ------------ ------------- ---------------- ------------
Net Assets (variable
annuity contract
liabilities).......... $80,763,227 $24,730,698 $10,106,933 $7,418,972 $ 260,669 $5,541,780 $4,330,706
----------- ----------- ----------- ------------ ------------- ---------------- ------------
----------- ----------- ----------- ------------ ------------- ---------------- ------------
</TABLE>
---------------------------------------------------- 5
----------------------------------------------------
<PAGE>
SEPARATE ACCOUNT THREE
- --------------------------------------------------------------------------------
HARTFORD LIFE & ANNUITY INSURANCE COMPANY
STATEMENTS OF ASSETS & LIABILITIES -- (CONTINUED)
DECEMBER 31, 1998
<TABLE>
<CAPTION>
UNITS
OWNED BY UNIT CONTRACT
PARTICIPANTS PRICE LIABILITY
------------ ----------- ---------------
<S> <C> <C> <C>
INDIVIDUAL DEFERRED ANNUITY
CONTRACTS IN THE ACCUMULATION
PERIOD:
High Yield Portfolio............. 981,503 $ 9.993200 $ 9,808,356
Mid-Cap Portfolio................ 731,306 10.071717 7,365,507
Emerging Markets Debt
Portfolio....................... 37,080 6.752049 250,363
Strategic Stock Portfolio........ 536,323 10.283526 5,515,296
Enterprise Portfolio............. 386,144 10.652197 4,113,285
---------------
SUB-TOTAL........................ 27,052,807
---------------
GROUP DEFERRED ANNUITY CONTRACTS IN
THE ACCUMULATION PERIOD:
Money Market Portfolio........... 9,133,825 11.727893 107,120,521
Money Market Portfolio........... 148,500 10.129111 1,504,171
North American Government
Securities Portfolio............ 631,154 11.642026 7,347,914
North American Government
Securities Portfolio............ 16,324 10.072324 164,417
Balanced Portfolio............... 5,292,106 17.858730 94,510,294
Balanced Portfolio............... 37,695 10.799540 407,091
Utilities Portfolio.............. 3,879,082 20.391484 79,100,247
Utilities Portfolio.............. 25,954 11.264217 292,355
Dividend Growth Portfolio........ 25,789,514 24.846842 640,787,982
Dividend Growth Portfolio........ 90,218 10.879279 981,503
Value-Added Market Portfolio..... 7,412,924 19.843369 147,097,386
Value-Added Market Portfolio..... 17,943 10.761452 193,092
Growth Portfolio................. 2,574,841 18.529740 47,711,134
Growth Portfolio................. 7,419 10.831089 80,352
American Value Portfolio......... 12,902,060 25.729172 331,959,327
American Value Portfolio......... 69,868 11.159476 779,688
Global Equity Portfolio.......... 7,310,875 14.917879 109,062,753
Global Equity Portfolio.......... 6,852 10.474352 71,767
Developing Growth Portfolio...... 3,663,550 20.317799 74,435,264
Developing Growth Portfolio...... 3,187 10.865081 34,631
Emerging Markets Portfolio....... 1,512,432 7.980718 12,070,292
Emerging Markets Portfolio....... 1,275 9.182775 11,705
Diversified Income Portfolio..... 6,373,017 12.576658 80,151,254
Diversified Income Portfolio..... 59,341 9.978254 592,123
Mid-Cap Portfolio................ 2,074,870 11.913063 24,718,055
Mid-Cap Portfolio................ 1,207 10.476762 12,642
High Yield Portfolio............. 29,867 9.996828 298,577
Mid-Cap Portfolio................ 4,792 11.157546 53,465
Emerging Markets Debt
Portfolio....................... 1,228 8.390427 10,305
Strategic Stock Portfolio........ 2,482 10.668966 26,484
Enterprise Portfolio............. 19,479 11.162071 217,421
---------------
SUB-TOTAL........................ 1,761,804,212
---------------
TOTAL ACCUMULATION PERIOD........ 1,788,857,019
---------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
---------------------------------------------------- 6
----------------------------------------------------
<PAGE>
<TABLE>
<CAPTION>
UNITS
OWNED BY UNIT CONTRACT
PARTICIPANTS PRICE LIABILITY
------------ ----------- ---------------
<S> <C> <C> <C>
GROUP ANNUITY CONTRACTS IN THE
ANNUITY PERIOD:
Money Market Portfolio........... 107,799 $ 11.727893 $ 126,651
North American Government
Securities Portfolio............ 2,529 11.642026 29,444
Balanced Portfolio............... 2,503 17.858730 44,700
Utilities Portfolio.............. 503 20.391484 10,254
Dividend Growth Portfolio........ 15,386 24.846842 382,290
Value-Added Market Portfolio..... 2,664 19.843369 52,870
Growth Portfolio................. 559 18.529740 10,365
American Value Portfolio......... 2,076 25.729172 53,404
Global Equity Portfolio.......... 144 14.917879 2,145
Developing Growth Portfolio...... 464 20.317799 9,420
Emerging Markets Portfolio....... 1,008 7.980718 8,042
Diversified Income Portfolio..... 1,578 12.576658 19,850
---------------
SUB-TOTAL........................ 749,435
---------------
GRAND TOTAL........................ $ 1,789,606,454
---------------
---------------
</TABLE>
---------------------------------------------------- 7
----------------------------------------------------
<PAGE>
SEPARATE ACCOUNT THREE
- --------------------------------------------------------------------------------
HARTFORD LIFE & ANNUITY INSURANCE COMPANY
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
NORTH AMERICAN
GOVERNMENT
MONEY MARKET SECURITIES
PORTFOLIO PORTFOLIO
SUB-ACCOUNT SUB-ACCOUNT
------------- ---------------
<S> <C> <C>
INVESTMENT INCOME:
Dividends.............. $4,487,479 $246,126
EXPENSES:
Mortality and expense
undertakings.......... (1,252,629) (80,549)
------------- ---------------
Net investment income
(loss).............. 3,234,850 165,577
------------- ---------------
CAPITAL GAINS INCOME..... -- --
------------- ---------------
NET REALIZED AND
UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Net realized gain
(loss) on security
transactions.......... -- 558
Net unrealized
appreciation
(depreciation) of
investments during the
period................ -- (10,221)
------------- ---------------
Net gain (loss) on
investments......... -- (9,663)
------------- ---------------
Net increase
(decrease) in net
assets resulting
from operations..... $3,234,850 $155,914
------------- ---------------
------------- ---------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
---------------------------------------------------- 8
----------------------------------------------------
<PAGE>
<TABLE>
<CAPTION>
VALUE-ADDED AMERICAN
BALANCED UTILITIES DIVIDEND GROWTH MARKET GROWTH VALUE
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
------------ ------------ ---------------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends.............. $ 2,174,572 $ 1,282,646 $10,407,073 $ 1,612,810 $ -- $ 1,769,370
EXPENSES:
Mortality and expense
undertakings.......... (1,119,956) (834,504) (7,831,366) (1,892,218) (588,893) (3,640,226)
------------ ------------ ---------------- ------------- ------------ ------------
Net investment income
(loss).............. 1,054,616 448,142 2,575,707 (279,408) (588,893) (1,870,856)
------------ ------------ ---------------- ------------- ------------ ------------
CAPITAL GAINS INCOME..... 1,697,873 657,872 23,297,871 1,970,707 1,177,870 22,283,610
------------ ------------ ---------------- ------------- ------------ ------------
NET REALIZED AND
UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Net realized gain
(loss) on security
transactions.......... (35,053) (5,860) (116,773) (165,573) (47,737) (129,194)
Net unrealized
appreciation
(depreciation) of
investments during the
period................ 6,624,190 10,977,754 63,796,492 11,736,937 4,134,094 47,944,751
------------ ------------ ---------------- ------------- ------------ ------------
Net gain (loss) on
investments......... 6,589,137 10,971,894 63,679,719 11,571,364 4,086,357 47,815,557
------------ ------------ ---------------- ------------- ------------ ------------
Net increase
(decrease) in net
assets resulting
from operations..... $ 9,341,626 $ 12,077,908 $89,553,297 $ 13,262,663 $ 4,675,334 $ 68,228,311
------------ ------------ ---------------- ------------- ------------ ------------
------------ ------------ ---------------- ------------- ------------ ------------
<CAPTION>
GLOBAL
EQUITY
PORTFOLIO
SUB-ACCOUNT
------------
<S> <C>
INVESTMENT INCOME:
Dividends.............. $ 1,324,949
EXPENSES:
Mortality and expense
undertakings.......... (1,416,119)
------------
Net investment income
(loss).............. (91,170)
------------
CAPITAL GAINS INCOME..... 368,656
------------
NET REALIZED AND
UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Net realized gain
(loss) on security
transactions.......... (522,068)
Net unrealized
appreciation
(depreciation) of
investments during the
period................ 11,960,357
------------
Net gain (loss) on
investments......... 11,438,289
------------
Net increase
(decrease) in net
assets resulting
from operations..... $ 11,715,775
------------
------------
</TABLE>
---------------------------------------------------- 9
----------------------------------------------------
<PAGE>
SEPARATE ACCOUNT THREE
- --------------------------------------------------------------------------------
HARTFORD LIFE & ANNUITY INSURANCE COMPANY
STATEMENTS OF OPERATIONS -- (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
DEVELOPING EMERGING
GROWTH MARKETS
PORTFOLIO PORTFOLIO
SUB-ACCOUNT SUB-ACCOUNT
----------- -----------
<S> <C> <C>
INVESTMENT INCOME:
Dividends.............. $ 165,170 $ 199,262
EXPENSES:
Mortality and expense
undertakings.......... (1,027,959) (224,682)
----------- -----------
Net investment income
(loss).............. (862,789) (25,420)
----------- -----------
CAPITAL GAINS INCOME..... 110,206 44,837
----------- -----------
NET REALIZED AND
UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Net realized gain
(loss) on security
transactions.......... (327,553) (1,361,056)
Net unrealized
appreciation
(depreciation) of
investments during the
period................ 5,740,263 (4,702,323)
----------- -----------
Net gain (loss) on
investments......... 5,412,710 (6,063,379)
----------- -----------
Net increase
(decrease) in net
assets resulting
from operations..... $ 4,660,127 $(6,043,962)
----------- -----------
----------- -----------
</TABLE>
* From inception, April 1, 1998, to December 31, 1998.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
---------------------------------------------------- 10
----------------------------------------------------
<PAGE>
<TABLE>
<CAPTION>
DIVERSIFIED MID-CAP EMERGING
INCOME GROWTH HIGH YIELD MID-CAP MARKETS DEBT STRATEGIC STOCK
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT* SUB-ACCOUNT* SUB-ACCOUNT* SUB-ACCOUNT*
----------- ------------ ------------- ------------- ------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends.............. $ 5,025,183 $ 135,342 $ 551,406 $ 16,572 $ 30,898 $--
EXPENSES:
Mortality and expense
undertakings.......... (949,349) (299,108) (54,533) (37,103) (1,403) (23,290)
----------- ------------ ------------- ------------- ------------- --------
Net investment income
(loss).............. 4,075,834 (163,766) 496,873 (20,531) 29,495 (23,290)
----------- ------------ ------------- ------------- ------------- --------
CAPITAL GAINS INCOME..... 85,594 198,842 96,662 161,531 -- --
----------- ------------ ------------- ------------- ------------- --------
NET REALIZED AND
UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Net realized gain
(loss) on security
transactions.......... 548 (166,311) (1,146) 458 (1,631) 53
Net unrealized
appreciation
(depreciation) of
investments during the
period................ (2,456,320) 790,477 (421,185) 433,339 (67,755) 279,845
----------- ------------ ------------- ------------- ------------- --------
Net gain (loss) on
investments......... (2,455,772) 624,166 (422,331) 433,797 (69,386) 279,898
----------- ------------ ------------- ------------- ------------- --------
Net increase
(decrease) in net
assets resulting
from operations..... $ 1,705,656 $ 659,242 $ 171,204 $574,797 $(39,891) $256,608
----------- ------------ ------------- ------------- ------------- --------
----------- ------------ ------------- ------------- ------------- --------
<CAPTION>
ENTERPRISE
PORTFOLIO
SUB-ACCOUNT*
-------------
<S> <C>
INVESTMENT INCOME:
Dividends.............. $--
EXPENSES:
Mortality and expense
undertakings.......... (18,104)
-------------
Net investment income
(loss).............. (18,104)
-------------
CAPITAL GAINS INCOME..... --
-------------
NET REALIZED AND
UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Net realized gain
(loss) on security
transactions.......... (1,243)
Net unrealized
appreciation
(depreciation) of
investments during the
period................ 483,645
-------------
Net gain (loss) on
investments......... 482,402
-------------
Net increase
(decrease) in net
assets resulting
from operations..... $464,298
-------------
-------------
</TABLE>
* From inception, April 1, 1998, to December 31, 1998.
---------------------------------------------------- 11
----------------------------------------------------
<PAGE>
SEPARATE ACCOUNT THREE
- --------------------------------------------------------------------------------
HARTFORD LIFE & ANNUITY INSURANCE COMPANY
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
NORTH AMERICAN
MONEY MARKET GOVERMENT SECURITIES
PORTFOLIO PORTFOLIO
SUB-ACCOUNT SUB-ACCOUNT
------------ ---------------------
<S> <C> <C>
OPERATIONS:
Net investment income
(loss)................ $ 3,234,850 $ 165,577
Capital gains income... -- --
Net realized gain
(loss) on security
transactions.......... -- 558
Net unrealized
appreciation
(depreciation) of
investments during the
period................ -- (10,221)
------------ -----------
Net increase (decrease)
in net assets
resulting from
operations............ 3,234,850 155,914
------------ -----------
UNIT TRANSACTIONS:
Purchases.............. 26,624,283 1,435,170
Net transfers.......... 22,818,051 1,932,564
Surrenders for benefit
payments and fees..... (18,966,767 ) (689,182)
Net annuity
transactions.......... 122,565 28,537
------------ -----------
Net increase (decrease)
in net assets
resulting from unit
transactions.......... 30,598,132 2,707,089
------------ -----------
Total increase
(decrease) in net
assets................ 33,832,982 2,863,003
NET ASSETS:
Beginning of period.... 74,918,361 4,678,772
------------ -----------
End of period.......... $108,751,343 $7,541,775
------------ -----------
------------ -----------
</TABLE>
HARTFORD LIFE & ANNUITY INSURANCE COMPANY
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
NORTH AMERICAN
MONEY MARKET GOVERMENT SECURITIES
PORTFOLIO PORTFOLIO
SUB-ACCOUNT SUB-ACCOUNT
------------ ---------------------
<S> <C> <C>
OPERATIONS:
Net investment income
(loss)................ $ 3,091,495 $ 145,013
Capital gains income... -- --
Net realized gain
(loss) on security
transactions.......... -- (263)
Net unrealized
appreciation
(depreciation) of
investments during the
period................ -- 38,369
------------ -----------
Net increase (decrease)
in net assets
resulting from
operations............ 3,091,495 183,119
------------ -----------
UNIT TRANSACTIONS:
Purchases.............. 64,717,334 1,138,836
Net transfers.......... (63,595,299 ) (44,078)
Surrenders for benefit
payments and fees..... (10,838,772 ) (426,779)
Net annuity
transactions.......... -- --
------------ -----------
Net increase (decrease)
in net assets
resulting from unit
transactions.......... (9,716,737 ) 667,979
------------ -----------
Total increase
(decrease) in net
assets................ (6,625,242 ) 851,098
NET ASSETS:
Beginning of period.... 81,543,603 3,827,674
------------ -----------
End of period.......... $74,918,361 $4,678,772
------------ -----------
------------ -----------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
---------------------------------------------------- 12
----------------------------------------------------
<PAGE>
<TABLE>
<CAPTION>
VALUE-ADDED AMERICAN
BALANCED UTILITIES DIVIDEND GROWTH MARKET GROWTH VALUE
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
---------------- ---------------- ---------------- -------------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment income
(loss)................ $ 1,054,616 $ 448,142 $ 2,575,707 $ (279,408) $ (588,893) $ (1,870,856)
Capital gains income... 1,697,873 657,872 23,297,871 1,970,707 1,177,870 22,283,610
Net realized gain
(loss) on security
transactions.......... (35,053) (5,860) (116,773) (165,573) (47,737) (129,194)
Net unrealized
appreciation
(depreciation) of
investments during the
period................ 6,624,190 10,977,754 63,796,492 11,736,937 4,134,094 47,944,751
---------------- ---------------- ---------------- -------------- ------------- --------------
Net increase (decrease)
in net assets
resulting from
operations............ 9,341,626 12,077,908 89,553,297 13,262,663 4,675,334 68,228,311
---------------- ---------------- ---------------- -------------- ------------- --------------
UNIT TRANSACTIONS:
Purchases.............. 9,515,720 10,420,385 61,282,019 11,743,594 5,811,059 31,893,265
Net transfers.......... 14,734,535 12,899,339 59,525,570 7,479,605 2,982,317 38,226,729
Surrenders for benefit
payments and fees..... (3,951,159) (4,262,502) (32,837,181) (5,597,839) (2,297,690) (14,448,089)
Net annuity
transactions.......... 15,874 (2,553) 271,624 12,632 (1,811) 18,420
---------------- ---------------- ---------------- -------------- ------------- --------------
Net increase (decrease)
in net assets
resulting from unit
transactions.......... 20,314,970 19,054,669 88,242,032 13,637,992 6,493,875 55,690,325
---------------- ---------------- ---------------- -------------- ------------- --------------
Total increase
(decrease) in net
assets................ 29,656,596 31,132,577 177,795,329 26,900,655 11,169,209 123,918,636
NET ASSETS:
Beginning of period.... 65,305,489 48,270,279 464,356,446 120,442,693 36,632,642 208,873,783
---------------- ---------------- ---------------- -------------- ------------- --------------
End of period.......... $ 94,962,085 $ 79,402,856 $642,151,775 $ 147,343,348 $ 47,801,851 $ 332,792,419
---------------- ---------------- ---------------- -------------- ------------- --------------
---------------- ---------------- ---------------- -------------- ------------- --------------
<CAPTION>
GLOBAL
EQUITY
PORTFOLIO
SUB-ACCOUNT
--------------
<S> <C>
OPERATIONS:
Net investment income
(loss)................ $ (91,170)
Capital gains income... 368,656
Net realized gain
(loss) on security
transactions.......... (522,068)
Net unrealized
appreciation
(depreciation) of
investments during the
period................ 11,960,357
--------------
Net increase (decrease)
in net assets
resulting from
operations............ 11,715,775
--------------
UNIT TRANSACTIONS:
Purchases.............. 8,280,760
Net transfers.......... 5,278,620
Surrenders for benefit
payments and fees..... (5,716,942)
Net annuity
transactions.......... (440)
--------------
Net increase (decrease)
in net assets
resulting from unit
transactions.......... 7,841,998
--------------
Total increase
(decrease) in net
assets................ 19,557,773
NET ASSETS:
Beginning of period.... 89,578,892
--------------
End of period.......... $ 109,136,665
--------------
--------------
</TABLE>
<TABLE>
<CAPTION>
VALUE-ADDED AMERICAN
BALANCED UTILITIES DIVIDEND GROWTH MARKET GROWTH VALUE
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
---------------- ---------------- ---------------- -------------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment income
(loss)................ $ 349,565 $ 567,984 $ 2,299,595 $ 28,854 $ (332,587) $ (1,697,234)
Capital gains income... 153,577 134,400 12,570,055 189,721 117,643 3,034,595
Net realized gain
(loss) on security
transactions.......... (30,616) 7,972 (17,569) 30,754 (18,550) (68,035)
Net unrealized
appreciation
(depreciation) of
investments during the
period................ 6,868,859 8,330,451 57,370,303 19,452,060 5,016,132 39,904,216
---------------- ---------------- ---------------- -------------- ------------- --------------
Net increase (decrease)
in net assets
resulting from
operations............ 7,341,385 9,040,807 72,222,384 19,701,389 4,782,638 41,173,542
---------------- ---------------- ---------------- -------------- ------------- --------------
UNIT TRANSACTIONS:
Purchases.............. 18,839,623 8,183,839 132,652,810 27,666,361 12,427,733 45,122,601
Net transfers.......... 6,155,476 175,689 35,404,176 11,734,255 3,567,836 17,691,903
Surrenders for benefit
payments and fees..... (3,322,915) (3,224,364) (16,271,820) (3,984,638) (1,013,872) (6,922,611)
Net annuity
transactions.......... 8,967 9,844 3,406 1,734 6,199 (6,552)
---------------- ---------------- ---------------- -------------- ------------- --------------
Net increase (decrease)
in net assets
resulting from unit
transactions.......... 21,681,151 5,145,008 151,788,572 35,417,712 14,987,896 55,885,341
---------------- ---------------- ---------------- -------------- ------------- --------------
Total increase
(decrease) in net
assets................ 29,022,536 14,185,815 224,010,956 55,119,101 19,770,534 97,058,883
NET ASSETS:
Beginning of period.... 36,282,953 34,084,464 240,345,490 65,323,592 16,862,108 111,814,900
---------------- ---------------- ---------------- -------------- ------------- --------------
End of period.......... $ 65,305,489 $ 48,270,279 $464,356,446 $ 120,442,693 $ 36,632,642 $ 208,873,783
---------------- ---------------- ---------------- -------------- ------------- --------------
---------------- ---------------- ---------------- -------------- ------------- --------------
<CAPTION>
GLOBAL
EQUITY
PORTFOLIO
SUB-ACCOUNT
-------------
<S> <C>
OPERATIONS:
Net investment income
(loss)................ $ (412,774)
Capital gains income... 115,160
Net realized gain
(loss) on security
transactions.......... 36,445
Net unrealized
appreciation
(depreciation) of
investments during the
period................ 4,176,748
-------------
Net increase (decrease)
in net assets
resulting from
operations............ 3,915,579
-------------
UNIT TRANSACTIONS:
Purchases.............. 27,675,147
Net transfers.......... 8,014,517
Surrenders for benefit
payments and fees..... (3,499,654)
Net annuity
transactions.......... (252)
-------------
Net increase (decrease)
in net assets
resulting from unit
transactions.......... 32,189,758
-------------
Total increase
(decrease) in net
assets................ 36,105,337
NET ASSETS:
Beginning of period.... 53,473,555
-------------
End of period.......... $ 89,578,892
-------------
-------------
</TABLE>
---------------------------------------------------- 13
----------------------------------------------------
<PAGE>
SEPARATE ACCOUNT THREE
- --------------------------------------------------------------------------------
HARTFORD LIFE & ANNUITY INSURANCE COMPANY
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
DEVELOPING EMERGING
GROWTH MARKETS
PORTFOLIO PORTFOLIO
SUB-ACCOUNT SUB-ACCOUNT
----------- -----------
<S> <C> <C>
OPERATIONS:
Net investment income
(loss)................ $ (862,789) $ (25,420)
Capital gains income... 110,206 44,837
Net realized gain
(loss) on security
transactions.......... (327,553) (1,361,056)
Net unrealized
appreciation
(depreciation) of
investments during the
period................ 5,740,263 (4,702,323)
----------- -----------
Net increase (decrease)
in net assets
resulting from
operations............ 4,660,127 (6,043,962)
----------- -----------
UNIT TRANSACTIONS:
Purchases.............. 4,110,151 726,460
Net transfers.......... (5,495,094) (3,374,149)
Surrenders for benefit
payments and fees..... (4,440,843) (1,031,340)
Net annuity
transactions.......... (3,733) (3,230)
----------- -----------
Net increase (decrease)
in net assets
resulting from unit
transactions.......... (5,829,519) (3,682,259)
----------- -----------
Total increase
(decrease) in net
assets................ (1,169,392) (9,726,221)
NET ASSETS:
Beginning of period.... 75,648,707 21,816,258
----------- -----------
End of period.......... $74,479,315 $12,090,037
----------- -----------
----------- -----------
</TABLE>
* From inception, April 1, 1998, to December 31, 1998.
HARTFORD LIFE & ANNUITY INSURANCE COMPANY
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
DEVELOPING EMERGING
GROWTH MARKETS
PORTFOLIO PORTFOLIO
SUB-ACCOUNT SUB-ACCOUNT
----------- -----------
<S> <C> <C>
OPERATIONS:
Net investment income
(loss)..................... $ (784,298) $ (214,476)
Capital gains income........ -- --
Net realized gain (loss) on
security transactions...... (5,287) (289,528)
Net unrealized appreciation
(depreciation) of
investments during the
period..................... 8,288,212 (422,890)
----------- -----------
Net increase (decrease) in
net assets resulting from
operations................. 7,498,627 (926,894)
----------- -----------
UNIT TRANSACTIONS:
Purchases................... 13,609,919 7,234,504
Net transfers............... 1,398,815 665,359
Surrenders for benefit
payments and fees.......... (3,560,130) (1,087,778)
Net annuity transactions.... (3,225) 3,713
----------- -----------
Net increase (decrease) in
net assets resulting from
unit transactions.......... 11,445,379 6,815,798
----------- -----------
Total increase (decrease) in
net assets................. 18,944,006 5,888,904
NET ASSETS:
Beginning of period......... 56,704,701 15,927,354
----------- -----------
End of period............... $75,648,707 $21,816,258
----------- -----------
----------- -----------
</TABLE>
** From inception, January 21, 1997 to December 31, 1997.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
---------------------------------------------------- 14
----------------------------------------------------
<PAGE>
<TABLE>
<CAPTION>
DIVERSIFIED MID-CAP EMERGING
INCOME GROWTH HIGH YIELD MID-CAP MARKETS DEBT STRATEGIC STOCK
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT* SUB-ACCOUNT* SUB-ACCOUNT* SUB-ACCOUNT*
----------- ----------- ------------- ------------- ------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment income
(loss)................ $ 4,075,834 $ (163,766) $ 496,873 $ (20,531) $ 29,495 $ (23,290)
Capital gains income... 85,594 198,842 96,662 161,531 -- --
Net realized gain
(loss) on security
transactions.......... 548 (166,311) (1,146) 458 (1,631) 53
Net unrealized
appreciation
(depreciation) of
investments during the
period................ (2,456,320) 790,477 (421,185) 433,339 (67,755) 279,845
----------- ----------- ------------- ------------- ------------- ----------------
Net increase (decrease)
in net assets
resulting from
operations............ 1,705,656 659,242 171,204 574,797 (39,891) 256,608
----------- ----------- ------------- ------------- ------------- ----------------
UNIT TRANSACTIONS:
Purchases.............. 8,572,861 4,768,336 3,719,605 2,520,643 119,619 1,952,495
Net transfers.......... 21,054,049 2,911,337 6,350,686 4,446,588 185,592 3,478,285
Surrenders for benefit
payments and fees..... (5,684,565) (810,632) (134,562) (123,056) (4,651) (145,608)
Net annuity
transactions.......... 6,816 -- -- -- -- --
----------- ----------- ------------- ------------- ------------- ----------------
Net increase (decrease)
in net assets
resulting from unit
transactions.......... 23,949,161 6,869,041 9,935,729 6,844,175 300,560 5,285,172
----------- ----------- ------------- ------------- ------------- ----------------
Total increase
(decrease) in net
assets................ 25,654,817 7,528,283 10,106,933 7,418,972 260,669 5,541,780
NET ASSETS:
Beginning of period.... 55,108,410 17,202,415 -- -- -- --
----------- ----------- ------------- ------------- ------------- ----------------
End of period.......... $80,763,227 $24,730,698 $10,106,933 $7,418,972 $260,669 $5,541,780
----------- ----------- ------------- ------------- ------------- ----------------
----------- ----------- ------------- ------------- ------------- ----------------
<CAPTION>
ENTERPRISE
PORTFOLIO
SUB-ACCOUNT*
-------------
<S> <C>
OPERATIONS:
Net investment income
(loss)................ $ (18,104)
Capital gains income... --
Net realized gain
(loss) on security
transactions.......... (1,243)
Net unrealized
appreciation
(depreciation) of
investments during the
period................ 483,645
-------------
Net increase (decrease)
in net assets
resulting from
operations............ 464,298
-------------
UNIT TRANSACTIONS:
Purchases.............. 1,417,282
Net transfers.......... 2,480,461
Surrenders for benefit
payments and fees..... (31,335)
Net annuity
transactions.......... --
-------------
Net increase (decrease)
in net assets
resulting from unit
transactions.......... 3,866,408
-------------
Total increase
(decrease) in net
assets................ 4,330,706
NET ASSETS:
Beginning of period.... --
-------------
End of period.......... $4,330,706
-------------
-------------
</TABLE>
<TABLE>
<CAPTION>
DIVERSIFIED MID-CAP
INCOME GROWTH
PORTFOLIO PORTFOLIO
SUB-ACCOUNT SUB-ACCOUNT**
----------- --------------
<S> <C> <C>
OPERATIONS:
Net investment income
(loss)..................... $ 2,714,644 $ 10,736
Capital gains income........ 85,168 --
Net realized gain (loss) on
security transactions...... (5,596) (7,656)
Net unrealized appreciation
(depreciation) of
investments during the
period..................... 109,953 1,380,848
----------- --------------
Net increase (decrease) in
net assets resulting from
operations................. 2,904,169 1,383,928
----------- --------------
UNIT TRANSACTIONS:
Purchases................... 20,848,788 9,195,939
Net transfers............... 4,855,360 6,858,060
Surrenders for benefit
payments and fees.......... (3,059,195) (235,512)
Net annuity transactions.... 12,363 --
----------- --------------
Net increase (decrease) in
net assets resulting from
unit transactions.......... 22,657,316 15,818,487
----------- --------------
Total increase (decrease) in
net assets................. 25,561,485 17,202,415
NET ASSETS:
Beginning of period......... 29,546,925 --
----------- --------------
End of period............... $55,108,410 $17,202,415
----------- --------------
----------- --------------
</TABLE>
---------------------------------------------------- 15
----------------------------------------------------
<PAGE>
SEPARATE ACCOUNT THREE
- --------------------------------------------------------------------------------
HARTFORD LIFE & ANNUITY INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
1. ORGANIZATION:
Separate Account Three (the Account) is a separate investment account within
Hartford Life & Annuity Insurance Company (the Company) and is registered
with the Securities and Exchange Commission (SEC) as a unit investment trust
under the Investment Company Act of 1940, as amended. Both the Company and
the Account are subject to supervision and regulation by the Department of
Insurance of the State of Connecticut and the SEC. The Account invests
deposits by variable annuity contractholders of the Company in various
mutual funds (the Funds), as directed by the contractholders.
2. SIGNIFICANT ACCOUNTING POLICIES:
The following is a summary of significant accounting policies of the
Account, which are in accordance with generally accepted accounting
principles in the investment company industry:
a) SECURITY TRANSACTIONS--Security transactions are recorded on the trade
date (date the order to buy or sell is executed). Cost of investments
sold is determined on the basis of identified cost. Dividend and capital
gains income is accrued as of the ex-dividend date. Capital gains income
represents those dividends from the Funds which are characterized as
capital gains under tax regulations.
b) SECURITY VALUATION--The investments in shares of the Morgan Stanley Dean
Witter Select Dimensions Investment Series, the Morgan Stanley Universal
Funds, Inc. and the Van Kampen American Capital Life Investment Trust
Mutual Funds is valued at the closing net asset value per share as
determined by the appropriate Fund as of December 31, 1998.
c) FEDERAL INCOME TAXES--The operations of the Account form a part of, and
are taxed with, the total operations of the Company, which is taxed as an
insurance company under the Internal Revenue Code. Under current law, no
federal income taxes are payable with respect to the operations of the
Account.
d) USE OF ESTIMATES--The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities as of the date of the financial statements and the reported
amounts of income and expenses during the period. Operating results in
the future could vary from the amounts derived from management's
estimates.
3. ADMINISTRATION OF THE ACCOUNT AND RELATED CHARGES:
a) MORTALITY AND EXPENSE UNDERTAKINGS--The Company, as issuer of variable
annuity contracts, provides the mortality and expense undertakings and,
with respect to the Account, receives a maximum annual fee of up to 1.50%
of the Account's average daily net assets. The Company also provides
administrative services and receives an annual fee of 0.15% of the
Account's average daily net assets.
b) DEDUCTION OF ANNUAL MAINTENANCE FEE--Annual maintenance fees are deducted
through termination of units of interest from applicable contract owners'
accounts, in accordance with the terms of the contracts. These expenses
are reflected in Surrenders for benefit payments and fees on the
accompanying statements of changes in net assets.
______________________________________ 16 ______________________________________
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
- --------------------------------------------------------------------------------
TO HARTFORD LIFE & ANNUITY INSURANCE COMPANY
SEPARATE ACCOUNT THREE AND TO THE OWNERS OF UNITS OF INTEREST THEREIN:
We have audited the accompanying statements of assets and liabilities of
Hartford Life & Annuity Insurance Company Separate Account Three (Money Market
Portfolio, North American Government Securities Portfolio, Balanced Portfolio,
Utilities Portfolio, Dividend Growth Portfolio, Value-Added Market Portfolio,
Growth Portfolio, American Value Portfolio, Global Equity Portfolio, Developing
Growth Portfolio, Emerging Markets Portfolio, Diversified Income Portfolio,
Mid-Cap Growth Portfolio, High Yield Portfolio, Mid-Cap Portfolio, Emerging
Markets Debt Portfolio, Strategic Stock Portfolio, and Enterprise Portfolio),
(collectively, the Account) as of December 31, 1998, and the related statements
of operations and the statements of changes in net assets for the periods
presented. These financial statements are the responsibility of the Account's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the Account as of December 31,
1998, and the results of their operations and the changes in their net assets
for the periods presented in conformity with generally accepted accounting
principles.
Hartford, Connecticut
February 15, 1999 ARTHUR ANDERSEN LLP
______________________________________ 17 ______________________________________
