<PAGE>
As filed with the Securities and Exchange Commission on April 13, 1999.
File No. 33-80732
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Pre-Effective Amendment No. [ ]
-----
Post-Effective Amendment No. 6 [X]
-----
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 12 [X]
-----
HARTFORD LIFE AND ANNUITY INSURANCE COMPANY
SEPARATE ACCOUNT THREE
(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)
It is proposed that this filing will become effective:
immediately upon filing pursuant to paragraph (b) of Rule 485
-----
X on May 3, 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)(1) UNDER THE INVESTMENT COMPANY ACT OF 1940, THE
REGISTRANT HAS REGISTERED AN INDEFINITE AMOUNT OF SECURITIES.
<PAGE>
CROSS REFERENCE SHEET
PURSUANT TO RULE 495(a)
<TABLE>
<CAPTION>
N-4 Item No. Prospectus Heading
- ------------------------------------------- -------------------------------------
<S> <C>
1. Cover Page Cover Page
2. Definitions Glossary of Special Terms
3. Synopsis or Highlights Summary
4. Condensed Financial Information Statement of Additional Information
5. General Description of Registrant, The Contract; The Separate
Depositor, and Portfolio Companies Account; The Fixed Account;
Hartford Life and Annuity
Insurance Company; The
Portfolios; General Matters
6. Deductions Charges Under the Contract
7. General Description of Operation of the Contract
Annuity Contracts Accumulation Period; Death
Benefit; The Contract; The
Separate Account; General Matters
8. Annuity Period Annuity Benefits
9. Death Benefit Death Benefit
10. Purchases and Contract Value Operation of the Contract/
Accumulation Period
11. Redemptions Operation of the Contract/
Accumulation Period
12. Taxes Federal Tax Considerations
13. Legal Proceedings General Matters - Legal
Proceedings
<PAGE>
14. Table of Contents of the Statement Table of Contents to the
of Additional Information Statement of Additional Information
15. Cover Page Part B; Statement of
Additional Information
16. Table of Contents Tables of Contents
17. General Information and None
History
18. Services None
19. Purchase of Securities Distribution of Contracts
being Offered
20. Underwriters Distribution of Contracts
21. Calculation of Performance Calculation of Yield and
Data Return
22. Annuity Payments None
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
Common Control with the Depositor Under Common Control with Depositor or
Registrant the Depositor or Registrant
27. Number of Contract Owners Number of Contract Owners
28. Indemnification Indemnification
29. Principal Underwriters Principal Underwriters
30. Location of Accounts and Records Location of Accounts and Records
31. Management Services Management Services
32. Undertakings Undertakings
</TABLE>
<PAGE>
Part A
<PAGE>
HARTFORD LIFE AND ANNUITY INSURANCE COMPANY
DEAN WITTER SELECT DIMENSIONS VARIABLE ANNUITY
SEPARATE ACCOUNT THREE
P.O. Box 5085
Hartford, Connecticut 06102-5085
Telephone: 1-800-862-6668 (Contract Owners)
1-800-862-4397 (Account Executive)
- --------------------------------------------------------------------------------
This Prospectus describes information you should know before you purchase Series
I of the Dean Witter Select Dimensions variable annuity. Please read it
carefully.
Dean Witter Select Dimensions variable annuity is a contract between you and
Hartford Life and Annuity Insurance Company where you agree to make at least one
Premium Payment to us and we agree to make a series of Annuity Payouts at a
later date. This Annuity is a flexible premium, tax-deferred, variable annuity
offered to both individuals and groups. It is:
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 Payouts.
x Variable, because the value of your Annuity will fluctuate with the
performance of the underlying portfolios.
At the time you purchase your Annuity, you allocate your Premium Payment to
"Sub-Accounts". These are subdivisions of our Separate Account, an account that
keeps your Annuity assets separate from our company assets. The Sub-Accounts
then purchase shares of mutual funds set up exclusively for variable annuity or
variable life insurance products. These portfolios 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 Portfolios with investment strategies
ranging from conservative to aggressive and you may pick those Portfolios that
meet your investment goals and risk tolerance. The Sub-Accounts and the
Portfolios are listed below:
- - Money Market Sub-Account which purchases shares of Money Market Portfolio of
the Morgan Stanley Dean Witter Select Dimensions Investment Series;
- - North American Government Securities Sub-Account which purchases shares of
North American Government Securities Portfolio of the Morgan Stanley Dean
Witter Select Dimensions Investment Series;
- - Diversified Income Sub-Account which purchases shares of Diversified Income
Portfolio of the Morgan Stanley Dean Witter Select Dimensions Investment
Series;
- - Balanced Growth Sub-Account which purchases shares of Balanced Growth
Portfolio of the Morgan Stanley Dean Witter Select Dimensions Investment
Series;
- - Utilities Sub-Account which purchases shares of Utilities Portfolio of the
Morgan Stanley Dean Witter Select Dimensions Investment Series;
- - Dividend Growth Portfolio which purchases shares of Dividend Growth Portfolio
of the Morgan Stanley Dean Witter Select Dimensions Investment Series;
- - Value-Added Market Sub-Account which purchases shares of Value-Added Market
Portfolio of the Morgan Stanley Dean Witter Select Dimensions Investment
Series;
- - Growth Sub-Account which purchases shares of Growth Portfolio of the Morgan
Stanley Dean Witter Select Dimensions Investment Series;
- - American Value Portfolio which purchases shares of American Value Portfolio of
the Morgan Stanley Dean Witter Select Dimensions Investment Series;
- - Mid-Cap Growth Sub-Account which purchases shares of Mid-Cap Growth Portfolio
of the Morgan Stanley Dean Witter Select Dimensions Investment Series;
- - Global Equity Sub-Account which purchases shares of Global Equity Portfolio of
the Morgan Stanley Dean Witter Select Dimensions Investment Series;
1 - PROSPECTUS
<PAGE>
- - Developing Growth Sub-Account which purchases shares of Developing Growth
Portfolio of the Morgan Stanley Dean Witter Select Dimensions Investment
Series;
- - Emerging Markets Sub-Account which purchases shares of Emerging Markets
Portfolio of the Morgan Stanley Dean Witter Select Dimensions Investment
Series;
- - High Yield Sub-Account which purchases shares of High Yield Portfolio of the
Morgan Stanley Dean Witter Universal Funds, Inc.;
- - Mid-Cap Value Sub-Account which purchases shares of Mid-Cap Value Portfolio of
the Morgan Stanley Dean Witter Universal Funds, Inc.;
- - Emerging Markets Debt Sub-Account which purchases shares of Emerging Markets
Debt Portfolio of the Morgan Stanley Dean Witter Universal Funds, Inc.;
- - Strategic Stock Sub-Account which purchases shares of Strategic Stock
Portfolio of the Van Kampen Life Investment Trust;
- - Enterprise Sub-Account which purchases shares of Enterprise Portfolio of the
Van Kampen Life Investment Trust.
You may also allocate some or all of your Premium Payment to the "Fixed
Accumulation Feature", which pays an interest rate guaranteed for a certain time
period from the time the Premium Payment is made. Premium Payments allocated to
the 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 1-800-862-6668 to get a Statement of Additional
Information, free of charge. The Statement of Additional Information contains
more information about this Annuity and, like this prospectus, is filed with the
Securities and Exchange Commission ("SEC"). We have included the Table of
Contents for the Statement of Additional Information at the end of this
prospectus.
Although we file the prospectus and the Statement of Additional information with
the SEC, the SEC doesn't approve or disapprove these securities or determine if
the information is truthful or complete. Anyone who represents that the SEC does
these things may be guilty of a criminal offense. This Prospectus and the
Statement of Additional Information can also be obtained from the SEC's website
(HTTP://WWW.SEC.GOV).
This Annuity IS NOT:
- - A bank deposit or obligation
- - Federally insured
- - Endorsed by any bank or governmental agency
This Annuity may not be available for sale in all states.
Prospectus Dated: May 3, 1999
Statement of Additional Information Dated: May 3, 1999
2 - PROSPECTUS
<PAGE>
TABLE OF CONTENTS
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<TABLE>
<CAPTION>
PAGE
----------------------------------------------------------------------------
<S> <C>
Definitions 4
----------------------------------------------------------------------------
Fee Table 6
----------------------------------------------------------------------------
Accumulation Unit Values 9
----------------------------------------------------------------------------
Highlights 11
----------------------------------------------------------------------------
General Contract Information 12
----------------------------------------------------------------------------
Hartford Life and Annuity Insurance Company 12
----------------------------------------------------------------------------
Separate Account 12
----------------------------------------------------------------------------
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. 12
----------------------------------------------------------------------------
The Portfolios 12
----------------------------------------------------------------------------
The Investment Advisers 14
----------------------------------------------------------------------------
Performance Related Information 15
----------------------------------------------------------------------------
The Fixed Accumulation Feature 16
----------------------------------------------------------------------------
<CAPTION>
PAGE
<S> <C>
----------------------------------------------------------------------------
The Contract 17
----------------------------------------------------------------------------
Purchases and Contract Value 17
----------------------------------------------------------------------------
Charges and Fees 19
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Death Benefit 21
----------------------------------------------------------------------------
Surrenders 22
----------------------------------------------------------------------------
Annuity Payouts 23
----------------------------------------------------------------------------
Other Programs Available 25
----------------------------------------------------------------------------
Other Information 25
----------------------------------------------------------------------------
Legal Matters and Experts 27
----------------------------------------------------------------------------
More Information 28
----------------------------------------------------------------------------
Federal Tax Considerations 28
----------------------------------------------------------------------------
Appendix I - Information Regarding Tax-Qualified Retirement Plans 32
----------------------------------------------------------------------------
</TABLE>
3 - PROSPECTUS
<PAGE>
DEFINITIONS
--------------------------------------------------------------------
These terms are capitalized when used throughout this prospectus. Please refer
to these defined terms if you have any questions as you read your prospectus.
ACCOUNT: Any of the Sub-Accounts or Fixed Accumulation Feature.
ACCUMULATION UNITS: If you allocate your Premium Payment to any of the
Sub-Accounts, we will convert those payments into Accumulation Units in the
selected Sub-Accounts. Accumulation Units are valued at the end of each
Valuation Day and are used to calculate the value of your Contract prior to
Annuitization.
ACCUMULATION UNIT VALUE: The daily price of Accumulation Units on any Valuation
Day.
ADMINISTRATIVE OFFICE OF THE COMPANY: Our location and overnight mailing address
is: 200 Hopmeadow Street, Simsbury, Connecticut 06089. Our standard mailing
address is: Investment Product Services, P.O. Box 5085, Hartford, CT 06102-5085.
ANNIVERSARY VALUE: The value equal to the Contract Value as of a Contract
Anniversary, increased by the dollar amount of any Premium Payments made since
that anniversary and reduced by the dollar amount of any partial Surrenders
since that anniversary.
ANNUAL MAINTENANCE FEE: An annual $30 charge deducted on a Contract Anniversary
or upon full Surrender if the Contract Value at either of those times is less
than $50,000. The charge is deducted proportionately from each Account in which
you are invested.
ANNUAL WITHDRAWAL AMOUNT: This is the amount you can Surrender per Contract Year
without paying a Contingent Deferred Sales Charge. This amount is
non-cumulative, meaning that it cannot be carried over from one year to the
next.
ANNUITANT: The person on whose life the Contract is based. The Annuitant may not
be changed after your Contract is issued.
ANNUITY CALCULATION DATE: The date we calculate the first Annuity Payout.
ANNUITY PAYOUT: The money we pay out after the Annuity Commencement Date for the
duration and frequency you select.
ANNUITY PAYOUT OPTION: Any of the options available for payout after the Annuity
Commencement Date or death of the Contract Owner or Annuitant.
ANNUITY UNIT: The unit of measure we use to calculate the value of your Annuity
Payouts under a variable dollar amount Annuity Payout Option.
ANNUITY UNIT VALUE: The daily price of Annuity Units on any Valuation Day.
BENEFICIARY: The person(s) entitled to receive a Death Benefit upon the death of
the Contract Owner or Annuitant.
CHARITABLE REMAINDER TRUST: An irrevocable trust, where an
individual donor makes a gift to the trust, and in return receives an income tax
deduction. In addition, the individual donor has the right to receive a
percentage of the trust earnings for a specified period of time.
CODE: The Internal Revenue Code of 1986, as amended.
COMMUTED VALUE: The present value of any remaining guaranteed Annuity Payouts.
CONTINGENT ANNUITANT: The person you may designate to become the Annuitant if
the original Annuitant dies before the Annuity Commencement Date. You must name
a Contingent Annuitant before the original Annuitant's death.
CONTINGENT DEFERRED SALES CHARGE: The deferred sales charge that may apply when
you make a full or partial Surrender.
CONTRACT: The individual Annuity Contract and any endorsements or riders. Group
participants and some individuals will receive a certificate rather than a
Contract.
CONTRACT ANNIVERSARY: The anniversary of the date we issued your Contract. If
the Contract Anniversary falls on a Non-Valuation Day, then the Contract
Anniversary will be the next Valuation Day.
CONTRACT VALUE: The total value of the Accounts on any Valuation Day.
CONTRACT YEAR: Any 12 month period between Contract Anniversaries, beginning
with the date the Contract was issued.
DEATH BENEFIT: The amount payable after the Contract Owner or the Annuitant
dies.
DOLLAR COST AVERAGING: A program that allows you to systematically make
transfers between Accounts available in your Contract.
FIXED ACCUMULATION FEATURE: Part of our General Account, where you may allocate
all or a portion of your Contract Value. In your Contract, this is defined as
the "Fixed Account".
GENERAL ACCOUNT: The General Account includes our company assets and any money
you have invested in the Fixed Accumulation Feature.
HARTFORD, WE OR OUR: Hartford Life and Annuity Insurance Company. Only Hartford
is a capitalized term in the prospectus.
JOINT ANNUITANT: The person on whose life Annuity Payouts are based if the
Annuitant dies after Annuitization. You may name a Joint Annuitant only if your
Annuity Payout Option provides for a survivor. The Joint Annuitant may not be
changed.
4 - PROSPECTUS
<PAGE>
MAXIMUM ANNIVERSARY VALUE: This is the highest Anniversary Value prior to the
deceased's 81st birthday or the date of death, if earlier.
NET INVESTMENT FACTOR: This is used to measure the investment performance of a
Sub-Account from one Valuation Day to the next, and is also used to calculate
your Annuity Payout amount.
NON-VALUATION DAY: Any day the New York Stock Exchange is not open for trading.
PAYEE: The person or party you designate to receive Annuity Payouts.
PREMIUM PAYMENT: Money sent to us to be invested in your Annuity.
PREMIUM TAX: A tax charged by a state or municipality on Premium Payments.
REQUIRED MINIMUM DISTRIBUTION: A federal requirement that individuals age 70 1/2
and older must take a distribution from their tax-qualified retirement account
by December 31, each year. For employer sponsored Qualified Contracts, the
individual must begin taking distributions at the age of 70 1/2 or upon
retirement, whichever comes later.
SUB-ACCOUNT VALUE: The value on or before the Annuity Calculation Date, which is
determined on any day by multiplying the number of Accumulation Units by the
Accumulation Unit Value for that Sub-Account.
SURRENDER: A complete or partial withdrawal from your Contract.
SURRENDER VALUE: The amount we pay you if you terminate your Contract before the
Annuity Commencement Date. The Surrender Value is equal to the Contract Value
minus any applicable charges.
VALUATION DAY: Every day the New York Stock Exchange is open for trading. Values
of the Separate Account are determined as of the close of the New York Stock
Exchange, generally 4:00 p.m. Eastern Time.
VALUATION PERIOD: The time span between the close of trading on the New York
Stock Exchange from one Valuation Day to the next.
5 - PROSPECTUS
<PAGE>
FEE TABLE
CONTRACT OWNER TRANSACTION EXPENSES
<TABLE>
<S> <C>
Sales Load Imposed on Purchases
(as a percentage of Premium Payments) None
- ---------------------------------------------------------------------------------------------------------------------------------
DEFERRED SALES CHARGE (as a percentage of amounts Surrendered)
First Year (1) 6%
- ---------------------------------------------------------------------------------------------------------------------------------
Second Year 6%
- ---------------------------------------------------------------------------------------------------------------------------------
Third Year 5%
- ---------------------------------------------------------------------------------------------------------------------------------
Fourth Year 5%
- ---------------------------------------------------------------------------------------------------------------------------------
Fifth Year 4%
- ---------------------------------------------------------------------------------------------------------------------------------
Sixth Year 3%
- ---------------------------------------------------------------------------------------------------------------------------------
Seventh Year 2%
- ---------------------------------------------------------------------------------------------------------------------------------
Eighth Year 0%
- ---------------------------------------------------------------------------------------------------------------------------------
Annual Maintenance Fee (2) $30
- ---------------------------------------------------------------------------------------------------------------------------------
SEPARATE ACCOUNT ANNUAL EXPENSES (as a percentage of average Sub-Account Value)
- ---------------------------------------------------------------------------------------------------------------------------------
Mortality and Expense Risk Charge 1.25%
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Length of time from Premium Payment.
(2) An annual $30 charge deducted on a Contract Anniversary or upon full
Surrender if the Contract Value at either of those times is less than
$50,000. The charge is deducted proportionately from each Account in which
you are invested.
The purpose of this table is to assist you in understanding various fees and
charges you will pay directly or indirectly. The table reflects expenses of the
Separate Account and underlying Portfolios. Premium Taxes, if any, 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. The Annual
Maintenance Fee has been reflected in the Example by a method intended to show
the "average" impact of the Annual Maintenance Fee on an investment in the
Separate Account. We do this by approximating an "average" 0.06% annual charge.
6 - PROSPECTUS
<PAGE>
ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
<TABLE>
<CAPTION>
TOTAL FUND
MANAGEMENT OPERATING
FEES EXPENSES
INCLUDING OTHER INCLUDING
WAIVERS EXPENSES WAIVERS
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------
MORGAN STANLEY DEAN WITTER SELECT DIMENSIONS INVESTMENT SERIES:
Money Market Portfolio 0.500% 0.050% 0.550%
- ------------------------------------------------------------------------------------------------------------------------------
North American Government Securities Portfolio 0.650% 0.500% 1.150%
- ------------------------------------------------------------------------------------------------------------------------------
Diversified Income Portfolio 0.400% 0.090% 0.490%
- ------------------------------------------------------------------------------------------------------------------------------
Balanced Growth Portfolio 0.620% 0.090% 0.710%
- ------------------------------------------------------------------------------------------------------------------------------
Utilities Portfolio 0.650% 0.060% 0.710%
- ------------------------------------------------------------------------------------------------------------------------------
Dividend Growth Portfolio 0.600% 0.030% 0.630%
- ------------------------------------------------------------------------------------------------------------------------------
Value-Added Market Portfolio 0.500% 0.050% 0.550%
- ------------------------------------------------------------------------------------------------------------------------------
Growth Portfolio 0.810% 0.250% 1.060%
- ------------------------------------------------------------------------------------------------------------------------------
American Value Portfolio 0.620% 0.040% 0.660%
- ------------------------------------------------------------------------------------------------------------------------------
Mid-Cap Growth Portfolio (1) 0.750% 0.230% 0.980%
- ------------------------------------------------------------------------------------------------------------------------------
Global Equity Portfolio 1.000% 0.100% 1.100%
- ------------------------------------------------------------------------------------------------------------------------------
Developing Growth Portfolio 0.500% 0.090% 0.590%
- ------------------------------------------------------------------------------------------------------------------------------
Emerging Markets Portfolio 1.250% 0.480% 1.730%
- ------------------------------------------------------------------------------------------------------------------------------
MORGAN STANLEY DEAN WITTER UNIVERSAL FUNDS, INC.:
High Yield Portfolio (2) 0.150% 0.650% 0.800%
- ------------------------------------------------------------------------------------------------------------------------------
Mid-Cap Value Portfolio (2) 0.230% 0.820% 1.050%
- ------------------------------------------------------------------------------------------------------------------------------
Emerging Markets Debt Portfolio (2) 0.270% 1.250% 1.520%
- ------------------------------------------------------------------------------------------------------------------------------
VAN KAMPEN LIFE INVESTMENT TRUST:
Strategic Stock Portfolio (3) 0.000% 0.650% 0.650%
- ------------------------------------------------------------------------------------------------------------------------------
Enterprise Portfolio (3) 0.460% 0.140% 0.600%
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) With respect to the Mid-Cap Growth Portfolio, the expense information shown
in the table above has been restated to reflect the current fees. Prior to
April 30, 1999, the investment adviser, Morgan Stanley Dean Witter Advisors
Inc., assumed all expenses of the Portfolio and waived the compensation
provided for the Portfolio in its management agreement with the Fund.
(2) With respect to the High Yield, Mid-Cap Value and Emerging Markets Debt
Portfolios, the investment advisers have voluntarily agreed to waive their
investment advisory fees and to reimburse the Portfolios for certain other
expenses. Absent such reductions, it is estimated that "Management Fees",
"Other Expenses" and "Total Fund Operating Expenses" for the Portfolios
would have been as follows:
<TABLE>
<CAPTION>
TOTAL FUND
MANAGEMENT OTHER OPERATING
PORTFOLIO FEES EXPENSES EXPENSES
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------
High Yield .500% 0.650% 1.150%
- ------------------------------------------------------------------------------------------------------------------------------
Mid-Cap Value .750% 0.820% 1.570%
- ------------------------------------------------------------------------------------------------------------------------------
Emerging Markets Debt .800% 1.250% 2.050%
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(3) With respect to the Strategic Stock Portfolio and the Enterprise Portfolio,
the investment adviser, Van Kampen Asset Management Inc. has voluntarily
agreed to waive its investment advisory fees and to reimburse the
Portfolios if such fees would cause their respective "Total Fund Operating
Expenses" to exceed those set forth in the table above. Absent such
reductions, it is estimated that "Management Fees", "Other Expenses" and
"Total Fund Operating Expenses" for the Portfolios would have been as
follows:
<TABLE>
<CAPTION>
TOTAL FUND
MANAGEMENT OTHER OPERATING
PORTFOLIO FEES EXPENSES EXPENSES
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------
Strategic Stock .500% 2.090% 2.590%
- ------------------------------------------------------------------------------------------------------------------------------
Enterprise .500% .170% .670%
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
7 - PROSPECTUS
<PAGE>
EXAMPLE
<TABLE>
<CAPTION>
IF YOU SURRENDER YOUR CONTRACT IF YOU ANNUITIZE YOUR CONTRACT
AT THE END OF THE APPLICABLE AT THE END OF THE APPLICABLE
TIME PERIOD YOU WOULD PAY THE TIME PERIOD YOU WOULD PAY THE
FOLLOWING EXPENSES ON A $1,000 FOLLOWING EXPENSES ON A $1,000
INVESTMENT, ASSUMING A 5% INVESTMENT, ASSUMING A 5%
ANNUAL RETURN ON ASSETS: ANNUAL RETURN ON ASSETS:
- ---------------------------------------------------------------------------------------------------------------
3 5 10 3 5 10
SUB-ACCOUNT 1 YEAR YEARS YEARS YEARS 1 YEAR YEARS YEARS YEARS
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Money Market $73 $104 $137 $220 $18 $58 $101 $219
- ---------------------------------------------------------------------------------------------------------------
North American Government Securities 79 123 168 282 25 77 132 281
- ---------------------------------------------------------------------------------------------------------------
Diversified Income 72 102 134 213 18 56 98 212
- ---------------------------------------------------------------------------------------------------------------
Balanced Growth 75 109 146 237 20 63 109 236
- ---------------------------------------------------------------------------------------------------------------
Utilities 75 109 146 237 20 63 109 236
- ---------------------------------------------------------------------------------------------------------------
Dividend Growth 74 106 142 228 19 61 105 227
- ---------------------------------------------------------------------------------------------------------------
Value-Added Market 73 104 137 220 18 58 101 219
- ---------------------------------------------------------------------------------------------------------------
Growth 78 120 164 273 24 74 127 272
- ---------------------------------------------------------------------------------------------------------------
American Value 74 107 143 231 20 62 106 230
- ---------------------------------------------------------------------------------------------------------------
Mid-Cap Growth 67 87 108 159 13 41 72 158
- ---------------------------------------------------------------------------------------------------------------
Global Equity 79 121 166 277 24 75 129 276
- ---------------------------------------------------------------------------------------------------------------
Developing Growth 73 105 140 224 19 60 103 223
- ---------------------------------------------------------------------------------------------------------------
Emerging Markets 85 140 198 339 31 95 161 339
- ---------------------------------------------------------------------------------------------------------------
High Yield 76 112 150 246 21 66 114 245
- ---------------------------------------------------------------------------------------------------------------
Mid-Cap Value 78 119 163 272 24 74 127 271
- ---------------------------------------------------------------------------------------------------------------
Emerging Markets Debt 83 134 187 319 28 88 151 318
- ---------------------------------------------------------------------------------------------------------------
Strategic Stock 74 107 143 230 19 61 106 229
- ---------------------------------------------------------------------------------------------------------------
Enterprise 74 106 140 225 19 60 103 224
- ---------------------------------------------------------------------------------------------------------------
<CAPTION>
IF YOU DO NOT SURRENDER YOUR
CONTRACT, YOU WOULD PAY THE
FOLLOWING EXPENSES ON A $1,000
INVESTMENT, ASSUMING A 5%
ANNUAL RETURN ON ASSETS:
- ---------------------------------------------
3 5 10
SUB-ACCOUNT 1 YEAR YEARS YEARS YEARS
- ---------------------------------------------
<S> <C> <C> <C> <C>
Money Market $19 $59 $101 $220
- ---------------------------------------------
North American Government Securities 25 78 132 282
- ---------------------------------------------
Diversified Income 18 57 98 213
- ---------------------------------------------
Balanced Growth 21 64 110 237
- ---------------------------------------------
Utilities 21 64 110 237
- ---------------------------------------------
Dividend Growth 20 61 106 228
- ---------------------------------------------
Value-Added Market 19 59 101 220
- ---------------------------------------------
Growth 24 75 128 273
- ---------------------------------------------
American Value 20 62 107 231
- ---------------------------------------------
Mid-Cap Growth 13 42 72 159
- ---------------------------------------------
Global Equity 25 76 130 277
- ---------------------------------------------
Developing Growth 19 60 104 224
- ---------------------------------------------
Emerging Markets 31 95 162 339
- ---------------------------------------------
High Yield 22 67 114 246
- ---------------------------------------------
Mid-Cap Value 24 74 127 272
- ---------------------------------------------
Emerging Markets Debt 29 89 151 319
- ---------------------------------------------
Strategic Stock 20 62 107 230
- ---------------------------------------------
Enterprise 20 61 104 225
- ---------------------------------------------
</TABLE>
8 - PROSPECTUS
<PAGE>
ACCUMULATION UNIT VALUES
(For an Accumulation Unit outstanding throughout the period)
The following information has been derived from the audited financial statements
of the Separate Account, which have been audited by Arthur Andersen LLP,
independent public accountants, as indicated in their report with respect
thereto, and should be read in conjunction with those statements which are
included in the Statement of Additional Information, which is incorporated by
reference in this Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------
1998 1997 1996 1995
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
MONEY MARKET SUB-ACCOUNT (Inception date September 14, 1994)
Accumulation Unit Value at beginning of period................................... $ 11.309 $ 10.901 $ 10.521 $ 10.056
Accumulation Unit Value at end of period......................................... $ 11.728 $ 11.309 $ 10.901 $ 10.521
Number Accumulation Units outstanding at end of period (in thousands)............ 9134 6625 7480 3864
NORTH AMERICAN GOVERNMENT SECURITIES SUB-ACCOUNT (Inception date September 14,
1994)
Accumulation Unit Value at beginning of period................................... $ 11.322 $ 10.841 $ 10.536 $ 10.041
Accumulation Unit Value at end of period......................................... $ 11.642 $ 11.322 $ 10.841 $ 10.536
Number Accumulation Units outstanding at end of period (in thousands)............ 631 413 353 107
BALANCED SUB-ACCOUNT (Inception date September 14, 1994)
Accumulation Unit Value at beginning of period................................... $ 15.829 $ 13.617 $ 12.165 $ 10.040
Accumulation Unit Value at end of period......................................... $ 17.859 $ 15.829 $ 13.617 $ 12.165
Number Accumulation Units outstanding at end of period (in thousands)............ 5292 4124 2663 1220
UTILITIES SUB-ACCOUNT (Inception date September 14, 1994)
Accumulation Unit Value at beginning of period................................... $ 16.918 $ 13.568 $ 12.684 $ 10.045
Accumulation Unit Value at end of period......................................... $ 20.391 $ 16.918 $ 13.568 $ 12.684
Number Accumulation Units outstanding at end of period (in thousands)............ 3879 2853 2512 1356
DIVIDEND GROWTH SUB-ACCOUNT (Inception date September 14, 1994)
Accumulation Unit Value at beginning of period................................... $ 21.045 $ 16.921 $ 13.787 $ 9.975
Accumulation Unit Value at end of period......................................... $ 24.847 $ 21.045 $ 16.921 $ 13.787
Number Accumulation Units outstanding at end of period (in thousands)............ 25790 22062 14201 5393
VALUE-ADDED SUB-ACCOUNT (Inception date September 14, 1994)
Accumulation Unit Value at beginning of period................................... $ 17.936 $ 14.422 $ 12.418 $ 9.904
Accumulation Unit Value at end of period......................................... $ 19.843 $ 17.936 $ 14.422 $ 12.418
Number Accumulation Units outstanding at end of period (in thousands)............ 7413 6713 4528 1783
CORE EQUITY SUB-ACCOUNT (Inception date September 14, 1994)
Accumulation Unit Value at beginning of period................................... $ 16.596 $ 13.675 $ 11.224 $ 10.047
Accumulation Unit Value at end of period......................................... $ 18.530 $ 16.596 $ 13.675 $ 11.224
Number Accumulation Units outstanding at end of period (in thousands)............ 2575 2207 1233 316
AMERICAN VALUE SUB-ACCOUNT (Inception date September 14, 1994)
Accumulation Unit Value at end of period......................................... $ 19.951 $ 15.335 $ 13.770 $ 10.049
Accumulation Unit Value at end of period......................................... $ 25.729 $ 19.951 $ 15.335 $ 13.770
Number Accumulation Units outstanding at end of period (in thousands)............ 12902 10468 7289 2606
GLOBAL EQUITY SUB-ACCOUNT (Inception date September 14, 1994)
Accumulation Unit Value at beginning of period................................... $ 13.142 $ 12.265 $ 11.162 $ 9.950
Accumulation Unit Value at end of period......................................... $ 14.918 $ 13.142 $ 12.265 $ 11.162
Number Accumulation Units outstanding at end of period (in thousands)............ 7311 6816 4360 1424
DEVELOPING GROWTH SUB-ACCOUNT (Inception date September 14, 1994)
Accumulation Unit Value at beginning of period................................... $ 18.896 $ 16.843 $ 15.123 $ 10.138
Accumulation Unit Value at end of period......................................... $ 20.318 $ 18.896 $ 16.843 $ 15.123
Number Accumulation Units outstanding at end of period (in thousands)............ 3.664 4.003 3.366 1.078
EMERGING MARKETS SUB-ACCOUNT (Inception date September 14, 1994)
Accumulation Unit Value at beginning of period................................... $ 11.405 $ 11.420 $ 9.841 $ 10.037
Accumulation Unit Value at end of period......................................... $ 7.981 $ 11.405 $ 11.420 $ 9.841
Number Accumulation Units outstanding at end of period (in thousands)............ 1512 1911 1394 389
<CAPTION>
1994
---------
<S> <C>
MONEY MARKET SUB-ACCOUNT (Inception date September 14, 1994)
Accumulation Unit Value at beginning of period................................... $ 10.000
Accumulation Unit Value at end of period......................................... $ 10.056
Number Accumulation Units outstanding at end of period (in thousands)............ 112
NORTH AMERICAN GOVERNMENT SECURITIES SUB-ACCOUNT (Inception date September 14,
1994)
Accumulation Unit Value at beginning of period................................... $ 10.000
Accumulation Unit Value at end of period......................................... $ 10.041
Number Accumulation Units outstanding at end of period (in thousands)............ 2
BALANCED SUB-ACCOUNT (Inception date September 14, 1994)
Accumulation Unit Value at beginning of period................................... $ 10.000
Accumulation Unit Value at end of period......................................... $ 10.040
Number Accumulation Units outstanding at end of period (in thousands)............ 69
UTILITIES SUB-ACCOUNT (Inception date September 14, 1994)
Accumulation Unit Value at beginning of period................................... $ 10.000
Accumulation Unit Value at end of period......................................... $ 10.045
Number Accumulation Units outstanding at end of period (in thousands)............ 40
DIVIDEND GROWTH SUB-ACCOUNT (Inception date September 14, 1994)
Accumulation Unit Value at beginning of period................................... $ 10.000
Accumulation Unit Value at end of period......................................... $ 9.975
Number Accumulation Units outstanding at end of period (in thousands)............ 128
VALUE-ADDED SUB-ACCOUNT (Inception date September 14, 1994)
Accumulation Unit Value at beginning of period................................... $ 10.000
Accumulation Unit Value at end of period......................................... $ 9.904
Number Accumulation Units outstanding at end of period (in thousands)............ 25
CORE EQUITY SUB-ACCOUNT (Inception date September 14, 1994)
Accumulation Unit Value at beginning of period................................... $ 10.000
Accumulation Unit Value at end of period......................................... $ 10.047
Number Accumulation Units outstanding at end of period (in thousands)............ 21
AMERICAN VALUE SUB-ACCOUNT (Inception date September 14, 1994)
Accumulation Unit Value at end of period......................................... $ 10.000
Accumulation Unit Value at end of period......................................... $ 10.049
Number Accumulation Units outstanding at end of period (in thousands)............ 72
GLOBAL EQUITY SUB-ACCOUNT (Inception date September 14, 1994)
Accumulation Unit Value at beginning of period................................... $ 10.000
Accumulation Unit Value at end of period......................................... $ 9.950
Number Accumulation Units outstanding at end of period (in thousands)............ 110
DEVELOPING GROWTH SUB-ACCOUNT (Inception date September 14, 1994)
Accumulation Unit Value at beginning of period................................... $ 10.000
Accumulation Unit Value at end of period......................................... $ 10.138
Number Accumulation Units outstanding at end of period (in thousands)............ 27
EMERGING MARKETS SUB-ACCOUNT (Inception date September 14, 1994)
Accumulation Unit Value at beginning of period................................... $ 10.000
Accumulation Unit Value at end of period......................................... $ 10.037
Number Accumulation Units outstanding at end of period (in thousands)............ 35
</TABLE>
9 - PROSPECTUS
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------
1998 1997 1996 1995
--------- --------- --------- ---------
DIVERSIFIED INCOME SUB-ACCOUNT (Inception date September 14, 1994)
<S> <C> <C> <C> <C>
Accumulation Unit Value at beginning of period................................... $ 12.238 $ 11.456 $ 10.607 $ 10.056
Accumulation Unit Value at end of period......................................... $ 12.577 $ 12.238 $ 11.456 $ 10.607
Number Accumulation Units outstanding at end of period (in thousands)............ 6373 4502 2579 775
MIDCAP GROWTH SUB-ACCOUNT (Inception date January 21, 1997)
Accumulation Unit Value at beginning of period................................... $ 11.433 $ 10.000 -- --
Accumulation Unit Value at end of period......................................... $ 11.913 $ 11.433 -- --
Number Accumulation Units outstanding at end of period (in thousands)............ 2075 1505 -- --
MORGAN STANLEY HIGH YIELD SUB-ACCOUNT (Inception date April 1, 1998)
Accumulation Unit Value at beginning of period................................... $ 10.000 -- -- --
Accumulation Unit Value at end of period......................................... $ 9.993 -- -- --
Number Accumulation Units outstanding at end of period (in thousands)............ 982 -- -- --
MORGAN STANLEY MID-CAP SUB-ACCOUNT (Inception date April 1, 1998)
Accumulation Unit Value at beginning of period................................... $ 10.000 -- -- --
Accumulation Unit Value at end of period......................................... $ 10.072 -- -- --
Number Accumulation Units outstanding at end of period (in thousands)............ 731 -- -- --
MORGAN STANLEY EMERGING MARKETS SUB-ACCOUNT (Inception date April 1, 1998)
Accumulation Unit Value at beginning of period................................... $ 10.000 -- -- --
Accumulation Unit Value at end of period......................................... $ 6.752 -- -- --
Number Accumulation Units outstanding at end of period (in thousands)............ 37 -- -- --
VAN KAMPEN STRATEGIC STOCK SUB-ACCOUNT (Inception date April 1, 1998)
Accumulation Unit Value at beginning of period................................... $ 10.000 -- -- --
Accumulation Unit Value at end of period......................................... $ 10.283 -- -- --
Number Accumulation Units outstanding at end of period (in thousands)............ 536 -- -- --
VAN KAMPEN ENTERPRISE SUB-ACCOUNT (Inception date April 1, 1998)
Accumulation Unit Value at beginning of period................................... $ 10.000 -- -- --
Accumulation Unit Value at end of period......................................... $ 10.652 -- -- --
Number Accumulation Units outstanding at end of period (in thousands)............ 386 -- -- --
<CAPTION>
1994
---------
DIVERSIFIED INCOME SUB-ACCOUNT (Inception date September 14, 1994)
<S> <C>
Accumulation Unit Value at beginning of period................................... $ 10.000
Accumulation Unit Value at end of period......................................... $ 10.056
Number Accumulation Units outstanding at end of period (in thousands)............ 30
MIDCAP GROWTH SUB-ACCOUNT (Inception date January 21, 1997)
Accumulation Unit Value at beginning of period................................... --
Accumulation Unit Value at end of period......................................... --
Number Accumulation Units outstanding at end of period (in thousands)............ --
MORGAN STANLEY HIGH YIELD SUB-ACCOUNT (Inception date April 1, 1998)
Accumulation Unit Value at beginning of period................................... --
Accumulation Unit Value at end of period......................................... --
Number Accumulation Units outstanding at end of period (in thousands)............ --
MORGAN STANLEY MID-CAP SUB-ACCOUNT (Inception date April 1, 1998)
Accumulation Unit Value at beginning of period................................... --
Accumulation Unit Value at end of period......................................... --
Number Accumulation Units outstanding at end of period (in thousands)............ --
MORGAN STANLEY EMERGING MARKETS SUB-ACCOUNT (Inception date April 1, 1998)
Accumulation Unit Value at beginning of period................................... --
Accumulation Unit Value at end of period......................................... --
Number Accumulation Units outstanding at end of period (in thousands)............ --
VAN KAMPEN STRATEGIC STOCK SUB-ACCOUNT (Inception date April 1, 1998)
Accumulation Unit Value at beginning of period................................... --
Accumulation Unit Value at end of period......................................... --
Number Accumulation Units outstanding at end of period (in thousands)............ --
VAN KAMPEN ENTERPRISE SUB-ACCOUNT (Inception date April 1, 1998)
Accumulation Unit Value at beginning of period................................... --
Accumulation Unit Value at end of period......................................... --
Number Accumulation Units outstanding at end of period (in thousands)............ --
</TABLE>
10 - PROSPECTUS
<PAGE>
HIGHLIGHTS
--------------------------------------------------------------------
HOW DO I PURCHASE THIS ANNUITY?
You must complete our application or order request and submit it to us for
approval with your first Premium Payment. Your first Premium Payment must be at
least $1,000 and subsequent Premium Payments must be at least $500, unless you
take advantage of our Automatic Additions Program or are part of certain
retirement plans.
- - For a limited time, usually within ten days after you receive your Contract,
you may cancel your Annuity without paying a Contingent Deferred Sales Charge.
You may bear the investment risk for your Premium Payment prior to our receipt
of your request for cancellation.
WHAT TYPE OF SALES CHARGE WILL I PAY?
You don't pay a sales charge when you purchase your Annuity. We may charge you a
Contingent Deferred Sales Charge when you partially or fully Surrender your
Annuity. The Contingent Deferred Sales Charge will depend on the length of time
the Premium Payment you made has been in your Annuity. If the amount you paid
has been in your Annuity:
x For less than two years, the charge is 6%.
x For more than two years and less than four years, the charge is 5%.
x For more than four years and less than five years, the charge is 4%.
x For more than five years and less than six years, the charge is 3%.
x For more than six years and less than seven years, the charge is 2%.
You won't be charged a Contingent Deferred Sales Charge on:
x The Annual Withdrawal Amount
x Premium Payments or earnings that have been in your Annuity for more than
seven years.
x Distributions made due to death
x Most payments we make to you as part of your Annuity Payout
IS THERE AN ANNUAL MAINTENANCE FEE?
We deduct this $30.00 fee each year on your Contract Anniversary or when you
fully Surrender your Annuity, if, on either of those dates, the value of your
Annuity is less than $50,000.
WHAT CHARGES WILL I PAY ON AN ANNUAL BASIS?
In addition to the Annual Maintenance Fee, you pay two other types of charges
each year. The first type of charge is the fee you pay for insurance. This
charge is:
A mortality and expense risk charge that is subtracted daily and is equal to an
annual charge of 1.25% of your Contract Value invested in the Portfolios.
The second type of charge is the fee you pay for the Portfolios.
Currently, Fund charges range from 0.42% to 0.90% annually of the average daily
value of the amount you have invested in the Portfolios. See the Annual Fund
Operating Expenses table for more complete information and the Portfolios'
prospectuses accompanying this prospectus.
CAN I TAKE OUT ANY OF MY MONEY?
You may Surrender all or part of the amounts you have invested at any time
before we start making Annuity Payouts, or after Annuity Payouts begin under the
Payment for a Designated Period Annuity Payout Option.
- - You may have to pay income tax on the money you take out and, if you Surrender
before you are age 59 1/2, you may have to pay an income tax penalty.
- - You may have to pay a Contingent Deferred Sales Charge on the money you
Surrender.
WILL HARTFORD PAY A DEATH BENEFIT?
There is a Death Benefit if the Contract Owner, joint owner or the Annuitant die
before we begin to make Annuity Payouts. The Death Benefit will be calculated as
of the date we receive a certified death certificate or other legal document
acceptable to us and will be the greater of:
- - The total Premium Payments you have made to us minus any amounts you have
Surrendered, or
- - The Contract Value of your Annuity, or
- - Your Maximum Anniversary Value, which is described below.
The Maximum Anniversary Value is based on a series of calculations on Contract
Anniversaries of Contract Values, Premium Payments and partial Surrenders. We
will calculate an Anniversary Value for each Contract Anniversary prior to the
deceased's 81st birthday or date of death, whichever is earlier. The Anniversary
Value is equal to the Contract Value as of a Contract Anniversary, increased by
the dollar amount of any Premium Payments made since that anniversary and
reduced by the dollar amount of any partial Surrenders since that anniversary.
The
11 - PROSPECTUS
<PAGE>
Maximum Anniversary Value is equal to the greatest Anniversary Value attained
from this series of calculations.
This Death Benefit amount will remain invested in the Sub-Accounts according to
your last instructions and will fluctuate with the performance of the underlying
Portfolios.
WHAT ANNUITY PAYOUT OPTIONS ARE AVAILABLE?
When it comes time for us to make payouts, you may choose one of the following
Annuity Payout Options: Option 1 -- Life Annuity, Option 2 -- Life Annuity with
120, 180 or 240 Monthly Payments Certain, Option 3 -- Joint and Last Survivor
Life Annuity and Option 4: Payments For a Designated Period. We may make other
Annuity Payout Options available at any time.
You must begin to take payouts by the Annuitant's 90th birthday. If you do not
tell us what Annuity Payout Option you want before that time, we will make
payments under Option 2 -- Life Annuity with 120 monthly payments certain.
GENERAL CONTRACT INFORMATION
--------------------------------------------------------------------
HARTFORD LIFE AND ANNUITY INSURANCE COMPANY
Hartford Life and Annuity Insurance Company is a stock life insurance company
engaged in the business of writing life insurance and annuities, both individual
and group, in all states of the United States, the District of Columbia and
Puerto Rico, except New York. On January 1, 1998, Hartford's name changed from
ITT Hartford Life and Annuity Insurance Company to Hartford Life and Annuity
Insurance Company. We were originally incorporated under the laws of Wisconsin
on January 9, 1956, and subsequently redomiciled to Connecticut. Our offices are
located in Simsbury, Connecticut; however, our mailing address is P.O. Box 2999,
Hartford, CT 06104-2999. We are ultimately controlled by The Hartford Financial
Services Group, Inc., one of the largest financial service providers in the
United States.
HARTFORD'S RATINGS
<TABLE>
<CAPTION>
EFFECTIVE DATE
RATING AGENCY OF RATING RATING BASIS OF RATING
- -------------------- -------------- --------- ---------------------
<S> <C> <C> <C>
A.M. Best and
Company, Inc....... 1/1/99 A+ Financial performance
Insurer financial
Standard & Poor's... 6/1/98 AA strength
Duff & Phelps....... 12/21/98 AA+ Claims paying ability
</TABLE>
SEPARATE ACCOUNT
The Separate Account is where we set aside and invest the assets of some of our
annuity contracts, including this Contract. The Separate Account was established
on June 13, 1994 and is registered as a unit investment trust under the
Investment Company Act of 1940. This registration does not involve supervision
by the SEC of the management or the investment practices of the Separate Account
or Hartford. The Separate Account meets the definition of "Separate Account"
under federal securities law. This Separate Account holds only assets for
variable annuity contracts. The Separate Account:
- - Holds assets for your benefit and the benefit of other Contract Owners, and
the persons entitled to the payouts described in the Contract.
- - Is not subject to the liabilities arising out of any other business Hartford
may conduct.
- - Is not affected by the rate of return of Hartford's General Account or by the
investment performance of any of Hartford's other Separate Accounts.
- - May be subject to liabilities from a Sub-Account of the Separate Account that
holds assets of other variable annuity contracts offered by the Separate
Account, which are not described in this Prospectus.
- - Is credited with income and gains, and takes losses, whether or not realized,
from the assets it holds.
We do not guarantee the investment results of the separate account. There is no
assurance that the value of your annuity will equal the total of the payments
you make to us.
THE PORTFOLIOS
--------------------------------------------------------------------
The underlying investment for the Policies are shares of the Portfolios of
Morgan Stanley Dean Witter Select Dimensions Investment Series, Morgan Stanley
Dean Witter Universal Portfolios, Inc., and Van Kampen Life Investment Trust,
all open-ended management investment companies. The underlying Portfolios
corresponding to each Sub-Account and their investment objectives are described
below. Hartford reserves the right, subject to compliance with the law, to offer
additional Portfolios with differing investment objectives. The Portfolios may
not be available in all states.
We do not guarantee the investment results of any of the underlying Portfolios.
Since each underlying Portfolio has different investment objectives, each is
subject to different risks. These risks and the Portfolio's expenses are more
fully described in the accompanying Portfolios' prospectuses and the Statements
of
12 - PROSPECTUS
<PAGE>
Additional Information. The Portfolios' prospectuses should be read in
conjunction with this Prospectus before investing.
MORGAN STANLEY DEAN WITTER SELECT DIMENSIONS INVESTMENT SERIES:
MONEY MARKET PORTFOLIO
Seeks high current income, preservation of capital and liquidity by investing in
the following money market instruments: U.S. Government securities, obligations
of U.S. regulated banks and savings institutions having total assets of more
than $1 billion, or less than $1 billion if such are fully federally insured as
to principal (the interest may not be insured) and high grade corporate debt
obligations maturing in thirteen months or less.
NORTH AMERICAN GOVERNMENT SECURITIES PORTFOLIO
Seeks to earn a high level of current income while maintaining relatively low
volatility of principal, by investing primarily in investment grade fixed-income
securities issued or guaranteed by the U.S., Canadian or Mexican governments.
DIVERSIFIED INCOME PORTFOLIO
Seeks, as a primary objective, to earn a high level of current income and, as a
secondary objective, to maximize total return, but only to the extent consistent
with its primary objective, by equally allocating its assets among three
separate groupings of fixed-income securities. Up to one-third of the securities
in which the Diversified Income Portfolio may invest will include securities
rated Baa/BBB or lower. See the Special Considerations for investments for high
yield securities disclosed in the Fund's prospectus.
BALANCED GROWTH PORTFOLIO
Seeks to provide capital growth with reasonable current income by investing,
under normal market conditions, at least 60% of its total assets in a
diversified portfolio of common stocks of companies which have a record of
paying dividends and, in the opinion of the Investment Manager, have the
potential for increasing dividends and in securities convertible into common
stock, and at least 20% of its total assets in investment grade fixed-income
(fixed-rate and adjustable-rate) securities such as corporate notes and bonds
and obligations issued or guaranteed by the U.S. Government, its agencies and
its instrumentalities.
UTILITIES PORTFOLIO
Seeks to provide current income and long-term growth of income and capital by
investing in equity and fixed-income securities of companies in the public
utilities industry.
DIVIDEND GROWTH PORTFOLIO
Seeks to provide reasonable current income and long-term growth of income and
capital by investing primarily in common stock of companies with a record of
paying dividends and the potential for increasing dividends.
VALUE-ADDED MARKET PORTFOLIO
Seeks to achieve a high level of total return on its assets through a
combination of capital appreciation and current income, by investing, on an
equally-weighted basis, in a diversified portfolio of common stocks of the
companies which are represented in the Standard & Poor's 500 Composite Stock
Price Index.
GROWTH PORTFOLIO
Seeks long-term growth of capital by investing primarily in common stocks and
securities convertible into common stocks issued by domestic and foreign
companies.
AMERICAN VALUE PORTFOLIO
Seeks long-term capital growth consistent with an effort to reduce volatility,
by investing principally in common stock of companies in industries which, at
the time of the investment, are believed to be attractively valued given their
above average relative earnings growth potential at that time.
MID-CAP GROWTH PORTFOLIO
Seeks long-term capital growth by investing primarily in equity securities of
"mid-cap" companies (that is, companies whose equity market capitalization falls
within the range of $250 million to $5 billion).
GLOBAL EQUITY PORTFOLIO
Seeks a high level of total return on its assets primarily through long-term
capital growth and, to a lesser extent, from income, through investments in all
types of common stocks and equivalents (such as convertible securities and
warrants), preferred stocks and bonds and other debt obligations of domestic and
foreign companies, governments and international organizations.
DEVELOPING GROWTH PORTFOLIO
Seeks long-term capital growth by investing primarily in common stocks of
smaller and medium-sized companies that, in the opinion of the Investment
Manager, have the potential for growing more rapidly than the economy and which
may benefit from new products or services, technological developments or changes
in management.
EMERGING MARKETS PORTFOLIO
Seeks long-term capital appreciation by investing primarily in equity securities
of companies in emerging market countries. The Emerging Markets Portfolio may
invest up to 35% of its total assets in high risk fixed-income securities that
are rated below investment grade or are unrated (commonly referred to as "junk
bonds"). See the Special Considerations for investments in high yield securities
disclosed in the Fund's prospectus.
13 - PROSPECTUS
<PAGE>
MORGAN STANLEY DEAN WITTER UNIVERSAL FUNDS, INC.:
HIGH YIELD PORTFOLIO
Seeks above-average total return over a market cycle of three to five years by
investing primarily in a diversified portfolio of high yield securities,
including corporate bonds and other fixed income securities and derivatives.
High yield securities are rated below investment grade and are commonly referred
to as "junk bonds". The Portfolio's average weighted maturity will ordinarily
exceed five years. See the special considerations for investments in high yield
securities disclosed in the Fund prospectus.
MID CAP VALUE PORTFOLIO
Seeks above-average total return over a market cycle of three to five years by
investing in common stocks and other equity securities of issuers with equity
capitalizations in the range of the companies represented in the S&P MidCap 400
Index.
EMERGING MARKETS DEBT PORTFOLIO
Seeks high total return by investing primarily in fixed income securities of
government and government related issuers and, to a lesser extent, of corporate
issuers located in emerging market countries.
VAN KAMPEN LIFE INVESTMENT TRUST:
STRATEGIC STOCK PORTFOLIO
Seeks to provide investors with an above average total return through a
combination of potential capital appreciation and dividend income, consistent
with the preservation of invested capital by investing primarily in a portfolio
of dividend paying equity securities included in the Dow Jones Industrial
Average or in the Morgan Stanley Capital International USA Index.
ENTERPRISE PORTFOLIO
Seeks capital appreciation through investments in securities believed by the
investment advisor to have above average potential for capital appreciation.
* "STANDARD & POOR'S," "S&P-REGISTERED TRADEMARK-," "S&P
500-REGISTERED TRADEMARK-," "STANDARD & POOR'S 500," AND "500" ARE TRADEMARKS
OF THE MCGRAW-HILL COMPANIES, INC. AND HAVE BEEN LICENSED FOR USE BY HARTFORD.
THE INDEX FUND IS NOT SPONSORED, ENDORSED, SOLD OR PROMOTED BY STANDARD &
POOR'S AND STANDARD & POOR'S MAKES NO REPRESENTATION REGARDING THE
ADVISABILITY OF INVESTING IN THE INDEX FUND.
THE INVESTMENT ADVISERS
Morgan Stanley Dean Witter Advisors Inc. ("MSDW Advisors"), a Delaware
Corporation, whose address is Two World Trade Center, New York, New York 10048,
is the Investment Manager for the Money Market Portfolio, the North American
Government Securities Portfolio, the Diversified Income Portfolio, the Balanced
Growth Portfolio, the Utilities Portfolio, the Dividend Growth Portfolio, the
Value-Added Market Portfolio, the Growth Portfolio, the American Value
Portfolio, the Mid-Cap Growth Portfolio, the Global Equity Portfolio, the
Developing Growth Portfolio, and the Emerging Markets Portfolio of the Morgan
Stanley Dean Witter Select Dimensions Investment Series (the "Morgan Stanley
Dean Witter Portfolios"). MSDW Advisors was incorporated in July, 1992 and is a
wholly-owned subsidiary of Morgan Stanley Dean Witter & Co. ("MSDW")
MSDW Advisors provides administrative services, manages the Dean Witter
Portfolios' business affairs and manages the investment of the Morgan Stanley
Dean Witter Portfolios' assets, including the placing of orders for the purchase
and sales of portfolio securities. MSDW Advisors has retained Morgan Stanley
Dean Witter Services Company Inc., its wholly-owned subsidiary, to perform the
aforementioned administrative services for the Morgan Stanley Dean Witter
Portfolios. For its services, the Morgan Stanley Dean Witter Portfolios pay MSDW
Advisors a monthly fee. See the accompanying Fund prospectus for a more complete
description of MSDW Advisors and the respective fees of the Morgan Stanley Dean
Witter Portfolios.
With regard to the North American Government Securities Portfolio and the
Emerging Markets Portfolio, TCW Funds Management ("TCW"), under a Sub-Advisory
Agreement with MSDW Advisors, provides these Portfolios with investment advice
and portfolio management, in each case subject to the overall supervision of the
MSDW Advisors. TCW's address is 865 South Figueroa Street, Suite 1800, Los
Angeles, California 90017.
With regard to the Growth Portfolio, Morgan Stanley Dean Witter Investment
Management Inc. ("MSDW Investment Management"), under a Sub-Advisory Agreement
with MSDW Advisers, provides the Growth Portfolio with investment advice and
portfolio management, subject to the overall supervision of MSDW Advisors. MSDW
Investment Management, like MSDW Advisors, is a wholly-owned subsidiary of MSDW.
MSDW Investment Management's address is 1221 Avenue of the Americas, New York,
New York 10020.
In addition to acting as the Sub-Adviser for the Growth Portfolio, MSDW
Investment Management, pursuant to an Investment Advisory Agreement with the
Morgan Stanley Dean Witter Universal Funds, Inc., is the investment adviser for
the Emerging Markets Debt Portfolio. As the investment adviser, MSDW Investment
Managment, provides investment advice and portfolio management services for the
Emerging Markets Debt Portfolio, subject to the supervision of the Morgan
Stanley Dean Witter Universal Fund's Board of Directors.
The Investment Adviser for the High Yield Portfolio and the Mid Cap Value
Portfolio is Miller Anderson & Sherrerd, LLP ("MAS"). MAS is a Pennsylvania
limited liability partnership founded in 1969 with its principal offices at One
Tower Bridge,
14 - PROSPECTUS
<PAGE>
West Conshohocken, Pennsylvania 19428. MAS provides investment advisory services
to employee benefit plans, endowment portfolios, foundations and other
institutional investors and has served as an investment adviser to several
open-end investment companies. MAS is an indirect wholly-owned subsidiary of
MSDW.
The Investment Adviser with respect to the Strategic Stock Portfolio and the
Enterprise Portfolio is Van Kampen Asset Management Inc., a wholly-owned
subsidiary of Van Kampen Investments Inc. Van Kampen Investments Inc. is an
indirect wholly-owned subsidiary of MSDW. Van Kampen Investment Inc.'s address
is 1 Parkview Place, Oakbrook Terrace, IL 60181. Van Kampen Investments Inc. is
a diversified asset management company with more than two million retail
investor accounts, extensive capabilities for managing institutional portfolios,
and more than $75 billion under management or supervision. Van Kampen
Investments Inc.'s more than 50 open-end and 39 closed end portfolios and more
than 2,500 unit investment trusts are professionally distributed by leading
financial advisers nationwide.
MIXED AND SHARED FUNDING -- Shares of the Portfolios may be sold to our other
separate accounts and our insurance company affiliates or other unaffiliated
insurance companies to serve as the underlying investment for both variable
annuity contracts and variable life insurance policies, a practice known as
"mixed and shared funding." As a result, there is a possibility that a material
conflict may arise between the interests of Contract Owners, and of owners of
other contracts whose contract values are allocated to one or more of these
other separate accounts investing in any one of the Portfolios. In the event of
any such material conflicts, we will consider what action may be appropriate,
including removing the Fund from the Separate Account or replacing the Fund with
another underlying fund. There are certain risks associated with mixed and
shared funding, as disclosed in the Portfolios' 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 PORTFOLIOS -- We reserve the right,
subject to any applicable law, to make certain changes to the Portfolios offered
under Your Contract. We may, in our sole discretion, establish new Portfolios.
New Portfolios will be made available to existing Contract Owners as we
determine appropriate. We may also close one or more Portfolios to additional
Payments or transfers from existing Sub-Accounts.
We reserve the right to eliminate the shares of any of the Portfolios for any
reason and to substitute shares of another registered investment company for the
shares of any Fund already purchased or to be purchased in the future by the
Separate Account. To the extent required by the Investment Company Act of 1940
(the "1940 Act"), substitutions of shares attributable to your interest in a
Fund will not be made until we have the approval of the Commission and we have
notified you of the change.
In the event of any substitution or change, we may, by appropriate endorsement,
make any changes in the Contract necessary or appropriate to reflect the
substitution or change. If we decide that it is in the best interest of the
Contract Owners, the Separate Account may be operated as a management company
under the 1940 Act or any other form permitted by law, may be de-registered
under the 1940 Act in the event such registration is no longer required, or may
be combined with one or more other Separate Accounts.
PERFORMANCE RELATED INFORMATION
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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
15 - PROSPECTUS
<PAGE>
the same periods as the underlying Portfolios 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. 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 date of the inception of
the Separate Account.
If applicable, the Sub-Accounts may advertise YIELD IN ADDITION TO TOTAL RETURN.
The yield will be computed in the following manner: The net investment income
per unit earned during a recent one month period is divided by the unit value on
the last day of the period. This figure includes the recurring charges at the
Separate Account level including the Annual Maintenance Fee.
The Money Market Fund Sub-Account may advertise YIELD AND EFFECTIVE YIELD. The
yield of a Sub-Account is based upon the income earned by the Sub-Account over a
seven-day period and then annualized, i.e. the income earned in the period is
assumed to be earned every seven days over a 52-week period and stated as a
percentage of the investment. Effective yield is calculated similarly but when
annualized, the income earned by the investment is assumed to be reinvested in
Sub-Account units and thus compounded in the course of a 52-week period. Yield
and effective yield include the recurring charges at the Separate Account level
including the Annual Maintenance Fee.
The Separate Account may also disclose YIELD for periods prior to the date the
Separate Account commenced operations. For these periods, performance
information for the Sub-Accounts will be calculated based on the performance of
the underlying Portfolios and the assumption that the Sub-Accounts were in
existence for the same periods as those of the underlying Portfolios, 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 date of the inception of
the Separate Account.
We may provide information on various topics to Contract Owners and prospective
Contract Owners in advertising, sales literature or other materials. These
topics may include the relationship between sectors of the economy and the
economy as a whole and its effect on various securities markets, investment
strategies and techniques (such as systematic investing, Dollar Cost Averaging
and asset allocation), the advantages and disadvantages of investing in
tax-deferred and taxable instruments, customer profiles and hypothetical
purchase scenarios, financial management and tax and retirement planning, and
other investment alternatives, including comparisons between the Contract and
the characteristics of and market for such alternatives.
THE FIXED ACCUMULATION FEATURE
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IMPORTANT INFORMATION YOU SHOULD KNOW: THIS PORTION OF THE PROSPECTUS RELATING
TO THE FIXED ACCUMULATION FEATURE IS NOT REGISTERED UNDER THE SECURITIES ACT OF
1933 ("1933 ACT") AND THE FIXED ACCUMULATION FEATURE IS NOT REGISTERED AS AN
INVESTMENT COMPANY UNDER THE 1940 ACT. THE FIXED ACCUMULATION FEATURE OR ANY OF
ITS INTERESTS ARE NOT 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 FEATURE. THE FOLLOWING
DISCLOSURE ABOUT THE FIXED ACCUMULATION FEATURE MAY BE SUBJECT TO CERTAIN
GENERALLY APPLICABLE PROVISIONS OF THE FEDERAL SECURITIES LAWS REGARDING THE
ACCURACY AND COMPLETENESS OF DISCLOSURE.
Premium Payments and Contract Values allocated to the Fixed Accumulation Feature
become a part of our General Account assets. We invest the assets of the General
Account according to the laws governing the investments of insurance company
General Accounts.
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 determining 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.
For Contracts issued in the state of New York, the Fixed Accumulation Feature
interest rates may vary from other states.
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 under certain programs
established in our sole discretion.
DOLLAR COST AVERAGING PLUS ("DCA") PROGRAMS: Currently, you may enroll in a
special pre-authorized transfer program known as our DCA Plus Program (the
"Program"). Under this Program, Contract Owners who enroll may allocate a
minimum of $5,000 of their Premium Payment into the Program (we may allow a
lower minimum Premium Payment for qualified plan
16 - PROSPECTUS
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transfers or rollovers, including IRAs) and pre-authorize transfers to any of
the Sub-Accounts under either the 6 Month Transfer Program or 12 Month Transfer
Program. The 6-Month Transfer Program and the 12-Month Transfer Program will
generally have different credited interest rates. Under the 6-Month Transfer
Program, the interest rate can accrue up to 6 months and all Premium Payments
and accrued interest must be transferred from the Program to the selected
Sub-Accounts in 3 to 6 months. Under the 12-Month Transfer Program, the interest
rate can accrue up to 12 months and all Premium Payments and accrued interest
must be transferred to the selected Sub-Accounts in 7 to 12 months. This will be
accomplished by monthly transfers for the period selected and a final transfer
of the entire amount remaining in the Program.
The pre-authorized transfers will begin within 15 days of receipt of the Program
payment provided we receive 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, 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.
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, you will
no longer receive the Program interest rate and unless we receive instructions
to the contrary, the amounts remaining in the Program may accrue the interest
rate currently in effect for the Fixed Accumulation Feature.
We reserve the right to discontinue, modify or amend the Program or any other
interest rate program we establish. 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.
You may only have one DCA program in place at one time. The Fixed Accumulation
Feature and Dollar Cost Averaging Plus Program are not available in Oregon.
THE CONTRACT
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PURCHASES AND CONTRACT VALUE
WHAT TYPES OF CONTRACTS ARE AVAILABLE?
The Contract is an individual or group tax-deferred variable annuity contract.
It is designed for retirement planning purposes and may be purchased by any
individual, group or trust, including:
- - Any trustee or custodian for a retirement plan qualified under Sections 401(a)
or 403(a) of the Code;
- - Annuity purchase plans adopted by public school systems and certain tax-exempt
organizations according to Section 403(b) of the Code;
- - Individual Retirement Annuities adopted according to Section 408 of the Code;
- - Employee pension plans established for employees by a state, a political
subdivision of a state, or an agency of either a state or a political
subdivision of a state, and
- - Certain eligible deferred compensation plans as defined in Section 457 of the
Code.
The examples above represent Qualified Contracts, as defined by the Code. In
addition, individuals and trusts can also purchase Contracts that are not part
of a tax qualified retirement plan. These are known as Non-Qualified Contracts.
HOW DO I PURCHASE A CONTRACT?
You may purchase a Contract by completing and submitting an application or an
order request along with an initial Premium Payment. For most Contracts, the
minimum Premium Payment is $1,000. For additional Premium Payments, the minimum
Premium Payment is $500. Under certain situations, we may allow smaller Premium
Payments, for example, if you enroll in our Automatic Additions Program or are
part of certain tax qualified retirement plans. Prior approval is required for
Premium Payments of $1,000,000 or more.
You and your Annuitant must not be older than age 85 on the date that your
Contract is issued. You must be of legal age in the state where the Contract is
being purchased or a guardian must act on your behalf.
HOW ARE PREMIUM PAYMENTS APPLIED TO MY CONTRACT?
Your initial Premium Payment will be invested within two Valuation Days of our
receipt of a properly completed application or an order request and the Premium
Payment. If we receive your subsequent Premium Payment before the close of the
New York Stock Exchange, it will be priced on the same Valuation Day. If we
receive your Premium Payment after the close of the New York Stock Exchange, it
will be processed on the next Valuation Day. If we receive your Premium Payment
on a Non-Valuation Day, the amount will be invested on the next Valuation Day.
Unless we receive new instructions, we will invest the Premium Payment based on
your last allocation instructions. We will send you a confirmation when we
invest your Premium Payment.
17 - PROSPECTUS
<PAGE>
If the request or other information accompanying the Premium Payment is
incomplete when received, we will hold the money in a non-interest bearing
account for up to five Valuation Days while we try to obtain complete
information. If we cannot obtain the information within five Valuation Days, we
will either return the Premium Payment and explain why the Premium Payment could
not be processed or keep the Premium Payment if you authorize us to keep it
until your provide the necessary information.
CAN I CANCEL MY CONTRACT AFTER I PURCHASE IT?
We want you to be satisfied with the Contract you have purchased. We urge you to
closely examine its provisions. If for any reason you are not satisfied with
your Contract, simply return it within ten days after you receive it with a
written request for cancellation that indicates your tax-withholding
instructions. In some states, you may be allowed more time to cancel your
Contract. We will not deduct any Contingent Deferred Sales Charges during this
time. We may require additional information, including a signature guarantee,
before we can cancel your Contract.
You bear the investment risk from the time the Contract is issued until we
receive your complete cancellation request.
The amount we pay you upon cancellation depends on the requirements of the state
where you purchased your Contract, the method of purchase, the type of Contract
you purchased and your age.
HOW IS THE VALUE OF MY CONTRACT CALCULATED BEFORE THE ANNUITY COMMENCEMENT DATE?
The Contract Value is the sum of all Accounts. There are two things that affect
your Sub-Account value: (1) the number of Accumulation Units and (2) the
Accumulation Unit Value. The Sub-Account value is determined by multiplying the
number of Accumulation Units by the Accumulation Unit Value. Therefore, on any
Valuation Day your Contract Value reflects the investment performance of the
Sub-Accounts and will fluctuate with the performance of the underlying
Portfolios.
When Premium Payments are credited to your Sub-Accounts, they are converted into
Accumulation Units by dividing the amount of your Premium Payments, minus any
Premium Taxes, by the Accumulation Unit Value for that day. The more Premium
Payments you put into your Contract, the more Accumulation Units you will own.
You decrease the number of Accumulation Units you have by requesting Surrenders,
transferring money out of an Account, settling a Death Benefit claim or by
annuitizing your Contract.
To determine the current Accumulation Unit Value, we take the prior Valuation
Day's Accumulation Unit Value and multiply it by the Net Investment Factor for
the current Valuation Day.
The Net Investment Factor is used to measure the investment performance of a
Sub-Account from one Valuation Day to the next. The Net Investment Factor for
each Sub-Account equals:
- - The net asset value per share of each Fund held in the Sub-Account at the end
of the current Valuation Day divided by
- - The net asset value per share of each Fund held in the Sub-Account at the end
of the prior Valuation Day; minus
- - The daily mortality and expense risk charge adjusted for the number of days in
the period, and any other applicable charge.
We will send you a statement in each calendar quarter, which tells you how many
Accumulation Units you have, their value and your total Contract Value.
CAN I TRANSFER FROM ONE SUB-ACCOUNT TO ANOTHER?
TRANSFERS BETWEEN SUB-ACCOUNTS -- You may transfer from one Sub-Account to
another before and after the Annuity Commencement Date at no extra charge. Your
transfer request will be processed on the day that it is received as long as it
is received on a Valuation Day before the close of the New York Stock Exchange.
Otherwise, your request will be processed on the following Valuation Day. We
will send you a confirmation when we process your transfer. You are responsible
for verifying transfer confirmations and promptly advising us of any errors
within 30 days of receiving the confirmation.
SUB-ACCOUNT TRANSFER RESTRICTIONS -- We reserve the right to limit the number of
transfers to 12 per Contract Year, with no transfers occurring on consecutive
Valuation Days. We also have the right to restrict transfers if we believe that
the transfers could have an adverse effect on other Contract Owners. In all
states except New York, Florida, Maryland and Oregon, we may:
- - Require a minimum time period between each transfer,
- - Limit the dollar amount that may be transferred on any one Valuation Day, and
- - Not accept transfer requests from an agent acting under a power of attorney
for more than one Contract Owner.
We also have a restriction in place that involves individuals who act under a
power of attorney for multiple Contract Owners. If the value of the Contract
Owners' Accounts add up to more than $2 million, we will not accept transfer
instructions from the power of attorney unless the power of attorney has entered
into a Third Party Transfer Services Agreement with us.
Some states may have different restrictions.
18 - PROSPECTUS
<PAGE>
FIXED ACCUMULATION FEATURE TRANSFERS -- During each Contract Year, you may make
transfers out of the Fixed Accumulation Feature to Sub-Accounts. All transfer
allocations must be in whole numbers (e.g., 1%). You may transfer either:
- - 30% of your total amount in the Fixed Accumulation Feature, or
- - An amount equal to the largest previous transfer.
These transfer limits do not include transfers done through Dollar Cost
Averaging or the DCA Plus Program.
If your interest rate renews at a rate at least 1% lower than your prior
interest rate, you may transfer an amount equal to up to 100% of the amount to
be invested at the renewal rate. You must make this transfer request within 60
days of being notified of the renewal rate.
FIXED ACCUMULATION FEATURE TRANSFER RESTRICTIONS -- We reserve the right to
defer transfers from the Fixed Accumulation Feature for up to 6 months from the
date of your request. After any transfer, you must wait six months before moving
Sub-Account Values back to the Fixed Accumulation Feature.
TELEPHONE TRANSFERS -- In most states, you can make transfers by calling us at
(800) 862-6668. Hartford, our agents or our affiliates are NOT responsible for
losses resulting from telephone requests that we believe are genuine. We will
use reasonable procedures to confirm that telephone instructions are genuine,
including requiring that callers provide certain identification information and
recording all telephone transfer instructions.
POWER OF ATTORNEY -- You may authorize another person to make transfers on your
behalf by submitting a completed Power of Attorney form. Once we have the
completed form on file, we will accept transfer instructions, subject to our
transfer restrictions, from your designated third party until we receive new
instructions in writing from you. You will not be able to make transfers or
other changes to your Contract if you have authorized someone else to act under
a Power of Attorney.
CHARGES AND FEES
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There are 5 charges and fees associated with the Contract:
1. THE CONTINGENT DEFERRED SALES CHARGE
The Contingent Deferred Sales Charge covers some of the expenses relating to the
sale and distribution of the Contract, including commissions paid to registered
representatives and the cost of preparing sales literature and other promotional
activities.
We assess a Contingent Deferred Sales Charge when you request a full or partial
Surrender. The percentage of the Contingent Deferred Sales Charge is based on
how long your Premium Payments have been in the Contract. The Contingent
Deferred Sales Charge will not exceed the total amount of the Premium Payments
made. Each Premium Payment has its own Contingent Deferred Sales Charge
schedule. Premium Payments are Surrendered in the order in which they were
received. The longer you leave your Premium Payments in the Contract, the lower
the Contingent Deferred Sales Charge will be when you Surrender.
The Contingent Deferred Sales Charge is a percentage of the amount Surrendered
and is equal to:
<TABLE>
<CAPTION>
NUMBER OF YEARS
FROM PREMIUM CONTINGENT DEFERRED
PAYMENT SALES CHARGE
- ----------------- -------------------
<S> <C>
1 6%
2 6%
3 5%
4 5%
5 4%
6 3%
7 2%
8 or more 0%
</TABLE>
THE FOLLOWING SURRENDERS ARE NOT SUBJECT TO A CONTINGENT DEFERRED SALES CHARGE:
- - ANNUAL WITHDRAWAL AMOUNT -- During the first seven years from each Premium
Payment, you may, each Contract Year, take partial Surrenders up to 10% of the
total Premium Payments. If you do not take 10% one year, you may not take more
than 10% the next year. These amounts are different for group unallocated
Contracts and Contracts issued to a Charitable Remainder Trust.
- - SURRENDERS MADE FROM PREMIUM PAYMENTS INVESTED FOR MORE THAN SEVEN YEARS --
After the seventh Contract Year, you may take the total of: (a) all of your
earnings, and (b) all Premium Payments held in your Contract for more than
seven years, and (c) 10% of Premium Payments made during the last seven years.
UNDER THE FOLLOWING SITUATIONS, THE CONTINGENT DEFERRED SALES CHARGE IS WAIVED:
- - Upon eligible confinement as described in the Waiver of Sales Charge Rider.
For Contracts purchased on or after September 29, 1997, we will waive any
Contingent Deferred Sales Charge applicable to a partial or full Surrender if
you, the joint owner or the Annuitant, is confined for at least 180 calendar
days to a: (a) facility recognized as a general hospital by the proper
authority of the state in which it is located; or (b) facility recognized as a
general hospital by the Joint Commission on the Accreditation of Hospitals; or
(c) facility certified as a hospital or long-term care facility; or (d)
nursing home licensed by the state in which it is located and offers the
services of a registered nurse 24 hours a day. If you, the joint owner or the
Annuitant is confined when you purchase the
19 - PROSPECTUS
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Contract, this waiver is not available. For it to apply, you must: (a) have
owned the Contract continuously since it was issued, (b) provide written proof
of confinement satisfactory to us, and (c) request the Surrender within 90
calendar days of the last day of confinement. This waiver may not be available
in all states. Please contact your Registered Representative or us to
determine if it is available for you.
- - For Required Minimum Distributions. This allows Annuitants who are age 70 1/2
or older, with a Contract held under an Individual Retirement Account or
403(b) plan, to Surrender an amount equal to the Required Minimum Distribution
for the Contract without a Contingent Deferred Sales Charge. All requests for
Required Minimum Distributions must be in writing.
- - On or after the Annuitant's 90th birthday.
- - For disabled participants enrolled in a group unallocated, tax qualified
retirement plan. With our approval and under certain conditions, participants
who become disabled can receive Surrenders free of Contingent Deferred Sales
Charge.
THE FOLLOWING SITUATIONS ARE NOT SUBJECT TO A CONTINGENT
DEFERRED SALES CHARGE:
- - Upon death of the Annuitant or Contract Owner. No Contingent Deferred Sales
Charge will be deducted if the Annuitant or Contract Owner dies, unless the
Contract Owner is not a natural person (e.g. a trust).
- - Upon Annuitization. The Contingent Deferred Sales Charge is not deducted when
you annuitize the Contract. We will charge a Contingent Deferred Sales Charge
if the Contract is fully Surrendered during the Contingent Deferred Sales
Charge period under an Annuity Payout Option which allows Surrenders.
- - Upon cancellation during the Right to Cancel Period
2.MORTALITY AND EXPENSE RISK CHARGE
For assuming mortality and expense risks under the Contract, we deduct a daily
charge at the rate of 1.25% per year of Sub-Account Value (estimated at .90% for
mortality and .35% for expenses). The mortality and expense risk charge is
broken into charges for mortality risks and for an expense risk:
- - MORTALITY RISK -- There are two types of mortality risks that we assume, those
made while your Premium Payments are accumulating and those made once Annuity
Payouts have begun
During the period your Premium Payments are accumulating, we are required to
cover any difference between the Death Benefit paid and the Surrender Value.
These differences may occur during periods of declining value or in periods
where the Contingent Deferred Sales Charges would have been applicable. The risk
that we bear during this period is that actual mortality rates, in aggregate,
may exceed expected mortality rates.
Once Annuity Payouts have begun, we may be required to make Annuity Payouts as
long as the Annuitant is living, regardless of how long the Annuitant lives. We
would be required to make these payments if the Payout Option chosen is the Life
Annuity, Life Annuity With Payments for a Period Certain or Joint and Last
Survivor Life Annuity Payout Option. The risk that we bear during this period is
that the actual mortality rates, in aggregate, may be lower than the expected
mortality rates.
- - EXPENSE RISK -- We also bear an expense risk that the Contingent Deferred
Sales Charges and the Annual Maintenance Fee collected before the Annuity
Commencement Date may not be enough to cover the actual cost of selling,
distributing and administering the Contract.
Although variable Annuity Payouts will fluctuate with the performance of the
underlying Fund selected, your Annuity Payouts will not be affected by (a) the
actual mortality experience of our Annuitants, or (b) our actual expenses if
they are greater than the deductions stated in the Contract. Because we cannot
be certain how long our Annuitants will live, we charge this percentage fee
based on the mortality tables currently in use. The mortality and expense risk
charge enables us to keep our commitments and to pay you as planned.
3. ANNUAL MAINTENANCE FEE
The Annual Maintenance Fee is a flat fee that is deducted from your Contract
Value to reimburse us for expenses relating to the administrative maintenance of
the Contract and the Accounts. The annual $30 charge is deducted on a Contract
Anniversary or when the Contract is fully Surrendered if the Contract Value at
either of those times is less than $50,000. The charge is deducted
proportionately from each Account in which you are invested.
WHEN IS THE ANNUAL MAINTENANCE FEE WAIVED?
We will waive the Annual Maintenance Fee if your Contract Value is $50,000 or
more on your Contract Anniversary or when you fully Surrender your Contract. In
addition, we will waive one Annual Maintenance Fee for Contract Owners who own
more than one Contract with a combined Contract Value between $50,000 and
$100,000. If you have multiple Contracts with a combined Contract Value of
$100,000 or greater, we will waive the Annual Maintenance Fee on all Contracts.
However, we reserve the right to limit the number of waivers to a total of six
Contracts. We also reserve the right to waive the Annual Maintenance Fee under
certain other conditions.
4. PREMIUM TAXES
We deduct Premium Taxes, if required, by a state or other government agency.
Some states collect the taxes when Premium Payments are made; others collect at
Annuitization. Since we pay Premium Taxes when they are required by applicable
law, we may deduct them from your Contract when we pay the taxes, upon
Surrender, or on the Annuity Commencement Date. The
20 - PROSPECTUS
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Premium Tax rate varies by state or municipality. Currently, the maximum rate
charged by any state is 3.5% and 4% in Puerto Rico.
5. CHARGES AGAINST THE FUNDS
The Separate Account purchases shares of the Funds at net asset value. The net
asset value of the Fund reflects investment advisory fees and administrative
expenses already deducted from the assets of the Funds. These charges are
described in the Funds' prospectuses accompanying this prospectus.
WE MAY OFFER, IN OUR DISCRETION, REDUCED FEES AND CHARGES INCLUDING, BUT NOT
LIMITED TO CONTINGENT DEFERRED SALES CHARGES, THE MORTALITY AND EXPENSE RISK
CHARGE, AND THE ANNUAL MAINTENANCE FEE, FOR CERTAIN CONTRACTS (INCLUDING
EMPLOYER SPONSORED SAVINGS PLANS) WHICH MAY RESULT IN DECREASED COSTS AND
EXPENSES. REDUCTIONS IN THESE FEES AND CHARGES WILL NOT BE UNFAIRLY
DISCRIMINATORY AGAINST ANY CONTRACT OWNER.
DEATH BENEFIT
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WHAT IS THE DEATH BENEFIT AND HOW IS IT CALCULATED?
The Death Benefit is the amount we will pay upon the death of the Contract Owner
or the Annuitant. The Death Benefit is calculated when we receive a certified
death certificate or other legal document acceptable to us.
The calculated Death Benefit will remain invested in the same Accounts,
according to the Contract Owner's last instructions until we receive complete
written settlement instructions from the Beneficiary. Therefore, the Death
Benefit amount will fluctuate with the performance of the underlying Portfolios.
When there is more than one Beneficiary, we will calculate the Accumulation
Units for each Sub-account and the dollar amount for the Fixed Accumulation
Feature for each Beneficiary's portion of the proceeds.
If death occurs before the Annuity Commencement Date, the Death Benefit is the
greatest of:
- - The Contract Value on the date the death certificate or other legal document
acceptable to us is received; or
- - 100% of all Premium Payments paid into the Contract minus any partial
Surrenders; or
- - The Maximum Anniversary Value, which is described below.
The Maximum Anniversary Value is based on a series of calculations on Contract
Anniversaries of Contract Values, Premium Payments and partial Surrenders. We
will calculate an Anniversary Value for each Contract Anniversary prior to the
deceased's 81st birthday or date of death, whichever is earlier. The Anniversary
Value is equal to the Contract Value as of a Contract Anniversary, increased by
the dollar amount of any Premium Payments made since that anniversary and
reduced by the dollar amount of any partial Surrenders since that anniversary.
The Maximum Anniversary Value is equal to the greatest Anniversary Value
attained from this series of calculations.
The Maximum Anniversary Value is only calculated until the earlier of the
Contract Owner or Annuitant's 81st birthday or death.
HOW IS THE DEATH BENEFIT PAID?
The Death Benefit may be taken in one lump sum or under any of the Annuity
Payout Options then being offered by us. On the date we receive complete
instructions from the Beneficiary, we will compute the Death Benefit amount to
be paid out or applied to a selected Annuity Payout Option. When there is more
than one Beneficiary, we will calculate the Death Benefit amount for each
Beneficiary's portion of the proceeds and then pay it out or apply it to a
selected Annuity Payout Option according to each Beneficiary's instructions. If
we receive the complete instructions on a Non-Valuation Day, computations will
take place on the next Valuation Day.
The Beneficiary may elect under the Annuity Payout Option "Death Benefit
Remaining with the Company" to leave proceeds from the Death Benefit with us for
up to five years from the date of the Contract Owner's death if the Contract
Owner died before the Annuity Commencement Date. Once we receive a certified
death certificate or other legal documents acceptable to us, the Beneficiary
can: (a) make Sub-Account transfers and (b) take Surrenders without paying
Contingent Deferred Sales Charges.
REQUIRED DISTRIBUTIONS: If the Contract Owner dies before the Annuity
Commencement Date, the Death Benefit must be distributed within five years after
death. The Beneficiary can choose any Annuity Payout Option that results in
complete Annuity Payout within five years.
If the Contract Owner dies on or after the Annuity Commencement Date under an
Annuity Payout Option with a Death Benefit, any remaining value must be
distributed at least as rapidly as under the payment method being used as of the
Contract Owner's death.
If the Contract Owner is not an individual (e.g. a trust), then the original
Annuitant will be treated as the Contract Owner in the situations described
above and any change in the original Annuitant will be treated as the death of
the Contract Owner.
WHO WILL RECEIVE THE DEATH BENEFIT?
The distribution of the Death Benefit is based on whether death is before, on or
after the Annuity Commencement Date.
21 - PROSPECTUS
<PAGE>
IF DEATH OCCURS BEFORE
<TABLE>
<CAPTION>
THE ANNUITY COMMENCEMENT DATE:
- -----------------------------------------------------------------
<S> <C> <C> <C>
IF THE
DECEASED IS
THE... AND... AND... THEN THE...
Contract Owner There is a The Annuitant Joint Contract
surviving is living or Owner receives
joint Contract deceased the Death
Owner Benefit.
Contract Owner There is no The Annuitant Designated
surviving is living or Beneficiary
joint Contract deceased receives the
Owner Death Benefit.
Contract Owner There is no The Annuitant Contract Owner's
surviving is living or estate receives
joint Contract deceased the Death
Owner and the Benefit.
Beneficiary
predeceases
the Contract
Owner
Annuitant The Contract There is no Death Benefit is
Owner is named paid to the
living Contingent Contract Owner
Annuitant and not the
designated
Beneficiary.
Annuitant The Contract The Contingent Contingent
Owner is Annuitant is Annuitant becomes
living living the Annuitant,
and the Contract
continues.
- -----------------------------------------------------------------
</TABLE>
IF DEATH OCCURS ON OR AFTER
<TABLE>
<CAPTION>
THE ANNUITY COMMENCEMENT DATE:
- ----------------------------------------------------
<S> <C> <C>
IF THE
DECEASED IS
THE... AND... THEN THE...
Contract The Annuitant is Designated
Owner living Beneficiary becomes
the Contract Owner
Annuitant The Contract Contract Owner
Owner is living receives the Death
Benefit.
Annuitant The Annuitant is Designated
also the Beneficiary receives
Contract Owner the Death Benefit.
- ----------------------------------------------------
</TABLE>
THESE ARE THE MOST COMMON DEATH BENEFIT SCENARIOS, HOWEVER, THERE ARE OTHERS.
SOME OF THE ANNUITY PAYOUT OPTIONS MAY NOT RESULT IN A DEATH BENEFIT PAYOUT. IF
YOU HAVE QUESTIONS ABOUT THESE AND ANY OTHER SCENARIOS, PLEASE CONTACT YOUR
REGISTERED REPRESENTATIVE OR US.
WHAT SHOULD THE BENEFICIARY CONSIDER?
ALTERNATIVES TO THE REQUIRED DISTRIBUTIONS: The selection of an Annuity Payout
Option and the timing of the selection will have an impact on the tax treatment
of the Death Benefit. To receive favorable tax treatment, the Annuity Payout
Option selected: (a) cannot extend beyond the Beneficiary's life or life
expectancy, and (b) must begin within one year of the date of death.
If these conditions are NOT met, the Death Benefit will be treated as a lump sum
payment for tax purposes. This sum will be taxable in the year in which it is
considered received.
SPOUSAL CONTRACT CONTINUATION -- If the Beneficiary is the Contract Owner's
spouse, the Beneficiary may elect to continue the Contract as the contract
owner, receive the death benefit in one lump sum payment or elect an Annuity
Payout Option. This spousal continuation is available only once for each
Contract.
SURRENDERS
--------------------------------------------------------------------
WHAT KINDS OF SURRENDERS ARE AVAILABLE?
FULL SURRENDERS BEFORE THE ANNUITY COMMENCEMENT DATE: When you Surrender your
Contract before the Annuity Commencement Date, the Surrender Value of the
Contract will be made in a lump sum payment. The Surrender Value is the Contract
Value minus any applicable Premium Taxes, Contingent Deferred Sales Charges and
the Annual Maintenance Fee. The Surrender Value may be more or less than the
amount of the Premium Payments made to a Contract.
PARTIAL SURRENDERS BEFORE THE ANNUITY COMMENCEMENT DATE: You may request a
partial Surrender of Contract Values at any time before the Annuity Commencement
Date. There are two restrictions:
- - The partial Surrender amount must be at least equal to $100, our current
minimum for partial Surrenders, and
- - The Contract must have a minimum Contract Value of $500 after the Surrender.
The minimum Contract Value in New York must be $1000 after the Surrender. We
reserve the right to close your Contract and pay the full Surrender Value if
the Contract Value is under the minimum after the Surrender. If your Contract
was issued in Texas, a remaining value of $500 is not required to continue the
Contract if Premium Payments were made in the last two Contract Years.
FULL SURRENDERS AFTER THE ANNUITY COMMENCEMENT DATE: You may Surrender your
Contract on or after the Annuity Commencement Date only if you selected the
Payment For a Period Certain Annuity Payout Option. Under this option, we pay
you the Commuted Value of your Contract minus any applicable Contingent Deferred
Sales Charges. The Commuted Value is determined on the day we receive your
written request for Surrender.
PARTIAL SURRENDERS ARE ALLOWED AFTER THE ANNUITY COMMENCEMENT DATE IF YOU ELECT
THE PAYMENTS FOR A DESIGNATED PERIOD ANNUITY PAYOUT OPTION, BUT CHECK WITH YOUR
TAX ADVISOR BECAUSE THERE COULD BE ADVERSE TAX CONSEQUENCES.
22 - PROSPECTUS
<PAGE>
HOW DO I REQUEST A SURRENDER?
Requests for full Surrenders must be in writing. Requests for partial Surrenders
can be made in writing or by telephone. We will send your money within seven
days of receiving complete instructions. However, we may postpone payment of
Surrenders whenever: (a) the New York Stock Exchange is closed, (b) trading on
the New York Stock Exchange is restricted by the SEC, (c) the SEC permits and
orders postponement or (d) the SEC determines that an emergency exists to
restrict valuation.
WRITTEN REQUESTS -- To request a full or partial Surrender, complete a Surrender
Form or send us a letter, signed by you, stating:
- - the dollar amount that you want to receive, either before or after we withhold
taxes and deduct for any applicable charges,
- - your tax withholding amount or percentage, if any, and
- - your mailing address.
If there are joint Contract Owners, both must authorize all Surrenders. For a
partial Surrender, specify the Accounts that you want your Surrender to come
from, otherwise, the Surrender will be taken in proportion to the value in each
Account.
TELEPHONE REQUESTS: To request a partial Surrender by telephone, we must have
received your completed Telephone Redemption Program Enrollment Form. If there
are joint Contract Owners, both must sign this form. By signing the form, you
authorize us to accept telephone instructions for partial Surrenders from either
Contract Owner. Telephone authorization will remain in effect until we receive a
written cancellation notice from you or your joint Contract Owner, we
discontinue the program; or you are no longer the owner of the Contract. There
are some restrictions on telephone surrenders, please call us with any
questions.
We may record telephone calls and use other procedures to verify information and
confirm that instructions are genuine. We will not be liable for losses or
expenses arising from telephone instructions reasonably believed to be genuine.
WE MAY MODIFY THE REQUIREMENTS FOR TELEPHONE REDEMPTIONS AT ANY TIME.
Telephone Surrender instructions received before the close of the New York Stock
Exchange will be processed on that Valuation Day. Otherwise, your request will
be processed on the next Valuation Day.
COMPLETING A POWER OF ATTORNEY FORM FOR ANOTHER PERSON TO ACT ON YOUR BEHALF MAY
PREVENT YOU FROM MAKING SURRENDERS VIA TELEPHONE.
WHAT SHOULD BE CONSIDERED ABOUT TAXES?
There are certain tax consequences associated with Surrenders:
PRIOR TO AGE 59 1/2: If you make a Surrender prior to age 59 1/2, there may be
adverse tax consequences including a10% federal income tax penalty on the
taxable portion of the Surrender payment. Surrendering before age 59 1/2 may
also affect the continuing tax-qualified status of some Contracts.
WE DO NOT MONITOR SURRENDER REQUESTS. TO DETERMINE WHETHER A SURRENDER IS
PERMISSIBLE, WITH OR WITHOUT FEDERAL INCOME TAX PENALTY, PLEASE CONSULT YOUR
PERSONAL TAX ADVISER.
MORE THAN ONE CONTRACT ISSUED IN THE SAME CALENDAR YEAR:
If you own more than one contract issued by us or our affiliates in the same
calendar year, then these contracts may be treated as one contract for the
purpose of determining the taxation of distributions prior to the Annuity
Commencement Date. Please consult your tax adviser for additional information.
INTERNAL REVENUE CODE SECTION 403(B) ANNUITIES -- As of December 31, 1988, all
section 403(b) annuities have limits on full and partial Surrenders.
Contributions to your Contract made after December 31, 1988 and any increases in
cash value after December 31, 1988 may not be distributed unless you are: (a)
age 59 1/2, (b) no longer employed, (c) deceased, (d) disabled, or (e)
experiencing a financial hardship (cash value increases may not be distributed
for hardships prior to age 59 1/2). Distributions prior to age 59 1/2 due to
financial hardship; unemployment or retirement may still be subject to a penalty
tax of 10%.
WE ENCOURAGE YOU TO CONSULT WITH YOUR TAX ADVISER BEFORE MAKING ANY SURRENDERS.
PLEASE SEE THE "FEDERAL TAX CONSIDERATIONS" SECTION FOR MORE INFORMATION.
ANNUITY PAYOUTS
--------------------------------------------------------------------
THIS SECTION DESCRIBES WHAT HAPPENS WHEN WE BEGIN TO MAKE REGULAR ANNUITY
PAYOUTS FROM YOUR CONTRACT. YOU, AS THE CONTRACT OWNER, SHOULD ANSWER FIVE
QUESTIONS:
1. When do you want Annuity Payouts to begin?
2. What Annuity Payout Option do you want to use?
3. How often do you want to receive Annuity Payouts?
4. What is the Assumed Investment Return?
5. Do you want fixed dollar amount or variable dollar amount Annuity Payouts?
Please check with your financial advisor to select the Annuity Payout Option
that best meets your income needs.
1. WHEN DO YOU WANT ANNUITY PAYOUTS TO BEGIN?
You select an Annuity Commencement Date when you purchase your Contract or at
any time before you begin receiving Annuity
23 - PROSPECTUS
<PAGE>
Payouts. You may change the Annuity Commencement Date by notifying us within
thirty days prior to the date. The Annuity Commencement Date cannot be deferred
beyond the 15th day of the month of the Annuitant's 90th birthday. If this
Contract is issued to the trustee of a Charitable Remainder Trust, the Annuity
Commencement Date may be deferred to the Annuitant's 100th birthday.
The Annuity Calculation Date is when the amount of your Annuity Payout is
determined. This occurs within five Valuation Days before your selected Annuity
Commencement Date.
All Annuity Payouts, regardless of frequency, will occur on the same day of the
month as the Annuity Commencement Date. After the initial payout, if an Annuity
Payout date falls on a Non-Valuation Day, the Annuity Payout is computed on the
prior Valuation Day. If the Annuity Payout date does not occur in a given month
due to a leap year or months with only 28 days (i.e. the 31st), the Annuity
Payout will be computed on the last Valuation Day of the month.
2. WHICH ANNUITY PAYOUT OPTION DO YOU WANT TO USE?
Your Contract contains the Annuity Payout Options described below. The Annuity
Proceeds Settlement Option is an option that can be elected by the Beneficiary
after the death of the Contract Owner and is described in the "Death Benefit"
section. We may at times offer other Annuity Payout Options.
OPTION 1: LIFE ANNUITY -- We make Annuity Payouts as long as the Annuitant is
living. When the Annuitant dies, we stop making Annuity Payouts. A Payee would
receive only one Annuity Payout if the Annuitant dies after the first payout,
two Annuity Payouts if the Annuitant dies after the second payout, and so forth.
OPTION 2: LIFE ANNUITY WITH 120, 180 OR 240 MONTHLY PAYMENTS CERTAIN -- We make
monthly Annuity Payouts during the lifetime of the Annuitant but Annuity Payouts
are at least guaranteed for a minimum of 120, 180 or 240 months, as you elect.
If, at the death of the Annuitant, Annuity Payouts have been made for less than
the minimum elected number of months, then the Commuted Value as of the date of
the Annuitant's death will be paid in one sum to the Beneficiary.
OPTION 3: JOINT AND LAST SURVIVOR LIFE ANNUITY -- We will make Annuity Payouts
as long as the Annuitant and Joint Annuitant are living. When one Annuitant
dies, we continue to make Annuity Payouts to the other Annuitant until that
second Annuitant dies. When choosing this option, you must decide what will
happen to the Annuity Payouts; either fixed or variable, after the first
Annuitant dies. You must select Annuity Payouts that:
- - Remain the same at 100%, or
- - Decrease to 66.67%, or
- - Decrease to 50%.
For variable Annuity Payouts, these percentages represent Annuity Units; for
fixed Annuity Payouts, they represent actual dollar amounts. The percentage will
also impact the Annuity Payout amount we pay while both Annuitants are living.
If you pick a lower percentage, your original Annuity Payouts will be higher
while both Annuitants are alive.
OPTION 4: PAYMENTS FOR A DESIGNATED PERIOD -- We will make Annuity Payouts for
the number of years that you select. You can select between 5 years and 30
years.
IMPORTANT INFORMATION:
- - YOU CANNOT SURRENDER YOUR CONTRACT ONCE ANNUITY PAYOUTS BEGIN, UNLESS YOU HAVE
SELECTED THE PAYMENTS FOR A DESIGNATED PERIOD ANNUITY PAYOUT OPTION. A
CONTINGENT DEFERRED SALES CHARGE MAY BE DEDUCTED.
- - For Non-Qualified Contracts, if you do not elect an Annuity Payout Option,
fixed Annuity Payouts will automatically begin on the Annuity Commencement
Date under the Life Annuity with 120,180 or 240 Monthly Payments Certain
Annuity Payout Option with payouts for 120 months.
- - For Qualified Contracts and Contracts issued in Texas, if you do not elect an
Annuity Payout Option, fixed Annuity Payouts will begin automatically on the
Annuity Commencement Date, under the Annuity Payout Option 1 -- Life Annuity.
3. HOW OFTEN DO YOU WANT THE PAYEE TO RECEIVE ANNUITY PAYOUTS?
In addition to selecting an Annuity Commencement Date and an Annuity Payout
Option, you must also decide how often you want the Payee to receive Annuity
Payouts. You may choose to receive Annuity Payouts:
- - monthly,
- - quarterly,
- - semi-annually, or
- - annually.
Once you select a frequency, it cannot be changed. If you do not make a
selection, the Payee will receive monthly Annuity Payouts. You must select a
frequency that results in an Annuity Payout of at least $50. If the amount falls
below $50, we have the right to change the frequency to bring the Annuity Payout
up to at least $50. For Contracts issued in New York, the minimum monthly
Annuity Payout is $20.
4. WHAT IS THE ASSUMED INVESTMENT RETURN?
The Assumed Investment Return is the investment return used to calculate
variable Annuity Payouts. The Assumed Investment Return for your Annuity is 5%.
The first Annuity Payout will be based upon a 5% Assumed Investment Return. The
remaining Annuity Payouts will fluctuate based on the actual investment results
of the Sub-Accounts.
24 - PROSPECTUS
<PAGE>
5. DO YOU WANT ANNUITY PAYOUTS TO BE FIXED-DOLLAR AMOUNT OR VARIABLE-DOLLAR
AMOUNT?
You may choose an Annuity Payout Option with fixed-dollar amounts or
variable-dollar amounts, depending on your income needs.
FIXED-DOLLAR AMOUNT ANNUITY PAYOUTS -- Once a fixed-dollar amount Annuity Payout
begins, you cannot change your selection to receive variable-dollar amount
Annuity Payout. You will receive equal fixed-dollar amount Annuity Payouts
throughout the Annuity Payout period. Fixed-dollar amount Annuity Payout amounts
are determined by multiplying the Contract Value, minus any applicable Premium
Taxes, by an Annuity rate. The annuity rate is set by us and is not less than
the rate specified in the fixed-dollar amount Annuity Payout Option tables in
your Contract.
VARIABLE-DOLLAR AMOUNT ANNUITY PAYOUTS -- A variable-dollar amount Annuity
Payout is based on the investment performance of the Sub-Accounts. The
variable-dollar amount Annuity Payouts may fluctuate with the performance of the
underlying Portfolios. To begin making variable-dollar amount Annuity Payouts,
we convert the first Annuity Payout amount to a set number of Annuity Units and
then price those units to determine the Annuity Payout amount. The number of
Annuity Units that determines the Annuity Payout amount remains fixed unless you
transfer units between Sub-Accounts.
The dollar amount of the first variable Annuity Payout depends on:
- - the Annuity Payout Option chosen,
- - the Annuitant's attained age and gender (if applicable),and,
- - the applicable annuity purchase rates based on the 1983a Individual Annuity
Mortality table
- - the Assumed Investment Return
The total amount of the first variable-dollar amount Annuity Payout is
determined by dividing the Contract Value minus any applicable Premium Taxes, by
$1,000 and multiplying the result by the payment factor defined in the Contract
for the selected Annuity Payout Option.
The dollar amount of each subsequent variable-dollar amount Annuity Payout is
equal to the total of:
Annuity Units for each Sub-Account multiplied by Annuity Unit Value of each
Sub-Account.
The Annuity Unit Value of each Sub-Account for any Valuation Period is equal to
the Accumulation Unit Value Net Investment Factor for the current Valuation
Period multiplied by the Annuity Unit factor, multiplied by the Annuity Unit
Value for the preceding Valuation Period.
TRANSFER OF ANNUITY UNITS: After the Annuity Calculation Date, you may transfer
dollar amounts of Annuity Units from one Sub-Account to another. On the day you
make a transfer, the dollar amounts are equal for both Sub-Accounts and the
number of Annuity Units will be different. We will transfer the dollar amount of
your Annuity Units the day we receive your written request if received before
the close of the New York Stock Exchange. Otherwise, the transfer will be made
on the next Valuation Day.
OTHER PROGRAMS AVAILABLE
--------------------------------------------------------------------
AUTOMATIC ADDITIONS PROGRAM -- Automatic Additions is an electronic transfer
program that allows you to have money automatically transferred from your
checking or savings account, and invested in your Contract. It is available for
Premium Payments made after your initial Premium Payment. The minimum amount for
each transfer is $50. You can elect to have transfers occur either monthly or
quarterly, and they can be made into any Account available in your Contract.
AUTOMATIC INCOME PROGRAM -- The Automatic Income Program allows you to Surrender
up to 10% of your total Premium Payments each Contract Year. We can Surrender
from the Accounts you select systematically on a monthly, quarterly, semiannual,
or annual basis. The Automatic Income Program may change based on your
instructions after your seventh Contract Year.
ASSET REBALANCER PROGRAM -- Asset Allocation is a program that allows you to
choose an allocation for your Sub-Accounts to help you reach your investment
goals. Some Contracts offer model allocations with pre-selected Sub-Accounts and
percentages that have been established for each type of investor -- ranging from
conservative to aggressive. Over time, Sub-Account performance may cause your
Contract's allocation percentages to change, but under the Asset Allocation
Program, your Sub-Account allocations are rebalanced to the percentages in the
current model you have chosen. You can transfer freely between allocation models
up to twelve times per year. You can also allocate a portion of your investment
to Sub-Accounts that may not be part of the model. You can only participate in
one asset allocation model at a time.
OTHER INFORMATION
--------------------------------------------------------------------
ASSIGNMENT -- Ownership of this Contract is generally assignable. However, if
the Contract is issued to a tax qualified retirement plan, it is possible that
the ownership of the Contract may not be transferred or assigned. An assignment
of a Non-
25 - PROSPECTUS
<PAGE>
Qualified Contract may subject the Contract Values or Surrender Value to income
taxes and certain penalty taxes.
CONTRACT MODIFICATION -- The Annuitant may not be changed. However, if the
Annuitant is still living, the Contingent Annuitant may be changed at any time
prior to the Annuity Commencement Date by sending us written notice. We may
modify the Contract, but no modification will effect the amount or term of any
Contract unless a modification is required to conform the Contract to applicable
Federal or State law. No modification will effect the method by which Contract
Values are determined.
HOW CONTRACTS ARE SOLD: Hartford Securities Distribution Company, Inc. ("HSD")
serves as Principal Underwriter for the securities issued with respect to the
Separate Account. HSD is registered with the Securities and Exchange Commission
under the Securities Exchange Act of 1934 as a Broker-Dealer and is a member of
the National Association of Securities Dealers, Inc. HSD is an affiliate of
ours. Both HSD and Hartford are ultimately controlled by The Hartford Financial
Services Group, Inc. The principal business address of HSD is the same as ours.
The securities will be sold by individuals who represent us as insurance agents
and who are registered representatives of Broker-Dealers that have entered into
distribution agreements with HSD.
Commissions will be paid by Hartford and will not be more than 6% of Premium
Payments. From time to time, Hartford may pay or permit other promotional
incentives, in cash or credit or other compensation.
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, Hartford will credit the Contract with
an additional 5.0% of the Premium Payment. This additional percentage of Premium
Payment in no way affects present or future charges, rights, benefits or current
values of other Contract Owners. The following class of individuals are eligible
for this feature: (1) current or retired officers, directors, trustees and
employees (and their families) of the ultimate parent and affiliates of
Hartford; and (2) employees and registered representatives (and their families)
of registered broker-dealers (or their financial institutions) that have a sales
agreement with Hartford and its principal underwriter to sell the Contracts.
YEAR 2000
IN GENERAL The Year 2000 issue relates to the ability or inability of computer
hardware, software and other information technology (IT) systems, as well as
non-IT systems, such as equipment and machinery with imbedded chips and
microprocessors, to properly process information and data containing or related
to dates beginning with the year 2000 and beyond. The Year 2000 issue exists
because, historically, many IT and non-IT systems that are in use today were
developed years ago when a year was identified using a two-digit date field
rather than a four-digit date field. As information and data containing or
related to the century date are introduced to date sensitive systems, these
systems may recognize the year 2000 as "1900", or not at all, which may result
in systems processing information incorrectly. This, in turn, may significantly
and adversely affect the integrity and reliability of information databases of
IT systems, may cause the malfunctioning of certain non-IT systems, and may
result in a wide variety of adverse consequences to a company. In addition, Year
2000 problems that occur with third parties with which a company does business,
such as suppliers, computer vendors, distributors and others, may also adversely
affect any given company.
The integrity and reliability of Hartford's IT systems, as well as the
reliability of its non-IT systems, are integral aspects of Hartford's business.
Hartford issues insurance policies, annuities, mutual funds and other financial
products to individual and business customers, nearly all of which contain date
sensitive data, such as policy expiration dates, birth dates and premium payment
dates. In addition, various IT systems support communications and other systems
that integrate Hartford's various business segments and field offices. Hartford
also has business relationships with numerous third parties that affect
virtually all aspects of Hartford's business, including, without limitation,
suppliers, computer hardware and software vendors, insurance agents and brokers,
securities broker-dealers and other distributors of financial products, many of
which provide date sensitive data to Hartford, and whose operations are
important to Hartford's business.
INTERNAL YEAR 2000 EFFORTS AND TIMETABLE Beginning in 1990, Hartford began
working on making its IT systems Year 2000 ready, either through installing new
programs or replacing systems. Since January 1998, Hartford's Year 2000 efforts
have focused on the remaining Year 2000 issues related to IT and non-IT systems
in all of Hartford's business segments. These Year 2000 efforts include the
following five main initiatives:
26 - PROSPECTUS
<PAGE>
(1) identifying and assessing Year 2000 issues; (2) taking actions to remediate
IT and non-IT systems so that they are Year 2000 ready; (3) testing IT and
non-IT systems for Year 2000 readiness; (4) deploying such remediated and tested
systems back into their respective production environments; and (5) conducting
internal and external integrated testing of such systems. As of December 31,
1998, Hartford substantially completed initiatives (1) through (4) of its
internal Year 2000 efforts. Hartford has begun initiative (5) and management
currently anticipates that such activity will continue into the fourth quarter
of 1999.
THIRD PARTY YEAR 2000 EFFORTS AND TIMETABLE Hartford's Year 2000 efforts include
assessing the potential impact on Hartford of third parties' Year 2000
readiness. Hartford's third party Year 2000 efforts include the following three
main initiatives: (1) identifying third parties which have significant business
relationships with Hartford, including, without limitation, insurance agents,
brokers, third party administrators, banks and other distributors and servicers
of financial products, and inquiring of such third parties regarding their Year
2000 readiness; (2) evaluating such third parties' responses to Hartford's
inquiries; and (3) based on the evaluation of third party responses (or a third
party's failure to respond) and the significance of the business relationship,
conducting additional activities with respect to third parties as determined to
be necessary in each case. These activities may include conducting additional
inquiries, more in-depth evaluations of Year 2000 readiness and plans, and
integrated IT systems testing. Hartford has completed the first third party
initiative and, as of early 1999, had substantially completed evaluating third
party responses received. Hartford has begun conducting the additional
activities described in initiative (3) and management currently anticipates that
it will continue to do so through the end of 1999. However, notwithstanding
these third party Year 2000 efforts, Hartford does not have control over these
third parties and, as a result, Hartford cannot currently determine to what
extent future operating results may be adversely affected by the failure of
these third parties to adequately address their Year 2000 issues.
YEAR 2000 COSTS The costs of Hartford's Year 2000 program that were incurred
through the year ended December 31, 1997 were not material to Hartford's
financial condition or results of operations. The after-tax costs of Hartford's
Year 2000 efforts for the year ended December 31, 1998 were approximately $3
million. Management currently estimates that after-tax costs related to the Year
2000 program to be incurred in 1999 will be less than $10 million. These costs
are being expensed as incurred.
RISKS AND CONTINGENCY PLANS If significant Year 2000 problems arise, including
problems arising with third parties, failures of IT and non-IT systems could
occur, which in turn could result in substantial interruptions in Hartford's
business. In addition, Hartford's investing activities are an important aspect
of its business and Hartford may be exposed to the risk that issuers of
investments held by it will be adversely impacted by Year 2000 issues. Given the
uncertain nature of Year 2000 problems that may arise, especially those related
to the readiness of third parties discussed above, management cannot determine
at this time whether the consequences of Year 2000 related problems that could
arise will have a material impact on Hartford's financial condition or results
of operations.
Hartford is in the process of developing certain contingency plans so that if,
despite its Year 2000 efforts, Year 2000 problems ultimately arise, the impact
of such problems may be avoided or minimized. These contingency plans are being
developed based on, among other things, known or reasonably anticipated
circumstances and potential vulnerabilities. The contingency planning also
includes assessing the dependency of Hartford's business on third parties and
their Year 2000 readiness. Hartford currently anticipates that internal and
external contingency plans will be substantially complete by the end of the
second quarter of 1999. However, in many contexts, Year 2000 issues are dynamic,
and ongoing assessments of business functions, vulnerabilities and risks must be
made. As such, new contingency plans may be needed in the future and/or existing
plans may need to be modified as circumstances warrant.
LEGAL MATTERS AND EXPERTS
There are no material legal proceedings pending to which the Separate Account is
a party.
Counsel with respect to federal laws and regulations applicable to the issue and
sale of the Contracts and with respect to Connecticut law is Lynda Godkin,
Senior Vice President, General Counsel and Corporate Secretary, Hartford Life
and Annuity Insurance Company, P.O. Box 2999, Hartford, Connecticut 06104-2999.
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.
27 - PROSPECTUS
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MORE INFORMATION
You may call your Representative if you have any questions or write or call us
at the address below:
Hartford Life and Annuity Insurance Company
Attn: Individual Annuity Services
P.O. Box 5085
Hartford, Connecticut 06102-5085.
Telephone:(800) 862-6668 (Contract Owners)
(800) 862-4397 (Account Executive)
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.
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.
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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, nonperiodic amounts received or deemed received after the
Annuity Commencement Date are not entitled to any exclusion ratio and shall be
fully includable in gross income. However, upon a full surrender after such
date, only the excess of the amount received (after any surrender charge) over
the remaining "investment in the contract" shall be includable in gross income
(except to the extent that the aggregation rule referred to in the next
subparagraph c. may apply).
C. AGGREGATION OF TWO OR MORE ANNUITY CONTRACTS.
Contracts issued after October 21, 1988 by the same insurer (or affiliated
insurer) to the same Contract Owner within the same calendar year (other than
certain contracts held in connection with a tax-qualified retirement
arrangement) will be treated as one annuity Contract for the purpose of
determining the taxation of distributions prior to the Annuity Commencement
Date. An annuity contract received in a tax-free exchange for another annuity
contract or life insurance contract may be treated as a new Contract for this
purpose. Hartford believes that for any annuity subject to such aggregation, the
values under the Contracts and the investment in the contracts will be added
together to determine the taxation under subparagraph 2.a., above, of amounts
received or deemed received prior to the Annuity Commencement Date. Withdrawals
will first be treated as withdrawals of income until all of the income from all
such Contracts is withdrawn. As of the date of this Prospectus, there are no
regulations interpreting this provision.
D. 10% PENALTY TAX -- APPLICABLE TO CERTAIN WITHDRAWALS AND ANNUITY PAYMENTS.
I. If any amount is received or deemed received on the Contract (before or after
the Annuity Commencement Date), the Code applies a penalty tax equal to ten
percent of the portion of the amount includable in gross income, unless an
exception applies.
II. The 10% penalty tax will not apply to the following distributions
(exceptions vary based upon the precise plan involved):
1. Distributions made on or after the date the recipient has attained the age of
59 1/2.
2. Distributions made on or after the death of the holder or where the holder is
not an individual, the death of the primary annuitant.
3. Distributions attributable to a recipient's becoming disabled.
4. A distribution that is part of a scheduled series of substantially equal
periodic payments (not less frequently than annually) for the life (or life
expectancy) of the recipient (or the joint lives or life expectancies of the
recipient and the recipient's designated Beneficiary).
5. Distributions of amounts which are allocable to the "investment in the
contract" prior to August 14, 1982 (see next subparagraph e.).
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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.
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
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the separate account to be considered the owner of the assets for tax purposes.
The IRS has issued several rulings discussing investor control. These rulings
say that certain incidents of ownership by the contract owner, such as the
ability to select and control investments in a separate account, will cause the
contract owner to be treated as the owner of the assets for tax purposes.
In its explanation of the diversification regulations, the Treasury Department
recognized that the temporary regulations "do not provide guidance concerning
the circumstances in which investor control of the investments of a segregated
asset account may cause the investor, rather than the insurance company, to be
treated as the owner of the assets in the account." The explanation further
indicates that "the temporary regulations provide that in appropriate cases a
segregated asset account may include multiple sub-accounts, but do not specify
the extent to which policyholders may direct their investments to particular
sub-accounts without being treated as the owners of the underlying assets.
Guidance on this and other issues will be provided in regulations or revenue
rulings under Section 817(d), relating to the definition of variable contract."
The final regulations issued under Section 817 did not provide guidance
regarding investor control, and as of the date of this prospectus, guidance has
yet to be issued. We do not know if additional guidance will be issued. If
guidance is issued, we do not know if it will have a retroactive effect.
Due to the lack of specific guidance on investor control, there is some
uncertainty about when a contract owner is considered the owner of the assets
for tax purposes. We reserve the right to modify the contract, as necessary, to
prevent you from being considered the owner of assets in the separate account.
D. FEDERAL INCOME TAX WITHHOLDING
The portion of a distribution which is taxable income to the recipient will be
subject to federal income tax withholding, pursuant to Section 3405 of the Code.
The application of this provision is summarized below:
1. NON-PERIODIC DISTRIBUTIONS.
The portion of a non-periodic distribution which constitutes taxable income will
be subject to federal income tax withholding unless the recipient elects not to
have taxes withheld. If there is no election to waive withholding, 10% of the
taxable distribution will be withheld as federal income tax. Election forms will
be provided at the time distributions are requested. If the necessary election
forms are not submitted to Hartford, Hartford will automatically withhold 10% of
the taxable distribution.
2. PERIODIC DISTRIBUTIONS (DISTRIBUTIONS PAYABLE OVER A PERIOD GREATER THAN ONE
YEAR).
The portion of a periodic distribution which constitutes taxable income will be
subject to federal income tax withholding as if the recipient were married
claiming three exemptions. A recipient may elect not to have income taxes
withheld or have income taxes withheld at a different rate by providing a
completed election form. Election forms will be provided at the time
distributions are requested.
E. GENERAL PROVISIONS AFFECTING QUALIFIED RETIREMENT PLANS
The Contract may be used for a number of qualified retirement plans. If the
Contract is being purchased with respect to some form of qualified retirement
plan, please refer to Appendix I for information relative to the types of plans
for which it may be used and the general explanation of the tax features of such
plans.
F. ANNUITY PURCHASES BY NONRESIDENT
ALIENS AND FOREIGN CORPORATIONS
The discussion above provides general information regarding U.S. federal income
tax consequences to annuity purchasers that are U.S. citizens or residents.
Purchasers that are not U.S. citizens or residents will generally be subject to
U.S. federal income tax and withholding on annuity distributions at a 30% rate,
unless a lower treaty rate applies. In addition, purchasers may be subject to
state premium tax, other state and/or municipal taxes, and taxes that may be
imposed by the purchaser's country of citizenship or residence. Prospective
purchasers are advised to consult with a qualified tax adviser regarding U.S.,
state, and foreign taxation with respect to an annuity purchase.
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APPENDIX I - INFORMATION REGARDING TAX-QUALIFIED RETIREMENT PLANS
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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 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
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August 20, 1996 may be amended to satisfy the trust and exclusive benefit
requirements any time prior to January 1, 1999, and must be amended not later
than that date to continue to receive favorable tax treatment. The requirement
of a trust does not apply to amounts under a Deferred Compensation Plan of a
tax-exempt (non-governmental) employer. In addition, the requirement of a trust
does not apply to amounts under a Deferred Compensation Plan of a governmental
employer if the Deferred Compensation Plan is not an eligible plan within the
meaning of section 457(b) of the Code. In the absence of such a trust, amounts
under the plan will be subject to the claims of the employer's general
creditors.
In general, distributions from an eligible Deferred Compensation Plan are
prohibited under section 457 of the Code unless made after the participating
employee:
- - attains age 70 1/2,
- - separates from service,
- - dies, or
- - suffers an unforeseeable financial emergency as defined in the Code.
Under present federal tax law, amounts accumulated in a Deferred Compensation
Plan under section 457 of the Code cannot be transferred or rolled over on a
tax-deferred basis except for certain transfers to other Deferred Compensation
Plans under section 457 in limited cases.
4. Individual Retirement Annuities ("IRAs") Under Section 408
Traditional IRAs. Eligible individuals can establish individual retirement
programs under section 408 of the Code through the purchase of an IRA. Section
408 imposes limits with respect to IRAs, including limits on the amount that may
be contributed to an IRA, the amount of such contributions that may be deducted
from taxable income, the persons who may be eligible to contribute to an IRA,
and the time when distributions commence from an IRA. Distributions from certain
tax-qualified retirement plans may be "rolled-over" to an IRA on a tax-deferred
basis.
SIMPLE IRAs. Eligible employees may establish SIMPLE IRAs in connection with a
SIMPLE IRA plan of an employer under section 408(p) of the Code. Special
rollover rules apply to SIMPLE IRAs. Amounts can be rolled over from one SIMPLE
IRA to another SIMPLE IRA. However, amounts can be rolled over from a SIMPLE IRA
to a Traditional IRA only after two years have expired since the employee first
commenced participation in the employer's SIMPLE IRA plan. Amounts cannot be
rolled over to a SIMPLE IRA from a qualified plan or a Traditional IRA. Hartford
is a non-designated financial institution for purposes of the SIMPLE IRA rules.
Roth IRAs. Eligible individuals may establish Roth IRAs under section 408A of
the Code. Contributions to a Roth IRA are not deductible. Subject to special
limitations, a Traditional IRA may be converted into a Roth IRA or a
distribution from a Traditional IRA may be rolled over to a Roth IRA. However, a
conversion or a rollover from a Traditional IRA to a Roth IRA is not excludable
from gross income. If certain conditions are met, qualified distributions from a
Roth IRA are tax-free.
5. Federal Tax Penalties and Withholding Distributions from tax-qualified
retirement plans are generally taxed as ordinary income under section 72 of the
Code. Under these rules, a portion of each distribution may be excludable from
income. The excludable amount is the portion of the distribution that bears the
same ratio as the after-tax contributions bear to the expected return.
(a) Penalty Tax on Early Distributions Section 72(t) of the Code imposes an
additional penalty tax equal to 10% of the taxable portion of a distribution
from certain tax-qualified retirement plans. However, the 10% penalty tax
does not apply to a distributions that is:
- - Made on or after the date on which the employee reaches age 59 1/2;
- - Made to a beneficiary (or to the estate of the employee) on or after the death
of the employee;
- - Attributable to the employee's becoming disabled (as defined in the Code);
- - Part of a series of substantially equal periodic payments (not less frequently
than annually) made for the life (or life expectancy) of the employee or the
joint lives (or joint life expectancies) of the employee and his or her
designated beneficiary;
- - Except in the case of an IRA, made to an employee after separation from
service after reaching age 55; or
- - Not greater than the amount allowable as a deduction to the employee for
eligible medical expenses during the taxable year.
In addition, the 10% penalty tax does not apply to a distribution from an IRA
that is:
- - Made after separation from employment to an unemployed IRA owner for health
insurance premiums, if certain conditions are met;
- - Not in excess of the amount of certain qualifying higher education expenses,
as defined by section 72(t)(7) of the Code; or
- - 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.
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(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.
34 - 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>
35 - PROSPECTUS
<PAGE>
This form must be completed for all tax-sheltered annuities.
SECTION 403(B)(11) ACKNOWLEDGMENT FORM
- ---------------------------------------------------------------
The Hartford Variable Annuity Contract that you have recently purchased is
subject to certain restrictions imposed by the Tax Reform Act of 1986.
Contributions to the Contract after December 31, 1988 and any increases in cash
value after December 31, 1988 may not be distributed to you unless you have:
a. Attained age 59 1/2,
b. Separated from service,
c. Died, or
d. Become disabled.
Distributions of post December 31, 1988 contributions (excluding any income
thereon) may also be made if you have experienced a financial hardship.
Also, there may be a 10% penalty tax for distributions made prior to age 59 1/2
because of financial hardship or separation from service.
Also, please be aware that your 403(b) Plan may also offer other financial
alternatives other than the Dean Witter Select Dimensions Variable Annuity.
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 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
SEPARATE ACCOUNT THREE
DEAN WITTER SELECT DIMENSIONS VARIABLE ANNUITY
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: Annuity Marketing Services, P.O. Box 5085,
Hartford, CT 06102-5085.
Date of Prospectus: May 3, 1999
Date of Statement of Additional Information: May 3, 1999
<PAGE>
-2-
TABLE OF CONTENTS
SECTION PAGE
- ------- ----
DESCRIPTION OF HARTFORD LIFE AND
ANNUITY INSURANCE COMPANY. . . . . . . . . . . . . . . . . . . . . . . . 3
SAFEKEEPING OF ASSETS. . . . . . . . . . . . . . . . . . . . . . . . . . . 3
INDEPENDENT PUBLIC ACCOUNTANTS . . . . . . . . . . . . . . . . . . . . . . 3
DISTRIBUTION OF CONTRACTS. . . . . . . . . . . . . . . . . . . . . . . . . 4
CALCULATION OF YIELD AND RETURN. . . . . . . . . . . . . . . . . . . . . . 5
PERFORMANCE COMPARISONS. . . . . . . . . . . . . . . . . . . . . . . . . . 9
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.
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.
<PAGE>
-4-
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 registered with the Securities and Exchange Commission under the
Securities Exchange Act of 1934 as a Broker-Dealer and is a member of the
National Association of Securities Dealers, Inc. HSD is an affiliate of ours.
Both HSD and Hartford are ultimately controlled by The Hartford Financial
Services Group, Inc. The principal business address of HSD is the same as
ours. The securities will be sold by individuals who represent us as
insurance agents and who are registered representatives of Broker-Dealers
that have entered into distribution agreements with HSD.
Commissions will be paid by Hartford and will not be more than 6% of Premium
Payments. From time to time, Hartford may pay or permit other promotional
incentives, in cash or credit or other compensation.
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, Hartford will credit the Contract
with an additional 5.0% of the Premium Payment. This additional percentage of
Premium Payment in no way affects present or future charges, rights, benefits
or current values of other Contract Owners. The following class of
individuals are eligible for this feature: (1) current or retired officers,
directors, trustees and employees (and their families) of the ultimate parent
and affiliates of Hartford; and (2) employees and registered representatives
(and their families) of registered broker-dealers (or their financial
institutions) that have a sales agreement with Hartford and its principal
underwriter to sell the Contracts.
Hartford currently pays HSD underwriting commissions for its role as
Principal Underwriter of all variable annuities associated with this Separate
Account. For the past three years, the aggregate dollar amount of
underwriting commission paid to HSD in its role as Principal Underwriter has
been: 1998: $11,655,729; 1997: $17,944,107; and 1996: $23,145,753. HSD has
retained none of these commissions.
<PAGE>
-5-
CALCULATION OF YIELD AND RETURN
YIELD OF THE MONEY MARKET PORTFOLIO SUB-ACCOUNT. As summarized in the
Prospectus under the heading "Performance Related Information," the yield of the
Sub-Account for a seven day period (the "base period") will be computed by
determining the "net change in value" of a hypothetical account having a balance
of one unit at the beginning of the period, dividing the net change in account
value by the value of the account at the beginning of the base period to obtain
the base period return, and multiplying the base period return by 365/7 with the
resulting yield figure carried to the nearest hundredth of one percent. Net
changes in value of a hypothetical account will include net investment income of
the account (accrued dividends as declared by the underlying funds, less expense
and Contract charges of the account) for the period, but will not include
realized gains or losses or unrealized appreciation or depreciation on the
underlying fund shares.
The effective yield is calculated by compounding the base period return by
adding 1, raising the sum to a power equal to 365/7 and subtracting 1 from the
result, according to the following formula:
365/7
Effective Yield = [(Base Period Return + 1) ] - 1
THE MONEY MARKET PORTFOLIO 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.
- --------------------------------------------------------------------------------
SUB-ACCOUNT YIELD EFFECTIVE YIELD
- --------------------------------------------------------------------------------
The Money Market Portfolio* 3.30% 3.36%
- --------------------------------------------------------------------------------
* Yield and effective yield for the seven day period ending December 31, 1998.
YIELDS OF NORTH AMERICAN GOVERNMENT SECURITIES PORTFOLIO AND DIVERSIFIED
INCOME PORTFOLIO SUB-ACCOUNTS. As summarized in the Prospectus under the
heading "Performance Related Information," yields of the above 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 mutual fund's "net asset value per share" for the
same period in addition to the daily expense charge assessed, at the
sub-account level for the respective period. The Sub-Accounts' yields will
vary from time to time depending upon market conditions and, the composition
of the underlying funds' portfolios. Yield should also be considered relative
to changes in the value of the Sub-Accounts' shares and to the relative risks
associated with the investment objectives and policies of the underlying Fund.
<PAGE>
-6-
THE YIELD REFLECTS RECURRING CHARGES ON THE SEPARATE ACCOUNT LEVEL, INCLUDING
THE ANNUAL MAINTENANCE FEE.
Yield calculations of the Sub-Accounts used for illustration purposes reflect
the interest earned by the Sub-Accounts, less applicable asset charges
assessed against a Contract Owner's account over the base period. Yield
quotations based on a 30 day period 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
- --------------------------------------------------------------------------------
The North American Government Securities Portfolio** 3.49%
- --------------------------------------------------------------------------------
The Diversified Income Portfolio** 6.77%
- --------------------------------------------------------------------------------
High Yield Portfolio** 8.26%
- --------------------------------------------------------------------------------
** Yield quotation based on a 30 day period ended December 31, 1998.
<PAGE>
-7-
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.
For the fiscal year ended December 31, 1998, standardized average annual
total return quotations for the Sub-Accounts listed were as follows.
STANDARDIZED AVERAGE ANNUAL TOTAL RETURN FOR YEAR ENDED
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
S/A 1 YEAR 5 YEAR 10 YEAR SINCE
SUB-ACCOUNT INCEPTION INCEPTION
DATE
- --------------------------------------------------------------------------------
American Value 11/8/94 19.96% N/A N/A 22.44%
- --------------------------------------------------------------------------------
Balanced Growth 11/8/94 3.82% N/A N/A 11.38%
- --------------------------------------------------------------------------------
Developing Growth 11/8/94 -1.48% N/A N/A 15.46%
- --------------------------------------------------------------------------------
Dividend Growth 11/8/94 9.06% N/A N/A 21.50%
- --------------------------------------------------------------------------------
Diversified Income 11/8/94 -6.23% N/A N/A 1.34%
- --------------------------------------------------------------------------------
Emerging Markets 11/8/94 -37.22% N/A N/A -10.14%
- --------------------------------------------------------------------------------
Global Equity 11/8/94 4.52% N/A N/A 6.03%
- --------------------------------------------------------------------------------
Growth 11/8/94 2.65% N/A N/A 12.36%
- --------------------------------------------------------------------------------
Midcap Growth 1/2/97 -4.80% N/A N/A 3.50%
- --------------------------------------------------------------------------------
Money Market 11/8/94 -5.30% N/A N/A -0.60%
- --------------------------------------------------------------------------------
North American
Government 11/8/94 -6.17% N/A N/A -0.80%
- --------------------------------------------------------------------------------
Utilities 11/8/94 11.53% N/A N/A 15.20%
- --------------------------------------------------------------------------------
Value-Added Market 11/8/94 1.63% N/A N/A 14.50%
- --------------------------------------------------------------------------------
VK Enterprise 4/1/98 N/A N/A N/A -2.48%
- --------------------------------------------------------------------------------
VK Strategic Stock 4/1/98 N/A N/A N/A -6.16%
- --------------------------------------------------------------------------------
MS Emerging Markets
Debt 4/1/98 N/A N/A N/A -39.53%
- --------------------------------------------------------------------------------
MS High Yield 4/1/98 N/A N/A N/A -9.06%
- --------------------------------------------------------------------------------
MS Midcap Value 4/1/98 N/A N/A N/A -7.88%
- --------------------------------------------------------------------------------
<PAGE>
-8-
In addition to the standardized total return, the Sub-Account may advertise a
non-standardized total return. This figure will usually be calculated for
one year, five years, and ten years or other periods. Non-standardized total
return is measured in the same manner as the standardized total return
described above, except that the contingent deferred sales charge and the
Annual Maintenance Fee are not deducted and the time periods used to
calculate return are based on the inception date of the underlying Funds.
Therefore, non-standardized total return for a Sub-Account is higher than
standardized total return for a Sub-Account.
The following are the non-standardized annualized total return quotations for
the Sub-Accounts for the fiscal year ended December 31, 1998.
NON-STANDARDIZED ANNUALIZED TOTAL RETURN THAT PRE-DATE THE
INCEPTION DATE OF THE SEPARATE ACCOUNT FOR YEAR ENDED
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
SUB-ACCOUNT FUND 1 YEAR 5 YEAR 10 YEAR SINCE
INCEPTION INCEPTION
DATE
- --------------------------------------------------------------------------------
American Value 11/8/94 28.96% N/A N/A 25.59%
- --------------------------------------------------------------------------------
Balanced Growth 11/8/94 12.82% N/A N/A 15.01%
- --------------------------------------------------------------------------------
Developing Growth 11/8/94 7.52% N/A N/A 18.64%
- --------------------------------------------------------------------------------
Dividend Growth 11/8/94 18.06% N/A N/A 24.54%
- --------------------------------------------------------------------------------
Diversified Income 11/8/94 2.77% N/A N/A 5.68%
- --------------------------------------------------------------------------------
Emerging Markets 11/8/94 -30.02% N/A N/A -5.29%
- --------------------------------------------------------------------------------
Global Equity 11/8/94 13.52% N/A N/A 10.12%
- --------------------------------------------------------------------------------
Growth 11/8/94 11.65% N/A N/A 16.03%
- --------------------------------------------------------------------------------
Midcap Growth 1/2/97 4.20% N/A N/A 9.43%
- --------------------------------------------------------------------------------
Money Market 11/8/94 3.70% N/A N/A 3.92%
- --------------------------------------------------------------------------------
North American
Government 11/8/94 2.83% N/A N/A 3.73%
- --------------------------------------------------------------------------------
Utilities 11/8/94 20.53% N/A N/A 18.74%
- --------------------------------------------------------------------------------
Value-Added Market 11/8/94 10.63% N/A N/A 17.96%
- --------------------------------------------------------------------------------
VK Enterprise 4/1/98 N/A N/A N/A 6.52%
- --------------------------------------------------------------------------------
VK Strategic Stock 4/1/98 N/A N/A N/A 2.84%
- --------------------------------------------------------------------------------
MS Emerging Markets
Debt 4/1/98 N/A N/A N/A -32.48%
- --------------------------------------------------------------------------------
MS High Yield 4/1/98 N/A N/A N/A -0.07%
- --------------------------------------------------------------------------------
MS Midcap Value 4/1/98 N/A N/A N/A 1.12%
- --------------------------------------------------------------------------------
<PAGE>
-9-
PERFORMANCE COMPARISONS
YIELD AND TOTAL RETURN. The total return and yield may also be used to
compare the performance of the Sub-Accounts against certain widely
acknowledged outside standards or indices for stock and bond market
performance. Index performance is not representative of the performance of
the Sub-Account to which it is compared and is not adjusted for commissions
and other costs. Portfolio holdings of the Sub-Account will differ from
those of the index to which it is compared. Performance comparison indices
include the following:
The Consumer Price Index, prepared by the U.S. Bureau of Labor Statistics, is
a commonly used measure of the rate of inflation. The index shows the
average change in the cost of selected consumer goods and services and does
not represent a return on an investment vehicle.
The Dow Jones Industrial Average is an unmanaged list of 30 common stocks
frequently used as a general measure of stock market performance. Its
performance figures reflect changes of market prices and reinvestment of all
distributions.
Lehman Brothers Corporate Bond Index is an unmanaged list of publicly issued,
fixed-rate, non-convertible investment-grade domestic corporate debt
securities frequently used as a general measure of the performance of
fixed-income securities. The average quality of bonds included in the index
may be higher than the average quality of those bonds in which a Fund
customarily invests. The index does not include bonds in certain of the lower
rating classifications in which a Fund may invest. The performance figures
of the index reflect changes in market prices and reinvestment of all
interest payments.
The Lehman Brothers Government Bond Index (the "SL Government Index") is a
measure of the market value of all public obligations of the U.S. Treasury;
all publicly issued debt of all agencies of the U.S. Government and all
quasi-federal corporations; and all corporate debt guaranteed by the U.S.
Government. Mortgage-backed securities, flower bonds and foreign targeted
issues are not included in the SL Government Index.
The Lehman Brothers Government/Corporate Bond Index (the "SL Government/
Corporate Index") is a measure of the market value of approximately 5,300
bonds with a face value currently in excess of $1.3 trillion. To be included
in the SL Government/Corporate Index, an issue must have amounts outstanding
in excess of $1 million, have at least one year to maturity and be rated
"Baa" or higher ("investment grade") by a nationally recognized rating
agency. The index does not include bonds in certain of the lower-rating
classifications in which a Fund may invest. Its performance figures reflect
changes in market prices and reinvestment of all interest payments.
Morgan Stanley Capital International World Index is an unmanaged list of
approximately 1,450 equity securities listed on the stock exchanges of the
United States, Europe, Canada, Australia, New Zealand and the Far East, with
all values expressed in U.S. dollars. Performance figures reflect changes in
market prices and reinvestment of distributions net of withholding taxes.
The securities in the index change over time to maintain representativeness.
<PAGE>
-10-
The NASDAQ-OTC Industrial Average (The "NASDAQ Index") is a market
value-weighted and unmanaged index showing the changes in the aggregate
market value of approximately 3,500 stocks relative to the base measure of
100.00 on February 5, 1971. The NASDAQ Index is composed entirely of common
stocks of companies traded over-the-counter and often through the National
Association of Securities Dealers Automated Quotations ("NASDAQ") system.
Only those over-the-counter stocks having only one market maker or traded on
exchanges are excluded. Its performance figures reflect changes of market
prices but do not reflect reinvestment of cash dividends.
Salomon Brothers Long-Term High-Grade Corporate Bond Index is an unmanaged
list of publicly traded corporate bonds having a rating of at least AA by
Standard & Poor's or Aa by Moody's and is frequently used as general measure
of the performance of fixed-income securities. The average quality of bonds
included in the index may be higher than the average quality of those bonds
in which a Fund may customarily invest. The index does not include bonds in
certain of the lower rating classifications in which a Fund may invest.
Performance figures for the index reflect changes of market prices and
reinvestment of all distributions.
The Salomon Brothers 7-10 Year Government Bond Index is an unmanaged list of
U.S. Government and government agency securities with maturities of 7 to 10
years. Performance figures for the index reflect changes of market prices
and reinvestment of all interest payments.
The Standard & Poor's Composite Index of 500 stocks (the "S&P 500") is a
market value-weighted and unmanaged index showing changes in the aggregate
market value of 500 stocks relative to the base period 1941-43. The S&P 500
is composed almost entirely of common stocks of companies listed on the New
York Stock Exchange, although the common stocks of a few companies listed on
the American Stock Exchange or traded over-the-counter are included. The 500
companies represented include 400 industrial, 60 transportation and 40
financial services concerns. The S&P 500 represents about 80% of the market
value of all issues traded on the New York Stock Exchange. Its performance
figures reflect changes of market prices and reinvestment of all regular cash
dividends.
The Standard & Poor's 40 Utilities Index is unmanaged list of 40 utility
stocks. The Index assumes reinvestment of all distributions and reflects
changes in market prices but does not take into account brokerage commissions
or other fees.
<PAGE>
HARTFORD LIFE AND ANNUITY INSURANCE COMPANY SA-1
- --------------------------------------------------------------------------------
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
<PAGE>
SA-2 HARTFORD LIFE AND ANNUITY INSURANCE COMPANY
- --------------------------------------------------------------------------------
SEPARATE ACCOUNT THREE
- --------------------------------------------------------------------------------
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.
<PAGE>
HARTFORD LIFE AND ANNUITY INSURANCE COMPANY SA-3
- --------------------------------------------------------------------------------
<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>
<PAGE>
SA-4 HARTFORD LIFE AND ANNUITY INSURANCE COMPANY
- --------------------------------------------------------------------------------
SEPARATE ACCOUNT THREE
- --------------------------------------------------------------------------------
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.
<PAGE>
HARTFORD LIFE AND ANNUITY INSURANCE COMPANY SA-5
- --------------------------------------------------------------------------------
<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>
<PAGE>
SA-6 HARTFORD LIFE AND ANNUITY INSURANCE COMPANY
- --------------------------------------------------------------------------------
SEPARATE ACCOUNT THREE
- --------------------------------------------------------------------------------
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.
<PAGE>
HARTFORD LIFE AND ANNUITY INSURANCE COMPANY SA-7
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
UNITS
OWNED BY UNIT CONTRACT
PARTICIPANTS PRICE LIABILITY
------------ ----------- ---------------
<S> <C> <C> <C>
GROUP ANNUITY CONTRACTS IN THE
ANNUITY PERIOD:
Money Market Portfolio........... 10,799 $ 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>
<PAGE>
SA-8 HARTFORD LIFE AND ANNUITY INSURANCE COMPANY
- --------------------------------------------------------------------------------
SEPARATE ACCOUNT THREE
- --------------------------------------------------------------------------------
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.
<PAGE>
HARTFORD LIFE AND ANNUITY INSURANCE COMPANY SA-9
- --------------------------------------------------------------------------------
<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>
<PAGE>
SA-10 HARTFORD LIFE AND ANNUITY INSURANCE COMPANY
- --------------------------------------------------------------------------------
SEPARATE ACCOUNT THREE
- --------------------------------------------------------------------------------
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.
<PAGE>
HARTFORD LIFE AND ANNUITY INSURANCE COMPANY SA-11
- --------------------------------------------------------------------------------
<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.
<PAGE>
SA-12 HARTFORD LIFE AND ANNUITY INSURANCE COMPANY
- --------------------------------------------------------------------------------
SEPARATE ACCOUNT THREE
- --------------------------------------------------------------------------------
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>
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.
<PAGE>
HARTFORD LIFE AND ANNUITY INSURANCE COMPANY SA-13
- --------------------------------------------------------------------------------
<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>
<PAGE>
SA-14 HARTFORD LIFE AND ANNUITY INSURANCE COMPANY
- --------------------------------------------------------------------------------
SEPARATE ACCOUNT THREE
- --------------------------------------------------------------------------------
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.
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.
<PAGE>
HARTFORD LIFE AND ANNUITY INSURANCE COMPANY SA-15
- --------------------------------------------------------------------------------
<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>
<PAGE>
SA-16 HARTFORD LIFE AND ANNUITY INSURANCE COMPANY
- --------------------------------------------------------------------------------
SEPARATE ACCOUNT THREE
- --------------------------------------------------------------------------------
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.
<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.
/s/ 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.(1)
(5) Form of Application.(1)
(6) (a) Certificate of Incorporation of Hartford.(3)
(6) (b) Bylaws of Hartford.(2)
(7) Form of Reinsurance Agreement.
(8) Participation Agreement.(1)
(9) Opinion and Consent of Lynda Godkin, Senior Vice President,
General Counsel and Corporate Secretary.
(10) Consent of Arthur Andersen LLP, Independent Public
Accountants.
(11) No financial statements are omitted.
(12) Not applicable.
- -----------------------------
(1) Incorporated by reference to Post-Effective Amendment No. 2, to the
Registration Statement File No. 33-80732, dated May 1, 1995.
(2) Incorporated by reference to Post-Effective Amendment No. 3, to the
Registration Statement File No. 33-80732, dated May 1, 1996.
(3) Incorporated by reference to Post-Effective Amendment No. 5, to the
Registration Statement File No. 33-80732, dated April 13, 1998.
<PAGE>
2
(13) Not applicable
(14) Not applicable
(15) Copy of Power of Attorney.
(16) Organizational Chart.
Item 25. Directors and Officers of the Depositor
<TABLE>
<CAPTION>
- --------------------------------------------- ----------------------------------------------------------------------
NAME, AGE POSITION WITH HARTFORD
- --------------------------------------------- ----------------------------------------------------------------------
<S> <C>
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*
- --------------------------------------------- ----------------------------------------------------------------------
</TABLE>
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.
Item 26. Persons Controlled By or Under Common Control with the Depositor
or Registrant
Filed herewith as Exhibit 16.
<PAGE>
3
Item 27. Number of Contract Owners
As of March 31, 1999, there were 27,422 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 becomes subject by
reason of being or having been an employees or officers of the Registrant.
Connecticut law does not prescribe standards for the indemnification of
officers, employees and agents and expressly states that their
indemnification may be broader than the right of indemnification granted to
directors.
The foregoing statements are specifically made subject to the detailed
provisions of Section 33-770 et seq.
Notwithstanding the fact that Connecticut law obligates the Registrant to
indemnify only a director that was successful on the merits in a suit, under
Article VIII, Section 2 of the Registrant's bylaws, the Registrant must
indemnify both directors and officers of the Registrant who are parties or
threatened to be parties to a legal proceeding by reason of his being or
having been a director or officer of the Registrant for any expenses if he
acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the company, and with respect to criminal
proceedings, had no reason to believe his conduct was unlawful. Unless
otherwise mandated by a court, no indemnification shall be made if such
officer or director is adjudged to be liable for negligence or misconduct in
the performance of his duty to the Registrant.
Additionally, the directors and officers of Hartford and Hartford Securities
Distribution Company, Inc. ("HSD") are covered under a directors and officers
liability insurance policy issued to The Hartford Financial Services Group,
Inc. and its subsidiaries. Such policy will reimburse the Registrant for any
payments that it shall make to directors and officers pursuant to law and
will, subject to certain exclusions contained in the policy, further pay any
other costs, charges and expenses and settlements and judgments arising from
any proceeding involving any director or officer of the Registrant in his
past or present capacity as such, and for which he may be liable, except as
to any liabilities arising from acts that are deemed to be uninsurable.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the
<PAGE>
4
"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.
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
<PAGE>
5
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
<PAGE>
6
(b) Directors and Officers of HSD
<TABLE>
<CAPTION>
Name and Principal Positions and Offices
Business Address With Underwriter
------------------ ---------------------
<S> <C>
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
</TABLE>
Unless otherwise indicated, the principal business address of
each of the above individuals is P.O. Box 2999, Hartford,
Connecticut 06104-2999.
Item 30. Location of Accounts and Records
All 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
<PAGE>
7
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 Contracts 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 Council of Life
Insurance, Ref. No. IP-6-88, November 28, 1988. The Registrant
has complied with conditions one through four of the no-action
letter.
<PAGE>
SIGNATURES
----------
As required by the Securities Act of 1933 and the Investment Company Act of
1940, the Registrant certifies that it meets all the requirements for
effectiveness of this Registration Statement pursuant to Rule 485(b) under
the Securities Act of 1933 and duly caused this Registration Statement to be
signed on its behalf, in the Town of Simsbury, and State of Connecticut on
this 9th day of April, 1999.
HARTFORD LIFE AND ANNUITY INSURANCE COMPANY -
SEPARATE ACCOUNT THREE
(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, as amended, this
Registration Statement has been signed below by the following persons and in
the capacity and on the date indicated.
Gregory A. Boyko, Senior Vice
President, Director *
Lynda Godkin, Senior Vice President, *By: /s/ MARIANNE O'DOHERTY
General Counsel & Corporate Secretary* ------------------
Thomas M. Marra, Executive Vice Marianne O'Doherty
President, Director * Attorney-in-Fact
Lowndes A. Smith, President &
Chief Executive Officer, Director * Date: April 9, 1999
David M. Znamierowski, Senior
Vice President, Director*
<PAGE>
EXHIBIT INDEX
(7) Form of Reinsurance Agreement.
(9) Opinion and Consent of Lynda Godkin, Senior Vice President, General
Counsel & Corporate Secretary.
(10) Consent of Arthur Andersen LLP, Independent Public Accountants.
(15) Copy of Power of Attorney.
(16) Organizational Chart.
<PAGE>
REINSURANCE AGREEMENT
between
[CEDING COMPANY]
and
[REINSURER]
<PAGE>
INDEX
<TABLE>
<CAPTION>
ARTICLE PAGE
------- ----
<S> <C> <C>
Access to Records XII 7
Amounts at Risk II 1
Arbitration XVII 8
Automatic Excess Reinsurance III 2
Claims VII 5
Currency XIV 7
DAC Tax Regulation Election XVIII 9
Delays, Errors, or Omissions XIII 7
Effective Date; Term and Termination XIX 10
Extra Contractual Obligations IX 6
Hold Harmless XV 8
Insolvency XVI 8
Liability of Reinsurer IV 3
Litigation X 6
Notices XX 13
Offset XI 7
Parties to the Agreement I 1
Premium Accounting VI 4
Reinsurance Premiums V 3
Reserves VIII 5
</TABLE>
SCHEDULES
A Maximum Limits of Reinsurance in Reinsurer
B Policy Forms and Funds Subject to this Reinsurance Agreement
C Definition of Guaranteed Minimum Death Benefit
D Reinsurance Premium Rates
E Reporting Format Description
2
<PAGE>
REINSURANCE AGREEMENT
(hereinafter called Agreement)
between
[CEDING COMPANY]
(hereinafter called Ceding Company)
and
[REINSURER]
(hereinafter called Reinsurer)
It is agreed by the two companies as follows:
ARTICLE I PARTIES TO THE AGREEMENT
This Agreement shall be binding upon and shall inure solely to the benefit of
Ceding Company and Reinsurer. This Agreement shall not and is not intended to
create any right or interest in any third party and shall not and is not
intended to create any legal relationship between either party and any third
party, including, without limitation, annuitants, insureds, certificate
holders, employees, dependents, beneficiaries, policy owners, applicants or
assignees under any policy or contract issued by Ceding Company.
ARTICLE II AMOUNTS AT RISK
A. The reinsurance death benefit is the excess of the guaranteed minimum death
benefit over the contract surrender value. At issue, the guaranteed minimum
death benefit is equal to the initial premium. Once every year thereafter,
on the contract anniversary, prior to certificate or contract owner
attained age 81, the guaranteed minimum death benefit is reset to the then
current contract value, if this value exceeds the current guaranteed
minimum death benefit.
B. The Contract Value represents the owner's invested assets in the funds in
Schedule B as it appears in the records of Ceding Company before
application of any contingent deferred sales charge on any given date. The
Surrender Value is defined as the Contract Value less any contingent
deferred sales charge. The charge is a percentage of the amount surrendered
(not to exceed the aggregate amount of the premium payments made) and
equals:
3
<PAGE>
<TABLE>
<CAPTION>
Length of Time
from Premium Payment
Charge (Number of Years)
------ -----------------
<S> <C>
6% 1
6% 2
5% 3
5% 4
4% 5
3% 6
2% 7
0% 8 or more
</TABLE>
C. The Net Amount At Risk, is equal to the guaranteed minimum death benefit
less the Surrender Value at the end of each calendar month. The Net Amount
At Risk cannot fall below zero.
ARTICLE III AUTOMATIC EXCESS REINSURANCE
A. On and after the Effective Date of this Agreement, subject to the terms,
conditions and limitations set forth in this Agreement and the Schedules
attached to and made a part hereof, Ceding Company shall cede and the
Reinsurer shall accept Ceding Company's guaranteed death benefit liability
under the Variable Annuity Contracts, as described in Article II A.
B. This Agreement covers only Ceding Company's liability for claims paid under
Variable Annuity Contracts written on forms and investment in funds which
were reviewed by the Reinsurer prior to their issuance. Forms, as
supplemented by additional materials, and funds available as of the date of
this Agreement are listed on Schedule B, attached hereto and made a part
hereof. If Ceding Company intends to cede to Reinsurer liability with
respect to a new form or fund, or a revised version of an approved form or
fund, the following applies:
a) new or revised forms that do not materially impact the guaranteed
minimum death benefit risk, shall be submitted to Reinsurer by
Ceding Company as a revised Schedule B to be included in this
Agreement. A form that contains no change in the guaranteed
minimum death benefit calculation and surrender charges no greater
than those shown in Article II paragraph B will be deemed to have
no material impact on the guaranteed minimum death benefit risk;
b) new or revised forms or funds that materially impact the
guaranteed minimum death benefit risk shall be subject to the
approval of Reinsurer. Reinsurer shall have no change in liability
until written notice is provided to Ceding Company that such new
or revised forms or funds are acceptable. If Reinsurer fails to
provide written notice of acceptance within thirty (30) days, such
changes shall be considered to have been approved.
4
<PAGE>
ARTICLE IV LIABILITY OF REINSURER
Reinsurer's liability for reinsurance under this Agreement shall follow that of
Ceding Company in every case, and be subject in all respects to the general
stipulations, terms, clauses, conditions, waivers and modifications of the
Variable Annuity Contracts.
In no event shall Reinsurer have any reinsurance liability unless the Variable
Annuity Contract issued by Ceding Company is in force and the underwriting and
issuance of coverage by Ceding Company constitutes the doing of business in a
state of the United States of America or in territories of the United States of
America in which Ceding Company is properly licensed and authorized to do
business.
ARTICLE V REINSURANCE PREMIUMS
The monthly premiums for reinsurance subject to the terms and conditions of this
Agreement shall be calculated as the average of the reinsurance premiums using
the Net Amount at Risk as of the end of the prior month and the reinsurance
premium using the Net Amount at Risk as of the end of the current month by
applying the YRT rates set forth in Schedule D, subject to the following:
A. The reinsurance premiums shall be based on the older of contract owner and
annuitant at the time the Net Amount at Risk is calculated. Ceding Company
shall determine the age at the time it prepares the monthly exposure data
submission for the variable annuity guaranteed death benefit, as set forth
in Schedule E, attached hereto.
B. The premium for each calendar month will be at least equivalent to the
Monthly Average Contract Value times the minimum premium rate as shown in
paragraphs D and E below. The Monthly Average Contract Value is the average
of the contract values at the end of the current calendar month and the end
of the prior calendar month. The Monthly Contract Value times the minimum
premium rate will be remitted to Reinsurer in advance for the current
month, at the time of settlement for the prior month.
C. The premium for each calendar month will be no more than the monthly
Average Contract Value times the maximum premium rate as shown in
paragraphs D and E below. Basis points (bps) shown below are monthly.
D. [Premium rate schedules]
ARTICLE VI PREMIUM ACCOUNTING
Ceding Company shall forward to Reinsurer within 30 days of the end of the
reporting period a monthly statement substantially similar to that set forth in
Schedule E. Reinsurance premiums submitted by Ceding Company shall be net of
claims incurred. If a balance is due Reinsurer, Ceding Company shall remit any
balance due for the prior
5
<PAGE>
month along with an advance premium for the current month, in accordance with
Article V.
ARTICLE VII CLAIMS
A. Ceding Company is solely responsible for payment of its claims under the
Variable Annuity Contracts, policies, master contracts or certificates
identified on Schedule B. Ceding Company shall provide Reinsurer with proof
of claim, proof of claim payment and any other claim documentation
requested by Reinsurer. Reinsurance premiums submitted by Ceding Company
shall be net of claims incurred. If a balance is due Ceding Company,
Reinsurer shall remit payment within thirty (30) calendar days following
receipt of the monthly reinsurance statement, as set forth in Schedule E.
B. Ceding Company shall notify Reinsurer of its intentions to contest,
compromise, or litigate a claim involving reinsurance.
ARTICLE VIII RESERVES
The reserve held by Reinsurer for reinsurance of the variable annuity death
benefit will be determined as follows:
Contracts issued on or after [Date]
The minimum of the amount calculated by Ceding Company or the recognized
statutory required reserve. Not to exceed the following:
1. Create artificial one (1) year exposures based on a 1/3 drop in all funds
(excluding fixed and money market funds), with no recovery for twelve (12)
months.
2. Apply annual mortality rates from the 1980 CSO mortality table.
3. Ignore the benefit of reinsurance premium.
Contracts issued on or before [Date]
The minimum of the amount calculated by Ceding Company or the recognized
statutory required reserve. Not to exceed the following:
[Date] Year End -- [ %] of the reserve and [Date] Year End -- [ %] of the
reserve calculated using the following method:
1. Create artificial one (1) year exposures based on the following fund
performance:
(a) [ %] drop in equity funds, with no recovery for twelve (12) months
(b) [ %] drop in debt funds, with no recovery for twelve (12) months
6
<PAGE>
2. Apply the annual mortality rates from the [Date] Group Annuity Mortality
Table, loaded [ %].
3. Ignore the benefit of reinsurance premium.
[Date] Year End and beyond -- [ %] of the reserve calculated using the same
method as contracts issued on or after [Date].
ARTICLE IX EXTRA CONTRACTUAL OBLIGATIONS
A. In no event shall Reinsurer be liable for extra contractual damages
(whether they constitute Compensatory damages, Statutory penalties,
Exemplary or Punitive damages) which are awarded against Ceding Company as
a result of an act, omission or course of conduct by Ceding Company in
connection with policies subject to this Agreement, unless the Reinsurer
shall have received notice of an concurred with the actions taken or not
taken by Ceding Company which led to its liability, in which case the
Reinsurer shall pay its share of such liability. For this purpose, the
Reinsurer's share shall be proportionate with its risk under the business
reinsured hereunder.
B. The following definitions shall apply:
(1) Punitive damages and Exemplary damages are those damages awarded as a
penalty, the amount of which is not governed nor fixed by statute.
(2) Statutory penalties are those amounts which are awarded as a penalty,
but fixed in amount by statute.
(3) Compensatory damages are those amounts awarded to compensate for the
actual damages sustained and are not awarded as a penalty nor fixed
in amount by statute.
ARTICLE X LITIGATION
A. In the event of any action brought against Ceding Company related to the
guaranteed minimum death benefit risk under any Underlying Annuity Contract
that is subject to the terms and conditions of this Agreement, Ceding
Company shall provide a copy of such action and written notice of such
action within two (2) business days to Reinsurer. If Reinsurer is a party
to action brought against Ceding Company, Ceding Company shall seek
agreement by Reinsurer on the selection and appointment of local counsel to
represent Ceding Company in such action.
B. Ceding Company and Reinsurer agree that all litigation costs, excluding the
salaries of employees of Ceding Company and Reinsurer, shall be borne by
Ceding Company. However, if Ceding Company and Reinsurer agree to jointly
defend any litigation, litigation costs will be borne in proportion to the
net liability borne by each party.
7
<PAGE>
ARTICLE XI OFFSET
Either party shall have, and may exercise at any time, and from time-to-time,
the right to offset any balance or amounts whether on account of premiums or on
account of losses or otherwise, due from one party to the other under the terms
of this Agreement. However, in the event of insolvency of Ceding Company subject
to the provisions of Article XVI, offset shall only be allowed in accordance
with the statutes and/or regulations of the state having jurisdiction over the
insolvency.
ARTICLE XII ACCESS TO RECORDS
Reinsurer, or its duly authorized representative, shall have access (at any
reasonable time) to all records of Ceding Company (including the right to
photocopy documents) which pertain in any way to this reinsurance. The right of
access shall continue for twelve (12) months following the termination of this
Agreement.
ARTICLE XIII DELAYS, ERRORS OR OMISSIONS
No accidental delay, errors or omissions on the part of Ceding Company shall
relieve Reinsurer of liability provided such delay, errors or omissions are
rectified as soon as possible after discovery. However, Reinsurer shall not be
liable with respect to any reinsurance which may have been inadvertently
included in the premium computation, but which ought not to have been included
by reason of the terms and conditions of this Agreement. It is expressly
understood and agreed that if failure to comply with any terms of this Agreement
is hereby shown to be unintentional or the result of misunderstanding or
oversight on the part of either party, both parties shall be restored to the
position they would have occupied had no such error or oversight occurred,
subject always to the correction of the error or oversight.
ARTICLE XIV CURRENCY
All retentions and limits hereunder are expressed in United States dollars and
all premium and loss payments shall be made in United States currency. For the
purposes of this Agreement, amounts paid or received by Reinsurer in any other
currency shall be converted into United States dollars at the rates of exchange
on the date such transactions are entered on the books of Reinsurer.
ARTICLE XV HOLD HARMLESS
A. Reinsurer shall indemnify and hold Ceding Company harmless from any and all
liability, loss, damage, fines, punitive damages, penalties and costs,
including expenses and attorney's fees, which results from any negligence
or willful misconduct of Reinsurer in fulfilling its duties and obligations
under this Agreement or which results from any action which exceeds its
authority under this Agreement.
8
<PAGE>
B. Ceding Company shall indemnify and hold Reinsurer harmless from any and all
liability, loss, damage, fines, punitive damages, penalties and costs,
including expenses and attorney's fees, which results from any negligence
or willful misconduct of Ceding Company in fulfilling its duties and
obligations under this Agreement or which results from any action which
exceeds its authority under this Agreement.
ARTICLE XVI INSOLVENCY
In the event of insolvency of Ceding Company, the reinsurance under this
Agreement shall be payable directly by Reinsurer to Ceding Company or to its
liquidator, receiver, conservator or statutory successor on the basis of
Reinsurer's liability to Ceding Company without diminution because of the
insolvency of Ceding Company or because the liquidator, receiver, conservator or
statutory successor of Ceding Company has failed to pay all or a portion of any
claim. It is agreed, however, that the liquidator, receiver, conservator or
statutory successor of Ceding Company shall give prompt written notice to
Reinsurer of the pendency of a claim against Ceding Company within a reasonable
time after such claim is filed in the receivership, conservation, insolvency or
liquidation proceeding and that during the pendency of such claim, Reinsurer may
investigate such claim and interpose, at its own expense, in the proceeding
where such claim is to be adjudicated, any defense or defenses that it may deem
available to Ceding Company or its liquidator, receiver, conservator or
statutory successor. The expense thus incurred by Reinsurer shall be chargeable,
subject to the approval of the Court, against Ceding Company as part of the
expense of conservation or liquidation to the extend of a pro-rata share of the
benefit which may accrue to Ceding Company solely as a result of the defense
undertaken by Reinsurer.
Where two or more reinsurers are involved in the same claim and a majority in
interest elect to interpose to such claim, the expense shall be apportioned in
accordance with the terms of this Agreement as though such expense had been
incurred by Ceding Company.
ARTICLE XVII ARBITRATION
A. As a condition precedent to any right of action hereunder, any dispute
between the parties with respect to the interpretation of this Agreement
or any right, obligation or liability of either party, whether such dispute
arises before or after termination of this Agreement, shall be submitted to
arbitration upon the written request of either party. Each party shall
select an arbitrator within thirty (30) days of the written request for
arbitration. If either party refuses or neglects to appoint an arbitrator
within thirty (30) days of the written request for arbitration, the other
party may appoint the second arbitrator. The two arbitrators shall select
an umpire within thirty (30) days of the appointment of the second
arbitrator. If the two arbitrators fail to agree on the selection of the
umpire within thirty (30) days of the appointment of the second arbitrator,
each arbitrator shall submit to the other a list of three umpire
candidates, each arbitrator shall select one name from the list submitted
by the other and the
9
<PAGE>
umpire shall be selected from the two names chosen by a lot drawing
procedure to be agreed upon by the arbitrators.
B. The arbitrators and the umpire all shall be active or retired,
disinterested executive officers of insurance or reinsurance companies.
C. The arbitration panel shall interpret this Agreement as an honorable
engagement rather than merely as a legal obligation and shall make its
decision considering the custom and practice of the applicable insurance
and reinsurance business. The arbitration panel is released from judicial
formalities and shall not be bound by strict rules of procedure and
evidence.
D. The decision of the arbitration panel shall be final and binding on both
parties. The arbitration panel may, at its discretion, award costs and
expenses as it deems appropriate, including, but not limited to, attorneys'
fees and interest. Judgment may be entered upon the final decision of the
arbitration panel in any court of competent jurisdiction.
E. All meetings and hearings before the arbitration panel shall take place in
Hartford, Connecticut unless some other place is mutually agreed upon the
parties.
F. Each party shall bear the expense of its own arbitrator and shall jointly
and equally bear with the other party the expenses of the umpire and of the
arbitration.
ARTICLE XVIII DAC TAX REGULATION ELECTION
Reinsurer and Ceding Company hereby agree to make an election pursuant to
Internal Revenue Code Regulations Section 1.848-2(g)(8). This election shall be
effective for all taxable years for which the Reinsurance Agreement remains in
effect.
The terms used in this article are defined by reference to Regulation Section
1.848.2 promulgated on December 28, 1992.
Reinsurer and Ceding Company agree that the entity with net positive
consideration for the reinsurance agreement for each taxable year will
capitalize specified policy acquisition expenses with respect to the reinsurance
agreement without regard to the general deductions limitation of Section
848(c)(1) of the Internal Revenue Code of 1986, as amended.
Reinsurer and Ceding Company agree to exchange information pertaining to the
amount of net consideration under the reinsurance agreement each year to ensure
consistency. To achieve this, Ceding Company shall provide Reinsurer with a
schedule of its calculation of the net consideration for all reinsurance
agreements in force between them for a taxable year by no later than [Date] of
the succeeding year. Reinsurer shall advise Ceding Company if it disagrees with
the amounts provided by no later than [Date],
10
<PAGE>
otherwise the amounts will be presumed correct and shall be reported by both
parties in their respective tax returns for such tax year. If Reinsurer
contests Ceding Company's calculation of the net consideration, the Parties
agree to act in good faith to resolve any differences within thirty (30) days
of the date Reinsurer submits its alternative calculation and report the
amounts agreed upon in their respective tax returns for such tax year.
Reinsurer represents and warrants that it is subject to U. S. taxation under
either Subchapter L or Subpart F of Part III of Subchapter N of the Internal
Revenue Code of 1986, as amended.
ARTICLE XIX EFFECTIVE DATE; TERM AND TERMINATION
A. The effective date of this Agreement is [Date]. This Agreement remains
effective for all annuity contracts subject to this Agreement written by
Ceding Company for three (3) years from the effective date, unless
terminated pursuant to the paragraphs listed below:
B. Either Reinsurer or Ceding Company shall have the option of terminating
this agreement with ninety (90) calendar days written notice to the other
party for new business anytime on or after the end of the three (3) year
period.
C. Once each calendar year, Ceding Company shall have the option to recapture
existing contracts beginning with the twentieth (20) anniversary of their
reinsurance hereunder. Recapture must be made on an issue year basis, and
no contracts can be recaptured unless all contracts with earlier years are
recaptured.
D. Reinsurer shall have the option of terminating this Agreement upon delivery
of thirty (30) calendar days written notice to Ceding Company, within
thirty (30) days of the happening of any of the following events:
FOR NEW AND EXISTING BUSINESS:
(1) Ceding Company's A. M. BEST rating is reduced to a "C" or lower.
(2) Ceding Company is placed upon a "watch list" by its domiciliary
state's insurance regulators;
(3) An order appointing a receiver, conservator or trustee for
management of Ceding Company is entered or a proceeding is commenced
for rehabilitation, liquidation, supervision or conservation of
Ceding Company;
(4) The Securities and Exchange Commission revokes the authority of
Ceding Company to conduct business;
11
<PAGE>
(5) Failure by Ceding Company to pay premium in accordance with Article
V. If, during the thirty (30) days notice period, Reinsurer
receives all premiums in arrears and all premiums which may become
due within the thirty (30) days notice period, the notice of
termination shall be deemed withdrawn. In the event of termination
under this paragraph, this Agreement may be reinstated upon the
written consent of Reinsurer if, at any time within sixty (60) days
of termination, Ceding Company pays and Reinsurer receives all
premiums due with interest thereon and payable up to the date of
reinstatement. (Please refer to paragraph J below for the interest
calculation description).
E. Ceding Company shall have the option of terminating this Agreement upon
delivery of thirty (30) calendar days written notice to Reinsurer, within
thirty (30) days of the happening of any of the following events:
FOR NEW AND EXISTING BUSINESS:
(1) Reinsurer's A. M. BEST rating is reduced to a "B++" or lower;
(2) Reinsurer is placed upon a "watch list" by its domiciliary state's
insurance regulators;
(3) An order appointing a receiver, conservator or trustee for management
of Reinsurer is entered or a proceeding is commenced for
rehabilitation, liquidation, supervision or conservation of Reinsurer;
F. If this Agreement is terminated for new and existing business, Reinsurer
shall be relieved of all liability to Ceding Company for claims incurred
following the termination date of this Agreement under such Underlying
Annuity Contracts issued by Ceding Company, and
G. If this Agreement is terminated for new business only, Reinsurer will
remain liable, after termination, in accordance with the terms and
conditions of this Agreement, with respect to all reinsurance effective
prior to termination of the Agreement for new business.
H. Both parties shall continue to be entitled to all offset credits provided
by Article XI up to the effective date of termination.
I. Ceding Company shall not have the right to assign or transfer any portion
of the rights, duties and obligations of Ceding Company under the terms and
conditions of this Agreement without the written approval of Reinsurer.
J. In the event of reinstatement as described in paragraph D above, there will
be an interest charge at the three (3) month LIBOR Rate (as published in
the Wall Street Journal), plus 1%, determined on the first business day
following the end of the 30-
12
<PAGE>
day notice period. The settlement is considered overdue at the end of the
30-day notice period and interest shall commence from the overdue date.
ARTICLE XX NOTICES
All notices required to be given hereunder shall be in writing and shall be
deemed delivered if personally delivered, sent via facsimile, or dispatched by
certified or registered mail, return receipt requested, postage prepaid,
addressed to the parties as follows:
[Name and Address of Ceding Company]
[Name and Address of Reinsurer]
Notice shall be deemed given on the date it is received in the mail or sent via
facsimile in accordance with the foregoing. Any party may change the address to
which to send notices by notifying the other party of such change of address in
writing in accordance with the foregoing.
This Agreement constitutes the entire contract between the parties and shall be
deemed to have been made under and governed by the laws of the State of
Connecticut. Any amendment or modification hereto shall be in writing, endorsed
upon or attached hereto and signed by both Ceding Company and Reinsurer.
In witness thereof, the parties hereto have caused this Agreement to be signed
in duplicate on the dates indicated to be effective as of the date specified
above.
CEDING COMPANY
Date: By:
--------------------- -----------------------------
REINSURER
Date: By:
--------------------- -----------------------------
13
<PAGE>
SCHEDULE A
Maximum Limits of Reinsurance in Reinsurer
The maximum purchase amount issued on the life of each insured*:
[$ ]
The total purchase amount is the sum of all premium contributions for each
contract in which the insured is the owner or annuitant. For purchase amounts in
excess of the maximum, Reinsurer's death benefit liability will be reduced by
the ratio of purchase amounts in excess of the maximum to the total purchase
amounts.
*The insured is defined as the first to die of the owner and the annuitant.
14
<PAGE>
SCHEDULE B
Contracts and Funds Subject to this Reinsurance Agreement
Form Number Policy Description Date
- ----------- ------------------ ----
FUNDS:
a) Fixed Accounts on the above forms
b) Variable Accounts as listed below:
Fund Description
- ----------------
15
<PAGE>
SCHEDULE C
GUARANTEED MINIMUM DEATH BENEFIT
A. Ceding Company will determine the Guaranteed Minimum Death Benefit for
each deceased within seven (7) working days of written notice of death.
The guaranteed minimum death benefit will have the meaning described in the
attached policy form [ ].
16
<PAGE>
SCHEDULE D
Monthly Reinsurance Premium Rates
For Inforce Business as of [Date]
Exposure Based
Per [$ ] Exposed
<TABLE>
<CAPTION>
AGES MALE FEMALE
- ------------------------------------- ----------------------------------- -----------------------------------
<S> <C> <C>
< 35
- ------------------------------------- ----------------------------------- -----------------------------------
35-39
- ------------------------------------- ----------------------------------- -----------------------------------
40-44
- ------------------------------------- ----------------------------------- -----------------------------------
45-49
- ------------------------------------- ----------------------------------- -----------------------------------
50-54
- ------------------------------------- ----------------------------------- -----------------------------------
55-59
- ------------------------------------- ----------------------------------- -----------------------------------
60-64
- ------------------------------------- ----------------------------------- -----------------------------------
65-69
- ------------------------------------- ----------------------------------- -----------------------------------
70-74
- ------------------------------------- ----------------------------------- -----------------------------------
75-79
- ------------------------------------- ----------------------------------- -----------------------------------
80-84
- ------------------------------------- ----------------------------------- -----------------------------------
85-89
- ------------------------------------- ----------------------------------- -----------------------------------
</TABLE>
17
<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: SEPARATE ACCOUNT THREE
HARTFORD LIFE AND ANNUITY INSURANCE COMPANY
FILE NO. 33-80732
Dear Sir/Madam:
I have acted as General Counsel to Hartford Life and Annuity Insurance
Company (the "Company"), a Connecticut insurance company, and Hartford Life
and Annuity Insurance Company Separate Account Three (the "Account") in
connection with the registration of an indefinite amount of securities in the
form of variable annuity contracts (the "Contracts") with the Securities and
Exchange Commission under the Securities Act of 1933, as amended. I have
examined such documents (including the Form N-4 Registration Statement) and
reviewed such questions of law as I considered necessary and appropriate, and
on the basis of such examination and review, it is my opinion that:
1. The Company is a corporation duly organized and validly existing as a
stock life insurance company under the laws of the State of
Connecticut and is duly authorized by the Insurance Department of the
State of Connecticut to issue the Contracts.
2. The Account is a duly authorized and validly existing separate account
established pursuant to the provisions of Section 38a-433 of the
Connecticut Statutes.
3. To the extent so provided under the Contracts, that portion of the
assets of the Account equal to the reserves and other contract
liabilities with respect to the Account will not be chargeable with
liabilities arising out of any other business that the Company may
conduct.
<PAGE>
Board of Directors
Hartford Life and Annuity Insurance Company
April 9, 1999
Page 2
4. The Contracts, when issued as contemplated by the Form N-4
Registration Statement, will constitute legal, validly issued and
binding obligations of the Company.
I hereby consent to the filing of this opinion as an exhibit to the Form N-4
Registration Statement for the Contracts and the Account.
Sincerely,
/s/ Lynda Godkin
Lynda Godkin
<PAGE>
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. 33-80732 for Hartford Life and Annuity
Insurance Company Separate Account Three 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>
