<PAGE>
As filed with the Securities and Exchange Commission on April 14, 1997.
File No. 33-80738
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. 4 [X]
-----
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 6 [X]
-----
HARTFORD LIFE INSURANCE COMPANY
SEPARATE ACCOUNT THREE
(Exact Name of Registrant)
HARTFORD LIFE INSURANCE COMPANY
(Name of Depositor)
P.O. BOX 2999
HARTFORD, CT 06104-2999
(Address of Depositor's Principal Offices)
(860) 843-7563
(Depositor's Telephone Number, Including Area Code)
MARGARET E. HANKARD, ESQ.
HARTFORD LIFE INSURANCE COMPANIES
P.O. BOX 2999
HARTFORD, CT 06104-2999
(Name and Address of Agent for Service)
It is proposed that this filing will become effective:
immediately upon filing pursuant to paragraph (b) of Rule 485
-----
X on May 1, 1997 pursuant to paragraph (b) of Rule 485
-----
60 days after filing pursuant to paragraph (a)(1) of Rule 485
-----
on May 1, 1997 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. THE RULE 24F-2
NOTICE FOR THE REGISTRANT'S MOST RECENT FISCAL YEAR WAS FILED ON OR ABOUT
FEBRUARY 28, 1997.
<PAGE>
CROSS REFERENCE SHEET
PURSUANT TO RULE 495(a)
N-4 Item No. Prospectus Heading
------------ ------------------
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;
Depositor, and Portfolio Companies The Separate Account;
The Fixed Account;
The 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/Payout Period
9. Death Benefit Death Benefit
10. Purchases and Contract Value Operation of the Contract/Accumulation
Period
11. Redemptions Operation of the Contract/Accumulation
Period
12. Taxes Federal Tax Considerations
13. Legal Proceedings General Matters - Legal Proceedings
<PAGE>
14. Table of Contents of the Statement Table of Contents to Statement
of Additional Information of Additional Information
15. Cover Page Part B; Statement of Additional
Information
16. Table of Contents Tables of Contents
17. General Information and History Introduction
18. Services None
19. Purchase of Securities Distribution of Contracts
being Offered
20. Underwriters Distribution of Contracts
21. Calculation of Performance Data Calculation of Yield and Return
22. Annuity Payments Annuity Benefits
23. Financial Statements Financial Statements
24. Financial Statements and Financial Statements and
Exhibits Exhibits
25. Directors and Officers of the Directors and Officers of the
Depositor Depositor
26. Persons Controlled by or Under Persons Controlled by or Under
Common Control with the Depositor Common Control with the Depositor
or Registrant or Registrant
27. Number of Contract Owners Number of Contract Owners
28. Indemnification Indemnification
29. Principal Underwriters Principal Underwriters
30. Location of Accounts and Records Location of Accounts and Records
31. Management Services Management Services
32. Undertakings Undertakings
<PAGE>
Hartford Life Insurance Company -
Separate Account Three
P.O. Box 5085
Hartford, Connecticut 06102-5085
Telephone: 1-800-862-6668 (Contract Owner)
1-800-862-4397 (Investment Representative)
- --------------------------------------------------------------------------------
This Prospectus describes the Dean Witter Select Dimensions Plan, a tax deferred
variable annuity issued by Hartford Life Insurance Company ("Hartford").
Payments for the Contract will be held in the Fixed Account and/or a series of
Hartford Life Insurance Company -- Separate Account Three (the "Separate
Account"). Allocations to and transfers to and from the Fixed Account are not
permitted in certain states.
There are currently thirteen Sub-Accounts available under the Contract. The
underlying investment portfolios ("Portfolios") of the Dean Witter Select
Dimensions Investment Series for the Sub-Accounts are the Money Market
Portfolio, the North American Government Securities Portfolio, the Diversified
Income Portfolio, the Balanced Portfolio, the Utilities Portfolio, the Dividend
Growth Portfolio, the Value-Added Market Portfolio, the Core Equity Portfolio,
the American Value Portfolio, the Mid-Cap Growth Portfolio, the Global Equity
Portfolio, the Developing Growth Portfolio, and the Emerging Markets Portfolio.
This Prospectus sets forth the information concerning the Separate Account and
the Fixed Account that investors should know before investing. This Prospectus
should be kept for future reference. Additional information about the Separate
Account and the Fixed Account has been filed with the Securities and Exchange
Commission and is available without charge upon request. To obtain the Statement
of Additional Information send a written request to or call Hartford Life
Insurance Company, Attn: Annuity Marketing Services, P.O. Box 5085, Hartford, CT
06102-5085. The Table of Contents for the Statement of Additional Information
may be found on page 28 of this Prospectus. The Statement of Additional
Information is incorporated by reference into this Prospectus.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
VARIABLE ANNUITY CONTRACTS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR ENDORSED OR
GUARANTEED BY, ANY BANK, NOR ARE THEY FEDERALLY INSURED OR OTHERWISE PROTECTED
BY THE FDIC, THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY; THEY ARE SUBJECT TO
INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF THE PRINCIPAL AMOUNT INVESTED.
THIS PROSPECTUS IS ACCOMPANIED BY A CURRENT PROSPECTUS FOR THE DEAN WITTER
SELECT DIMENSIONS INVESTMENT SERIES ("FUND") AND IS VALID ONLY WHEN ACCOMPANIED
BY A CURRENT PROSPECTUS FOR THE FUND.
Prospectus Dated: May 1, 1997
Statement of Additional Information Dated: May 1, 1997
1 - PROSPECTUS
<PAGE>
Table of Contents
--------------------------------------------------------------------
<TABLE>
<CAPTION>
Page
<S> <C>
------------------------------------------------------------------------------
Glossary of Special Terms 3
------------------------------------------------------------------------------
Fee Tables 4
------------------------------------------------------------------------------
Summary 7
------------------------------------------------------------------------------
Performance Related Information 8
------------------------------------------------------------------------------
Introduction 8
------------------------------------------------------------------------------
The Contract 9
------------------------------------------------------------------------------
Right to Cancel Period 9
------------------------------------------------------------------------------
The Separate Account 9
------------------------------------------------------------------------------
The Fixed Account 10
------------------------------------------------------------------------------
The Company 10
------------------------------------------------------------------------------
The Portfolios 11
------------------------------------------------------------------------------
Operation of the Contract/Accumulation Period 12
------------------------------------------------------------------------------
Premium Payments 12
------------------------------------------------------------------------------
Value of Accumulation Units 13
------------------------------------------------------------------------------
Value of the Fixed Account 13
------------------------------------------------------------------------------
Value of the Contract 13
------------------------------------------------------------------------------
Transfers Among Sub-Accounts 13
------------------------------------------------------------------------------
Transfers Between the Fixed Account and the Sub-Accounts 14
------------------------------------------------------------------------------
Redemption/Surrender of a Contract 14
------------------------------------------------------------------------------
Death Benefit 15
------------------------------------------------------------------------------
Charges Under the Contract 15
------------------------------------------------------------------------------
Contingent Deferred Sales Charges 15
------------------------------------------------------------------------------
During the First Seven Contract Years 16
------------------------------------------------------------------------------
After the Seventh Contract Year 16
------------------------------------------------------------------------------
Mortality and Expense Risk Charge 16
------------------------------------------------------------------------------
Administration and Maintenance Fees 17
------------------------------------------------------------------------------
Premium Taxes 17
------------------------------------------------------------------------------
<CAPTION>
Page
<S> <C>
------------------------------------------------------------------------------
Annuity Benefits 17
------------------------------------------------------------------------------
Annuity Options 17
------------------------------------------------------------------------------
The Annuity Unit and Valuation 18
------------------------------------------------------------------------------
Determination of Payment Amount 18
------------------------------------------------------------------------------
Federal Tax Considerations 19
------------------------------------------------------------------------------
General 19
------------------------------------------------------------------------------
Taxation of Hartford and the Separate Account 19
------------------------------------------------------------------------------
Taxation of Annuities -- General Provisions Affecting Purchasers
Other Than Qualified Retirement Plans 19
------------------------------------------------------------------------------
Federal Income Tax Withholding 22
------------------------------------------------------------------------------
General Provisions Affecting Qualified Retirement Plans 22
------------------------------------------------------------------------------
Annuity Purchases by Nonresident Aliens and Foreign Corporations 22
------------------------------------------------------------------------------
General Matters 22
------------------------------------------------------------------------------
Assignment 22
------------------------------------------------------------------------------
Modification 22
------------------------------------------------------------------------------
Delay of Payments 22
------------------------------------------------------------------------------
Voting Rights 23
------------------------------------------------------------------------------
Distribution of the Contracts 23
------------------------------------------------------------------------------
Other Contracts Offered 23
------------------------------------------------------------------------------
Custodian of Separate Account Assets 23
------------------------------------------------------------------------------
Legal Proceedings 23
------------------------------------------------------------------------------
Legal Counsel 23
------------------------------------------------------------------------------
Experts 23
------------------------------------------------------------------------------
Additional Information 23
------------------------------------------------------------------------------
Appendix I 24
------------------------------------------------------------------------------
Table of Contents to Statement of Additional Information 28
------------------------------------------------------------------------------
</TABLE>
2 - PROSPECTUS
<PAGE>
Glossary of Special Terms
--------------------------------------------------------------------
ACCUMULATION UNIT: An accounting unit of measure used to calculate values before
Annuity payments begin.
ANNUAL WITHDRAWAL AMOUNT: The amount which can be withdrawn in any Contract year
without surrender charges.
ANNUITANT: The person or participant upon whose life the Contract is issued.
ANNUITY: A series of payments for life, or for life with a minimum number of
payments or a determinable sum guaranteed, or for a joint lifetime and
thereafter during the lifetime of the survivor, or for a designated period.
ANNUITY COMMENCEMENT DATE: The date on which Annuity payments are to commence.
Under a group unallocated Contract, the date for each participant is determined
by the Contract Owner in accordance with the terms of the Plan.
ANNUITY UNIT: An accounting unit of measure used to calculate the value of
Annuity payments.
BENEFICIARY: The person(s) who receive Contract Values in the event of the
Annuitant's or Contract Owner's death under certain conditions. Under a group
unallocated Contract, the person named within the Plan documents/enrollment
forms by each Participant entitled to receive benefits as per the terms of the
Contract in case of the death of the Participant.
CODE: The Internal Revenue Code of 1986, as amended.
COMMISSION: Securities and Exchange Commission.
CONTINGENT ANNUITANT: The person so designated by the Contract Owner, who upon
the Annuitant's death, prior to the Annuity Commencement Date, becomes the
Annuitant.
CONTRACT ANNIVERSARY: The anniversary of the Contract Date.
CONTRACT OWNER(S): The owner(s) of the Contract, trustee or other entity,
sometimes herein referred to as "you".
CONTRACT VALUE: The aggregate value of any Sub-Account Accumulation Units held
under the Contract plus the value of the Fixed Account.
CONTRACT YEAR: A period of 12 months commencing with the Contract Date or any
anniversary thereof.
DEATH BENEFIT: The amount payable upon the death of a Contract Owner or
Annuitant (or Participant in the case of a group unallocated Contract) before
annuity payments have started.
FIXED ACCOUNT: Part of the General Account of Hartford to which a Contract Owner
may allocate all or a portion of his Premium Payment or Contract Value.
FIXED ANNUITY: An Annuity providing for guaranteed payments which remain fixed
in amount throughout the payment period and which do not vary with the
investment experience of a separate account.
FUND: Dean Witter Select Dimensions Investment Series.
GENERAL ACCOUNT: The General Account of Hartford which consists of all assets of
the Hartford Life Insurance Company other than those allocated to the separate
accounts of the Hartford Life Insurance Company.
HARTFORD: Hartford Life Insurance Company.
HOME OFFICE OF THE COMPANY: Currently located at 200 Hopmeadow Street, Simsbury,
Connecticut. All correspondence concerning the Contract should be sent to P.O.
Box 5085, Hartford, CT 06102-5085, Attn: Individual Annuity Services.
MAXIMUM ANNIVERSARY VALUE: A value used in determining the death benefit. It is
based on a series of calculations of Contract Values on Contract Anniversaries,
premium payments and partial surrenders, as described on page ??.
NON-QUALIFIED CONTRACT: A Contract which is not classified as a tax-qualified
retirement plan using pre-tax dollars under the Internal Revenue Code.
PARTICIPANT: (For Group Unallocated Contracts Only). Any eligible employee of an
employer/ Contract Owner participating in the Plan.
PLAN: A voluntary Plan of an Employer which qualifies for special tax treatment
under a section of the Internal Revenue Code.
PORTFOLIOS: Currently, the portfolios of Dean Witter Select Dimensions
Investment Series described on page of this Prospectus.
PREMIUM PAYMENT: A payment made to Hartford pursuant to the terms of the
Contract.
PREMIUM TAX: A tax charged by a state or municipality on Premium Payments or
Contract Values.
QUALIFIED CONTRACT: A Contract which qualifies as a tax-qualified retirement
plan using pre-tax dollars under the Internal Revenue Code, such as an
employer-sponsored Section401(k) plan or an Individual Retirement Annuity (IRA).
SEPARATE ACCOUNT: The Hartford separate account entitled "Hartford Life
Insurance Company -- Separate Account Three".
SUB-ACCOUNT: Accounts established within the Separate Account with respect to a
Fund.
TERMINATION VALUE: The Contract Value upon termination of the Contract prior to
the Annuity Commencement Date, less any applicable Premium Taxes, the Annual
Maintenance Fee and any applicable contingent deferred sales charges.
UNALLOCATED CONTRACTS: Contracts issued to employers or such other entities as
Contract Owners with no allocation to a specific Participant, as defined herein.
The Plans will be responsible for the individual allocations.
VALUATION DAY: Every day the New York Stock Exchange is open for trading. The
value of the Separate Account is determined at the close of the New York Stock
Exchange (currently 4:00 p.m. Eastern Time) on such days.
VALUATION PERIOD: The period between the close of business on successive
Valuation Days.
VARIABLE ANNUITY: An Annuity providing for payments varying in amount in
accordance with the investment experience of the assets of the Separate Account.
3 - PROSPECTUS
<PAGE>
Fee Tables
Contract Owner Transaction Expenses (All Sub-Accounts)
<TABLE>
<S> <C>
Sales Load Imposed on Purchases
(as a percentage of premium payments) None
- ---------------------------------------------------------------------------------------------------------------------------------
Exchange Fee $0
- ---------------------------------------------------------------------------------------------------------------------------------
Deferred Sales Load (as a percentage of amounts withdrawn)
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 Contract Fee (2) $30
- ---------------------------------------------------------------------------------------------------------------------------------
Annual Expenses-Separate Account (as percentage of average account value)
- ---------------------------------------------------------------------------------------------------------------------------------
Mortality and Expense Risk 1.20%
- ---------------------------------------------------------------------------------------------------------------------------------
Administration Fees 0.150%
- ---------------------------------------------------------------------------------------------------------------------------------
Total 1.400%
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Length of time from premium payment.
(2) The Annual Contract Fee is a single $30 charge on a Contract. It is
deducted proportionally from the investment options in use at the time of
the charge. Pursuant to requirements of the 1940 Act, the Annual Contract
Fee has been reflected in the Examples by a method intended to show the
"average" impact of the Annual Contract Fee on an investment in the
Separate Account. The Annual Contract Fee is deducted only when the
accumulated value is $50,000 or less. In the Example, the Annual Contract
Fee is approximated as a 0.08% annual asset charge based on the experience
of the Contracts.
Annual Fund Operating Expenses (1) (as a percentage of net assets)
<TABLE>
<CAPTION>
Total Fund
Management Other Operating
Fees Expenses Expenses
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------
The Money Market Portfolio 0.500% 0.090% 0.590%
- ------------------------------------------------------------------------------------------------------------------------------
The North American Government Securities Portfolio 0.650% 0.800% 1.450%
- ------------------------------------------------------------------------------------------------------------------------------
The Diversified Income Portfolio 0.400% 0.310% 0.710%
- ------------------------------------------------------------------------------------------------------------------------------
The Balanced Portfolio 0.750% 0.150% 0.900%
- ------------------------------------------------------------------------------------------------------------------------------
The Utilities Portfolio 0.650% 0.150% 0.800%
- ------------------------------------------------------------------------------------------------------------------------------
The Dividend Growth Portfolio 0.625% 0.045% 0.670%
- ------------------------------------------------------------------------------------------------------------------------------
The Value-Added Market Portfolio 0.500% 0.140% 0.640%
- ------------------------------------------------------------------------------------------------------------------------------
The Core-Equity Portfolio 0.850% 0.370% 1.220%
- ------------------------------------------------------------------------------------------------------------------------------
The American Value Portfolio 0.625% 0.085% 0.710%
- ------------------------------------------------------------------------------------------------------------------------------
The Mid-Cap Growth Portfolio (2) 0.750% 0.060% 0.810%
- ------------------------------------------------------------------------------------------------------------------------------
The Global Equity Portfolio 1.000% 0.250% 1.250%
- ------------------------------------------------------------------------------------------------------------------------------
The Developing Growth Portfolio 0.500% 0.180% 0.680%
- ------------------------------------------------------------------------------------------------------------------------------
The Emerging Markets Portfolio 1.250% 0.770% 2.020%
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) For the period January 1, 1996 through December 31, 1996, or the attainment
by the respective Portfolio of $50 million of net assets, whichever
occurred first, the Investment Adviser waived the management fee and
reimbursed the operating expenses to the extent they exceeded 0.50% of
daily net assets of the Portfolio.
(2) The Investment Manager has undertaken to assume all expenses of the Mid-Cap
Growth Portfolio and waive the compensation provided for that Portfolio in
its Management Agreement with the Fund until such time as the Portfolio has
$50 million of net assets or until six months from the date of the
Portfolio's commencement of operations, whichever occurs first.
4 - PROSPECTUS
<PAGE>
Example
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
If you do not
surrender your
Contract, you
would pay the
following
If you surrender your Contract If you annuitize your Contract expenses on a
at the end of the applicable at the end of the applicable $1,000
time period, you would pay the time period, you would pay the investment,
following expenses on a $1,000 following expenses on a $1,000 assuming a 5%
investment, assuming a 5% investment, assuming a 5% annual return
annual return on assets: annual return on assets: on assets:
- -------------------------------------------------------------------------------------------------------------------------------
3 5 10 3 5 10 3
Sub-Account 1 year years years years 1 year years years years 1 year years
- -------------------------------------------------------------------------------------------------------------------------------
The Money Market Portfolio 81 115 151 239 20 64 110 238 21 65
- -------------------------------------------------------------------------------------------------------------------------------
The North American Government Securities
Portfolio 90 141 195 326 29 90 154 325 30 91
- -------------------------------------------------------------------------------------------------------------------------------
The Diversified Income Portfolio 82 118 157 251 22 68 116 251 22 68
- -------------------------------------------------------------------------------------------------------------------------------
The Balanced Portfolio 84 124 167 271 24 74 126 270 24 74
- -------------------------------------------------------------------------------------------------------------------------------
The Utilities Portfolio 83 121 162 261 23 71 121 260 23 71
- -------------------------------------------------------------------------------------------------------------------------------
The Dividend Growth Portfolio 82 117 155 247 21 67 114 246 22 67
- -------------------------------------------------------------------------------------------------------------------------------
The Value-Added Market Portfolio 81 116 153 244 21 66 113 243 21 66
- -------------------------------------------------------------------------------------------------------------------------------
The Core-Equity Portfolio 87 134 183 303 27 83 143 303 27 84
- -------------------------------------------------------------------------------------------------------------------------------
The American Value Portfolio 82 118 157 251 22 68 116 251 22 68
- -------------------------------------------------------------------------------------------------------------------------------
The Mid-Cap Growth Portfolio 83 121 162 262 23 71 122 261 23 71
- -------------------------------------------------------------------------------------------------------------------------------
The Global Equity Portfolio 88 135 185 306 27 84 144 306 28 85
- -------------------------------------------------------------------------------------------------------------------------------
The Developing Growth Portfolio 82 117 155 248 21 67 115 248 22 67
- -------------------------------------------------------------------------------------------------------------------------------
The Emerging Markets Portfolio 96 158 223 380 35 108 183 379 36 108
- -------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
- ---------------------------------------------
5 10
Sub-Account years years
- ---------------------------------------------
The Money Market Portfolio 111 239
- ---------------------------------------------
The North American Government Securities
Portfolio 155 326
- ---------------------------------------------
The Diversified Income Portfolio 117 251
- ---------------------------------------------
The Balanced Portfolio 127 271
- ---------------------------------------------
The Utilities Portfolio 122 261
- ---------------------------------------------
The Dividend Growth Portfolio 115 247
- ---------------------------------------------
The Value-Added Market Portfolio 113 244
- ---------------------------------------------
The Core-Equity Portfolio 143 303
- ---------------------------------------------
The American Value Portfolio 117 251
- ---------------------------------------------
The Mid-Cap Growth Portfolio 122 262
- ---------------------------------------------
The Global Equity Portfolio 145 306
- ---------------------------------------------
The Developing Growth Portfolio 115 248
- ---------------------------------------------
The Emerging Markets Portfolio 183 380
- ---------------------------------------------
<CAPTION>
</TABLE>
The purpose of this table is to assist the Contract Owner in understanding
various costs and expenses that a Contract Owner will bear directly or
indirectly. The table reflects expenses of the Separate Account and underlying
Funds. Premium taxes may also be applicable.
This EXAMPLE should not be considered a representation of past or future
expenses and actual expenses may be greater or less than those shown.
5 - PROSPECTUS
<PAGE>
Accumulation Unit Values
(For an accumulation unit outstanding throughout the period)
The following information has been examined by Arthur Andersen LLP, independent
public accountants, whose report thereon is included in the Statement of
Additional information, which is incorporated by reference to this Prospectus.
<TABLE>
<CAPTION>
1996 1995
---------- ---------
<S> <C> <C>
Money Market Portfolio Sub-Account
Accumulation unit value at beginning
of period............................ $ 10.521 $ 10.000(a)
Accumulation unit value at end of
period............................... $ 10.901 $ 10.521
Number accumulation units outstanding
at end of period (in thousands)...... 501 125
North American Government Securities
Portfolio Sub-Account
Accumulation unit value at beginning
of period............................ $ 10.536 $ 10.000(a)
Accumulation unit value at end of
period............................... $ 10.841 $ 10.536
Number accumulation units outstanding
at end of period (in thousands)...... 32 4
Balanced Portfolio Sub-Account
Accumulation unit value at beginning
of period............................ $ 12.164 $ 10.000(a)
Accumulation unit value at end of
period............................... $ 13.618 $ 12.164
Number accumulation units outstanding
at end of period (in thousands)...... 191 11
Utilities Portfolio Sub-Account
Accumulation unit value at beginning
of period............................ $ 12.684 $ 10.000(a)
Accumulation unit value at end of
period............................... $ 13.568 $ 12.684
Number accumulation units outstanding
at end of period (in thousands)...... 118 50
Dividend Growth Portfolio Sub-Account
Accumulation unit value at beginning
of period............................ $ 13.787 $ 10.000(a)
Accumulation unit value at end of
period............................... $ 16.921 $ 13.787
Number accumulation units outstanding
at end of period (in thousands)...... 1,052 304
Value-Added Market Portfolio
Sub-Account
Accumulation unit value at beginning
of period $ 12.418 $ 10.000(a)
Accumulation unit value at end of
period............................... $ 14.422 $ 12.418
Number accumulation units outstanding
at end of period (in thousands)...... 567 137
<CAPTION>
1996 1995
---------- ---------
<S> <C> <C>
Core Equity Portfolio Sub-Account
Accumulation unit value at beginning
of period............................ $ 11.224 $ 10.000(a)
Accumulation unit value at end of
period............................... $ 13.675 $ 11.224
Number accumulation units outstanding
at end of period (in thousands)...... 99 27
American Value Portfolio Sub-Account
Accumulation unit value at beginning
of period............................ $ 13.770 $ 10.000(a)
Accumulation unit value at end of
period............................... $ 15.335 $ 13.770
Number accumulation units outstanding
at end of period (in thousands)...... 591 160
Global Equity Portfolio Sub-Account
Accumulation unit value at beginning
of period............................ $ 11.162 $ 10.000(a)
Accumulation unit value at end of
period............................... $ 12.265 $ 11.162
Number accumulation units outstanding
at end of period (in thousands)...... 470 95
Developing Growth Portfolio
Sub-Account
Accumulation unit value at end of
period $15.1......................... 3 $ 10.0 0(a)
Accumulation unit value at end of
period............................... $ 16.843 $ 15.123
Number accumulation units outstanding
at end of period (in thousands)...... 262 63
Emerging Market Portfolio Sub-Account
Accumulation unit value at beginning
of period............................ $ 9.841 10.000(a)
Accumulation unit value at end of
period............................... $ 11.420 $ 9.841
Number accumulation units outstanding
at end of period (in thousands)...... 118 17
Diversified Income Portfolio
Sub-Account
Accumulation unit value at beginning
of period............................ $ 10.607 $ 10.000(a)
Accumulation unit value at end of
period............................... $ 11.457 $ 10.607
Number accumulation units outstanding
at end of period (in thousands)...... 224 61
</TABLE>
(a) Inception Date February 15, 1995
6 - PROSPECTUS
<PAGE>
Summary
--------------------------------------------------------------------
WHAT IS THE CONTRACT AND HOW MAY I PURCHASE ONE?
The Contract offered is a tax deferred variable annuity contract ("Contract")
(see "Taxation of Annuities in General," page 19). Generally, the Contract is
purchased by completing an application or an order to purchase a Contract and
submitting it, along with the initial Premium Payments, to Hartford for its
approval. The minimum initial Premium Payment is $1,000 with a minimum
allocation to any Fund of $500. Certain plans may make smaller initial and
subsequent periodic premium payments. Subsequent Premium Payments, if made, must
be a minimum of $500. Generally, a Contract Owner may exercise his right to
cancel the Contract within 10 days of delivery of the Contract by returning the
Contract to Hartford at its Home Office. If the Contract Owner exercises his
right to cancel, Hartford will return either the Contract Value or the original
Premium Payments to the Contract Owner. The duration of the right to cancel
period and Hartford's obligation to either return the Contract Value or the
original Premium will depend on state law (see "Right to Cancel Period," page
9).
WHO MAY PURCHASE THE CONTRACT?
Any individual, group or trust may purchase the Contracts, including any trustee
or custodian for a retirement plan which qualifies for special federal tax
treatment under the Internal Revenue Code ("Qualified Contracts"). These
Contracts are also available for IRA's. (See "Federal Tax Considerations"
commencing on page 19 and Appendix I commencing on page 24.)
WHAT TYPES OF INVESTMENTS ARE AVAILABLE UNDER THE CONTRACT?
The underlying investments for the Contract are shares of the Dean Witter Select
Dimensions Investment Series, an open-end diversified series investment company
with multiple portfolios ("Portfolio") as follows: the Money Market Portfolio,
the North American Government Securities Portfolio, the Diversified Income
Portfolio, the Balanced Portfolio, the Utilities Portfolio, the Dividend Growth
Portfolio, the Value-Added Market Portfolio, the Core Equity Portfolio, the
American Value Portfolio, the Mid-Cap Growth Portfolio, the Global Equity
Portfolio, the Developing Growth Portfolio, and the Emerging Markets Portfolio
and such other portfolios as shall be offered from time to time, and the Fixed
Account, or a combination of the Portfolios and the Fixed Account. (See "The
Portfolios" commencing on page 11 and "The Fixed Account" commencing on page
10.)
WHAT ARE THE CHARGES UNDER
THE CONTRACTS?
SALES EXPENSES There is no deduction for sales expenses from Premium Payments
when made. However, a contingent deferred sales charge may be assessed against
Contract Values when they are surrendered. (See "Contingent Deferred Sales
Charges" commencing on page 15.)
The length of time from receipt of a Premium Payment to the time of surrender
determines the contingent deferred sales charge. For this purpose, Premium
Payments will be deemed to be surrendered in the order in which they are
received and all surrenders will be first from Premium Payments and then from
other Contract values. The charge is a percentage of the amount withdrawn (not
to exceed the aggregate amount of the Premium Payments made). The charge is as
follows:
<TABLE>
<CAPTION>
Length of Time
from Premium Payment
Charge (Number of Years)
<S> <C>
- -------------------------------------------------------------
6% 1
- -------------------------------------------------------------
6% 2
- -------------------------------------------------------------
5% 3
- -------------------------------------------------------------
5% 4
- -------------------------------------------------------------
4% 5
- -------------------------------------------------------------
3% 6
- -------------------------------------------------------------
2% 7
- -------------------------------------------------------------
0% 8 or more
- -------------------------------------------------------------
</TABLE>
No contingent deferred sales charge will be assessed in the event of death of
the Annuitant or Contract Owner, or upon the exercise of the withdrawal
privilege or if Contract Values are applied to an Annuity option provided for
under the Contract (except that a surrender out of Annuity Option Four will be
subject to a contingent deferred sales charge where applicable). (See
"Contingent Deferred Sales Charges" commencing on page 15.)
FREE WITHDRAWAL PRIVILEGE Withdrawals of up to 10% per Contract Year of the
Premium Payments made to a Contract, on a noncumulative basis, may be made
without the imposition of the contingent deferred sales charge during the first
seven Contract years. (See "Contingent Deferred Sales Charges" commencing on
page 15). Certain plans or programs may have different withdrawal privileges.
MORTALITY AND EXPENSE RISKS For assuming the mortality and expense risks under
the Contract, Hartford will impose a 1.25% per annum charge against all Contract
Values held in the Sub-Accounts. (See "Mortality and Expense Risk Charge," page
16.)
ANNUAL ADMINISTRATION AND MAINTENANCE FEE The Contract provides for
administration and Contract maintenance charges. For administration, the charge
is .15% per annum against all Contract Values held in the Separate Account. For
Contract maintenance, the charge is $30 annually. (See "Administration and
Maintenance Fees," page 17). Contracts with a Contract value of $50,000 or more
at time of Contract Anniversary will not be assessed this charge.
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PREMIUM TAXES A deduction will be made for Premium Taxes for Contracts sold in
certain states. (See "Premium Taxes," page 17.)
CHARGES BY THE PORTFOLIOS The Portfolios are subject to certain fees, charges
and expenses. (See the Fund prospectus accompanying this Prospectus.)
CAN I GET MY MONEY IF I NEED IT?
Subject to any applicable charges, the Contract may be surrendered, or portions
of the value of such Contract may be withdrawn, at any time prior to the Annuity
Commencement Date. However, if less than $500 remains in a Contract as a result
of a withdrawal, Hartford may terminate the Contract in its entirety. (See
"Redemption/Surrender of a Contract," page 14; see also "Federal Tax
Considerations," page 19, for a discussion of federal tax consequences,
including a 10% penalty tax that may apply upon surrender or withdrawal.)
DOES THE CONTRACT PAY ANY DEATH BENEFITS?
A Death Benefit is provided in the event of death of the Annuitant or Contract
Owner or Joint Contract Owner before Annuity payments have commenced. (See
"Death Benefit," page 15.)
WHAT ARE THE AVAILABLE ANNUITY OPTIONS UNDER THE CONTRACT?
There are five available Annuity options under the Contract which are described
on page 17. The Annuity Commencement Date may not be deferred beyond the
Annuitant's 90th birthday except in certain states where the Annuity
Commencement Date may not be deferred beyond the Annuitant's 85th birthday. If a
Contract Owner does not elect otherwise, the Contract Value less applicable
premium taxes will be applied on the Annuity Commencement Date under the second
option to provide a life annuity with 120 monthly payments certain.
DOES THE CONTRACT OWNER HAVE ANY VOTING RIGHTS UNDER THE CONTRACT?
Contract Owners will have the right to vote on matters affecting an underlying
Portfolio to the extent that proxies are solicited by such Portfolio. If a
Contract Owner does not vote, Hartford shall vote such interests in the same
proportion as shares of the Portfolio for which instructions have been received
by Hartford. (See "Voting Rights," page 23.)
PERFORMANCE RELATED INFORMATION
The Separate Account may advertise certain performance related information
concerning its Sub-Accounts. Performance information about a Sub-Account is
based on the Sub-Account's past performance only and is no indication of future
performance.
Each Portfolio may include total return in advertisements or other sales
material.
When a Sub-Account advertises its total return, it will usually be calculated
for one year, five years, and ten years or some other relevant periods if the
Sub-Account has not been in existence for at least ten years. Total return is
measured by comparing the value of an investment in the Sub-Account at the
beginning of the relevant period to the value of the investment at the end of
the period (assuming the deduction of any contingent deferred sales charge which
would be payable if the investment were redeemed at the end of the period).
The North American Government Securities Portfolio and Diversified Income
Portfolio may advertise yield in addition to total return. The yield will be
computed in the following manner: The net investment income per unit earned
during a recent one month period is divided by the unit value on the last day of
the period. This figure reflects the recurring charges at the Separate Account
level including the Annual Contract Fee.
The Money Market Portfolio 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 reflects the recurring charges at the Separate Account level including the
Annual Contract Fee.
Total return at the Separate Account level includes all Contract charges: sales
charges, mortality and expense risk charges, and the Annual Contract Fee, and is
therefore lower than total return at the Fund level, with no comparable charges.
Likewise, yield at the Separate Account level includes all recurring charges
(except sales charges), and is therefore lower than yield at the Portfolio
level, with no comparable charges.
Hartford may provide information on various topics to Contract Owners and
prospective Contract Owners in advertising, sales literature or other materials.
These topics may include the relationship between sectors of the economy and the
economy as a whole and its effect on various securities markets, investment
strategies and techniques (such as value investing, dollar cost averaging and
asset allocation), the advantages and disadvantages of investing in
tax-advantaged and taxable instruments, customer profiles and hypothetical
purchase scenarios, financial management and tax and retirement planning, and
other investment alternatives, including comparisons between the Contracts and
the characteristics of and market for such alternatives.
INTRODUCTION
This Prospectus has been designed to provide you with the necessary information
to make a decision on purchasing a tax
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deferred variable annuity contract offered by Hartford and funded by the Fixed
Account and/or a series of the Separate Account. Please read the Glossary of
Special Terms on pages and prior to reading this Prospectus to familiarize
yourself with the terms being used.
THE CONTRACT
The Dean Witter Select Dimensions Plan is a tax deferred variable annuity
contract ("Contract"). Payments for the Contract will be held in the Fixed
Account and/or a series of the Separate Account. Initially there are no
deductions from your Premium Payments (except for Premium Taxes, if applicable)
so your entire Premium Payment is put to work in the investment Sub-Account(s)
of your choice or the Fixed Account. Each Sub-Account invests in a different
underlying Portfolio with its own distinct investment objectives. You pick the
Sub-Account(s) with the investment objectives that meet your needs. You may
select one or more Sub-Accounts and/or the Fixed Account and determine the
percentage of your Premium Payment that is put into a Sub-Account or the Fixed
Account. You may also transfer assets among the Sub-Accounts and the Fixed
Account so that your investment program meets your specific needs over time.
There are minimum requirements for investing in each Sub-Account and the Fixed
Account which are described later in this Prospectus. In addition, there are
certain other limitations on withdrawals and transfers of amounts in the
Sub-Accounts and the Fixed Account as described in this Prospectus. See "Charges
Under the Contract" for a description of the charges for redeeming a Contract
and other charges made under the Contract.
Generally, the Contract contains the five optional forms of Annuity described
later in this Prospectus. Options 2, 4, and 5 are available with respect to
Qualified Contracts only if the guaranteed payment period is less than the life
expectancy of the Annuitant at the time the option becomes effective. Such life
expectancy shall be computed on the basis of the mortality table prescribed by
the IRS, or if none is prescribed, the mortality table then in use by Hartford.
The Contract Owner may select an Annuity Commencement Date and an Annuity option
which may be on a fixed or variable basis, or a combination thereof. The Annuity
Commencement Date may not be deferred beyond the Annuitant's 90th birthday
except in certain states where the Annuity Commencement Date may not be deferred
beyond the Annuitant's 85th birthday.
The Annuity Commencement Date and/or the Annuity option may be changed from time
to time, but any such change must be made at least 30 days prior to the date on
which payments are scheduled to begin. If you do not elect otherwise, payments
will begin at the Annuitant's age 90 under Option 2 with 120 monthly payments
certain (Option 1 for contracts issued in Texas).
When an Annuity is effected under a Contract, unless otherwise specified,
Contract Values held in the Sub-Accounts will be applied to provide a Variable
Annuity based on the pro rata amount in the various Sub-Accounts. Fixed Account
Contract Values will be applied to provide a Fixed Annuity. Variable Annuity
payments will vary in accordance with the investment performance of the
Sub-Accounts you have selected. The Contract allows the Contract Owner to change
the Sub-Accounts on which variable payments are based after payments have
commenced once every three (3) months. Any Fixed Annuity allocation may not be
changed.
The Contract offered under this Prospectus may be purchased by any individual
("Non-Qualified Contract") or by an individual, trustee or custodian for a
retirement plan qualified under Sections 401(a) or 403(a) of the Internal
Revenue Code; annuity purchase plans adopted by public school systems and
certain tax-exempt organizations according to Section 403(b) of the Internal
Revenue Code; Individual Retirement Annuities adopted according to Section 408
of the Internal Revenue Code; employee pension plans established for employees
by a state, a political subdivision of a state, or an agency or instrumentality
of either a state or a political subdivision of a state, and certain eligible
deferred compensation plans as defined in Section 457 of the Internal Revenue
Code ("Qualified Contracts").
RIGHT TO CANCEL PERIOD
If you are not satisfied with your purchase you may surrender the Contract by
returning it within ten days (or longer in some states) after you receive it. A
written request for cancellation must accompany the Contract. In such event,
Hartford will, without deduction for any charges normally assessed thereunder,
pay you an amount equal to the Contract Value on the date of receipt of the
request for cancellation. You bear the investment risk during the period prior
to the Company's receipt of request for cancellation. Hartford will refund the
premium paid only for individual retirement annuities (if returned within seven
days of receipt) and in those states where required by law.
THE SEPARATE ACCOUNT
The Separate Account was established on June 13, 1994, in accordance with
authorization by the Board of Directors of Hartford. It is the Separate Account
in which Hartford sets aside and invests the assets attributable to variable
annuity contracts, including the contracts sold under this Prospectus. Although
the Separate Account is an integral part of Hartford, it is registered as a unit
investment trust under the Investment Company Act of 1940. This registration
does not, however, involve supervision by the Commission of the management or
the investment practices or policies of the Separate Account or Hartford. The
Separate Account meets the definition of "separate account" under federal
securities law.
Under Connecticut law, the assets of the Separate Account attributable to the
Contracts offered under this Prospectus are held for the benefit of the owners
of, and the persons entitled to payments under, those Contracts. Income, gains,
and losses, whether or not realized, from assets allocated to the Separate
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Account, are, in accordance with the Contracts, credited to or charged against
the Separate Account. Also, the assets in the Separate Account are not
chargeable with liabilities arising out of any other business Hartford may
conduct. So Contract Values allocated to the Sub-Accounts will not be affected
by the rate of return of Hartford's General Account, nor by the investment
performance of any of Hartford's other separate accounts. However, the
obligations arising under the Contracts are general obligations of Hartford.
Your investment in the Separate Account is allocated to one or more Sub-Accounts
as per your specifications. Each Sub-Account is invested exclusively in the
shares of one underlying Portfolio. Net Premium Payments and proceeds of
transfers between Portfolios are applied to purchase shares in the appropriate
Fund at net asset value determined as of the end of the Valuation Period during
which the payments were received or the transfer made. All distributions from
the Portfolios are reinvested at net asset value. The value of your investment
will therefore vary in accordance with the net income and the market value of
the Portfolios of the underlying Portfolio. During the Variable Annuity payout
period, both your Annuity payments and reserve values will vary in accordance
with these factors.
Hartford does not guarantee the investment results of the Portfolios or any of
the underlying investments. There is no assurance that the value of a Contract
during the years prior to retirement or the aggregate amount of the Variable
Annuity payments will equal the total of Premium Payments made under the
Contract. Since each underlying Portfolio has different investment objectives
and policies, each is subject to different risks. These risks are more fully
described in the accompanying Fund prospectus.
Hartford reserves the right, subject to compliance with the law, to substitute
the shares of any other registered investment company for the shares of any
Portfolio held by the Separate Account. Substitution may occur only if shares of
the Portfolio(s) become unavailable or if there are changes in applicable law or
interpretations of law. Current law requires notification to you of any such
substitution and approval of the Commission.
The Separate Account may be subject to liabilities arising from a Series of the
Separate Account whose assets are attributable to other variable annuity
contracts or variable life insurance policies offered by the Separate Account
which are not described in this Prospectus.
THE FIXED ACCOUNT
THAT PORTION OF THE CONTRACT RELATING TO THE FIXED ACCOUNT IS NOT REGISTERED
UNDER THE SECURITIES ACT OF 1933 ("1933 ACT") AND THE FIXED ACCOUNT IS NOT
REGISTERED AS AN INVESTMENT COMPANY UNDER THE INVESTMENT COMPANY ACT OF 1940
("1940 ACT"). ACCORDINGLY, NEITHER THE FIXED ACCOUNT NOR ANY INTERESTS THEREIN
ARE SUBJECT TO THE PROVISIONS OR RESTRICTIONS OF THE 1933 ACT OR THE 1940 ACT,
AND THE DISCLOSURE REGARDING THE FIXED ACCOUNT HAS NOT BEEN REVIEWED BY THE
STAFF OF THE SECURITIES AND EXCHANGE COMMISSION. THE FOLLOWING DISCLOSURE ABOUT
THE FIXED ACCOUNT MAY BE SUBJECT TO CERTAIN GENERALLY APPLICABLE PROVISIONS OF
THE FEDERAL SECURITIES LAWS REGARDING THE ACCURACY AND COMPLETENESS OF
DISCLOSURE.
Premium Payments and Contract Values allocated to the Fixed Account become a
part of the general assets of Hartford. Hartford invests the assets of the
General Account in accordance with applicable laws governing investments of
Insurance Company General Accounts.
Currently, Hartford guarantees that it will credit interest at a rate of not
less than 3% per year, compounded annually, to amounts allocated to the Fixed
Account under the Contracts. However, Hartford reserves the right to change the
rate according to state insurance law. Hartford may credit interest at a rate in
excess of 3% per year; however, Hartford is not obligated to credit any interest
in excess of 3% per year. There is no specific formula for the determination of
excess interest credits. Some of the factors that the Company may consider in
determining whether to credit excess interest to amounts allocated to the Fixed
Account and the amount thereof, are general economic trends, rates of return
currently available and anticipated on the Company's investments, regulatory and
tax requirements and competitive factors. ANY INTEREST CREDITED TO AMOUNTS
ALLOCATED TO THE FIXED ACCOUNT IN EXCESS OF 3% PER YEAR WILL BE DETERMINED IN
THE SOLE DISCRETION OF THE COMPANY. THE OWNER ASSUMES THE RISK THAT INTEREST
CREDITED TO FIXED ACCOUNT ALLOCATIONS MAY NOT EXCEED THE MINIMUM GUARANTEE OF 3%
FOR ANY GIVEN YEAR.
THE COMPANY
Hartford Life Insurance Company ("Hartford") is a stock life insurance company
engaged in the business of writing health and life insurance, both individual
and group, in all states of the United States and the District of Columbia.
Hartford was originally incorporated under the laws of Massachusetts on June 5,
1902, and was subsequently redomiciled to Connecticut. Its offices are located
in Simsbury, Connecticut; however, its mailing address is P.O. Box 2999,
Hartford, CT 06104-2999. Hartford is a subsidiary of Hartford Fire Insurance
Company, one of the largest multiple lines insurance carriers in the United
States. Hartford is ultimately owned by ITT Hartford Group, Inc., a Delaware
corporation. Subject to shareholder approval on May 2, 1997, the name of ITT
Hartford Group, Inc. will change to The Hartford Financial Services Group, Inc.
Hartford is rated A+ (superior) by A.M. Best and Company, Inc., on the basis of
its financial soundness and operating performance. Hartford is rated AA by
Standard & Poor's and AA+ by Duff and Phelps on the basis of its claims paying
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ability. These ratings do not apply to the investment performance of the
Sub-Accounts of the Separate Account. The ratings apply to Hartford's ability to
meet its insurance obligations, including those described in this Prospectus.
THE PORTFOLIOS
The underlying investment for the Contracts are shares of the Dean Witter Select
Dimensions Investment Series ("Fund"), an open-end diversified series investment
company with multiple portfolios. The underlying Portfolio 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.
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 prospectus.
BALANCED PORTFOLIO
Seeks to achieve high total return through a combination of income and capital
appreciation, by investing in a diversified portfolio of common stocks and
investment grade fixed-income securities.
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.
CORE EQUITY 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
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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 prospectus.
The Portfolios are managed in styles similar to other investment companies whose
shares are generally offered to the public and which are managed by Dean Witter
InterCapital Inc., the Investment Manager, or by TCW Funds Management, Inc., the
Sub-Adviser to certain of the Portfolios. The portfolios of these other
investment companies may, however, employ different investment practices and may
invest in securities different from those in which their counterpart Portfolios
invest and, consequently, will not have identical portfolios or experience
identical investment results.
The Portfolios are available only to serve as the underlying investment for
variable annuity and variable life contracts. A full description of the
Portfolios, including their investment objectives, policies and restrictions,
risks, charges and expenses and other aspects of their operation, is contained
in the accompanying Fund prospectus which should be read in conjunction with
this Prospectus before investing, and in the Fund Statement of Additional
Information which may be ordered without charge from Dean Witter Select
Dimensions Investment Series.
It is conceivable that in the future it may be disadvantageous for variable
annuity separate accounts and variable life insurance separate accounts to
invest in the Portfolios simultaneously. Although Hartford and the Fund do not
currently foresee any such disadvantages either to variable annuity contract
owners or to variable life insurance policyowners, the Fund's Board of Trustees
would monitor events in order to identify any material conflicts between such
Contract Owners and policyowners and to determine what action, if any, should be
taken in response thereto. If the Board of Trustees of the Fund were to conclude
that separate Portfolios should be established for variable life and variable
annuity separate accounts, the variable annuity Contract holders would not bear
any expenses attendant upon establishment of such separate funds.
Dean Witter InterCapital Inc. ("InterCapital" or the "Investment Manager"), a
Delaware Corporation, whose address is Two World Trade Center, New York, New
York 10048, is the Fund's Investment Manager. The Investment Manager, which was
incorporated in July, 1992, is a wholly-owned subsidiary of Dean Witter,
Discover & Co., ("DWDC"), a balanced financial services organization providing a
broad range of nationally marketed credit and investment products.
On February 5, 1997, DWDC and Morgan Stanley Group Inc. announced that they had
entered into an Agreement and Plan of Merger, with the combined company to be
named Morgan Stanley, Dean Witter, Discover & Co. The business of Morgan Stanley
Group Inc. and its affiliated companies is providing a wide range of financial
services for sovereign governments, corporations, institutions and individuals
throughout the world. DWDC is the direct parent of InterCapital. It is currently
anticipated that the transaction will close in mid-1997. Thereafter,
InterCapital will be a direct subsidiary of Morgan Stanley, Dean Witter,
Discover & Co.
The Fund has retained the Investment Manager to provide administrative services,
manage its business affairs and manage the investment of the Fund's assets,
including the placing of orders for the purchase and sales of portfolio
securities. InterCapital has retained its wholly-owned subsidiary, Dean Witter
Services Company Inc., to perform the aforementioned administrative services for
the Fund. For its services, the Portfolios pay the Investment Manager a monthly
fee. See the accompanying Fund prospectus for a more complete description of the
Investment Manager and the respective fees of the Portfolios.
With regard to the North American Government Securities Portfolio, the Balanced
Portfolio, the Core Equity Portfolio and the Emerging Markets Portfolio, under a
Sub-Advisory Agreement between TCW Funds Management, Inc. (the "Sub-Adviser")
and the Investment Manager, the Sub-Adviser provides these Portfolios with
investment advice and portfolio management, in each case subject to the overall
supervision of the Investment Manager. The Sub-Adviser's address is 865 South
Figueroa Street, Suite 1800, Los Angeles, California 90017.
The Fund's Board of Trustees reviews the various services provided by or under
the direction of the Investment Manager (or by the Sub-Adviser) to ensure that
the Fund's general investment policies and programs are being properly carried
out and that administrative services are being provided to the Fund in a
satisfactory manner.
OPERATION OF THE CONTRACT/ ACCUMULATION PERIOD
PREMIUM PAYMENTS
The balance of each initial Premium Payment remaining after the deduction of any
applicable Premium Tax is credited to your Contract within two business days of
receipt of a properly completed application or an order to purchase a Contract
and the initial Premium Payment by Hartford at its Home Office, P.O. Box 5085,
Hartford, CT 06102-5085. It will be credited to the Sub-Account(s) and/or the
Fixed Account in accordance with your election. If the application or other
information is incomplete when received, the balance of each initial Premium
Payment, after deduction of any applicable Premium Tax, will be credited to the
Sub-Account(s) or the Fixed Account within five business days of receipt or the
entire Premium Payment will be immediately returned unless you have been
informed of the delay and request that the Premium Payment not be returned.
Subsequent Premium Payments are priced on the Valuation Day received by Hartford
in its Home Office or other designated administrative office.
The number of Accumulation Units in each Sub-Account to be credited to a
Contract will be determined by dividing the portion
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of the Premium Payment being credited to each Sub-Account by the value of an
Accumulation Unit in that Sub-Account on that date.
The minimum initial Premium Payment is $1,000. Subsequent Premium Payments, if
made, must be a minimum of $500. Certain plans may make smaller initial and
subsequent periodic payments. Each Premium Payment may be split among the
various Sub-Accounts and the Fixed Account subject to minimum amounts then in
effect.
Hartford Securities Distribution Company, Inc. ("HSD") serves as principal
underwriter for the securities issued with respect to the Separate Account. HSD
is a wholly-owned subsidiary of Hartford. HSD is registered with the Commission
under the Securities Exchange Act of 1934 as a Broker-Dealer and is a member of
the National Association of Securities Dealers, Inc. The principal business
address of HSD is the same as Hartford.
VALUE OF ACCUMULATION UNITS
The Accumulation Unit value for each Sub-Account will vary to reflect the
investment experience of the applicable Portfolio and will be determined on each
Valuation Day by multiplying the Accumulation Unit value of the particular
Sub-Account on the preceding Valuation Day by a "Net Investment Factor" for that
Sub-Account for the Valuation Period then ended. The "Net Investment Factor" for
each of the Sub-Accounts is equal to the net asset value per share of the
corresponding Portfolio at the end of the Valuation Period (plus the per share
amount of any dividends or capital gains distributed by that Portfolio if the
ex-dividend date occurs in the Valuation Period then ended) divided by the net
asset value per share of the corresponding Portfolio at the beginning of the
Valuation Period and subtracting from that amount the amount of any mortality
and expense risk and administration charges assessed during the Valuation Period
then ending. You should refer to the Fund prospectus which accompanies this
Prospectus for a description of how the assets of each Portfolio are valued
since each determination has a direct bearing on the Accumulation Unit value of
the Sub-Account and therefore the value of a Contract. The Accumulation Unit
value is affected by the performance of the underlying Portfolio(s), expenses
and deduction of the charges described in this Prospectus.
The shares of the Portfolio are valued at net asset value on each Valuation Day.
A description of the valuation methods used in valuing Portfolio shares may be
found in the accompanying Fund prospectus.
VALUE OF THE FIXED ACCOUNT
Hartford will determine the value of the Fixed Account by crediting interest to
amounts allocated to the Fixed Account. The minimum Fixed Account interest rate
is 3%, compounded annually. Hartford may credit a lower minimum interest rate
according to state law. Hartford also may credit interest at rates greater than
the minimum Fixed Account interest rate.
VALUE OF THE CONTRACT
The value of the Sub-Account investments under your Contract at any time prior
to the commencement of Annuity payments can be determined by multiplying the
total number of Accumulation Units credited to your Contract in each Sub-Account
by the then current Accumulation Unit values for the applicable Sub-Account. The
value of the Fixed Account under your Contract will be the amount allocated to
the Fixed Account plus interest credited. You will be advised at least
semi-annually of the number of Accumulation Units credited to each Sub-Account,
the current Accumulation Unit values, the Fixed Account Value, and the total
value of your Contract.
TRANSFERS AMONG SUB-ACCOUNTS
You may transfer the values of your Sub-Account allocations from one or more
Sub-Accounts to another free of charge. However, Hartford reserves the right to
limit the number of transfers to twelve (12) per Contract Year, with no two (2)
transfers occurring on consecutive Valuation Days. Transfers by telephone may be
made by a Contract Owner or by the attorney-in-fact pursuant to a power of
attorney by calling (800) 862-6668 or by the agent of record by calling (800)
862-7155. Telephone transfers may not be permitted by some states for their
residents who purchase variable annuities.
The policy of Hartford and its agents and affiliates is that they will not be
responsible for losses resulting from acting upon telephone requests reasonably
believed to be genuine. Hartford will employ reasonable procedures to confirm
that instructions communicated by telephone are genuine; otherwise, Hartford may
be liable for any losses due to unauthorized or fraudulent instructions. The
procedures Hartford follows for transactions initiated by telephone include
requirements that callers provide certain information for identification
purposes. All transfer instructions by telephone are tape recorded.
Hartford may permit the Contract Owner to preauthorize transfers between the
Sub-Accounts and the Fixed Account under certain circumstances. Transfers
between the Sub-Accounts may be made both before and after Annuity payments
commence (limited to once a quarter) provided that the minimum allocation to any
Sub-Account may not be less than $500. No minimum balance is presently required
in any Sub-Account.
The right to reallocate Contract Values between the Sub-Accounts is subject to
modification if Hartford determines, in its sole discretion, that the exercise
of that right by one or more Contract Owners is, or would be, to the
disadvantage of other Contract Owners. Any modification could be applied to
transfers to or from some or all of the Sub-Accounts and could include, but not
be limited to, the requirement of a minimum time period between each transfer,
not accepting transfer requests of an agent acting under a power of attorney on
behalf of more than one Contract Owner, or limiting the dollar amount that may
be transferred between the Sub-Accounts and the Fixed Account by a Contract
Owner at any one time. Such restrictions may be
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applied in any manner reasonably designed to prevent any use of the transfer
right which is considered by Hartford to be to the disadvantage of other
Contract Owners.
TRANSFERS BETWEEN THE FIXED ACCOUNT AND THE SUB-ACCOUNTS
Subject to the restrictions set forth above, transfers from the Fixed Account
into a Sub-Account may be made at any time during the Contract Year. The maximum
amount which may be transferred from the Fixed Account during any Contract Year
is the greater of 30% of the Fixed Account balance as of the last Contract
Anniversary or the greatest amount of any prior transfer from the Fixed Account.
If Hartford permits preauthorized transfers from the Fixed Account to the
Sub-Accounts, this restriction is inapplicable. However, if any interest rate is
renewed at a rate at least one percentage point less than the previous rate, the
Contract Owner may elect to transfer up to 100% of the Portfolios receiving the
reduced rate within sixty days of notification of the interest rate decrease.
Generally, transfers may not be made from any Sub-Account into the Fixed Account
for the six-month period following any transfer from the Fixed Account into one
or more of the Sub-Accounts. Hartford reserves the right to modify the
limitations on transfers from the Fixed Account and to defer transfers from the
Fixed Account for up to six months from the date of request.
REDEMPTION/SURRENDER OF
A CONTRACT
At any time prior to the Annuity Commencement Date, you have the right, subject
to any IRS provisions applicable thereto, to surrender the value of the Contract
in whole or in part. Surrenders are not permitted after Annuity payments
commence except that a full surrender is allowed when payments for a designated
period (Option 4 or 5) are selected as the Annuity option.
FULL SURRENDERS. At any time prior to the Annuity Commencement Date (and after
the Annuity Commencement Date with respect to values applied to Option 4), the
Contract Owner has the right to terminate the Contract. In such event, the
Termination Value of the Contract may be taken in the form of a lump sum cash
settlement. The Termination Value of the Contract is equal to the Contract Value
less any applicable Premium Taxes, the Contract Maintenance Fee, if applicable,
and any applicable contingent deferred sales charges. The Termination Value may
be more or less than the amount of the Premium Payments made to a Contract.
PARTIAL SURRENDERS. The Contract Owner may make a partial surrender of Contract
Values at any time prior to the Annuity Commencement Date so long as the amount
surrendered is at least equal to the minimum amount rules then in effect.
Currently, there is no minimum amount rule in effect. However, Hartford may
institute minimum amount rules at some future time. Additionally, if the
remaining Contract Value following a surrender is less than $500 (and, for Texas
contracts, there were no Premium Payments made during the preceding two contract
years), Hartford may terminate the Contract and pay the Termination Value.
Certain plans or programs may have different withdrawal privileges. Hartford may
permit the Contract Owner to preauthorize partial surrenders subject to certain
limitations then in effect.
THERE ARE CERTAIN RESTRICTIONS ON SECTION 403(B) TAX SHELTERED ANNUITIES. AS OF
DECEMBER 31, 1988, ALL SECTION 403(B) ANNUITIES HAVE LIMITS ON FULL AND PARTIAL
SURRENDERS. CONTRIBUTIONS TO THE CONTRACT MADE AFTER DECEMBER 31, 1988 AND ANY
INCREASES IN CASH VALUE AFTER DECEMBER 31, 1988 MAY NOT BE DISTRIBUTED UNLESS
THE CONTRACT OWNER/EMPLOYEE HAS A) ATTAINED AGE 59 1/2, B) TERMINATED
EMPLOYMENT, C) DIED, D) BECOME DISABLED OR E) EXPERIENCED FINANCIAL HARDSHIP.
DISTRIBUTIONS DUE TO FINANCIAL HARDSHIP OR SEPARATION FROM SERVICE MAY STILL BE
SUBJECT TO A PENALTY TAX OF 10%.
HARTFORD WILL NOT ASSUME ANY RESPONSIBILITY IN DETERMINING WHETHER A WITHDRAWAL
IS PERMISSIBLE, WITH OR WITHOUT TAX PENALTY, IN ANY PARTICULAR SITUATION; OR IN
MONITORING WITHDRAWAL REQUESTS REGARDING PRE OR POST JANUARY 1, 1989 ACCOUNT
VALUES.
ANY SUCH FULL OR PARTIAL SURRENDER DESCRIBED ABOVE MAY RESULT IN ADVERSE TAX
CONSEQUENCES TO THE CONTRACT OWNER. THE CONTRACT OWNER, THEREFORE, SHOULD
CONSULT WITH HIS TAX ADVISER BEFORE UNDERTAKING ANY SUCH SURRENDER. (SEE
"FEDERAL TAX CONSIDERATIONS" COMMENCING ON PAGE 19.)
Payment on any request for a full or partial surrender from the Sub-Accounts
and/or the Fixed Account will be made as soon as possible and in any event no
later than seven days after the written request is received by Hartford at its
Home Office, Attn: Individual Annuity Services, P.O. Box 5085, Hartford, CT
06102-5085. Hartford may defer payment of any amounts from the Fixed Account for
up to six months from the date of the request for surrender. If Hartford defers
payment for more than 30 days, Hartford will pay interest of at least 3% per
annum on the amount deferred. In requesting a partial withdrawal you should
specify the Fixed Account and/or the Sub-Account(s) from which the partial
withdrawal is to be taken. Otherwise, such withdrawal and any applicable
contingent deferred sales charges will be effected on a pro rata basis according
to the value in the Fixed Account and each Sub-Account under a Contract. Within
this context, the contingent deferred sales charges are taken from the Premium
Payments in the order in which they were received: from the earliest Premium
Payments
14 - PROSPECTUS
<PAGE>
to the latest Premium Payments. (See "Contingent Deferred Sales Charges," page
15.)
DEATH BENEFIT
The Contracts provide that in the event the Annuitant dies before the Annuity
Commencement Date, the Contingent Annuitant will become the Annuitant. If the
Annuitant dies before the Annuity Commencement Date and either (a) there is no
designated Contingent Annuitant, (b) the Contingent Annuitant predeceases the
Annuitant, or (c) if any Contract Owner dies before the Annuity Commencement
Date, the Beneficiary as determined under the Contract Control Provisions, will
receive the Death Benefit as determined on the date of receipt of due proof of
death by Hartford in its Home Office. With regard to Joint Contract Owners,
after the death of a joint Contract Owner prior to the Annuity Commencement
Date, the Beneficiary will be the surviving Contract Owner notwithstanding that
the beneficiary designation may be different.
GUARANTEED DEATH BENEFIT If, upon death prior to the Annuity Commencement Date,
the Annuitant or Contract Owner, as applicable, had not attained his 90th
birthday, the Beneficiary will receive the greatest of (a) the Contract Value
determined as of the day written proof of death of such person is received by
Hartford, or (b) 100% of the total Premium Payments made to such contract,
reduced by any prior surrenders, or (c) the Maximum Anniversary Value
immediately preceding the date of death. The Maximum Anniversary Value is equal
to the greatest Anniversary Value attained from the following:
As of the date of receipt of due proof of death, the Company will calculate an
Anniversary Value for each Contract Anniversary prior to the deceased's attained
age 81. The Anniversary Value is equal to the Contract Value on a Contract
Anniversary, increased by the dollar amount of any premium payment made since
that anniversary and reduced by the dollar amount of any partial surrenders
since that anniversary.
If the deceased, the Annuitant or the Contract Owner, as applicable, had
attained age 90, then the Death Benefit will equal the Contract Value.
PAYMENT OF DEATH BENEFIT Death Benefit proceeds will remain invested in the
Separate Account in accordance with the allocation instructions given by the
Contract Owner until the proceeds are paid or Hartford receives new instructions
from the Beneficiary. The Death Benefit may be taken in one sum, payable within
7 days after the date Due Proof of Death is received, or under any of the
settlement options then being offered by the Company provided, however, that:
(a) in the event of the death of any Contract Owner prior to the Annuity
Commencement Date, the entire interest in the Contract will be distributed
within 5 years after the death of the Contract Owner and (b) in the event of the
death of any Contract Owner or Annuitant which occurs on or after the Annuity
Commencement Date, any remaining interest in the Contract will be paid at least
as rapidly as under the method of distribution in effect at the time of death,
or, if the benefit is payable over a period not extending beyond the life
expectancy of the Beneficiary or over the life of the Beneficiary, such
distribution must commence within one year of the date of death. The proceeds
due on the death may be applied to provide variable payments, fixed payments, or
a combination of variable and fixed payments. However, in the event of the
Contract Owner's death where the sole Beneficiary is the spouse of the Contract
Owner and the Annuitant or Contingent Annuitant is living, such spouse may
elect, in lieu of receiving the death benefit, to be treated as the Contract
Owner. The Contract Value and the Maximum Anniversary Value of the Contract will
be unaffected by treating the spouse as the Contract Owner.
If the Contract is owned by a corporation or other non-individual, the Death
Benefit payable upon the death of the Annuitant prior to the Annuity
Commencement Date will be payable only as one sum or under the same settlement
options and in the same manner as if an individual Contract Owner died on the
date of the Annuitant's death.
There may be postponement in the payment of Death Benefits whenever (a) the New
York Stock Exchange is closed, except for holidays or weekends, or trading on
the New York Stock Exchange is restricted as determined by the Securities and
Exchange Commission; (b) the Securities and Exchange Commission permits
postponement and so orders; or (c) the Securities and Exchange Commission
determines that an emergency exists making valuation of the amounts or disposal
of securities not reasonably practicable.
GROUP UNALLOCATED CONTRACTS For Group Unallocated Contracts, Hartford requires
that detailed accounting of cumulative purchase payments, cumulative gross
surrenders, and current Contract Value attached to each Plan Participant be
submitted on an annual basis by the Contract Owner. Failure to submit accurate
data satisfactory to Hartford will give Hartford the right to terminate this
extension of benefits.
CHARGES UNDER THE CONTRACT
CONTINGENT DEFERRED
SALES CHARGES
There is no deduction for sales expenses from Premium Payments when made.
However, a contingent deferred sales charge may be assessed against Contract
Values when they are surrendered. The length of time from receipt of a Premium
Payment to the time of surrender determines the contingent deferred sales
charge. Premium payments will be deemed to be surrendered in the order in which
they were received.
A Contract Owner who chooses to surrender a Contract in full who has not yet
withdrawn the Annual Withdrawal Amount during the current Contract Year (as
described on page 16 below under the sub-heading, "After the Seventh Contract
Year") may, depending upon the amount of investment gain experienced under the
Contract, reduce the amount of any contingent deferred sales charge paid by
first withdrawal the Annual Withdrawal Amount and then requesting a full
surrender of the
15 - PROSPECTUS
<PAGE>
Contract. Currently, regardless of whether a Contract Owner first requests a
partial withdrawal of the Annual Withdrawal Amount, upon receiving a request for
a full surrender of a Contract, Hartford assesses any applicable contingent
deferred sales charge against the surrender proceeds representing the lesser of:
(1) aggregate Premium Payments under the Contract not previously withdrawn; and
(2) the Contract Value, less the Annual Withdrawal Amount available at the time
of the full surrender, less the Annual Maintenance Fee.
DURING THE FIRST SEVEN
CONTRACT YEARS
During the first seven contract years, all surrenders will be first from Premium
Payments and then from other Contract Values. If an amount equal to all premium
payments has been surrendered, a contingent deferred sales charge will not be
assessed against the surrender of the remaining Contract Value.
AFTER THE SEVENTH
CONTRACT YEAR
After the seventh contract year, all surrenders will first be from earnings and
then from premium payments. A contingent deferred sales charge will not be
assessed against the surrender of earnings. If an amount equal to all earnings
has been surrendered, a contingent deferred sales charge will not be assessed
against premium payments received more than seven years prior to surrender, but
will be assessed against premium payments received less than seven years prior
to surrender.
The charge is a percentage of the amount withdrawn (not to exceed the aggregate
amount of the Premium Payments made) and equals:
<TABLE>
<CAPTION>
Length of Time
from Premium Payment
Charge (Number of Years)
<S> <C>
- -------------------------------------------------------------
6% 1
- -------------------------------------------------------------
6% 2
- -------------------------------------------------------------
5% 3
- -------------------------------------------------------------
5% 4
- -------------------------------------------------------------
4% 5
- -------------------------------------------------------------
3% 6
- -------------------------------------------------------------
2% 7
- -------------------------------------------------------------
0% 8 or more
- -------------------------------------------------------------
</TABLE>
The contingent deferred sales charges are used to cover expenses relating to the
sale and distribution of the Contracts, including commissions paid to any
distribution organization and its sales personnel, the cost of preparing sales
literature and other promotional activities. To the extent that these charges do
not cover such distribution expenses, the expenses will be borne by Hartford
from its general assets, including surplus. The surplus might include profits
resulting from unused mortality and expense risk charges.
During the first seven Contract Years, on a non-cumulative basis, a Contract
Owner may make a partial surrender of Contract Values of up to 10% of the
aggregate Premium Payments made to the contract (as determined on the date of
the requested withdrawal) without the application of the contingent deferred
sales charge. After the seventh Contract year, the Contract Owner may make a
partial surrender of 10% of premium payments made during the seven years prior
to the surrender and 100% of the Contract Value less the premium payments made
during the seven years prior to the surrender. The amount which can be withdrawn
in any Contract Year prior to incurring surrender charges is the "Annual
Withdrawal Amount." An Extended Withdrawal Privilege rider allows an Annuitant
who attains age 70 1/2 under a Qualified Plan to withdraw an amount in excess of
the Annual Withdrawal Amount to comply with IRS minimum distribution rules.
The contingent deferred sales charges which cover expenses relating to the sale
and distribution of the Contracts may be reduced for certain sales of the
Contracts under circumstances which may result in savings of such sales and
distribution expenses. Therefore, the contingent deferred sales charges may be
reduced if the Contracts are sold to certain employee and professional groups.
In addition, there may be other circumstances of which Hartford is not presently
aware which could result in reduced sales or distribution expenses. Reductions
in these charges will not be unfairly discriminatory against any Contract Owner.
Hartford may offer certain employer sponsored savings plans, in its discretion
reduced fees and charges including, but not limited to, the contingent deferred
sales charges, the mortality and expense risk charge and the maintenance fee for
certain sales under circumstances which may result in savings of certain costs
and expenses. Reductions in these fees and charges will not be unfairly
discriminatory against any Contract Owner.
MORTALITY AND EXPENSE
RISK CHARGE
Although Variable Annuity payments made under the Contracts will vary in
accordance with the investment performance of the underlying Portfolio shares
held in the Sub-Account(s), the payments will not be affected by (a) Hartford's
actual mortality experience among Annuitants before or after the Annuity
Commencement Date or (b) Hartford's actual expenses, if greater than the
deductions provided for in the Contracts because of the expense and mortality
undertakings by Hartford.
For assuming these risks under the Contracts, Hartford will make a daily charge
at the rate of 1.25% per annum against all Contract Values held in the
Sub-Accounts during the life of the Contract, including the payout period,
(estimated at .90% for mortality and .35% for expense).
The mortality undertaking provided by Hartford under the Contracts, assuming the
selection of one of the forms of life Annuities, is to make monthly Annuity
payments (determined in
16 - PROSPECTUS
<PAGE>
accordance with the 1983(a) Individual Annuity Mortality Table and other
provisions contained in the Contract) to Annuitants regardless of how long an
Annuitant may live, and regardless of how long all Annuitants as a group may
live. Hartford also assumes the liability for payment of a minimum Death Benefit
under the Contract.
The mortality undertakings are based on Hartford's determination of expected
mortality rates among all Annuitants. If actual experience among Annuitants
during the Annuity payment period deviates from Hartford's actuarial
determination of expected mortality rates among Annuitants because, as a group,
their longevity is longer than anticipated, Hartford must provide amounts from
its general Portfolios to fulfill its Contract obligations. Hartford will bear
the loss in such a situation. Also, in the event of the death of an Annuitant or
Contract Owner before the commencement of Annuity payments, whichever is
earlier, Hartford can, in periods of declining value, experience a loss
resulting from the assumption of the mortality risk relative to the minimum
Death Benefit.
In providing an expense undertaking, Hartford assumes the risk that the
contingent deferred sales charges and the Administration and Maintenance Fees
for maintaining the Contracts prior to the Annuity Commencement Date may be
insufficient to cover the actual cost of providing such items.
ADMINISTRATION AND MAINTENANCE FEES
Hartford will deduct certain fees from Contract Values to reimburse it for
expenses relating to the administration and maintenance of the Contract and the
Fixed Account. For Contract maintenance, Hartford will deduct an annual fee of
$30 on each Contract Anniversary on or before the Annuity Commencement Date. The
deduction will be made pro rata according to the value in each Sub-Account and
the Fixed Account under a Contract. If during a Contract Year the Contract is
surrendered for its full value, Hartford will deduct the Contract Maintenance
Fee at the time of such surrender. For administration, Hartford makes a daily
charge at the rate of .15% per annum against all Contract Values held in the
Separate Account during both the accumulation and annuity phases of the
Contract. There is not necessarily a relationship between the amount of
administrative charge imposed on a given Contract and the amount of expenses
that may be attributable to that Contract; expenses may be more or less than the
charge.
The types of expenses incurred by the Separate Account include, but are not
limited to, expenses of issuing the Contract and expenses for confirmations,
Contract quarterly statements, processing of transfers and surrenders,
responding to Contract Owner inquiries, reconciling and depositing cash
receipts, calculation and monitoring daily Sub-Account unit values, Separate
Account reporting, including semiannual and annual reports and mailing and
tabulation of shareholder proxy solicitations.
You should refer to the Fund prospectus for a description of deductions and
expenses paid out of the assets of the Portfolios.
PREMIUM TAXES
A deduction is also made for Premium Tax, if applicable, imposed by a state or
other governmental entity. Certain states impose a Premium Tax, currently
ranging up to 3.5%. Some states assess the tax at the time purchase payments are
made; others assess the tax at the time of annuitization. Hartford will pay
Premium Taxes at the time imposed under applicable law. At its sole discretion,
Hartford may deduct Premium Taxes at the time Hartford pays such taxes to the
applicable taxing authorities, at the time the Contract is surrendered, or at
the time the Contract annuitizes.
ANNUITY BENEFITS
You select an Annuity Commencement Date and an Annuity option which may be on a
fixed or variable basis, or a combination thereof. The Annuity Commencement Date
will not be deferred beyond the Annuitant's 90th birthday (85th birthday in some
states, 100th birthday if sold as a Charitable Remainder Trust, where approved).
The Annuity Commencement Date and/ or the Annuity option may be changed from
time to time, but any change must be at least 30 days prior to the date on which
Annuity payments are scheduled to begin. The contract allows the Contract Owner
to change the Sub-Accounts on which variable payments are based after payments
have commenced once every three (3) months. Any Fixed Annuity allocation may not
be changed.
ANNUITY OPTIONS
The Contract contains the five optional Annuity forms described below. Options
2, 4 and 5 are available to Qualified Contracts only if the guaranteed payment
period is less than the life expectancy of the Annuitant at the time the option
becomes effective. Such life expectancy shall be computed on the basis of the
mortality table prescribed by the IRS, or if none is prescribed, the mortality
table then in use by the Hartford. With respect to Non-Qualified Contracts, if
you do not elect otherwise, payments in most states will automatically begin at
the Annuitant's age 90 (with the exception of states that do not allow deferral
past age 85) under Option 2 with 120 monthly payments certain. For Qualified
Contracts and contracts issued in Texas, if you do not elect otherwise, payments
will begin automatically at the Annuitant's age 90 under Option 1 to provide a
life Annuity.
Under any of the Annuity options excluding Options 4 and 5, no surrenders are
permitted after Annuity payments commence. Only full surrenders are allowed out
of Option 4 and any such surrender will be subject to contingent deferred sales
charges, if applicable. Full or partial withdrawals may be made from Option 5 at
any time and contingent deferred sales charges will not be applied.
OPTION 1: LIFE ANNUITY
A life Annuity is an Annuity payable during the lifetime of the Annuitant and
terminating with the last payment preceding the death of the Annuitant. This
option offers the largest payment
17 - PROSPECTUS
<PAGE>
amount of any of the life Annuity options since there is no guarantee of a
minimum number of payments nor a provision for a death benefit payable to a
Beneficiary.
It would be possible under this option for an Annuitant to receive only one
Annuity payment if he died prior to the due date of the second Annuity payment,
two if he died before the date of the third Annuity payment, etc.
OPTION 2: LIFE ANNUITY WITH 120, 180
OR 240 MONTHLY PAYMENTS CERTAIN
This Annuity option is an Annuity payable monthly during the lifetime of an
Annuitant with the provision that payments will be made for a minimum of 120,
180 or 240 months, as elected. If, at the death of the Annuitant, payments have
been made for less than the minimum elected number of months, then the present
value as of the date of the Annuitant's death, of any remaining guaranteed
payments will be paid in one sum to the Beneficiary or Beneficiaries designated
unless other provisions have been made and approved by the company.
OPTION 3: JOINT AND LAST SURVIVOR ANNUITY
An Annuity payable monthly during the joint lifetime of the Annuitant and a
designated second person, and thereafter during the remaining lifetime of the
survivor, ceasing with the last payment prior to the death of the survivor.
Based on the options currently offered by Hartford, the Annuitant may elect that
the payment to the survivor be less than the payment made during the joint
lifetime of the Annuitant and a designated second person.
It would be possible under this option for an Annuitant and designated second
person to receive only one payment in the event of the common or simultaneous
death of the parties prior to the due date for the second payment and so on.
OPTION 4: PAYMENTS FOR A DESIGNATED PERIOD
An amount payable monthly for the number of years selected which may be from 5
to 30 years. Under this option, you may, at any time, surrender the contract and
receive, within seven days, the Termination Value of the Contract as determined
by Hartford.
In the event of the Annuitant's death prior to the end of the designated period,
the present value as of the date of the Annuitant's death, of any remaining
guaranteed payments will be paid in one sum to the Beneficiary or Beneficiaries
designated unless other provisions have been made and approved by the Company.
Option 4 is an option that does not involve life contingencies and thus no
mortality guarantee. Charges made for the mortality undertaking under the
contracts thus provide no real benefit to a Contract Owner.
OPTION 5: DEATH BENEFIT REMAINING WITH HARTFORD
Proceeds from the Death Benefit may be left with Hartford for a period not to
exceed five years from the date of the Contract Owner's death prior to the
Annuity Commencement Date. These proceeds will remain in the Sub-Account(s) to
which they were allocated at the time of death unless the Beneficiary elects to
reallocate them. Full or partial withdrawals may be made at any time. In the
event of withdrawals, the remaining value will equal the Contract Value of the
proceeds left with Hartford, minus any withdrawals.
Hartford may offer other annuity options from time to time.
THE ANNUITY UNIT AND VALUATION
The value of the Annuity Unit for each Sub-Account in the Separate Account for
any day is determined by multiplying the value for the preceding day by the
product of (1) the net investment factor (See "Value of Accumulation Units"
commencing on page 13) for the day for which the Annuity Unit value is being
calculated and (2) a factor to neutralize the assumed investment rate of 5.00%
per annum discussed below.
DETERMINATION OF
PAYMENT AMOUNT
When Annuity payments are to commence, the value of the Contract is determined
as the sum of the value of the Fixed Account no earlier than the close of
business on the fifth Valuation Day preceding the date the first Annuity payment
is due plus the product of the value of the Accumulation Unit of each
Sub-Account on that same day, and the number of Accumulation Units credited to
each Sub-Account as of the date the Annuity is to commence.
The Contract contains tables indicating the minimum dollar amount of the first
monthly payment under the optional forms of Annuity for each $1,000 of value of
a Sub-Account under a Contract. The first monthly payment varies according to
the form and type of Annuity selected. The Contract contains Annuity tables
derived from the 1983a Individual Annuity Mortality Table with ages set back one
year and with an assumed investment rate ("A.I.R.") of 3% per annum for the
Fixed Annuity and 5% per annum for the Variable Annuity.
The total first monthly Variable Annuity payment is determined by multiplying
the value (expressed in thousands of dollars) of a Sub-Account (less any
applicable Premium Taxes) by the amount of the first monthly payment per $1,000
of value obtained from the tables in the Contracts.
Fixed Annuity payments are determined at annuitization by multiplying the values
allocated to the Fixed Account (less applicable Premium Taxes) by a rate to be
determined by Hartford which is no less than the rate specified in the Annuity
tables in the Contract. The Annuity payment will remain level for the duration
of the Annuity.
The amount of the first monthly Variable Annuity payment, determined as
described above, is divided by the value of an Annuity Unit for the appropriate
Sub-Account no earlier than the close of business on the fifth Valuation Day
preceding the
18 - PROSPECTUS
<PAGE>
day on which the payment is due in order to determine the number of Annuity
Units represented by the first payment. This number of Annuity Units remains
fixed during the Annuity payment period, and in each subsequent month the dollar
amount of the Variable Annuity payment is determined by multiplying this fixed
number of Annuity Units by the then current Annuity Unit value.
THE A.I.R. ASSUMED IN THE MORTALITY TABLES WOULD PRODUCE LEVEL VARIABLE ANNUITY
PAYMENTS IF THE INVESTMENT RATE REMAINED CONSTANT. IN FACT, PAYMENTS WILL VARY
UP OR DOWN AS THE INVESTMENT RATE VARIES UP OR DOWN FROM THE A.I.R.
The Annuity Unit value used in calculating the amount of the Variable Annuity
payments will be based on an Annuity Unit value determined as of the close of
business on a day no earlier than the fifth Valuation Day preceding the date of
the Annuity payment.
Federal Tax Considerations
--------------------------------------------------------------------
WHAT ARE SOME OF THE FEDERAL TAX CONSEQUENCES WHICH AFFECT THESE CONTRACTS?
A. General
SINCE THE TAX LAW IS COMPLEX AND SINCE TAX CONSEQUENCES WILL VARY ACCORDING TO
THE ACTUAL STATUS OF THE CONTRACT OWNER INVOLVED AND THE TYPE OF PLAN UNDER
WHICH THE CONTRACT IS PURCHASED, LEGAL AND TAX ADVICE MAY BE NEEDED BY A PERSON,
TRUSTEE OR OTHER ENTITY CONTEMPLATING THE PURCHASE OF A CONTRACT DESCRIBED
HEREIN.
It should be understood that any detailed description of the federal income tax
consequences regarding the purchase of these Contracts cannot be made in this
Prospectus and that special tax rules may be applicable with respect to certain
purchase situations not discussed herein. In addition, no attempt is made here
to consider any applicable state or other tax laws. For detailed information, a
qualified tax adviser should always be consulted. The discussion here and in
Appendix I, commencing on page 24, is based on Hartford's understanding of
existing federal income tax laws as they are currently interpreted.
B. Taxation of Hartford and
the Separate Account
The Separate Account is taxed as part of Hartford which is taxed as a life
insurance company in accordance with the Internal Revenue Code of 1986, as
amended (the "Code"). Accordingly, the Separate Account will not be taxed as a
"regulated investment company" under subchapter M of Chapter 1 of the Code.
Investment income and any realized capital gains on the assets of the Separate
Account are reinvested and are taken into account in determining the value of
the Accumulation and Annuity Units (See "Value of Accumulation Units" commencing
on page 13). As a result, such investment income and realized capital gains are
automatically applied to increase reserves under the Contract.
No taxes are due on interest, dividends and short-term or long-term capital
gains earned by the Separate Account with respect to Qualified or Non-Qualified
Contracts.
C. Taxation of Annuities -- General Provisions Affecting Purchasers Other Than
Qualified Retirement Plans
Section 72 of the Code governs the taxation of annuities in general.
1. NON-NATURAL PERSONS, CORPORATIONS, ETC. Section 72 contains provisions for
Contract Owners which are non-natural persons. Non-natural persons include
corporations, trusts, and partnerships. The annual net increase in the value of
the Contract is currently includable in the gross income of a non-natural person
unless the non-natural person holds the Contract as an agent for a natural
person. There is an exception 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 not an individual, the primary Annuitant shall be
treated as the Contract Owner for purposes of making distributions which are
required to be made upon the death of the Contract Owner. If there is a change
in the primary Annuitant, such change shall be treated as the death of the
Contract Owner.
2. OTHER CONTRACT OWNERS (NATURAL PERSONS). A Contract Owner is not taxed on
increases in the value of the Contract until an amount is received or deemed
received, e.g., in the form of a lump sum payment (full or partial value of a
Contract) or as Annuity payments under the settlement option elected.
The provisions of Section 72 of the Code concerning distributions are summarized
briefly below. Also summarized are special rules affecting distributions from
Contracts obtained in a tax-free exchange for other annuity contracts or life
insurance contracts which were purchased prior to August 14, 1982.
19 - PROSPECTUS
<PAGE>
A. DISTRIBUTIONS PRIOR TO THE ANNUITY
COMMENCEMENT DATE.
I. Total premium payments less amounts received which were not includable in
gross income equal the "investment in the contract" under Section 72 of the
Code.
II. To the extent that the value of the Contract (ignoring any surrender charges
except on a full surrender) exceeds the "investment in the contract," such
excess constitutes the "income on the contract."
III. Any amount received or deemed received prior to the Annuity Commencement
Date (e.g., upon a partial surrender) is deemed to come first from any such
"income on the contract" and then from "investment in the contract," and for
these purposes such "income on the contract" shall be computed by reference to
any aggregation rule in subparagraph 2.c. below. As a result, any such amount
received or deemed received (1) shall be includable in gross income to the
extent that such amount does not exceed any such "income on the contract," and
(2) shall not be includable in gross income to the extent that such amount does
exceed any such "income on the contract." If at the time that any amount is
received or deemed received there is no "income on the contract" (e.g., because
the gross value of the Contract does not exceed the "investment in the contract"
and no aggregation rule applies), then such amount received or deemed received
will not be includable in gross income, and will simply reduce the "investment
in the contract."
IV. The receipt of any amount as a loan under the Contract or the assignment or
pledge of any portion of the value of the Contract shall be treated as an amount
received for purposes of this subparagraph a. and the next subparagraph b.
V. In general, the transfer of the Contract, without full and adequate
consideration, will be treated as an amount received for purposes of this
subparagraph a. and the next subparagraph b. This transfer rule does not apply,
however, to certain transfers of property between spouses or incident to
divorce.
B. DISTRIBUTIONS AFTER ANNUITY COMMENCEMENT DATE.
Annuity payments made periodically after the Annuity Commencement Date are
includable in gross income to the extent the payments exceed the amount
determined by the application of the ratio of the "investment in the contract"
to the total amount of the payments to be made after the Annuity Commencement
Date (the "exclusion ratio").
I. When the total of amounts excluded from income by application of the
exclusion ratio is equal to the investment in the contract as of the Annuity
Commencement Date, any additional payments (including surrenders) will be
entirely includable in gross income.
II. If the annuity payments cease by reason of the death of the Annuitant and,
as of the date of death, the amount of annuity payments excluded from gross
income by the exclusion ratio does not exceed the investment in the contract as
of the Annuity Commencement Date, then the remaining portion of unrecovered
investment shall be allowed as a deduction for the last taxable year of the
Annuitant.
III. Generally, 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 for the life (or life expectancy) of the recipient (or the
joint lives or life expectancies of the recipient and the recipient's
Beneficiary).
5. Distributions of amounts which are allocable to the "investment in the
contract" prior to August 14, 1982 (see next subparagraph e.).
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<PAGE>
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 and payments must
begin within a year of the death.
III. SPOUSE BENEFICIARY
If any portion of the interest of a Contract Owner is payable to or for the
benefit of his or her spouse, and the Annuitant or Contingent Annuitant is
living, such spouse shall be treated as the Contract Owner of such portion for
purposes of section i. above.
3. DIVERSIFICATION REQUIREMENTS. Section 817 of the Code provides that a
variable annuity contract will not be treated as an annuity contract for any
period during which the investments made by the separate account or underlying
fund are not adequately diversified in accordance with regulations prescribed by
the Treasury Department. If a Contract is not treated as an annuity contract,
the Contract Owner will be subject to income tax on the annual increases in cash
value.
The Treasury Department has issued diversification regulations which generally
require, among other things, that no more than 55% of the value of the total
assets of the segregated asset account underlying a variable contract is
represented by any one investment, no more than 70% is represented by any two
investments, no more than 80% is represented by any three investments, and no
more than 90% is represented by any four investments. In determining whether the
diversification standards are met, all securities of the same issuer, all
interests in the same real property project, and all interests in the same
commodity are each treated as a single investment. In addition, in the case of
government securities, each government agency or instrumentality shall be
treated as a separate issuer.
A separate account must be in compliance with the diversification standards on
the last day of each calendar quarter or within 30 days after the quarter ends.
If an insurance company inadvertently fails to meet the diversification
requirements, the company may comply within a reasonable period and avoid the
taxation of contract income on an ongoing basis. However, either the company or
the Contract Owner must agree to pay the tax due for the period during which the
diversification requirements were not met.
Hartford monitors the diversification of investments in the separate accounts
and tests for diversification as required by the Code. Hartford intends to
administer all contracts subject to the diversification requirements in a manner
that will maintain adequate diversification.
4. OWNERSHIP OF THE ASSETS IN THE SEPARATE ACCOUNT. In order for a variable
annuity contract to qualify for tax deferral, assets in the segregated asset
accounts supporting the variable contract must be considered to be owned by the
insurance company and not by the variable contract owner. The Internal Revenue
Service ("IRS") has issued several rulings which discuss investor control. The
IRS has ruled that 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.
21 - PROSPECTUS
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Further, in the explanation to the temporary Section 817 diversification
regulations, the Treasury Department noted that the temporary regulations "do
not provide guidance concerning the circumstances in which investor control of
the investments of a segregated asset account may cause the investor, rather
than the insurance company, to be treated as the owner of the assets in the
account." The explanation further indicates that "the temporary regulations
provide that in appropriate cases a segregated asset account may include
multiple sub-accounts, but do not specify the extent to which policyholders may
direct their investments to particular sub-accounts without being treated as the
owners of the underlying assets. Guidance on this and other issues will be
provided in regulations or revenue rulings under Section 817(d), relating to the
definition of variable contract." The final regulations issued under Section 817
did not provide guidance regarding investor control, and as of the date of this
Prospectus, no other such guidance has been issued. Further, Hartford does not
know if or in what form such guidance will be issued. In addition, although
regulations are generally issued with prospective effect, it is possible that
regulations may be issued with retroactive effect. Due to the lack of specific
guidance regarding the issue of investor control, there is necessarily some
uncertainty regarding whether a Contract Owner could be considered the owner of
the assets for tax purposes. Hartford reserves the right to modify the
contracts, as necessary, to prevent Contract Owners from being considered the
owners of the assets in the separate accounts.
D. Federal Income Tax Withholding
The portion of a distribution which is taxable income to the recipient will be
subject to federal income tax withholding, pursuant to Section 3405 of the Code.
The application of this provision is summarized below:
1. NON-PERIODIC DISTRIBUTIONS.
The portion of a non-periodic distribution which constitutes taxable income will
be subject to federal income tax withholding unless the recipient elects not to
have taxes withheld. If an election not to have taxes withheld is not provided,
10% of the taxable distribution will be withheld as federal income tax. Election
forms will be provided at the time distributions are requested. If the necessary
election forms are not submitted to Hartford, Hartford will automatically
withhold 10% of the taxable distribution.
2. PERIODIC DISTRIBUTIONS (DISTRIBUTIONS PAYABLE
OVER A PERIOD GREATER THAN ONE YEAR).
The portion of a periodic distribution which constitutes taxable income will be
subject to federal income tax withholding as if the recipient were married
claiming three exemptions. A recipient may elect not to have income taxes
withheld or have income taxes withheld at a different rate by providing a
completed election form. Election forms will be provided at the time
distributions are requested.
E. General Provisions Affecting Qualified Retirement Plans
The Contract may be used for a number of qualified retirement plans. If the
Contract is being purchased with respect to some form of qualified retirement
plan, please refer to Appendix I commencing on page 24 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.
GENERAL MATTERS
ASSIGNMENT
Ownership of a Contract described herein is generally assignable. However, if
the Contracts are issued pursuant to some form of Qualified Plan, it is possible
that the ownership of the Contracts may not be transferred or assigned depending
on the type of qualified retirement plan involved. An assignment of a Non-
Qualified Contract may subject the assignment proceeds to income taxes and
certain penalty taxes. (See "Taxation of Annuities in General -- Non-Tax
Qualified Purchasers," page 19.)
MODIFICATION
Hartford reserves the right to modify the Contract, but only if such
modification: (i) is necessary to make the Contract or the Separate Account
comply with any law or regulation issued by a governmental agency to which
Hartford is subject; or (ii) is necessary to assure continued qualification of
the Contract under the Code or other federal or state laws relating to
retirement annuities or annuity Contracts; or (iii) is necessary to reflect a
change in the operation of the Separate Account or the Sub-Account(s) or (iv)
provides additional Separate Account options or (v) withdraws Separate Account
options. In the event of any such modification Hartford will provide notice to
the Contract Owner or to the payee(s) during the Annuity period. Hartford may
also make appropriate endorsement in the Contract to reflect such modification.
DELAY OF PAYMENTS
There may be postponement of a surrender payment or death benefit whenever (a)
the New York Stock Exchange is closed, except for holidays or weekends, or
trading on the New York Stock Exchange is restricted as determined by the
Commission; (b) the Commission permits postponement and so orders; or (c) the
Commission determines that an emergency exists making valuation or disposal of
securities not reasonably practicable.
VOTING RIGHTS
Hartford is the legal owner of all Fund shares held in the Separate Account. As
the owner, Hartford has the right to vote at the Funds' shareholder meetings.
However, to the extent required by federal securities laws or regulations,
Hartford will:
1. Vote all Fund shares attributable to a Contract according to instructions
received from the Contract Owner, and
22 - PROSPECTUS
<PAGE>
2. Vote shares attributable to a Contract for which no voting instructions are
received in the same proportion as shares for which instructions are received.
If any federal securities laws or regulations, or their present interpretation
change to permit Hartford to vote Fund shares in its own right, Hartford may
elect to do so.
Hartford will notify you of any Portfolio shareholders' meeting if the shares
held for your account may be voted at such meetings. Hartford will also send
proxy materials and a form of instruction by means of which you can instruct
Hartford with respect to the voting of the Portfolio shares held for your
account.
In connection with the voting of Portfolio shares held by it, Hartford will
arrange for the handling and tallying of voting instructions received from
Contract Owners. Hartford as such, shall have no right, except as hereinafter
provided, to vote any Fund shares held by it hereunder which may be registered
in its name or the names of its nominees. Hartford will, however, vote the
Portfolio shares held by it in accordance with the instructions received from
the Contract Owners for whose accounts the Fund shares are held. If a Contract
Owner desires to attend any meeting at which shares held for the Contract
Owner's benefit may be voted, the Contract Owner may request Hartford to furnish
a proxy or otherwise arrange for the exercise of voting rights with respect to
the Portfolio shares held for such Contract Owner's account. In the event that
the Contract Owner gives no instructions or leaves the manner of voting
discretionary, Hartford will vote such shares of the appropriate Portfolio in
the same proportion as shares of that Portfolio for which instructions have been
received. During the Annuity period under a Contract the number of votes will
decrease as the assets held to Portfolio Annuity benefits decrease.
DISTRIBUTION OF THE CONTRACTS
The securities will be sold by insurance and variable annuity agents of Hartford
who are registered representatives of Dean Witter Reynolds Inc. ("Dean Witter").
Dean Witter is registered with the Commission under the Securities Exchange Act
of 1934 as a Broker-Dealer and is a members of the National Association of
Securities Dealers, Inc.
Commissions will be paid by Hartford and will not be more than 7% of Premium
Payments.
From time to time, Hartford may pay or permit other promotional incentives, in
cash or credit or other compensation.
OTHER CONTRACTS OFFERED
In addition to the Contracts described in this Prospectus, it is contemplated
that other forms of group or individual Variable Annuities may be sold providing
benefits which vary in accordance with the investment experience of the Separate
Account.
CUSTODIAN OF SEPARATE
ACCOUNT ASSETS
The assets of the Separate Account are held by Hartford under a safekeeping
arrangement.
LEGAL PROCEEDINGS
There are no material legal proceedings pending to which the Separate Account is
a party.
LEGAL COUNSEL
Counsel with respect to federal laws and regulations applicable to the issue and
sale of the Contracts and with respect to Connecticut law is Lynda Godkin,
General Counsel, Hartford Life Insurance Companies, P.O. Box 2999, Hartford,
Connecticut 06104-2999.
EXPERTS
The audited consolidated financial statements and financial statement schedules
included in this Prospectus and elsewhere in the registration statement have
been audited by Arthur Andersen LLP, independent public accountants, as
indicated in their reports with respect thereto, and are included herein in
reliance upon the authority of said firm as experts in giving said reports.
Reference is made to said report on the consolidated financial statements of
Hartford Life Insurance Company (the Depositor), which includes an explanatory
paragraph with respect to the change in method of accounting for debt and equity
securities as of January 1, 1994, as discussed in Note 2 of Notes to
Consolidated Financial Statements. The principal business address of Arthur
Andersen LLP is One Financial Plaza, Hartford, Connecticut 06103.
ADDITIONAL INFORMATION
Inquiries will be answered by calling your representative or by writing:
Hartford Life Insurance Company
Attn: Individual Annuity Services
P.O. Box 5085
Hartford, CT 06102-5085
Telephone: (800) 862-6668
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Appendix I
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INFORMATION REGARDING TAX-QUALIFIED PLANS
THE TAX RULES APPLICABLE TO TAX QUALIFIED CONTRACT OWNERS, INCLUDING
RESTRICTIONS ON CONTRIBUTIONS AND DISTRIBUTIONS, TAXATION OF DISTRIBUTIONS AND
TAX PENALTIES, VARY ACCORDING TO THE TYPE OF PLAN AS WELL AS THE TERMS AND
CONDITIONS OF THE PLAN ITSELF. VARIOUS TAX PENALTIES MAY APPLY TO CONTRIBUTIONS
IN EXCESS OF SPECIFIED LIMITS, TO DISTRIBUTIONS IN EXCESS OF SPECIFIED LIMITS,
DISTRIBUTIONS WHICH DO NOT SATISFY CERTAIN REQUIREMENTS AND CERTAIN OTHER
TRANSACTIONS WITH RESPECT TO QUALIFIED PLANS. ACCORDINGLY, THIS SUMMARY PROVIDES
ONLY GENERAL INFORMATION ABOUT THE TAX RULES ASSOCIATED WITH USE OF THE CONTRACT
BY A QUALIFIED PLAN. CONTRACT OWNERS, PLAN PARTICIPANTS AND BENEFICIARIES ARE
CAUTIONED THAT THE RIGHTS AND BENEFITS OF ANY PERSON TO BENEFITS ARE CONTROLLED
BY THE TERMS AND CONDITIONS OF THE PLAN REGARDLESS OF THE TERMS AND CONDITIONS
OF THE CONTRACT. SOME QUALIFIED PLANS ARE SUBJECT TO DISTRIBUTION AND OTHER
REQUIREMENTS WHICH ARE NOT INCORPORATED INTO HARTFORD'S ADMINISTRATIVE
PROCEDURES. OWNERS, PARTICIPANTS AND BENEFICIARIES ARE RESPONSIBLE FOR
DETERMINING THAT CONTRIBUTIONS, DISTRIBUTIONS AND OTHER TRANSACTIONS COMPLY WITH
APPLICABLE LAW. BECAUSE OF THE COMPLEXITY OF THESE RULES, OWNERS, PARTICIPANTS
AND BENEFICIARIES ARE ENCOURAGED TO CONSULT THEIR OWN TAX ADVISORS AS TO
SPECIFIC TAX CONSEQUENCES.
A. QUALIFIED PENSION PLANS
Provisions of the Code permit eligible employers to establish pension or profit
sharing plans (described in Section 401(a) and 401(k), if applicable, and exempt
from taxation under Section 501(a) of the Code), and Simplified Employee Pension
Plans (described in Section 408(k)). Such plans are subject to limitations on
the amount that may be contributed, the persons who may be eligible and the time
when distributions must commence. Corporate employers intending to use these
contracts in connection with such plans should seek competent advice.
B. TAX SHELTERED ANNUITIES UNDER SECTION 403(b)
Section 403(b) of the Code permits public school employees and employees of
certain types of charitable, educational and scientific organizations specified
in Section 501(c)(3) of the Code to purchase annuity contracts, and, subject to
certain limitations, exclude such contributions from gross income. Generally,
such contributions may not exceed the lesser of $9,500 or 20% of the employees
"includable compensation" for his most recent full year of employment, subject
to other adjustments. Special provisions 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:
(1) after the participating employee attains age 59 1/2;
(2) upon separation from service;
(3) upon death or disability; or
(4) in the case of hardship.
The above restrictions apply to distributions of employee contributions made
after December 31, 1988, earnings on those contributions, and earnings on
amounts attributable to employee contributions held as of December 31, 1988.
They do not apply to distributions of any employer or other after-tax
contributions, employee contributions made on or before December 31, 1988, and
earnings credited to employee contributions before December 31, 1988.
C. DEFERRED COMPENSATION PLANS UNDER SECTION 457
Employees and independent contractors performing services for such employers may
contribute on a before tax basis to the Deferred Compensation Plan of their
employer in accordance with the employer's plan and Section 457 of the Code.
Section 457 places limitations on contributions to Deferred Compensation Plans
maintained by a State ("State" means a State, a political sub-division of a
State, and an agency or instrumentality of a State or political sub-division of
a State) or other tax-exempt organization. Generally, the limitation is 33 1/3%
of includable compensation (typically 25% of gross compensation) or $7,500
(indexed), whichever is less. The plan may also provide for additional
"catch-up" deferrals during the three taxable years ending before a Participant
attains normal retirement age.
An employee electing to participate in a Deferred Compensation Plan should
understand that his or her rights and benefits are governed strictly by the
terms of the plan and that the employer is the legal owner of any contract
issued with respect to the plan. The employer, as owner of the contract(s),
retains all voting and redemption rights which may accrue to the contract(s)
issued with respect to the plan. The participating employee should look to the
terms of his or her plan for any charges in regard to participating therein
other than those disclosed in this Prospectus. Participants should also be aware
that effective August 20, 1996, the Small Business Job Protection Act of 1996
requires that all assets and income of an eligible Deferred Compensation Plan
established by a governmental employer which is a State, a political subdivision
of a State, or any agency or instrumentality
24 - PROSPECTUS
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of a State or political subdivision of a State, must be held in trust (or under
certain specified annuity contracts or custodial accounts) for the exclusive
benefit of Participants and their Beneficiaries. Special transition rules apply
to such governmental Deferred Compensation Plans already in existence on August
20, 1996, and provide that such plans need not establish a trust before January
1, 1999. However, this requirement does not apply to amounts under a Deferred
Compensation Plan of a tax-exempt (non-governmental) organization and such
amounts will be subject to the claims of such tax-exempt employer's general
creditors.
In general, distributions from a Section 457 Deferred Compensation Plan are
prohibited unless made after the participating employee attains the age
specified in the plan, separates from service, dies, or suffers an unforeseeable
financial emergency. Present federal tax law does not allow tax-free transfers
or rollovers for amounts accumulated in a Section 457 plan except for transfers
to other Section 457 plans in limited cases.
D. INDIVIDUAL RETIREMENT ANNUITIES UNDER SECTION 408
Section 408 of the Code permits eligible individuals to establish individual
retirement programs through the purchase of Individual Retirement Annuities
("IRAs"). IRAs are subject to limitations on the amount that may be contributed,
the contributions that may be deducted from taxable income, the persons who may
be eligible and the time when distributions may commence. Also, distributions
from certain qualified plans may be "rolled-over" on a tax-deferred basis into
an IRA.
E. TAX PENALTIES
Distributions from retirement plans are generally taxed under Section 72 of the
Code. Under these rules, a portion of each distribution may be excludable from
income. The excludable amount is the portion of the distribution which bears the
same ratio as the after-tax contributions bear to the expected return.
1. PREMATURE DISTRIBUTION
Distributions from a qualified plan before the Participant attains age 59 1/2
are generally subject to an additional tax equal to 10% of the taxable portion
of the distribution. The 10% penalty does not apply to distributions made after
the employee's death, on account of disability, for eligible medical expenses
and distributions in the form of a life annuity and, except in the case of an
IRA, certain distributions after separation from service at or after age 55. A
life annuity is defined as a scheduled series of substantially equal periodic
payments for the life or life expectancy of the Participant (or the joint lives
or life expectancies of the Participant and Beneficiary).
2. MINIMUM DISTRIBUTION TAX
If the amount distributed is less than the minimum required distribution for the
year, the Participant is subject to a 50% tax on the amount that was not
properly distributed.
An individual's interest in a retirement plan must generally be distributed, or
begin to be distributed, not later than April 1 of the calendar year following
the later of (i) the calendar year in which the individual attains age 70 1/2or
(ii) the calendar year in which the individual retires from service with the
employer sponsoring the plan ("required beginning date"). However, the required
beginning date for an individual who is a five (5) percent owner (as defined in
the Code), or who is the owner of an IRA, is April 1 of the calendar year
following the calendar year in which the individual attains age 70 1/2. The
entire interest of the Participant must be distributed beginning no later than
this required beginning date over a period which may not extend beyond a maximum
of the life expectancy of the Participant and a designated Beneficiary. Each
annual distribution must equal or exceed a "minimum distribution amount" which
is determined by dividing the account balance by the applicable life expectancy.
This account balance is generally based upon the account value as of the close
of business on the last day of the previous calendar year. In addition, minimum
distribution incidental benefit rules may require a larger annual distribution.
If an individual dies before reaching his or her required beginning date, the
individual's entire interest must generally be distributed within five years of
the individual's death. However, this rule will be deemed satisfied, if
distributions begin before the close of the calendar year following the
individual's death to a designated Beneficiary (or over a period not extending
beyond the life expectancy of the beneficiary). If the Beneficiary is the
individual's surviving spouse, distributions may be delayed until the individual
would have attained age 70 1/2.
If an individual dies after reaching his or her required beginning date or after
distributions have commenced, the individual's interest must generally be
distributed at least as rapidly as under the method of distribution in effect at
the time of the individual's death.
3. EXCESS DISTRIBUTION TAX
If the aggregate distributions from all IRAs and certain other qualified plans
in a calendar year exceed the greater of (i) $150,000, or (ii) $112,500 as
indexed for inflation, a penalty tax of 15% is generally imposed on the excess
portion of the distribution.
4. WITHHOLDING
Periodic distributions from a qualified plan lasting for a period of 10 or more
years are generally subject to voluntary income tax withholding. 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. Otherwise, the amount withheld on such distributions is
determined at the rate applicable to wages as if the recipient were married
claiming three exemptions.
Nonperiodic distributions from an IRA are subject to income tax withholding at a
flat 10% rate. The recipient may elect not to have withholding apply.
25 - PROSPECTUS
<PAGE>
Nonperiodic distributions from other qualified plans are generally subject to
mandatory income tax withholding at the flat rate of 20% unless such
distributions are:
(a) the non-taxable portion of the distribution;
(b) required minimum distributions;
(c) eligible rollover distributions.
Eligible rollover distributions are direct payments to an IRA or to another
qualified employer plan.
In general, distributions from plans described in Section 457 of the Code are
subject to regular wage withholding rules.
26 - PROSPECTUS
<PAGE>
This form must be completed for all tax sheltered annuities.
Section 403(b)(11) Acknowledgment Form
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The Hartford Variable Annuity Contract which you have recently purchased is
subject to certain restrictions imposed by the Tax Reform Act of 1986.
Contributions to the Contract after December 31, 1989 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. terminated employment
c. died, or
d. become disabled.
Distributions of post December 31, 1988 contributions may also be made if you
have experienced a financial hardship.
Also, there may be a 10% penalty tax for distributions made 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 Hartford Variable Annuity. Please refer to your
Plan.
Please complete the following and return to:
Hartford Life 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: ___________________________________________________
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To Obtain a Statement of Additional Information, please complete the form below
and mail to:
Hartford Life Insurance Company
Attn: Individual Annuity Services
P.O. Box 5085
Hartford, CT 06102-5085
Please send a Statement of Additional Information for Separate Account Three to
me at the following address:
- -------------------------------------------------------
Name
- -------------------------------------------------------
Address
- -------------------------------------------------------
City/State Zip Code
27 - PROSPECTUS
<PAGE>
TABLE OF CONTENTS TO
STATEMENT OF ADDITIONAL
INFORMATION
<TABLE>
<CAPTION>
Section Page
<S> <C>
- ---------------------------------------------------------------
Introduction
- ---------------------------------------------------------------
Description of Hartford Life Insurance Company
- ---------------------------------------------------------------
Safekeeping of Assets
- ---------------------------------------------------------------
Independent Public Accountants
- ---------------------------------------------------------------
Distribution of Contracts
- ---------------------------------------------------------------
Calculation of Yield and Return
- ---------------------------------------------------------------
Performance Comparisons
- ---------------------------------------------------------------
Financial Statements
- ---------------------------------------------------------------
</TABLE>
28 - PROSPECTUS
<PAGE>
PART B
STATEMENT OF ADDITIONAL INFORMATION
HARTFORD LIFE INSURANCE COMPANY
SEPARATE ACCOUNT THREE
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 Insurance
Company, Attn: Annuity Marketing Services, P.O. Box 5085, Hartford, CT
06102-5085.
Date of Prospectus: May 1, 1997
Date of Statement of Additional Information: May 1, 1997
<PAGE>
TABLE OF CONTENTS
SECTION PAGE
- ------- ----
INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
DESCRIPTION OF HARTFORD LIFE INSURANCE COMPANY . . . . . . . . . . . . . .
SAFEKEEPING OF ASSETS. . . . . . . . . . . . . . . . . . . . . . . . . . .
INDEPENDENT PUBLIC ACCOUNTANTS . . . . . . . . . . . . . . . . . . . . . .
DISTRIBUTION OF CONTRACTS. . . . . . . . . . . . . . . . . . . . . . . . .
CALCULATION OF YIELD AND RETURN. . . . . . . . . . . . . . . . . . . . . .
PERFORMANCE COMPARISONS. . . . . . . . . . . . . . . . . . . . . . . . . .
FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . .
<PAGE>
INTRODUCTION
The tax deferred Variable Annuity Contracts described in the prospectus are
designed to provide Annuity benefits to individuals who have established or wish
to establish retirement programs which may or may not qualify for special
Federal income tax treatment. The Annuitant under these Contracts may receive
Annuity benefits in accordance with the Annuity option selected and the
retirement program, if any, under which the Contracts have been purchased.
Annuity payments under a Contract will begin on a particular future date which
may be selected at any time under the Contract or automatically when the
Annuitant reaches age 90, except in certain states where deferral past age 85 is
not permitted. There are several alternative annuity payment options available
under the Contract (see "Annuity Options," page __ of the Prospectus).
The Premium Payments under a Contract, less any applicable Premium Taxes, will
be applied to the Separate Account and/or the Fixed Account. Accordingly, the
net Premium Payment under the Contract will be applied to purchase interests in
one or more of the following twelve portfolios of the Dean Witter Select
Dimensions Investment Series, an open-end diversified series investment company:
the Money Market Portfolio, the North American Government Securities Portfolio,
the Diversified Income Portfolio, the Balanced Portfolio, the Utilities
Portfolio, the Dividend Growth Portfolio, the Value-Added Market Portfolio, the
Core Equity Portfolio, the American Value Portfolio, the Global Equity
Portfolio, the Developing Growth Portfolio, and the Emerging Markets Portfolio.
Shares of the Portfolios are purchased by the Separate Account without the
imposition of any additional sales charge. The value of a Contract depends on
the value of the shares of the Portfolio held by the Separate Account pursuant
to that Contract. As a result, the Contract Owner bears the investment risk
since market value of the shares may increase or decrease.
The Contracts provide that in the event the Annuitant dies before the selected
Annuity Commencement Date, the Contingent Annuitant will become the Annuitant.
If the Annuitant dies before the Annuity Commencement Date and there is no
designated Contingent Annuitant, or the Contingent Annuitant predeceases the
Annuitant, or if the Contract Owner dies before the Annuity Commencement Date
the Beneficiary will receive the Contract Value determined on the date of
receipt of due proof of death by Hartford Life Insurance Company ("Hartford") in
its Home Office. If, upon death prior to the Annuity Commencement Date, the
Annuitant or Contract Owner, as applicable, had not attained his 90th birthday,
the Beneficiary will receive the greater of (a) the Contract Value determined as
of the day written proof of death of such person is received by Hartford, or (b)
100% of the total Premium Payments made to such Contract, reduced by any prior
surrenders, or (c) the Contract Value on the Specified Contract Anniversary
immediately preceding the date of death, increased by the dollar amount of any
Premium Payments made and reduced by the dollar amount of any partial surrenders
since the immediately preceding Specified Contract Anniversary.
<PAGE>
DESCRIPTION OF HARTFORD LIFE INSURANCE COMPANY
Hartford Life Insurance Company ("Hartford") is a stock life insurance company
engaged in the business of writing health and life insurance, both individual
and group, in all states of the United States and the District of Columbia.
Hartford was originally incorporated under the laws of Massachusetts on June 5,
1902, and was subsequently redomiciled to Connecticut. Its offices are located
in Simsbury, Connecticut; however, its mailing address is P.O. Box 2999,
Hartford, CT 06104-2999. Hartford is a subsidiary of Hartford Fire Insurance
Company, one of the largest multiple lines insurance carriers in the United
States. Hartford is ultimately owned by ITT Hartford Group, Inc., a Delaware
corporation. Subject to shareholder approval on May 2, 1997, the name of ITT
Hartford Group, Inc. will change to The Hartford Financial Services Group, Inc.
Hartford is rated A+ (superior) by A.M. Best and Company, Inc., on the basis of
its financial soundness and operating performance. Hartford is rated AA by
Standard & Poor's and AA+ by Duff and Phelps on the basis of its claims paying
ability. These ratings do not apply to the investment performance of the Sub-
Accounts of the Separate Account. The ratings apply to Hartford's ability to
meet its insurance obligations, including those described in this Prospectus.
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 consolidated financial statements and financial statement schedules
included in this Statement of Additional Information and elsewhere in the
registration statement have been audited by Arthur Andersen LLP, independent
public accountants, as indicated in their reports with respect thereto, and are
included herein in reliance upon the authority of said firm as experts in giving
said reports. Reference is made to said report on the consolidated financial
statements of Hartford Life Insurance Company (the Depositor), which includes an
explanatory paragraph with respect to the change in method of accounting for
debt and equity securities as of January 1, 1994, as discussed in Note 2 of
Notes to Consolidated Financial Statements. The principal business address of
Arthur Andersen LLP is One Financial Plaza, Hartford, Connecticut 06103.
DISTRIBUTION OF CONTRACTS
Hartford Securities Distribution Company, Inc. ("HSD") serves as principal
underwriter for the securities issued with respect to the Separate Account and
will offer the Contracts on a continuous basis. HSD is a wholly-owned
subsidiary of Hartford. The principal business address of HSD is the same as
Hartford.
-2-
<PAGE>
The securities will be sold by insurance and Variable Annuity agents of
Hartford who are registered representatives of Dean Witter Reynold Inc.
("Dean Witter"). Dean Witter 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. ("NASD").
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. For the seven-day period ending December 31, 1996, the yield for
this Sub-Account was 3.11%, and the effective yield was 3.16%.
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.
-3-
<PAGE>
For the fiscal year ended December 31, 1996, standardized average annual total
return quotations for the Sub-Accounts listed were as follows:
<TABLE>
<CAPTION>
Since
Sub-Accounts Inception 1 Year 5 Year 10 Year
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
North American Government (2.53)% (6.11)% n/a n/a
Securities Portfolio
Diversified Income Portfolio 0.15% (0.99)% n/a n/a
Value-Added Market Portfolio 12.77% 7.14% n/a n/a
Core Equity Portfolio 9.68% 12.83% n/a n/a
American Value Portfolio 16.49% 2.37% n/a n/a
Global Equity Portfolio 3.72% 0.88% n/a n/a
Developing Growth Portfolio 22.28% 2.38% n/a n/a
Emerging Markets Portfolio (0.20)% 7.04% n/a n/a
</TABLE>
For the fiscal year ended December 31, 1996, non-standardized annualized total
return quotations for the Sub-Accounts listed were as follows:
<TABLE>
<CAPTION>
Since
Sub-Accounts Inception 1 Year 5 Year 10 Year
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
North American Government 8.41% 2.89% n/a n/a
Securities Portfolio
Diversified Income Portfolio 6.55% 8.01% n/a n/a
Value-Added Market Portfolio 18.62% 16.14% n/a n/a
Core Equity Portfolio 15.71% 21.83% n/a n/a
American Value Portfolio 22.06% 11.37% n/a n/a
Global Equity Portfolio 9.99% 9.88% n/a n/a
Developing Growth Portfolio 27.52% 11.38% n/a n/a
Emerging Markets Portfolio 6.39% 16.04% n/a n/a
</TABLE>
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.
-4-
<PAGE>
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 High Yield Fund customarily
invests. The index does not include bonds in certain of the lower rating
classifications in which the 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 High Yield Fund invests. Its performance figures
reflect changes in market prices and reinvestment of all interest payments.
Morgan Stanley Capital International World Index is an unmanaged list of
approximately 1,450 equity securities listed on the stock exchanges of the
United States, Europe, Canada, Australia,
-5-
<PAGE>
New Zealand and the Far East, with all values expressed in U.S. dollars.
Performance figures reflect changes in market prices and reinvestment of
distributions net of withholding taxes. The securities in the index change
over time to maintain representativeness.
The NASDAQ-OTC Industrial Average (The "NASDAQ Index") is a market
value-weighted and unmanaged index showing the changes in the aggregate market
value of approximately 3,500 stocks relative to the base measure of 100.00 on
February 5, 1971. The NASDAQ Index is composed entirely of common stocks of
companies traded over-the-counter and often through the National Association of
Securities Dealers Automated Quotations ("NASDAQ") system. Only those
over-the-counter stocks having only one market maker or traded on exchanges are
excluded. Its performance figures reflect changes of market prices but do not
reflect reinvestment of cash dividends.
Salomon Brothers Long-Term High-Grade Corporate Bond Index is an unmanaged list
of publicly traded corporate bonds having a rating of at least AA by Standard &
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 PCM
High Yield customarily invests. The index does not include bonds in certain of
the lower rating classifications in which the Fund may invest. Performance
figures for the index reflect changes of market prices and reinvestment of all
distributions.
The Salomon Brothers 7-10 Year Government Bond Index is an unmanaged list of
U.S. Government and government agency securities with maturities of 7 to 10
years. Performance figures for the index reflect changes of market prices and
reinvestment of all interest payments.
The Standard & Poor's Composite Index of 500 stocks (the "S&P 500") a market
value-weighted and unmanaged index showing changes in the aggregate market value
of 500 stocks relative to the base period 1941-43. The S&P 500 is composed
almost entirely of common stocks of companies listed on the New York Stock
Exchange, although the common stocks of a few companies listed on the American
Stock Exchange or traded over-the-counter are included. The 500 companies
represented include 400 industrial, 60 transportation and 40 financial services
concerns. The S&P 500 represents about 80% of the market value of all issues
traded on the New York Stock Exchange. Its performance figures reflect changes
of market prices and reinvestment of all regular cash dividends.
The Standard & Poor's 40 Utilities Index is unmanaged list of 40 utility stocks.
The Index assumes reinvestment of all distributions and reflects changes in
market prices but does not take into account brokerage commissions or other
fees.
-6-
<PAGE>
HARTFORD LIFE INSURANCE COMPANY AND SUBSIDIARIES
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Hartford Life Insurance Company and Subsidiaries:
We have audited the accompanying consolidated balance sheets of Hartford Life
Insurance Company (a Connecticut corporation and wholly-owned subsidiary of
Hartford Life and Accident Insurance Company) and subsidiaries as of December
31, 1996 and 1995, and the related consolidated statements of income,
stockholder's equity and cash flows for each of the three years in the period
ended December 31, 1996. These consolidated financial statements and the
schedules referred to below are the responsibility of Hartford Life Insurance
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements and schedules 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 consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Hartford Life Insurance Company and subsidiaries as of December 31, 1996 and
1995, and the results of their operations and their cash flows for each of the
three years in the period ended December 31, 1996 in conformity with generally
accepted accounting principles.
As discussed in Note 2 of Notes to Consolidated Financial Statements, Hartford
Life Insurance Company adopted a new accounting standard promulgated by the
Financial Accounting Standards Board, changing its method of accounting, as of
January 1, 1994, for debt and equity securities.
Our audits were made for the purpose of forming an opinion on the basic
consolidated financial statements taken as a whole. The schedules listed in the
Index to Consolidated Financial Statements and Schedules are presented for
purposes of complying with the Securities and Exchange Commission's rules and
are not a required part of the basic consolidated financial statements. These
schedules have been subjected to the auditing procedures applied in the audits
of the basic consolidated financial statements and, in our opinion, fairly state
in all material respects the financial data required to be set forth therein in
relation to the basic consolidated financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Hartford, Connecticut
February 10, 1997
<PAGE>
HARTFORD LIFE INSURANCE COMPANY AND SUBSIDIARIES
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
------------------------
1996 1995 1994
------ ------ ------
(IN MILLIONS)
<S> <C> <C> <C>
Revenues
Premiums and other considerations............... $1,705 $1,487 $1,100
Net investment income........................... 1,397 1,328 1,292
Net realized capital (losses) gains............. (213) (11) 7
------ ------ ------
Total Revenues................................ 2,889 2,804 2,399
------ ------ ------
Benefits, Claims and Expenses
Benefits, claims and claim adjustment
expenses....................................... 1,535 1,422 1,405
Amortization of deferred policy acquisition
costs.......................................... 234 199 145
Dividends to policyholders...................... 635 675 419
Other insurance expenses........................ 427 317 227
------ ------ ------
Total Benefits, Claims and Expenses........... 2,831 2,613 2,196
------ ------ ------
Income before income tax expense................ 58 191 203
Income tax expense.............................. 20 62 65
------ ------ ------
Net income........................................ $ 38 $ 129 $ 138
------ ------ ------
------ ------ ------
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of the above statements.
<PAGE>
HARTFORD LIFE INSURANCE COMPANY AND SUBSIDIARIES
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
AS OF DECEMBER
31,
-----------------
1996 1995
------- -------
<S> <C> <C>
(IN MILLIONS
EXCEPT SHARE
DATA)
Assets
Investments
Fixed maturities, available for sale, at fair
value (amortized cost $13,579 and $14,440)..... $13,624 $14,400
Equity securities, available for sale, at fair
value.......................................... 119 63
Policy loans, at outstanding balance............ 3,836 3,381
Mortgage loans, at outstanding balance.......... 2 265
Other investments, at cost...................... 54 156
------- -------
Total investments............................. 17,635 18,265
Cash............................................ 43 46
Premiums and amounts receivable................. 137 165
Accrued investment income....................... 407 394
Reinsurance recoverable......................... 6,066 6,221
Deferred policy acquisition costs............... 2,760 2,188
Deferred income tax............................. 474 420
Other assets.................................... 357 234
Separate account assets......................... 49,690 36,264
------- -------
Total assets.................................. $77,569 $64,197
------- -------
------- -------
Liabilities
Future policy benefits.......................... $ 2,281 $ 2,373
Other policyholder funds........................ 22,134 22,598
Other liabilities............................... 1,572 1,233
Separate account liabilities.................... 49,690 36,264
------- -------
Total liabilities............................. 75,677 62,468
------- -------
Stockholder's Equity
Common stock, $5,690 par value, 1,000 shares
authorized, issued and outstanding............. 6 6
Capital surplus................................. 1,045 1,007
Net unrealized capital gain (loss) on
investments, net of tax........................ 30 (57)
Retained earnings............................... 811 773
------- -------
Total stockholder's equity.................... 1,892 1,729
------- -------
Total liabilities and stockholder's equity...... $77,569 $64,197
------- -------
------- -------
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of the above statements.
<PAGE>
HARTFORD LIFE INSURANCE COMPANY AND SUBSIDIARIES
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
<TABLE>
<CAPTION>
NET UNREALIZED
CAPITAL GAIN
(LOSS) ON TOTAL
COMMON CAPITAL INVESTMENTS, RETAINED STOCKHOLDER'S
STOCK SURPLUS NET OF TAX EARNINGS EQUITY
------ -------------- -------------- -------- -------------
<S> <C> <C> <C> <C> <C>
(IN MILLIONS)
Balance, December 31, 1993.............. $6 $ 676 $ (5) $516 $1,193
Net income............................ -- -- -- 138 138
Dividends declared on common stock.... -- -- -- (10) (10)
Capital contribution.................. -- 150 -- -- 150
Change in net unrealized capital loss
on investments, net of tax(1)........ -- -- (649) -- (649)
--
------ ------ -------- ------
Balance, December 31, 1994.............. 6 826 (654) 644 822
Net income............................ -- -- -- 129 129
Capital contribution.................. -- 181 -- -- 181
Change in net unrealized capital gain
on investments, net of tax........... -- -- 597 -- 597
--
------ ------ -------- ------
Balance, December 31, 1995.............. 6 1,007 (57) 773 1,729
Net income............................ -- -- -- 38 38
Capital contribution.................. -- 38 -- -- 38
Change in net unrealized capital gain
on investments, net of tax........... -- -- 87 -- 87
--
------ ------ -------- ------
Balance, December 31, 1996.............. $6 $1,045 $ 30 $811 $1,892
--
--
------ ------ -------- ------
------ ------ -------- ------
</TABLE>
- ------------------------
(1) The 1994 change in net unrealized capital loss on investments, net of tax,
includes a gain of $91 due to the adoption of SFAS No. 115 as discussed in
Note 2(b) of Notes to Consolidated Financial Statements.
The accompanying notes to consolidated financial statements are an integral part
of the above statements.
<PAGE>
HARTFORD LIFE INSURANCE COMPANY AND SUBSIDIARIES
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
(IN MILLIONS)
Operating Activities
Net income............................ $ 38 $ 129 $ 138
Adjustments to net income:
Net realized capital losses (gains) on
sale of investments.................. 213 11 (7)
Net amortization of premium on fixed
maturities........................... 14 21 41
Increase in deferred income taxes..... (102) (172) (128)
Increase in deferred policy
acquisition costs.................... (572) (379) (441)
Decrease (increase) in premiums and
amounts receivable................... 10 (81) 10
Increase in accrued investment
income............................... (13) (16) (106)
(Increase) decrease in other assets... (132) (177) 101
Decrease (increase) in reinsurance
recoverable.......................... 179 (35) 75
(Decrease) increase in liability for
future policy benefits............... (92) 483 224
Increase in other liabilities......... 477 281 191
-------- -------- --------
Cash provided by operating
activities......................... 20 65 98
-------- -------- --------
Investing Activities
Purchases of fixed maturity
investments.......................... (5,747) (6,228) (9,127)
Sales of fixed maturity investments... 3,459 4,845 5,713
Maturities and principal paydowns of
fixed maturity investments........... 2,693 1,741 1,931
Net purchase of other investments..... (107) (871) (1,338)
Net sales (purchases) of short-term
investments.......................... 84 (24) 135
-------- -------- --------
Cash provided by (used for)
investing activities............... 382 (537) (2,686)
-------- -------- --------
Financing Activities
Capital contribution.................. 38 -- 150
Dividends paid........................ -- -- (10)
Net (disbursements for) receipts from
investment and universal life-type
contracts (charged from) credited to
policyholder accounts................ (443) 498 2,467
-------- -------- --------
Cash (used for) provided by
financing activities............... (405) 498 2,607
-------- -------- --------
Net (decrease) increase in cash....... (3) 26 19
Cash--beginning of year............... 46 20 1
-------- -------- --------
Cash--end of year....................... $ 43 $ 46 $ 20
-------- -------- --------
-------- -------- --------
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of the above statements.
<PAGE>
HARTFORD LIFE INSURANCE COMPANY AND SUBSIDIARIES
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
(IN MILLIONS)
- ---------------------------------------------------
1. ORGANIZATION AND DESCRIPTION OF BUSINESS
These consolidated financial statements include Hartford Life Insurance
Company and its wholly-owned subsidiaries (the "Company"), ITT Hartford Life and
Annuity Insurance Company ("ILA") and ITT Hartford International Life
Reassurance Corporation ("HLRe"), formerly American Skandia Life Reinsurance
Corporation. The Company is a wholly-owned subsidiary of Hartford Life and
Accident Insurance Company ("HLA"), a wholly-owned subsidiary of Hartford Life,
Inc. ("Hartford Life"), a direct subsidiary of Hartford Accident and Indemnity
Company, an indirect subsidiary of ITT Hartford Group, Inc. ("The Hartford").
Hartford Life was formed on December 13, 1996 and capitalized on December 16,
1996 with the contribution of all the outstanding common stock of HLA. On
February 10, 1997, The Hartford, the ultimate parent of Hartford Life, announced
its intention to sell up to 20% of Hartford Life during the second quarter of
1997. Management believes that this transaction will not have a material impact
on the operations of the Company (See Note 11).
On December 19, 1995, ITT Industries, Inc. (formerly ITT Corporation)("ITT")
distributed all the outstanding shares of capital stock of The Hartford to ITT
stockholders of record on such date (the transactions relating to such
distribution are referred to herein as the "ITT Spin-off"). As a result of the
ITT Spin-off, The Hartford became an independent, publicly traded company.
The Company is a leading insurance and financial services company which
provides: (a) investment products such as individual variable annuities and
fixed market value adjusted annuities, deferred compensation plan services and
mutual funds for savings and retirement needs; (b) life insurance for income
protection and estate planning; and (c) employee benefits products such as
corporate owned life insurance.
- ---------------------------------------------------
2. SIGNIFICANT ACCOUNTING POLICIES
(A) BASIS OF PRESENTATION
These financial statements present the financial position, results of
operations and cash flows of the Company, and all material intercompany
transactions and balances between Hartford Life Insurance Company and its
subsidiaries have been eliminated. The consolidated financial statements are
prepared on a basis of generally accepted accounting principles which differ
materially from the statutory accounting prescribed by various insurance
regulatory authorities.
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 and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
(B) CHANGES IN ACCOUNTING PRINCIPLES
On November 14, 1996, the Emerging Issues Task Force ("EITF") reached a
consensus on Issue No. 96-12, "Recognition of Interest Income and Balance Sheet
Classification of Structured Notes". This Issue requires companies to record
income on certain structured securities on a retrospective interest method. The
Company adopted EITF No. 96-12 for structured securities acquired after November
14, 1996. Adoption of EITF No. 96-12 did not have a material effect on the
Company's financial condition or results of operations.
In June 1996, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 125, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishment of Liabilities".
This statement established criteria for determining whether transferred assets
should be accounted for as sales or secured borrowings. Subsequently, in
December 1996, the FASB issued SFAS No. 127, "Deferral of Effective Date of
Certain Provisions of FASB Statement No. 125", which defers the effective date
of certain provisions of SFAS No. 125 for one year. Adoption of SFAS No. 125 is
not expected to have a material effect on the Company's financial condition or
results of operations.
In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation", which is effective in 1996. As permitted by SFAS No. 123, the
Company continues to measure compensation costs of employee stock option plans
(relating to options on common stock of The Hartford) using the intrinsic value
method prescribed by Accounting Principles Board Opinion No. 25. As of February
10, 1997, the Company had not adopted an employee stock compensation plan.
Certain officers of the Company participate in The Hartford's stock option plan.
<PAGE>
HARTFORD LIFE INSURANCE COMPANY AND SUBSIDIARIES
- --------------------------------------------------------------------------------
Compensation costs allocated by The Hartford to the Company, as well as pro
forma compensation costs as determined under SFAS No. 123, were immaterial to
the results of operations for 1996 and 1995.
Effective January 1, 1994, the Company adopted SFAS No. 115, "Accounting for
Certain Investments in Debt and Equity Securities". The new standard requires,
among other things, that securities 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 effect those
intentions. The classification determines the appropriate accounting carrying
value (cost basis or fair value) and, in the case of fair value, whether the
fair value difference from cost, net of tax, impacts stockholder's equity
directly or is reflected in the Consolidated Statements of Income. Investments
in equity securities had previously been and continue to be recorded at fair
value with the corresponding after-tax impact included in stockholder's equity.
Under SFAS No. 115, the Company's fixed maturity investments are classified as
"available-for-sale" and, accordingly, these investments are reflected at fair
value with the corresponding impact included as a component of stockholder's
equity designated as "Net unrealized capital gain (loss) on investments, net of
tax." As with the underlying investment security, unrealized capital gains and
losses on derivative financial instruments are considered in determining the
fair value of the portfolios. The impact of adoption was an increase to
stockholder's equity of $91 million. The Company's cash flows were not impacted
by this change in accounting principle.
(C) REVENUE RECOGNITION
Revenues for universal life policies and investment products consist of
policy charges for the cost of insurance, policy administration and surrender
charges assessed to policy account balances and are recognized in the period in
which services are provided. Premiums for traditional life insurance policies
are recognized as revenues when they are due from policyholders.
(D) FUTURE POLICY BENEFITS AND OTHER POLICYHOLDER FUNDS
Liabilities for future policy benefits are computed by the net level premium
method using interest rate assumptions varying from 3% to 11% and withdrawal and
mortality assumptions appropriate at the time the policies were issued.
Liabilities for universal life-type and investment contracts are stated at
policyholder account values before surrender charges.
(E) DEFERRED POLICY ACQUISITION COSTS
Policy acquisition costs, including commissions and certain underwriting
expenses associated with acquiring business, are deferred and amortized over the
estimated lives of the contracts, generally 20 years. Generally, acquisition
costs are deferred and amortized using the retrospective deposit method. Under
the retrospective deposit method, acquisition costs are amortized in proportion
to the present value of expected gross profits from surrender charges,
investment, mortality and expense margins. Actual gross profits can vary from
management's estimates resulting in increases or decreases in the rate of
amortization. Management periodically updates these estimates, when appropriate,
and evaluates the recoverability of the deferred acquisition cost asset. When
appropriate, management revises its assumptions on the estimated gross profits
of these contracts and the cumulative amortization for the books of business are
reestimated and readjusted by a cumulative charge or credit to income.
(F) POLICYHOLDER REALIZED CAPITAL GAINS AND LOSSES
Realized capital gains and losses on security transactions associated with
the Company's immediate participation guaranteed contracts are excluded from
revenues and deferred, since under the terms of the contracts the realized gains
and losses will be credited to policyholders in future years as they are
entitled to receive them.
(G) FOREIGN CURRENCY TRANSLATION
Foreign currency translation gains and losses are reflected in stockholder's
equity. Balance sheet accounts are translated at the exchange rates in effect at
each year end and income statement accounts are translated at the average rates
of exchange prevailing during the year. The national currencies of international
operations are generally their functional currencies.
(H) INVESTMENTS
The Company's investments in fixed maturities include bonds, redeemable
preferred stock and commercial paper which are classified as
"available-for-sale" and accordingly are carried at fair value with the
after-tax difference from cost reflected as a component of stockholder's equity
designated as "Net unrealized capital gain (loss) on investments, net of tax".
Equity securities, which include common and non-redeemable preferred stocks, are
carried at fair value with the after-tax difference from cost reflected in
stockholder's equity. Policy and mortgage loans are each carried at their
outstanding balance which approximates fair value. Investments in partnerships
and trusts are carried at cost. Net realized capital gains (losses), after
deducting the policyholders' share, are reported as a component of revenue and
are determined on a specific identification basis.
The Company's accounting policy for impairment recognition requires
recognition of an other than temporary impairment charge on a security if it is
determined that the Company is unable to recover all amounts due under the
contractual obligations of the security. In addition, the Company has
established specific criteria to be used in the
<PAGE>
HARTFORD LIFE INSURANCE COMPANY AND SUBSIDIARIES
- --------------------------------------------------------------------------------
impairment evaluation of an individual portfolio of assets. Specifically, if the
asset portfolio is supporting a runoff operation, is forced to be liquidated
prior to maturity to meet liability commitments, and has fair value below
amortized cost, which will not materially fluctuate as a result of future
interest rate changes, then an other than temporary impairment condition has
been determined to have occurred. Each individual security within that portfolio
is evaluated to determine whether or not it is impaired. Once an impairment
charge has been recorded, the Company then continues to review the individual
impaired securities for appropriate valuation on an ongoing basis.
During 1996, it was determined that certain individual securities within the
investment portfolio supporting the Company's closed block of guaranteed rate
contracts ("Closed Book GRC") were impaired. With the initiation of certain
hedge transactions, which eliminated the possibility that the fair value of the
Closed Book GRC investments would recover to their current amortized cost, an
other than temporary impairment loss of $88 after tax was determined to have
occurred and was recorded.
(I) DERIVATIVE FINANCIAL INSTRUMENTS
The Company uses a variety of derivative financial instruments including
swaps, caps, floors, forwards and exchange traded financial futures and options
as part of an overall risk management strategy. These instruments are used as a
means of hedging exposure to price, foreign currency and/or interest rate risk
on anticipated investment purchases or existing assets and liabilities. The
Company does not hold or issue derivative financial instruments for trading
purposes. The Company's accounting for derivative financial instruments used to
manage risk is in accordance with the concepts established in SFAS No. 80,
"Accounting for Futures Contracts," SFAS No. 52, "Foreign Currency Translation",
American Institute of Certified Public Accountants Statement of Position 86-2,
"Accounting for Options", and various EITF pronouncements. Written options are,
in all cases, used in conjunction with other assets and derivatives as part of
the Company's asset/liability management strategies. Derivative instruments are
carried at values consistent with the asset or liability being hedged.
Derivatives used to hedge fixed maturities or equities are carried at fair value
with the after-tax difference from cost reflected in stockholder's equity.
Derivatives used to hedge other invested assets or liabilities are carried at
cost.
Derivatives must be designated at inception as a hedge and measured for
effectiveness both at inception and on an ongoing basis. The Company's minimum
correlation threshold for hedge designation is 80%. If correlation, which is
assessed monthly and measured based on a rolling three month average, falls
below 80%, hedge accounting will be terminated. 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. Interest rate swaps are the primary type of derivatives used
to convert London interbank offered quotations for U.S. dollar deposits
("LIBOR") based variable rate instruments to fixed rate instruments. Synthetic
instrument accounting, consistent with industry practice, provides that the
synthetic asset is accounted for like the financial instrument it is intended to
replicate. Derivatives which fail to meet risk management criteria are marked to
market with the impact reflected in the Consolidated Statements of Income.
Gains or losses on financial futures contracts entered into in anticipation
of the future receipt of product cash flows are deferred and, at the time of the
ultimate purchase, reflected as an adjustment to the cost basis of the purchased
asset. Gains or losses on futures used in invested asset risk management are
deferred and adjusted into the cost basis of the hedged asset when the futures
contracts are closed, except for futures used in duration hedging which are
deferred and are adjusted into the cost basis on a quarterly basis. The
adjustments to the cost basis are amortized into investment income over the
remaining asset life.
Open forward commitment contracts are marked to market through stockholder's
equity. Such contracts are recorded at settlement by recording the purchase of
the specified securities at the previously committed price. Gains or losses
resulting from the termination of the forward commitment contracts before the
delivery of the securities are recognized immediately in the Consolidated
Statements of Income as a component of net investment income.
The cost of purchased options and/or premiums received on covered written
options, entered into as part of an asset/liability management strategy, is/are
adjusted into the cost basis of the underlying asset or liability and amortized
over the remaining life of the hedge. Gains or losses on expiration or
termination of the hedge are adjusted into the basis of the underlying asset or
liability and amortized over the remaining asset life. The Company had no
written options as of December 31, 1996 and 1995.
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 income. Should the swap be terminated, the gain or loss is 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 earnings.
Interest rate swaps purchased in anticipation of an asset purchase (an
"anticipatory transaction") are recognized consistent with the underlying asset
components such that the settlement component is recognized in the Consolidated
Statements of Income while the change in market value is recognized as an
unrealized gain or loss.
<PAGE>
HARTFORD LIFE INSURANCE COMPANY AND SUBSIDIARIES
- --------------------------------------------------------------------------------
Premiums paid on purchased floor or cap agreements and the premium received
on issued floor or cap 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.
Forward exchange contracts and foreign currency swaps are accounted for in
accordance with SFAS No. 52.
(J) RELATED PARTY TRANSACTIONS
Transactions of the Company with HLA and its affiliates relate principally
to tax settlements, reinsurance, insurance coverage, rental and service fees and
payment of dividends and capital contributions. In addition, certain affiliated
insurance companies purchased group annuity contracts from the Company to fund
pension costs and claim annuities to settle casualty claims. Substantially all
general insurance expenses related to the Company, including rent and employee
benefit plan expenses, are initially paid by Hartford Fire Insurance Company, an
indirect subsidiary of The Hartford ("Hartford Fire"). Direct expenses are
allocated to the Company using specific identification, and indirect expenses
are allocated using other applicable methods. Indirect expenses include those
for corporate areas which, depending on the type, are allocated based on either
a percentage of direct expenses or on utilization. Indirect expenses allocated
to the Company by Hartford Fire were $40, $45 and $41 in 1996, 1995 and 1994,
respectively. Management of the Company believes that the methods used are
reasonable. In addition, the Company was charged its share of costs allocated to
The Hartford by ITT prior to the ITT Spin-off, which were immaterial in 1995 and
1994. The Company had a receivable from The Hartford of $1 and a payable to The
Hartford of $2 at December 31, 1996 and 1995, respectively.
In 1996, the Company ceded approximately $33.3 billion of group life
insurance in force and $318 million of disability premium to HLA and assumed
$8.5 billion of individual life insurance in force from HLA.
On June 30, 1995, the ownership of ITT Lyndon Insurance Company was
transferred to the Company via a capital contribution of $181 million,
representing the net assets of the company. Also, in 1996, the Company received
a capital contribution of $37.5 million from its parent HLA.
(K) DIVIDENDS TO POLICYHOLDERS
Certain life insurance policies contain dividend payment provisions that
enable the policyholder to participate in the earnings of the life insurance
subsidiaries of the Company. The participating insurance in force accounted for
44%, 41%, and 43% in 1996, 1995, and 1994, respectively, of total life insurance
in force.
- ---------------------------------------------------
3. INVESTMENTS
(A) COMPONENTS OF NET INVESTMENT INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Interest income................ $ 1,452 $ 1,338 $ 1,247
(Losses) income from other
investments................... (42) 1 54
--------- --------- ---------
Gross investment income........ 1,410 1,339 1,301
Less: Investment expenses...... 13 11 9
--------- --------- ---------
Net investment income.......... $ 1,397 $ 1,328 $ 1,292
--------- --------- ---------
--------- --------- ---------
</TABLE>
(B) COMPONENTS OF NET REALIZED CAPITAL GAINS (LOSSES)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Fixed maturities............... $ (201) $ 23 $ (34)
Equity securities.............. 2 (6) (11)
Real estate and other.......... (4) (25) 47
Less: (Increase) decrease in
liability to policyholders for
realized capital gains
(losses)...................... (10) (3) 5
--------- --------- ---------
Net realized capital (losses)
gains......................... $ (213) $ (11) $ 7
--------- --------- ---------
--------- --------- ---------
</TABLE>
(C) NET UNREALIZED CAPITAL GAINS (LOSSES) ON EQUITY SECURITIES
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------
1996 1995 1994
----- ----- ---------
<S> <C> <C> <C>
Gross unrealized gains........... $ 13 $ 4 $ 2
Gross unrealized losses.......... (1) (2) (11)
--- --- ---------
Net unrealized capital gains
(losses)........................ 12 2 (9)
Deferred income tax liability
(asset)......................... 4 1 (3)
--- --- ---------
Net unrealized capital gains
(losses), after tax............. 8 1 (6)
Balance beginning of year........ 1 (6) (5)
--- --- ---------
Change in net unrealized capital
gains (losses) on investments... $ 7 $ 7 $ (1)
--- --- ---------
--- --- ---------
</TABLE>
<PAGE>
HARTFORD LIFE INSURANCE COMPANY AND SUBSIDIARIES
- --------------------------------------------------------------------------------
(D) NET UNREALIZED CAPITAL GAINS (LOSSES) ON FIXED MATURITIES
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31,
--------------------
1996 1995
--------- ---------
<S> <C> <C>
Gross unrealized gains..................................................................................... $ 386 $ 529
Gross unrealized losses.................................................................................... (341) (569)
Unrealized (gains) losses credited to policyholders........................................................ (11) (52)
--------- ---------
Net unrealized capital gains (losses)...................................................................... 34 (92)
Deferred income tax liability (asset)...................................................................... 12 (34)
--------- ---------
Net unrealized capital gains (losses), after tax........................................................... 22 (58)
Balance beginning of year.................................................................................. (58) (648)
--------- ---------
Change in net unrealized capital gains (losses) on investments............................................. $ 80 $ 590
--------- ---------
--------- ---------
<CAPTION>
1994
---------
<S> <C>
Gross unrealized gains..................................................................................... $ 150
Gross unrealized losses.................................................................................... (1,185)
Unrealized (gains) losses credited to policyholders........................................................ 37
---------
Net unrealized capital gains (losses)...................................................................... (998)
Deferred income tax liability (asset)...................................................................... (350)
---------
Net unrealized capital gains (losses), after tax........................................................... (648)
Balance beginning of year.................................................................................. 161
---------
Change in net unrealized capital gains (losses) on investments............................................. $ (809)
---------
---------
</TABLE>
(E) COMPONENTS OF FIXED MATURITIES INVESTMENTS
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1996
---------------------------------
GROSS UNREALIZED
AMORTIZED --------------------
COST GAINS LOSSES
----------- --------- ---------
<S> <C> <C> <C>
U.S. government and government agencies and authorities (guaranteed and sponsored)............ $ 166 $ 12 $ (3)
U.S. government and government agencies and authorities (guaranteed and
sponsored)--asset-backed..................................................................... 1,970 161 (128)
States, municipalities and political subdivisions............................................. 373 6 (11)
International governments..................................................................... 281 12 (4)
Public utilities.............................................................................. 877 12 (8)
All other corporate including international................................................... 4,656 120 (107)
All other corporate--asset-backed............................................................. 3,601 49 (59)
Short-term investments........................................................................ 1,655 14 (21)
----------- --------- ---------
Total fixed maturities.................................................................... $ 13,579 $ 386 $ (341)
----------- --------- ---------
----------- --------- ---------
<CAPTION>
AS OF DECEMBER 31, 1995
---------------------------------
GROSS UNREALIZED
AMORTIZED --------------------
COST GAINS LOSSES
----------- --------- ---------
<S> <C> <C> <C>
U.S. government and government agencies and authorities (guaranteed and sponsored)............ $ 502 $ 4 $ (9)
U.S. government and government agencies and authorities (guaranteed and
sponsored)--asset-backed..................................................................... 3,568 210 (387)
States, municipalities and political subdivisions............................................. 201 4 (3)
International governments..................................................................... 291 19 (4)
Public utilities.............................................................................. 949 29 (2)
All other corporate including international................................................... 3,065 76 (55)
All other corporate--asset-backed............................................................. 5,056 187 (109)
Short-term investments........................................................................ 808 -- --
----------- --------- ---------
Total fixed maturities.................................................................... $ 14,440 $ 529 $ (569)
----------- --------- ---------
----------- --------- ---------
<CAPTION>
FAIR
VALUE
---------
<S> <C>
U.S. government and government agencies and authorities (guaranteed and sponsored)............ $ 175
U.S. government and government agencies and authorities (guaranteed and
sponsored)--asset-backed..................................................................... 2,003
States, municipalities and political subdivisions............................................. 368
International governments..................................................................... 289
Public utilities.............................................................................. 881
All other corporate including international................................................... 4,669
All other corporate--asset-backed............................................................. 3,591
Short-term investments........................................................................ 1,648
---------
Total fixed maturities.................................................................... $ 13,624
---------
---------
FAIR
VALUE
---------
<S> <C>
U.S. government and government agencies and authorities (guaranteed and sponsored)............ $ 497
U.S. government and government agencies and authorities (guaranteed and
sponsored)--asset-backed..................................................................... 3,391
States, municipalities and political subdivisions............................................. 202
International governments..................................................................... 306
Public utilities.............................................................................. 976
All other corporate including international................................................... 3,086
All other corporate--asset-backed............................................................. 5,134
Short-term investments........................................................................ 808
---------
Total fixed maturities.................................................................... $ 14,400
---------
---------
</TABLE>
<PAGE>
HARTFORD LIFE INSURANCE COMPANY AND SUBSIDIARIES
- --------------------------------------------------------------------------------
The amortized cost and fair value of fixed maturities at December 31, 1996,
by maturity, are shown below. Asset-backed securities, including mortgage-backed
securities and collateralized mortgage obligations, are distributed to maturity
year based on the Company's estimates of the rate of future prepayments of
principal over the remaining lives of such securities. These estimates are
developed using prepayment speeds reported in broker consensus data and can be
expected to vary from actual experience. Expected maturities differ from
contractual maturities due to call or prepayment provisions.
<TABLE>
<CAPTION>
MATURITY AMORTIZED COST FAIR VALUE
- -------------------------- -------------- -----------
<S> <C> <C>
One year or less.......... $ 2,632 $ 2,642
Over one year through five
years.................... 5,871 5,928
Over five years through
ten years................ 3,320 3,311
Over ten years............ 1,756 1,743
------- -----------
Total................. $ 13,579 $ 13,624
------- -----------
------- -----------
</TABLE>
Sales of fixed maturities excluding short-term fixed maturities for the
years ended December 31, 1996, 1995 and 1994 resulted in proceeds of $3,459,
$4,848 and $5,708, respectively, resulting in gross realized capital gains of
$87, $91 and $71, respectively, and gross realized capital losses (including
investment writedowns) of $298, $72 and $100, respectively, not including
policyholder gains and losses. Sales of equity securities for the years ended
December 31, 1996, 1995 and 1994 resulted in proceeds of $74, $64 and $159,
respectively, resulting in gross realized capital gains of $2, $28 and $3,
respectively, and gross realized capital losses of $0, $59 and $14,
respectively, not including policyholder gains and losses.
(F) CONCENTRATION OF CREDIT RISK
As of December 31, 1996, the Company had a reinsurance recoverable of $3.8
billion from Mutual Benefit Life Assurance Corporation ("Mutual Benefit"),
supported by assets in a security trust of $3.8 billion (including policy loans
of $3.3 billion). The risk of Mutual Benefit becoming insolvent is mitigated by
the reinsurance agreement's requirement that the assets be kept in a security
trust with the Company as sole beneficiary. Excluding investments in U.S.
government and agencies, the Company has no other significant concentrations of
credit risk in fixed maturities.
(G) DERIVATIVE INVESTMENTS
Derivatives play an important role in facilitating the management of
interest rate risk, creating opportunities to fund product obligations hedging
against indexation risks that affect the value of certain liabilities and
adjusting broad investment risk characteristics when dictated by significant
changes in market risks. As an end user of derivatives, the Company uses a
variety of derivative financial instruments, including swaps, caps, floors,
forwards and exchange traded financial futures and options in order to hedge
exposure to price, foreign currency and/or interest rate risk on anticipated
investment purchases or existing assets and liabilities. The notional amounts of
derivative contracts represent the basis upon which pay and receive amounts are
calculated and are not reflective of credit risk for derivative contracts.
Credit risk for derivative contracts is limited to the amounts calculated to be
due to the Company on such contracts. The Company believes it maintains prudent
policies regarding the financial stability and credit standing of its major
counterparties and typically requires credit enhancement provisions to further
limit its credit risk. Many of these derivative contracts are bilateral
agreements that are not assignable without the consent of the relevant
counterparty. Notional amounts pertaining to derivative financial instruments
totaled $9.9 billion and $8.8 billion at December 31, 1996 and 1995,
respectively ($7.4 billion and $7.1 billion related to life insurance
investments and $2.5 billion and $1.7 billion related to life insurance
liabilities at December 31, 1996 and 1995, respectively).
<PAGE>
HARTFORD LIFE INSURANCE COMPANY AND SUBSIDIARIES
- --------------------------------------------------------------------------------
The following table summarizes the Company's derivatives, segregated by
major categories, as of December 31, 1996 and 1995:
<TABLE>
<CAPTION>
AMOUNTS HEDGED (NOTIONAL AMOUNTS) (EXCLUDING
LIABILITY HEDGES)
--------------------------------------------------
PURCHASED
TOTAL ISSUED CAPS OPTIONS,
CARRYING & CAPS &
1996 VALUE FLOORS(C) FLOORS(D) FUTURES(E)
- ------------------------------------------------------------------------ --------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
Asset-backed securities (excluding inverse floaters and anticipatory)... $ 5,242 $ 500 $ 2,454 $ --
Inverse floaters(a)..................................................... 352 98 856 --
Anticipatory(g)......................................................... -- -- -- 132
Other bonds and notes................................................... 7,369 425 440 5
Short-term investments.................................................. 661 -- -- --
--------- ----------- ----------- -----
Total fixed maturities.............................................. 13,624 1,023 3,750 137
Equity securities, policy loans and other investments................... 4,011 -- -- --
--------- ----------- ----------- -----
Total investments................................................... $ 17,635 $ 1,023 $ 3,750 $ 137
--------- ----------- ----------- -----
--------- ----------- ----------- -----
Total derivatives-fair value(b)..................................... $ (10) $ 35 $ --
----------- ----------- -----
----------- ----------- -----
<CAPTION>
AMOUNTS HEDGED (NOTIONAL AMOUNTS) (EXCLUDING
LIABILITY HEDGES)
--------------------------------------------------
PURCHASED
TOTAL ISSUED CAPS OPTIONS,
CARRYING & CAPS &
1995 VALUE FLOORS(C) FLOORS(D) FUTURES(E)
- ------------------------------------------------------------------------ --------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
Asset-backed securities (excluding inverse floaters and anticipatory)... $ 5,764 $ 118 $ 3,133 $ 322
Inverse floaters(a)..................................................... 711 560 354 6
Anticipatory(g)......................................................... -- -- -- 213
Other bonds and notes................................................... 7,118 33 66 322
Short-term investments.................................................. 807 -- -- --
--------- ----------- ----------- -----
Total fixed maturities.............................................. 14,400 711 3,553 863
Equity securities, policy loans and other investments................... 3,865 -- -- --
--------- ----------- ----------- -----
Total investments................................................... $ 18,265 $ 711 $ 3,553 $ 863
--------- ----------- ----------- -----
--------- ----------- ----------- -----
Total derivatives-fair value(b)..................................... $ (32) $ 46 $ --
----------- ----------- -----
----------- ----------- -----
<CAPTION>
INTEREST FOREIGN TOTAL
RATE CURRENCY NOTIONAL
1996 SWAPS(H) SWAPS(F) AMOUNT
- ------------------------------------------------------------------------ ----------- ----------- -----------
<S> <C> <C> <C>
Asset-backed securities (excluding inverse floaters and anticipatory)... $ 941 $ -- $ 3,895
Inverse floaters(a)..................................................... 346 -- 1,300
Anticipatory(g)......................................................... -- -- 132
Other bonds and notes................................................... 1,079 125 2,074
Short-term investments.................................................. -- -- --
----------- ----- -----------
Total fixed maturities.............................................. 2,366 125 7,401
Equity securities, policy loans and other investments................... 19 -- 19
----------- ----- -----------
Total investments................................................... $ 2,385 $ 125 $ 7,420
----------- ----- -----------
----------- ----- -----------
Total derivatives-fair value(b)..................................... $ (25) $ (9) $ (9)
----------- ----- -----------
----------- ----- -----------
INTEREST FOREIGN TOTAL
RATE CURRENCY NOTIONAL
1995 SWAPS(H) SWAPS(F) AMOUNT
- ------------------------------------------------------------------------ ----------- ----------- -----------
<S> <C> <C> <C>
Asset-backed securities (excluding inverse floaters and anticipatory)... $ 290 $ -- $ 3,863
Inverse floaters(a)..................................................... 681 -- 1,601
Anticipatory(g)......................................................... 25 -- 238
Other bonds and notes................................................... 757 187 1,365
Short-term investments.................................................. -- -- --
----------- ----- -----------
Total fixed maturities.............................................. 1,753 187 7,067
Equity securities, policy loans and other investments................... 18 -- 18
----------- ----- -----------
Total investments................................................... $ 1,771 $ 187 $ 7,085
----------- ----- -----------
----------- ----- -----------
Total derivatives-fair value(b)..................................... $ (108) $ (24) $ (118)
----------- ----- -----------
----------- ----- -----------
</TABLE>
- ------------------------
(a) Inverse floaters are variations of collateralized mortgage obligations
("CMOs") for which the coupon rates move inversely with an index rate such
as LIBOR. The risk to principal is considered negligible as the underlying
collateral for the securities is guaranteed or sponsored by government
agencies. To address the volatility risk created by the coupon variability,
the Company uses a variety of derivative instruments, primarily interest
rate swaps and purchased caps and floors.
(b) The fair value of derivative instruments including swaps, caps, floors,
futures, options and forward commitments, was determined using a pricing
model which is validated through quarterly comparison to dealer quoted
market prices, for 1996 and dealer quoted prices for 1995.
(c) The 1996 data includes issued caps of $433 with a weighted average strike
rate of 8.21% (ranging from 7.0% to 9.5%) and over 93% maturing in 2000
through 2005. In addition, issued floors totaled $590, had a weighted
average strike rate of 5.17% (ranging from 5.00% to 7.85%) with all of them
maturing by the end of 2005. The 1995 data includes issued caps of $475 with
a weighted average strike rate of 8.5% (ranging from 7.0% to 10.4%) and over
85% maturing in 2000 through 2004. In addition, issued floors totaled $236,
had a weighted average strike rate of 8.1% (ranging from 5.3% to 10.9%) and
mature through 2007, with 76% maturing by 2004.
(d) The 1996 data includes purchased floors of $2.4 billion and purchased caps
of $1.3 billion. The floors had a weighted average strike rate of 5.84%
(ranging from 3.70% to 7.85%) and over 87% mature in 1997 through 1999. The
options mature in 1997. The caps had a weighted average strike rate of 7.59%
(ranging from 4.40% to 10.125%) and over 76% mature in 1997 through 2001.
The 1995 data includes purchased floors of $1.8 billion and purchased caps
of $1.7 billion. The floors had a weighted average strike price of 5.8%
(ranging from 3.7% to 6.8%) and over 85% mature in 1997 through 1999. The
caps had a weighted average strike price of 7.5% (ranging from 4.5% and
10.1%) and over 82% mature in 1997 through 1999.
<PAGE>
HARTFORD LIFE INSURANCE COMPANY AND SUBSIDIARIES
- --------------------------------------------------------------------------------
(e) As of December 31, 1996 and 1995, over 39% and 95%, respectively, of the
notional futures contracts, expire within one year.
(f) As of December 31, 1996 and 1995, over 42% and 25%, respectively, of the
Company's foreign currency swaps, expire within one year; the balance mature
over the succeeding 4 to 5 years.
(g) Deferred gains and losses on anticipatory transactions are included in the
carrying value of bond investments in the Consolidated Balance Sheets. At
the time of the ultimate purchase, they are reflected as a basis adjustment
to the purchased asset. At December 31, 1996, the Company had $1 million in
net deferred gains for futures, interest rate swaps and purchased options.
The Company expects to basis adjust $1 million of the deferred gains in
1997. At December 31, 1995, the Company had $5.3 million in net deferred
gains for futures, interest rate swaps and purchased options.
(h) The following table summarizes the maturities by notional value of interest
rate swaps outstanding at December 31, 1996 and 1995, and the related
weighted average interest pay rate or receive rate. The variable rates
represent spot rates (primarily 90 day LIBOR), as of December 31, 1996 and
1995. Such variable rates have been calculated assuming that the spot rates
remain unchanged throughout the life of the interest rate swaps.
<TABLE>
<CAPTION>
1996 1997 1998 1999 2000 2001
- ------------------------------------------------------------ ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
PAY FIXED/RECEIVE VARIABLE
Notional Value $-- $50 $125 $35 $125
Weighted Average Pay Rate -- 5.7 % 5.9 % 5.5 % 5.5%
Weighted Average Receive Rate -- 3.2 % -- 6.5 % 6.4%
PAY VARIABLE/RECEIVE FIXED
Notional Value $86 $25 $486 $74 $582
Weighted Average Pay Rate 7.5 % -- 6.4 % 6.7 % 7.0%
Weighted Average Receive Rate 5.6 % -- 5.6 % 5.7 % 6.2%
PAY VARIABLE/RECEIVE DIFFERENT VARIABLE
Notional Value $19 $15 $-- $200 $--
Weighted Average Pay Rate 5.9 % 5.7 % -- 6.4 % --
Weighted Average Receive Rate 3.7 % 5.5 % -- 5.0 % --
Total Interest Rate Swaps $105 $90 $611 $309 $707
Total Weighted Average Pay Rate 7.2 % 5.7 % 6.3 % 6.4 % 6.7%
Total Weighted Average Receive Rate 5.2 % 3.8 % 4.3 % 5.4 % 6.3%
<CAPTION>
1995 1996 1997 1998 1999 2000
- ------------------------------------------------------------ ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
PAY FIXED/RECEIVE VARIABLE
Notional Value $15 $50 $-- $453 $31
Weighted Average Pay Rate 5.0 % 7.2 % -- 8.1 % 7.1%
Weighted Average Receive Rate 5.8 % 5.9 % -- 5.8 % 5.7%
PAY VARIABLE/RECEIVE FIXED
Notional Value $100 $68 $25 $25 $35
Weighted Average Pay Rate 5.9 % 8.6 % 5.9 % -- 5.9%
Weighted Average Receive Rate 2.4 % 7.9 % 4.0 % -- 6.5%
PAY VARIABLE/RECEIVE DIFFERENT VARIABLE
Notional Value $50 $18 $36 $12 $200
Weighted Average Pay Rate 5.8 % -- 3.7 % 3.5 % 4.5%
Weighted Average Receive Rate 5.4 % -- 5.6 % 5.2 % 6.8%
Total Interest Rate Swaps $165 $136 $61 $490 $266
Total Weighted Average Pay Rate 5.8 % 7.8 % 4.6 % 7.6 % 5.0%
Total Weighted Average Receive Rate 3.6 % 7.2 % 4.9 % 5.4 % 6.6%
<CAPTION>
LATEST
1996 THEREAFTER TOTAL MATURITY
- ------------------------------------------------------------ ------------- ----------- -----------
<S> <C> <C> <C>
PAY FIXED/RECEIVE VARIABLE
Notional Value $170 $505 2003
Weighted Average Pay Rate 5.7 % 5.7 %
Weighted Average Receive Rate 6.9 % 4.7 %
PAY VARIABLE/RECEIVE FIXED
Notional Value $349 $1,602 2007
Weighted Average Pay Rate 6.9 % 6.8 %
Weighted Average Receive Rate 5.9 % 5.9 %
PAY VARIABLE/RECEIVE DIFFERENT VARIABLE
Notional Value $44 $278 2003
Weighted Average Pay Rate 12.9 % 7.4 %
Weighted Average Receive Rate 6.4 % 5.2 %
Total Interest Rate Swaps $563 $2,385 2007
Total Weighted Average Pay Rate 7.0 % 6.6 %
Total Weighted Average Receive Rate 6.3 % 5.5 %
LATEST
1995 THEREAFTER TOTAL MATURITY
- ------------------------------------------------------------ ------------- ----------- -----------
<S> <C> <C> <C>
PAY FIXED/RECEIVE VARIABLE
Notional Value $229 $778 2004
Weighted Average Pay Rate 7.8 % 7.8 %
Weighted Average Receive Rate 5.9 % 5.9 %
PAY VARIABLE/RECEIVE FIXED
Notional Value $190 $443 2007
Weighted Average Pay Rate 5.4 % 5.4 %
Weighted Average Receive Rate 6.9 % 6.9 %
PAY VARIABLE/RECEIVE DIFFERENT VARIABLE
Notional Value $234 $550 2004
Weighted Average Pay Rate 16.3 % 5.7 %
Weighted Average Receive Rate 5.9 % 6.4 %
Total Interest Rate Swaps $653 $1,771 2007
Total Weighted Average Pay Rate 7.3 % 6.9 %
Total Weighted Average Receive Rate 6.3 % 5.8 %
</TABLE>
In addition, interest rate sensitivity related to certain Company insurance
liabilities was altered primarily through interest rate swap agreements. The
notional amount of the liability agreements in which the Company generally pays
one variable rate in exchange for another was $2.4 billion and $1.7 billion at
December 31, 1996 and 1995, respectively. As of December 31, 1996, the weighted
average pay rate was 5.6% and the weighted average receive rate was 6.5%. These
agreements mature at various times through 2001.
<PAGE>
HARTFORD LIFE INSURANCE COMPANY AND SUBSIDIARIES
- --------------------------------------------------------------------------------
A reconciliation between notional amounts at December 31, 1995 and 1996 by
derivative type and strategy is as follows:
<TABLE>
<CAPTION>
BY DERIVATIVE TYPE
---------------------------------------------
12/31/95 MATURITIES/
NOTIONAL AMOUNT ADDITIONS TERMINATIONS
----------------- ----------- -------------
<S> <C> <C> <C>
Caps..................................................................... $ 2,184 $ 1,286 $ 1,715
Floors................................................................... 2,180 2,053 1,065
Options.................................................................. -- 10 --
Swaps/Forwards........................................................... 3,566 3,989 2,694
Futures.................................................................. 863 2,092 2,818
------ ----------- ------
Total................................................................ $ 8,793 $ 9,430 $ 8,292
------ ----------- ------
------ ----------- ------
<CAPTION>
BY STRATEGY
---------------------------------------------
12/31/95 MATURITIES/
NOTIONAL AMOUNT ADDITIONS TERMINATIONS
----------------- ----------- -------------
<S> <C> <C> <C>
Liability................................................................ $ 1,708 $ 1,940 $ 1,137
Anticipatory............................................................. 238 516 622
Asset.................................................................... 2,984 1,265 2,137
Portfolio................................................................ 3,863 5,709 4,396
------ ----------- ------
Total................................................................ $ 8,793 $ 9,430 $ 8,292
------ ----------- ------
------ ----------- ------
<CAPTION>
12/31/96
NOTIONAL AMOUNT
-----------------
<S> <C>
Caps..................................................................... $ 1,755
Floors................................................................... 3,168
Options.................................................................. 10
Swaps/Forwards........................................................... 4,861
Futures.................................................................. 137
------
Total................................................................ $ 9,931
------
------
12/31/96
NOTIONAL AMOUNT
-----------------
<S> <C>
Liability................................................................ $ 2,511
Anticipatory............................................................. 132
Asset.................................................................... 2,112
Portfolio................................................................ 5,176
------
Total................................................................ $ 9,931
------
------
</TABLE>
(H) FAIR VALUE OF FINANCIAL INSTRUMENTS
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF DECEMBER 31,
1996 1995
-------------------- --------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
ASSETS
Fixed maturities............................................................. $ 13,624 $ 13,624 $ 14,400 $ 14,400
Equity securities............................................................ 119 119 63 63
Policy loans................................................................. 3,836 3,836 3,381 3,381
Mortgage loans............................................................... 2 2 265 265
Investments in partnerships and trust........................................ 48 48 94 97
Other........................................................................ 6 56 62 62
LIABILITIES
Other policy benefits........................................................ $ 11,707 $ 11,469 $ 12,727 $ 12,767
</TABLE>
The following methods and assumptions were used to estimate the fair value
of each class of financial instrument: fair value for fixed maturities and
equity securities approximate those quotations published by applicable stock
exchanges or received from other reliable sources; policy and mortgage loan
carrying amounts approximate fair value; investments in partnerships and trusts
are based on external market valuations from partnership and trust managements;
fair value of derivative instruments, including swaps, caps, floors, futures,
and forward commitments, is determined by using a pricing model which is
validated through quarterly comparison to dealer quoted market prices; and other
policy benefits payable for investment type contracts are determined by
estimating future cash flows discounted at the year end market rate.
- ---------------------------------------------------
4. INCOME TAX
Hartford Life and The Hartford have entered into a tax sharing agreement
under which each member, including the Company, 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 Hartford Life for the Company, subject
to certain adjustments, generally will be determined as though the Company were
to file separate federal, state and local income tax returns.
As long as The Hartford continues to beneficially own, directly or
indirectly, at least 80% of the combined voting power and 80% of the value of
the outstanding capital stock of Hartford Life, the Company will be included for
federal income tax purposes in the consolidated group of which The Hartford is
the common parent. It is the current intention of The Hartford and its
subsidiaries to continue to file a consolidated federal income tax return. The
Company will continue to remit to (receive from) The Hartford a current income
tax provision (benefit) computed in accordance with such tax sharing agreement.
The Company's effective tax rate was 35%, 32% and 32% in 1996, 1995 and 1994,
respectively.
<PAGE>
HARTFORD LIFE INSURANCE COMPANY AND SUBSIDIARIES
- --------------------------------------------------------------------------------
Income tax expense was as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER
31,
-------------------------------
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Current............................. $ 122 $ 211 $ 185
Deferred........................... (102) (149) (120)
--------- --------- ---------
Total............................ $ 20 $ 62 $ 65
--------- --------- ---------
--------- --------- ---------
</TABLE>
A reconciliation of the tax provision at the U.S. federal statutory rate to
the provision for income taxes was as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER
31,
-------------------------------
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Tax provision at U.S. statutory
rate............................... $ 20 $ 67 $ 71
Tax-exempt income.................. -- (3) (3)
Foreign tax credit................. -- (4) (1)
Other.............................. -- 2 (2)
--------- --------- ---------
Total............................ $ 20 $ 62 $ 65
--------- --------- ---------
--------- --------- ---------
</TABLE>
Income taxes paid were $189, $162 and $244 in 1996, 1995 and 1994,
respectively. The current tax refund due from The Hartford to the Company was
$72 and $8 as of December 31, 1996 and 1995, respectively.
Deferred tax assets (liabilities) included the following:
<TABLE>
<CAPTION>
AS OF
DECEMBER 31,
--------------------
1996 1995
--------- ---------
<S> <C> <C>
Tax return deferred acquisition costs......... $ 514 $ 410
Financial statement deferred acquisition costs
and reserves................................. (242) 138
Employee benefits............................. 8 8
Unrealized (gain) loss on investments......... (16) 32
Investments and other......................... 210 (168)
--------- ---------
Total..................................... $ 474 $ 420
--------- ---------
--------- ---------
</TABLE>
Prior to the Tax Reform Act of 1984, the Life Insurance Company Income Tax
Act of 1959 permitted the deferral from taxation of a portion of statutory
income under certain circumstances. In such circumstances, the deferred income
was accumulated in a "Policyholders' Surplus Account" and will be taxable in the
future only under conditions which management considers to be remote; therefore,
no Federal income taxes have been provided on this deferred income. The balance
for tax return purposes of the Policyholders' Surplus Account as of December 31,
1996 was $37.
- ---------------------------------------------------
5. REINSURANCE
The Company cedes insurance to non-affiliated insurers in order to limit its
maximum loss. Such transfer does not relieve the Company of its primary
liability. The Company also assumes insurance from other insurers.
Life insurance net retained premiums were comprised of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Gross premiums..................... $ 1,834 $ 1,545 $ 1,316
Insurance assumed.................. 173 591 299
Insurance ceded.................... (302) (649) (515)
--------- --------- ---------
Total.......................... $ 1,705 $ 1,487 $ 1,100
--------- --------- ---------
--------- --------- ---------
</TABLE>
Life reinsurance recoveries, which reduced death and other benefits, for the
years ended December 31, 1996, 1995 and 1994 approximated $140, $220 and $164,
respectively.
In December 1994, the Company ceded to a third party $1.0 billion in
individual fixed and variable annuities on a modified coinsurance basis. In
December 1995, the Company ceded approximately $1.2 billion in individual
variable annuities on a modified coinsurance basis to a third party. These
transactions did not have a material impact on consolidated net income.
In May 1994, the Company assumed the life insurance policies and the
individual annuities of Pacific Standard with reserves and account values of
approximately $434 million. The Company received cash and investment grade
assets to support the life insurance and individual annuity contract obligations
assumed.
- ---------------------------------------------------
6.PENSION PLANS AND OTHER POSTRETIREMENT
BENEFITS
The Company's employees are included in Hartford Fire's noncontributory
defined benefit pension plans. These plans provide pension benefits that are
based on years of service and the employee's compensation during the last ten
years of employment. The Company's funding policy is to contribute annually an
amount between the minimum funding requirements set forth in the Employee
Retirement Income Security Act of 1974, as amended, and the maximum amount that
can be deducted for Federal income tax purposes. Generally, pension costs are
funded through the purchase of the Company's group pension contracts. The cost
to the Company was approximately $5, $2 and $2 in 1996, 1995 and 1994,
respectively.
The Company also provides, through Hartford Fire, certain health care and
life insurance benefits for eligible retired employees. A substantial portion of
the Company's employees may become eligible for these benefits upon retirement.
The Company'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. The Company has prefunded
a portion of the health care and life insurance obligations through trust funds
where such prefunding can be accomplished on a tax effective basis.
<PAGE>
HARTFORD LIFE INSURANCE COMPANY AND SUBSIDIARIES
- --------------------------------------------------------------------------------
Postretirement health care and life insurance benefits expense, allocated by The
Hartford, was immaterial for 1996, 1995 and 1994, respectively.
The assumed rate of future increases in the per capita cost of health care
(the health care trend rate) was 9.3% for 1996, decreasing ratably to 6.0% in
the year 2001. 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 the covered employees.
- ---------------------------------------------------
7. BUSINESS SEGMENT INFORMATION
The Company sells financial products such as fixed and variable annuities,
retirement plan services, and life insurance on both an individual and a group
basis. The Company divides its core businesses into three segments: Investment
Products, Individual Life Insurance and Employee Benefits. In addition, the
Company also maintains a corporate operation and also classifies certain of its
business as Runoff operations. The Investment Products segment offers individual
variable annuities and fixed market value adjusted annuities, deferred
compensation and retirement plan services, mutual funds, investment management
services and other financial products. The Individual Life Insurance segment
sells a variety of individual life insurance products, including variable life,
universal life, and interest-sensitive whole life policies. The Employee
Benefits segment sells corporate owned life insurance. Through its corporate
operation, the Company reports net investment income on assets representing
surplus not assigned to any of its business segments and certain other revenues
and expenses not specifically allocable to any of its business segments. The
Company's Runoff operations are comprised of Closed Book GRC. With the exception
of Closed Book GRC, net realized capital gains and losses are recognized in the
period of realization but are allocated to the segments utilizing durations of
the segment portfolios.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
REVENUES
Investment Products............... $ 1,013 $ 759 $ 594
Individual Life Insurance......... 440 383 375
Employee Benefits................. 1,366 1,273 919
Corporate Operations.............. 81 52 30
Runoff Operations................. (11) 337 481
--------- --------- ---------
Total Revenues.................. $ 2,889 $ 2,804 $ 2,399
--------- --------- ---------
--------- --------- ---------
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
INCOME BEFORE INCOME TAX EXPENSE
Investment Products............... $ 230 $ 172 $ 127
Individual Life Insurance......... 68 56 39
Employee Benefits................. 43 37 27
Corporate Operations.............. 65 16 8
Runoff Operations................. (348) (90) 2
--------- --------- ---------
Income Before Income Tax
Expense........................ $ 58 $ 191 $ 203
--------- --------- ---------
--------- --------- ---------
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
ASSETS
Investment Products............... $ 53,743 $ 40,624 $ 29,115
Individual Life Insurance......... 3,753 3,173 2,808
Employee Benefits................. 14,515 13,494 7,847
Corporate Operations.............. 1,891 1,729 822
Runoff Operations................. 3,667 5,177 7,257
--------- --------- ---------
Total Assets.................... $ 77,569 $ 64,197 $ 47,849
--------- --------- ---------
--------- --------- ---------
</TABLE>
- ---------------------------------------------------
8. STATUTORY NET INCOME AND SURPLUS
A significant percentage of the consolidated statutory surplus is
permanently reinvested or is subject to various state regulatory restrictions
which limit the payment of dividends without prior approval. The total amount of
statutory dividends which may be paid by the insurance subsidiaries of the
Company in 1997, without prior approval, is estimated to be $121 million.
Statutory net income and surplus as of and for the years ended December 31 were:
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Statutory net income...... $ 144 $ 112 $ 58
Statutory surplus......... $ 1,207 $ 1,125 $ 941
</TABLE>
The insurance subsidiaries of the Company prepare their statutory financial
statements in accordance with accounting practices prescribed by the State of
Connecticut Insurance Department. Prescribed statutory accounting practices
include publications of the National Association of Insurance Commissioners
("NAIC"), as well as state laws, regulations, and general administrative rules.
- ---------------------------------------------------
9. SEPARATE ACCOUNTS
The Company maintained separate account assets and liabilities totaling
$49.7 billion and $36.3 billion at December 31, 1996 and 1995, respectively,
which are reported at fair value. Separate account assets are segregated from
other investments, and investment income and gains and losses accrue directly to
the policyholder. Separate accounts reflect two categories of risk assumption:
non-guaranteed separate accounts totaling $39.4 billion and $25.9 billion at
December 31, 1996 and 1995, respectively, wherein the policyholder assumes the
investment risk, and
<PAGE>
HARTFORD LIFE INSURANCE COMPANY AND SUBSIDIARIES
- --------------------------------------------------------------------------------
guaranteed separate account assets totaling $10.3 billion at December 31, 1996
and 1995, wherein the Company contractually guarantees either a minimum return
or account value to the policyholder. Included in the non-guaranteed category
are policy loans totaling $2.0 billion and $1.7 billion at December 31, 1996 and
1995, respectively. Investment income (including investment gains and losses)
and interest credited to policyholders on separate account assets are not
reflected in the Consolidated Statements of Income. Separate account management
fees, net of minimum guarantees, were $538, $387 and $256 in 1996, 1995 and
1994, respectively.
The guaranteed separate accounts include modified guaranteed individual
annuity and modified guaranteed life insurance. The average credited interest
rate on these contracts was 6.53% at December 31, 1996. The assets that support
these liabilities were comprised of $10.2 billion in fixed maturities at
December 31, 1996. The portfolios are segregated from other investments and are
managed so as to minimize liquidity and interest rate risk. To minimize the risk
of disintermediation associated with early withdrawals, individual annuity and
modified guaranteed life insurance contracts carry a graded surrender charge as
well as a market value adjustment. Additional investment risk is hedged using a
variety of derivatives which totaled $0.1 billion in carrying value and $2.4
billion in notional amounts at December 31, 1996.
- ---------------------------------------------------
10. COMMITMENTS AND CONTINGENCIES
Under insurance guaranty fund laws existing in each state, the District of
Columbia and Puerto Rico, insurers licensed to do business can be assessed by
state insurance guaranty associations for certain obligations of insolvent
insurance companies to policyholders and claimants. Recent regulatory actions
against certain large life insurers encountering financial difficulty have
prompted various state insurance guaranty associations to begin assessing life
insurance companies for the deemed losses. Most of these laws do provide,
however, that an assessment may be excused or deferred if it would threaten an
insurer's solvency and further provide annual limits on such assessments. A
large part of the assessments paid by the Company's insurance subsidiaries
pursuant to these laws may be used as credits for a portion of the Company's
insurance subsidiaries' premium taxes. The Company paid guaranty fund
assessments of approximately $11, $10 and $8 in 1996, 1995 and 1994,
respectively, of which $5, $6 and $4 were estimated to be creditable against
premium taxes.
The Company is a defendant in various lawsuits arising in the ordinary
course of business. In the opinion of management, the resolution of these
matters is not expected to have a material adverse effect on the Company's
business, financial position, or results of operations.
The rent paid to Hartford Fire for the space occupied by the Company was $3
in 1996, 1995, and 1994. The Company expects to pay annual rent of $7 in 1997,
1998, and 1999, respectively, $12 in 2000 and 2001, and $96 thereafter, over the
remaining term of the sublease, which expires on December 31, 2009. Rental
expense is recognized on a level basis over the term of the sublease and
amounted to approximately $8 in 1996, 1995 and 1994.
- ---------------------------------------------------
11. SUBSEQUENT EVENTS
On February 10, 1997, Hartford Life filed a registration statement with the
Securities and Exchange Commission relating to the U.S. and international
offerings of shares of Class A common stock (the "Equity Offerings")
representing up to 20% ownership of Hartford Life. After completion of the
Equity Offerings, The Hartford would own all of the shares of Class B Common
Stock (after reclassification of Hartford Life's common stock into Class B
Common Stock prior to March 31, 1997). Hartford Life intends to use the
estimated net proceeds of the Equity Offerings to make a capital contribution to
its insurance subsidiaries, to reduce its third-party indebtedness and for other
general corporate purposes.
The Hartford has advised the Company that its current intent is to continue
to beneficially own at least 80% of Hartford Life, but it is under no
contractual obligation to do so, except for a limited period. Provided that The
Hartford continues to beneficially own at least 80% of the combined voting power
or the value of the outstanding capital stock of Hartford Life, Hartford Life
will be included for federal income tax purposes in the controlled group of
which The Hartford is the common parent. Each member of a controlled group is
jointly and severally liable for pension funding and pension termination
liabilities of each other member of the controlled group, as well as certain
benefit plan taxes. Accordingly, the Company could be liable for pension
funding, pension termination liabilities and certain other pension related
excise taxes as well as other taxes of another member of The Hartford controlled
group in the event any such liability is incurred, and not discharged, by such
other member.
In connection with the proposed Equity Offerings, Hartford Life plans to
enter into formal agreements, including a master intercompany agreement,
investment management agreements and a new tax sharing agreement, with The
Hartford covering such matters as corporate services, approval of certain
corporate activities, registration rights, owned and leased space, allocation of
expenses, taxes and liabilities, investment advisory services, use of trademarks
and certain other corporate matters. As part of the master intercompany
agreement, Hartford Life would agree to remit to The Hartford 30% of any shared
liabilities for which The Hartford is responsible in respect of the ITT
Spin-off, 30% of any taxes which may be assessed to The
<PAGE>
HARTFORD LIFE INSURANCE COMPANY AND SUBSIDIARIES
- --------------------------------------------------------------------------------
Hartford relating to the ITT Spin-off and will indemnify The Hartford for
certain other tax liabilities. As of December 31, 1996 there was no known
liability associated with the ITT Spin-off. Such agreements are meant to
maintain the relationship between Hartford Life and The Hartford in a manner
consistent in all material respects with past practice. As a result, management
believes these agreements should not have a material impact on the results of
operations of the Company.
In addition, under insurance company holding laws, agreements between
Hartford Life's insurance subsidiaries and The Hartford must be fair and
reasonable and may be subject to the approval of applicable insurance
commissioners. The agreements will be intended to maintain the relationship
between Hartford Life and The Hartford in a manner generally consistent with
past practices. However, none of these arrangements will result from
arm's-length negotiations and, therefore, the prices charged to Hartford Life
and its subsidiaries for services provided under these arrangements may be
higher or lower than prices that may be charged by third parties.
<PAGE>
HARTFORD LIFE INSURANCE COMPANY AND SUBSIDIARIES
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
HARTFORD LIFE INSURANCE COMPANY AND SUBSIDIARIES
SCHEDULE I -- SUMMARY OF INVESTMENTS (OTHER THAN INVESTMENTS IN AFFILIATES)
AS OF DECEMBER 31, 1996
(IN MILLIONS)
<TABLE>
<CAPTION>
ESTIMATED
FAIR
TYPE OF INVESTMENT COST VALUE
- ------------------------------------------------------------------------------------------------- --------- -----------
<S> <C> <C>
Fixed Maturities
Bonds and Notes
U.S. Government and government agencies and authorities
(guaranteed sponsored)........................................................................ $ 166 $ 175
U.S. Government and government agencies and authorities
(guaranteed sponsored)--asset-backed.......................................................... 1,970 2,003
States, municipalities and political subdivisions................................................ 373 368
International governments........................................................................ 281 289
Public utilities................................................................................. 877 881
All other corporate including international...................................................... 4,656 4,669
All other corporate--asset-backed................................................................ 3,601 3,591
Short-term investments........................................................................... 1,655 1,648
--------- -----------
Total Fixed Maturities........................................................................... $ 13,579 $ 13,624
Equity Securities
Common Stocks--industrial, miscellaneous, and all other.......................................... 110 119
Total Fixed Maturities and Equity Securities..................................................... $ 13,689 $ 13,743
Other Investments
Policy Loans..................................................................................... 3,836 3,836
Mortgage Loans................................................................................... 2 2
Investments in partnerships and trusts........................................................... 48 48
Futures, options, and miscellaneous.............................................................. 6 56
Total Other Investments.......................................................................... 3,892 3,942
--------- -----------
Total Investments................................................................................ $ 17,581 $ 17,685
--------- -----------
--------- -----------
<CAPTION>
AMOUNT AT
WHICH SHOWN
ON
TYPE OF INVESTMENT BALANCE SHEET
- ------------------------------------------------------------------------------------------------- -------------
<S> <C>
Fixed Maturities
Bonds and Notes
U.S. Government and government agencies and authorities
(guaranteed sponsored)........................................................................ $ 175
U.S. Government and government agencies and authorities
(guaranteed sponsored)--asset-backed.......................................................... 2,003
States, municipalities and political subdivisions................................................ 368
International governments........................................................................ 289
Public utilities................................................................................. 881
All other corporate including international...................................................... 4,669
All other corporate--asset-backed................................................................ 3,591
Short-term investments........................................................................... 1,648
-------------
Total Fixed Maturities........................................................................... $ 13,624
Equity Securities
Common Stocks--industrial, miscellaneous, and all other.......................................... 119
Total Fixed Maturities and Equity Securities..................................................... $ 13,743
Other Investments
Policy Loans..................................................................................... 3,836
Mortgage Loans................................................................................... 2
Investments in partnerships and trusts........................................................... 48
Futures, options, and miscellaneous.............................................................. 6
Total Other Investments.......................................................................... 3,892
-------------
Total Investments................................................................................ $ 17,635
-------------
-------------
</TABLE>
Note: The fair values for short-term investments approximate cost.
<PAGE>
HARTFORD LIFE INSURANCE COMPANY AND SUBSIDIARIES
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
HARTFORD LIFE INSURANCE COMPANY AND SUBSIDIARIES
SCHEDULE III -- SUPPLEMENTARY INSURANCE INFORMATION
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(IN MILLIONS)
<TABLE>
<CAPTION>
FUTURE POLICY
BENEFITS, UNPAID OTHER POLICY
CLAIMS AND CLAIMS AND
DEFERRED POLICY CLAIM ADJUSTMENT BENEFITS
SEGMENT ACQUISITION COSTS EXPENSES PAYABLE
- ---------------------------------------------------------------- ----------------- ------------------- ---------------
<S> <C> <C> <C>
1996
Investment Products............................................. $ 2,030 $ 1,554 $ 6,599
Individual Life Insurance....................................... 730 346 2,160
Employee Benefits............................................... -- 381 9,834
Corporate Operations............................................ -- -- --
Runoff Operations............................................... -- -- 3,541
------ ------ -------
Consolidated Operations......................................... $ 2,760 $ 2,281 $ 22,134
------ ------ -------
------ ------ -------
1995
Investment Products............................................. $ 1,561 $ 1,314 $ 6,204
Individual Life Insurance....................................... 615 706 1,932
Employee Benefits............................................... 12 325 9,285
Corporate Operations............................................ -- -- --
Runoff Operations............................................... -- 28 5,177
------ ------ -------
Consolidated Operations......................................... $ 2,188 $ 2,373 $ 22,598
------ ------ -------
------ ------ -------
1994
Investment Products............................................. $ 1,244 $ 895 $ 4,617
Individual Life Insurance....................................... 565 582 2,543
Employee Benefits............................................... -- 369 6,911
Corporate Operations............................................ -- -- --
Runoff Operations............................................... -- 44 7,257
------ ------ -------
Consolidated Operations......................................... $ 1,809 $ 1,890 $ 21,328
------ ------ -------
------ ------ -------
<CAPTION>
BENEFITS CLAIMS, AMORTIZATION OF
NET REALIZED AND CLAIM DEFERRED POLICY
CAPITAL (LOSSES) ADJUSTMENT ACQUISITION
SEGMENT GAINS EXPENSES COSTS
- ---------------------------------------------------------------- ----------------- ------------------- ---------------
<S> <C> <C> <C>
1996
Investment Products............................................. $ -- $ 451 $ 175
Individual Life Insurance....................................... -- 245 59
Employee Benefits............................................... -- 546 --
Corporate Operations............................................ 6 -- --
Runoff Operations............................................... (219) 293 --
------ ------ -------
Consolidated Operations......................................... $ (213) $ 1,535 $ 234
------ ------ -------
------ ------ -------
1995
Investment Products............................................. $ -- $ 349 $ 117
Individual Life Insurance....................................... -- 127 70
Employee Benefits............................................... -- 496 --
Corporate Operations............................................ (11) 33 --
Runoff Operations............................................... -- 417 12
------ ------ -------
Consolidated Operations......................................... $ (11) $ 1,422 $ 199
------ ------ -------
------ ------ -------
1994
Investment Products............................................. $ -- $ 383 $ 90
Individual Life Insurance....................................... -- 179 51
Employee Benefits............................................... -- 376 --
Corporate Operations............................................ 7 -- --
Runoff Operations............................................... -- 467 4
------ ------ -------
Consolidated Operations......................................... $ 7 $ 1,405 $ 145
------ ------ -------
------ ------ -------
<CAPTION>
PREMIUMS AND NET
OTHER INVESTMENT
SEGMENT CONSIDERATIONS INCOME
- ---------------------------------------------------------------- --------------- -----------
<S> <C> <C>
1996
Investment Products............................................. $ 536 $ 477
Individual Life Insurance....................................... 287 153
Employee Benefits............................................... 881 485
Corporate Operations............................................ -- 75
Runoff Operations............................................... 1 207
------ -----------
Consolidated Operations......................................... $ 1,705 $ 1,397
------ -----------
------ -----------
1995
Investment Products............................................. $ 319 $ 436
Individual Life Insurance....................................... 246 137
Employee Benefits............................................... 922 351
Corporate Operations............................................ -- 67
Runoff Operations............................................... -- 337
------ -----------
Consolidated Operations......................................... $ 1,487 $ 1,328
------ -----------
------ -----------
1994
Investment Products............................................. $ 263 $ 330
Individual Life Insurance....................................... 268 108
Employee Benefits............................................... 569 350
Corporate Operations............................................ -- 23
Runoff Operations............................................... -- 481
------ -----------
Consolidated Operations......................................... $ 1,100 $ 1,292
------ -----------
------ -----------
DIVIDENDS TO OTHER
SEGMENT POLICYHOLDERS EXPENSES
- ---------------------------------------------------------------- --------------- -----------
<S> <C> <C>
1996
Investment Products............................................. $ -- $ 156
Individual Life Insurance....................................... -- 68
Employee Benefits............................................... 635 143
Corporate Operations............................................ -- 16
Runoff Operations............................................... -- 44
------ -----------
Consolidated Operations......................................... $ 635 $ 427
------ -----------
------ -----------
1995
Investment Products............................................. $ -- $ 115
Individual Life Insurance....................................... -- 55
Employee Benefits............................................... 675 138
Corporate Operations............................................ -- 11
Runoff Operations............................................... -- (2)
------ -----------
Consolidated Operations......................................... $ 675 $ 317
------ -----------
------ -----------
1994
Investment Products............................................. $ -- $ (31)
Individual Life Insurance....................................... -- 107
Employee Benefits............................................... 419 100
Corporate Operations............................................ -- 43
Runoff Operations............................................... -- 8
------ -----------
Consolidated Operations......................................... $ 419 $ 227
------ -----------
------ -----------
</TABLE>
<PAGE>
HARTFORD LIFE INSURANCE COMPANY AND SUBSIDIARIES
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
HARTFORD LIFE INSURANCE COMPANY AND SUBSIDIARIES
SCHEDULE IV -- REINSURANCE
(IN MILLIONS)
<TABLE>
<CAPTION>
GROSS CEDED TO ASSUMED FROM NET
AMOUNT OTHER COMPANIES OTHER COMPANIES AMOUNT
---------- ---------------- ---------------- ----------
<S> <C> <C> <C> <C>
Year Ended December 31, 1996
Life Insurance in Force............................... $ 177,094 $ 106,146 $ 31,957 $ 102,905
---------- -------- ------- ----------
Insurance Revenues
Life Insurance and Annuities........................ $ 1,801 $ 298 $ 169 $ 1,672
Accident and Health Insurance....................... 33 4 4 33
---------- -------- ------- ----------
Total................................................. $ 1,834 $ 302 $ 173 $ 1,705
---------- -------- ------- ----------
---------- -------- ------- ----------
For the Year Ended December 31, 1995
Life Insurance in Force............................... $ 182,716 $ 112,774 $ 26,996 $ 96,938
---------- -------- ------- ----------
Insurance Revenues
Life Insurance and Annuities........................ $ 1,232 $ 325 $ 574 $ 1,481
Accident and Health Insurance....................... 313 324 17 6
---------- -------- ------- ----------
Total................................................. $ 1,545 $ 649 $ 591 $ 1,487
---------- -------- ------- ----------
---------- -------- ------- ----------
For the Year Ended December 31, 1994
Life Insurance in Force............................... $ 136,929 $ 87,553 $ 35,016 $ 84,392
---------- -------- ------- ----------
Insurance Revenues
Life Insurance and Annuities........................ $ 1,008 $ 211 $ 294 $ 1,091
Accident and Health Insurance....................... 308 304 5 9
---------- -------- ------- ----------
Total................................................. $ 1,316 $ 515 $ 299 $ 1,100
---------- -------- ------- ----------
---------- -------- ------- ----------
<CAPTION>
PERCENTAGE OF
AMOUNT ASSUMED
TO NET
-----------------
<S> <C>
Year Ended December 31, 1996
Life Insurance in Force............................... 31.1%
Insurance Revenues
Life Insurance and Annuities........................ 10.1%
Accident and Health Insurance....................... 12.1%
Total................................................. 10.1%
For the Year Ended December 31, 1995
Life Insurance in Force............................... 27.8%
Insurance Revenues
Life Insurance and Annuities........................ 38.8%
Accident and Health Insurance....................... 283.3%
Total................................................. 39.7%
For the Year Ended December 31, 1994
Life Insurance in Force............................... 41.5%
Insurance Revenues
Life Insurance and Annuities........................ 26.9%
Accident and Health Insurance....................... 55.6%
Total................................................. 27.2%
</TABLE>
<PAGE>
HARTFORD LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Hartford Life Insurance Company
Separate Account Three and to the
Owners of Units of Interest therein:
We have audited the accompanying statement of assets and liabilities of Hartford
Life Insurance Company Separate Account Three (the Account) as of December 31,
1996, and the related statement of operations for the year then ended and
statements of changes in net assets for the year ended December 31, 1996 and the
period from inception, February 15, 1995, to December 31, 1995. 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 Hartford Life Insurance Company
Separate Account Three as of December 31, 1996, the results of its operations
for the year then ended and the changes in its net assets for the year ended
December 31, 1996 and the period from inception, February 15, 1995, to December
31, 1995, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Hartford, Connecticut
February 14, 1997
<PAGE>
HARTFORD LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Separate Account Three
Statement of Assets and Liabilities
December 31, 1996
<TABLE>
<CAPTION>
NORTH AMERICAN
MONEY GOVERNMENT BALANCED
MARKET FUND SECURITIES FUND FUND UTILITIES FUND
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
------------ --------------- ----------- --------------
<S> <C> <C> <C> <C>
ASSETS
Investments in Dean
Witter Select
Dimensions Investment
Series:
Money Market Fund
Shares 5,458,394
Cost $5,458,394
Market Value......... $5,458,394 -- -- --
North American
Government Securities
Fund
Shares 33,923
Cost $ 341,482
Market Value......... -- $ 341,940 -- --
Balanced Fund
Shares 199,404
Cost $2,357,693
Market Value......... -- -- $2,606,214 --
Utilities Fund
Shares 123,502
Cost $1,485,678
Market Value......... -- -- -- $1,598,120
Dividend Growth Fund
Shares 1,082,118
Cost $15,618,347
Market Value......... -- -- -- --
Value Added Market Fund
Shares 577,467
Cost $7,444,538
Market Value......... -- -- -- --
Core Equity Fund
Shares 100,297
Cost $1,210,325
Market Value......... -- -- -- --
American Value Fund
Shares 592,561
Cost $8,174,225
Market Value......... -- -- -- --
Global Equity Fund
Shares 477,733
Cost $5,418,494
Market Value......... -- -- -- --
Developing Growth Fund
Shares 261,262
Cost $4,113,395
Market Value......... -- -- -- --
Emerging Markets Fund
Shares 119,630
Cost $1,265,074
Market Value......... -- -- -- --
Diversified Income Fund
Shares 248,355
Cost $2,532,085
Market Value......... -- -- -- --
Due from Hartford Life
Insurance Company..... -- -- 9,779 10,099
Receivable from fund
shares sold 217 13 -- --
------------ --------------- ----------- --------------
Total Assets........... 5,458,611 341,953 2,615,993 1,608,219
------------ --------------- ----------- --------------
LIABILITIES:
Due to Hartford Life
Insurance Company..... 206 14 -- --
Payable for fund shares
purchased............. -- -- 9,701 9,693
------------ --------------- ----------- --------------
Total Liabilities...... 206 14 9,701 9,693
------------ --------------- ----------- --------------
Net Assets (variable
annuity contract
liabilities).......... $5,458,405 $ 341,939 $2,606,292 $1,598,526
------------ --------------- ----------- --------------
------------ --------------- ----------- --------------
DEFERRED ANNUITY
CONTRACTS IN THE
ACCUMULATION PERIOD:
INDIVIDUAL
SUB-ACCOUNTS:
Units Owned by
Participants.......... 500,725 31,542 191,384 117,820
Unit Price............. $10.901003 $10.840708 $13.618100 $13.567570
</TABLE>
<PAGE>
HARTFORD LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DIVIDEND VALUE ADDED CORE EQUITY AMERICAN GLOBAL DEVELOPING EMERGING
GROWTH FUND MARKET FUND FUND VALUE FUND EQUITY FUND GROWTH FUND MARKETS FUND
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 Investment
Series:
Money Market Fund
Shares 5,458,394
Cost $5,458,394
Market Value......... -- -- -- -- -- -- --
North American
Government Securities
Fund
Shares 33,923
Cost $ 341,482
Market Value......... -- -- -- -- -- -- --
Balanced Fund
Shares 199,404
Cost $2,357,693
Market Value......... -- -- -- -- -- -- --
Utilities Fund
Shares 123,502
Cost $1,485,678
Market Value......... -- -- -- -- -- -- --
Dividend Growth Fund
Shares 1,082,118
Cost $15,618,347
Market Value......... $17,800,839 -- -- -- -- -- --
Value Added Market Fund
Shares 577,467
Cost $7,444,538
Market Value......... -- $8,176,937 -- -- -- -- --
Core Equity Fund
Shares 100,297
Cost $1,210,325
Market Value......... -- -- $1,359,028 -- -- -- --
American Value Fund
Shares 592,561
Cost $8,174,225
Market Value......... -- -- -- $9,066,181 -- -- --
Global Equity Fund
Shares 477,733
Cost $5,418,494
Market Value......... -- -- -- -- $5,761,460 -- --
Developing Growth Fund
Shares 261,262
Cost $4,113,395
Market Value......... -- -- -- -- -- $4,410,095 --
Emerging Markets Fund
Shares 119,630
Cost $1,265,074
Market Value......... -- -- -- -- -- -- $1,342,250
Diversified Income Fund
Shares 248,355
Cost $2,532,085
Market Value......... -- -- -- -- -- -- --
Due from Hartford Life
Insurance Company..... 22,161 14,661 -- 13,127 12,097 43 --
Receivable from fund
shares sold -- -- 53 -- -- 168 51
------------ ----------- ----------- ----------- ----------- ----------- ------------
Total Assets........... 17,823,000 8,191,598 1,359,081 9,079,308 5,773,557 4,410,306 1,342,301
------------ ----------- ----------- ----------- ----------- ----------- ------------
LIABILITIES:
Due to Hartford Life
Insurance Company..... -- -- 72 -- -- -- 45
Payable for fund shares
purchased............. 21,391 14,683 -- 13,120 12,104 -- --
------------ ----------- ----------- ----------- ----------- ----------- ------------
Total Liabilities...... 21,391 14,683 72 13,120 12,104 -- 45
------------ ----------- ----------- ----------- ----------- ----------- ------------
Net Assets (variable
annuity contract
liabilities).......... $17,801,609 $8,176,915 $1,359,009 $9,066,188 $5,761,453 $4,410,306 $1,342,256
------------ ----------- ----------- ----------- ----------- ----------- ------------
------------ ----------- ----------- ----------- ----------- ----------- ------------
DEFERRED ANNUITY
CONTRACTS IN THE
ACCUMULATION PERIOD:
INDIVIDUAL
SUB-ACCOUNTS:
Units Owned by
Participants.......... 1,052,045 566,987 99,381 591,191 469,754 261,844 117,536
Unit Price............. $ 16.920959 $14.421708 $13.674730 $15.335469 $12.264831 $16.843276 $11.419991
<CAPTION>
DIVERSIFIED
INCOME FUND
SUB-ACCOUNT
-----------
<S> <C>
ASSETS
Investments in Dean
Witter Select
Dimensions Investment
Series:
Money Market Fund
Shares
Cost
Market Value......... --
North American
Government Securities
Fund
Shares
Cost
Market Value......... --
Balanced Fund
Shares
Cost
Market Value......... --
Utilities Fund
Shares
Cost
Market Value......... --
Dividend Growth Fund
Shares
Cost
Market Value......... --
Value Added Market Fund
Shares
Cost
Market Value......... --
Core Equity Fund
Shares
Cost
Market Value......... --
American Value Fund
Shares
Cost
Market Value......... --
Global Equity Fund
Shares
Cost
Market Value......... --
Developing Growth Fund
Shares
Cost
Market Value......... --
Emerging Markets Fund
Shares
Cost
Market Value......... --
Diversified Income Fund
Shares
Cost
Market Value......... $2,563,018
Due from Hartford Life
Insurance Company..... --
Receivable from fund
shares sold 98
-----------
Total Assets........... 2,563,116
-----------
LIABILITIES:
Due to Hartford Life
Insurance Company..... 100
Payable for fund shares
purchased............. --
-----------
Total Liabilities...... 100
-----------
Net Assets (variable
annuity contract
liabilities).......... $2,563,016
-----------
-----------
DEFERRED ANNUITY
CONTRACTS IN THE
ACCUMULATION PERIOD:
INDIVIDUAL
SUB-ACCOUNTS:
Units Owned by
Participants.......... 223,713
Unit Price............. $11.456694
</TABLE>
<PAGE>
HARTFORD LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SEPARATE ACCOUNT THREE
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
NORTH AMERICAN
MONEY GOVERNMENT BALANCED
MARKET FUND SECURITIES FUND FUND UTILITIES FUND
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
------------ --------------- ----------- --------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends.............. $139,163 $11,760 $ 45,132 $ 38,446
EXPENSES:
Mortality and expense
undertakings.......... (39,546) (3,249) (24,240) (16,492)
------------ ------- ----------- --------------
Net investment income
(loss)................ 99,617 8,511 20,892 21,954
------------ ------- ----------- --------------
CAPITAL GAINS INCOME..... -- -- 8,328 894
------------ ------- ----------- --------------
NET REALIZED AND
UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Net realized gain
(loss) on security
transactions.......... -- 335 6,424 (1,428)
Net unrealized
appreciation of
investments during the
period................ -- 60 165,616 59,442
------------ ------- ----------- --------------
Net gain (loss) on
investments......... -- 395 172,040 58,014
------------ ------- ----------- --------------
Net increase in net
assets resulting
from operations..... $ 99,617 $ 8,906 $201,260 $ 80,862
------------ ------- ----------- --------------
------------ ------- ----------- --------------
</TABLE>
<PAGE>
HARTFORD LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DIVIDEND VALUE ADDED CORE EQUITY AMERICAN GLOBAL DEVELOPING EMERGING
GROWTH FUND MARKET FUND FUND VALUE FUND EQUITY FUND GROWTH FUND MARKETS FUND
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
------------ ------------ ----------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends.............. $ 220,469 $ 63,456 $ 4,345 $ 30,554 $ 44,739 $ 3,259 $ 10,801
EXPENSES:
Mortality and expense
undertakings.......... (137,580) (55,844) (10,135) (75,719) (50,495) (37,248) (12,048)
------------ ------------ ----------- ----------- ----------- ----------- ------------
Net investment income
(loss)................ 82,889 7,612 (5,790) (45,165) (5,756) (33,989) (1,247)
------------ ------------ ----------- ----------- ----------- ----------- ------------
CAPITAL GAINS INCOME..... 10,163 1,620 1,743 23,844 3,905 2,707 --
------------ ------------ ----------- ----------- ----------- ----------- ------------
NET REALIZED AND
UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Net realized gain
(loss) on security
transactions.......... (1,335) 3,162 519 179 932 3,963 (27)
Net unrealized
appreciation of
investments during the
period................ 1,770,825 638,574 144,463 660,479 304,832 196,773 77,164
------------ ------------ ----------- ----------- ----------- ----------- ------------
Net gain (loss) on
investments......... 1,769,490 641,736 144,982 660,658 305,764 200,736 77,137
------------ ------------ ----------- ----------- ----------- ----------- ------------
Net increase in net
assets resulting
from operations..... $1,862,542 $650,968 $140,935 $639,337 $303,913 $169,454 $ 75,890
------------ ------------ ----------- ----------- ----------- ----------- ------------
------------ ------------ ----------- ----------- ----------- ----------- ------------
<CAPTION>
DIVERSIFIED
INCOME FUND
SUB-ACCOUNT
-----------
<S> <C>
INVESTMENT INCOME:
Dividends.............. $103,004
EXPENSES:
Mortality and expense
undertakings.......... (19,211)
-----------
Net investment income
(loss)................ 83,793
-----------
CAPITAL GAINS INCOME..... 1,078
-----------
NET REALIZED AND
UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Net realized gain
(loss) on security
transactions.......... 101
Net unrealized
appreciation of
investments during the
period................ 21,655
-----------
Net gain (loss) on
investments......... 21,756
-----------
Net increase in net
assets resulting
from operations..... $106,627
-----------
-----------
</TABLE>
<PAGE>
HARTFORD LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Separate Account Three
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
NORTH AMERICAN
MONEY GOVERNMENT BALANCED
MARKET FUND SECURITIES FUND FUND UTILITIES FUND
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
------------ --------------- ----------- --------------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income
(loss)................ $ 99,617 $ 8,511 $ 20,892 $ 21,954
Capital gains income... -- -- 8,328 894
Net realized gain
(loss) on security
transactions.......... -- 335 6,424 (1,428)
Net unrealized
appreciation of
investments during the
period................ -- 60 165,616 59,442
------------ --------------- ----------- --------------
Net increase in net
assets resulting from
operations............ 99,617 8,906 201,260 80,862
------------ --------------- ----------- --------------
UNIT TRANSACTIONS:
Purchases.............. 6,948,541 205,518 1,550,548 896,723
Net transfers.......... (2,722,056) 173,663 (295,995) 128,215
Surrenders............. (186,897) (93,829) (203,150) (137,390)
------------ --------------- ----------- --------------
Net increase in net
assets resulting from
unit transactions..... 4,039,588 285,352 1,051,403 887,548
------------ --------------- ----------- --------------
Total increase in net
assets................ 4,139,205 294,258 1,252,663 968,410
NET ASSETS:
Beginning of period.... 1,319,200 47,681 1,353,629 630,116
------------ --------------- ----------- --------------
End of period.......... $ 5,458,405 $341,939 $ 2,606,292 $1,598,526
------------ --------------- ----------- --------------
------------ --------------- ----------- --------------
STATEMENT OF CHANGES IN NET ASSETS
FROM INCEPTION (FEBRUARY 15, 1995) TO DECEMBER 31, 1995
NORTH AMERICAN
MONEY GOVERNMENT BALANCED
MARKET FUND SECURITIES FUND FUND UTILITIES FUND
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
------------ --------------- ----------- --------------
OPERATIONS:
Net investment
income................ $ 26,554 $ 1,090 $ 9,765 $ 3,983
Net realized gain
(loss) on security
transactions.......... -- 93 784 6
Net unrealized
appreciation
(depreciation) of
investments during the
period................ -- 400 82,904 52,999
------------ --------------- ----------- --------------
Net increase (decrease)
in net assets
resulting from
operations............ 26,554 1,583 93,453 56,988
------------ --------------- ----------- --------------
UNIT TRANSACTIONS:
Purchases.............. 2,795,148 81,336 1,183,650 466,844
Net transfers.......... (1,478,107) (35,237) 169,596 118,572
Surrenders............. (24,395) (1) (93,070) (12,288)
------------ --------------- ----------- --------------
Net increase (decrease)
in net assets
resulting from unit
transactions.......... 1,292,646 46,098 1,260,176 573,128
------------ --------------- ----------- --------------
Total increase
(decrease) in net
assets................ 1,319,200 47,681 1,353,629 630,116
NET ASSETS:
Beginning of period.... -- -- -- --
------------ --------------- ----------- --------------
End of period.......... $ 1,319,200 $ 47,681 $ 1,353,629 $ 630,116
------------ --------------- ----------- --------------
------------ --------------- ----------- --------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
HARTFORD LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DIVIDEND VALUE ADDED CORE EQUITY AMERICAN GLOBAL DEVELOPING EMERGING
GROWTH FUND MARKET FUND FUND VALUE FUND EQUITY FUND GROWTH FUND MARKETS FUND
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
------------- ----------- ----------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment income
(loss)................ $ 82,889 $ 7,612 $ (5,790) $ (45,165) $ (5,756) $ (33,989) $ (1,247)
Capital gains income... 10,163 1,620 1,743 23,844 3,905 2,707 --
Net realized gain
(loss) on security
transactions.......... (1,335) 3,162 519 179 932 3,963 (27)
Net unrealized
appreciation of
investments during the
period................ 1,770,825 638,574 144,463 660,479 304,832 196,773 77,164
------------- ----------- ----------- ----------- ----------- ----------- ------------
Net increase in net
assets resulting from
operations............ 1,862,542 650,968 140,935 639,337 303,913 169,454 75,890
------------- ----------- ----------- ----------- ----------- ----------- ------------
UNIT TRANSACTIONS:
Purchases.............. 11,219,771 5,771,510 819,995 5,876,271 3,658,651 3,157,803 932,707
Net transfers.......... 1,189,188 118,782 109,486 669,473 948,105 274,161 206,356
Surrenders............. (665,008) (62,463) (12,084) (319,324) (211,305) (148,442) (38,428)
------------- ----------- ----------- ----------- ----------- ----------- ------------
Net increase in net
assets resulting from
unit transactions..... 11,743,951 5,827,829 917,397 6,226,420 4,395,451 3,283,522 1,100,635
------------- ----------- ----------- ----------- ----------- ----------- ------------
Total increase in net
assets................ 13,606,493 6,478,797 1,058,332 6,865,757 4,699,364 3,452,976 1,176,525
NET ASSETS:
Beginning of period.... 4,195,116 1,698,118 300,677 2,200,431 1,062,089 957,330 165,731
------------- ----------- ----------- ----------- ----------- ----------- ------------
End of period.......... $ 17,801,609 $ 8,176,915 $ 1,359,009 $ 9,066,188 $ 5,761,453 $4,410,306 $1,342,256
------------- ----------- ----------- ----------- ----------- ----------- ------------
------------- ----------- ----------- ----------- ----------- ----------- ------------
DIVIDEND VALUE ADDED CORE EQUITY AMERICAN GLOBAL DEVELOPING EMERGING
GROWTH FUND MARKET FUND FUND VALUE FUND EQUITY FUND GROWTH FUND MARKETS FUND
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
------------- ----------- ----------- ----------- ----------- ----------- ------------
OPERATIONS:
Net investment
income................ $ 18,589 $ 6,069 $ 53 $ 443 $ 2,734 $ 783 $ 220
Net realized gain
(loss) on security
transactions.......... (488) 51 (1) 309 181 107 (63)
Net unrealized
appreciation
(depreciation) of
investments during the
period................ 411,667 93,825 4,242 231,478 38,132 99,929 13
------------- ----------- ----------- ----------- ----------- ----------- ------------
Net increase (decrease)
in net assets
resulting from
operations............ 429,768 99,945 4,294 232,230 41,047 100,819 170
------------- ----------- ----------- ----------- ----------- ----------- ------------
UNIT TRANSACTIONS:
Purchases.............. 3,514,160 1,375,238 272,740 1,678,882 802,365 786,803 123,549
Net transfers.......... 352,632 235,521 23,596 358,598 230,961 113,811 41,980
Surrenders............. (101,444) (12,586) 47 (69,279) (12,284) (44,103) 32
------------- ----------- ----------- ----------- ----------- ----------- ------------
Net increase (decrease)
in net assets
resulting from unit
transactions.......... 3,765,348 1,598,173 296,383 1,968,201 1,021,042 856,511 165,561
------------- ----------- ----------- ----------- ----------- ----------- ------------
Total increase
(decrease) in net
assets................ 4,195,116 1,698,118 300,677 2,200,431 1,062,089 957,330 165,731
NET ASSETS:
Beginning of period.... -- -- -- -- -- -- --
------------- ----------- ----------- ----------- ----------- ----------- ------------
End of period.......... $ 4,195,116 $ 1,698,118 $ 300,677 $ 2,200,431 $ 1,062,089 $ 957,330 $ 165,731
------------- ----------- ----------- ----------- ----------- ----------- ------------
------------- ----------- ----------- ----------- ----------- ----------- ------------
<CAPTION>
DIVERSIFIED
INCOME FUND
SUB-ACCOUNT
-----------
<S> <C>
OPERATIONS:
Net investment income
(loss)................ $ 83,793
Capital gains income... 1,078
Net realized gain
(loss) on security
transactions.......... 101
Net unrealized
appreciation of
investments during the
period................ 21,655
-----------
Net increase in net
assets resulting from
operations............ 106,627
-----------
UNIT TRANSACTIONS:
Purchases.............. 1,616,132
Net transfers.......... 235,033
Surrenders............. (38,500)
-----------
Net increase in net
assets resulting from
unit transactions..... 1,812,665
-----------
Total increase in net
assets................ 1,919,292
NET ASSETS:
Beginning of period.... 643,724
-----------
End of period.......... $2,563,016
-----------
-----------
DIVERSIFIED
INCOME FUND
SUB-ACCOUNT
-----------
OPERATIONS:
Net investment
income................ $ 6,258
Net realized gain
(loss) on security
transactions.......... 35
Net unrealized
appreciation
(depreciation) of
investments during the
period................ 9,279
-----------
Net increase (decrease)
in net assets
resulting from
operations............ 15,572
-----------
UNIT TRANSACTIONS:
Purchases.............. 587,649
Net transfers.......... 42,607
Surrenders............. (2,104)
-----------
Net increase (decrease)
in net assets
resulting from unit
transactions.......... 628,152
-----------
Total increase
(decrease) in net
assets................ 643,724
NET ASSETS:
Beginning of period.... --
-----------
End of period.......... $ 643,724
-----------
-----------
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
SEPARATE ACCOUNT THREE
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
- ---------------------------------------------------
1. ORGANIZATION:
Separate Account Three (the Account) is a separate investment account within
Hartford Life 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. Dividends and
capital gains income are accrued as of the ex-dividend date. Capital
gains income represents dividends from the Funds which are characterized
as capital gains under tax regulations.
b) SECURITY VALUATION--The investment in shares of the Dean Witter Select
Dimensions Investment Series Mutual Funds is valued at the closing net
asset value per share as determined by the appropriate Fund as of
December 31, 1996.
c) FEDERAL INCOME TAXES--The operations of the Account form a part of, and
are taxed with, the total operations of the Company, which is taxed as
an insurance company under the Internal Revenue Code. Under current law,
no federal income taxes are payable with respect to the operations of
the Account.
d) USE OF ESTIMATES--The preparation of financial statements in conformity
with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities as of the date of the financial statements and
the reported amounts of income and expenses during the period. Operating
results in the future could vary from the amounts derived from
management's estimates.
- ---------------------------------------------------
3.ADMINISTRATION OF THE ACCOUNT AND
RELATED CHARGES:
a) MORTALITY AND EXPENSE UNDERTAKINGS--The Company, as issuer of variable
annuity contracts, provides the mortality and expense undertakings and,
with respect to the Account, receives a maximum annual fee of 1.25% of
the Account's average daily net assets. The Company also provides
administrative services and receives an annual fee of 0.15% of the
Account's average daily net assets.
b) DEDUCTION OF ANNUAL MAINTENANCE 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.
10
<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 Insurance
Company ("Hartford") authorizing the establishment of the
Separate Account.(1)
(2) Not applicable.
(3) (a) Principal Underwriter Agreement.(2)
(3) (b) Form of the Sales Agreement.(2)
(4) Individual Flexible Premium Variable Annuity Contract.(1)
(5) Form of Application.(1)
(6) (a) Articles of Incorporation of Hartford.
(b) Bylaws of Hartford.(1)
(7) Not applicable.
(8) Form of Share Purchase Agreement by the registrant and Dean
Witter Select Dimensions Investment Series.(1)
(9) Opinion and Consent of Lynda Godkin, General Counsel.
(10) Consent of Arthur Andersen LLP, Independent Public Accountants.
(11) No financial statements are omitted.
(12) Not applicable.
(13) Not applicable.
(14) Not applicable.
- -------------------------
(1) Incorporated by reference to Post-Effective Amendment No. 2, to the
Registration Statement File No. 33-80738, dated May 1, 1995.
(2) Incorporated by reference to Post Effective Amendment No. 3, to the
Registration Statement File No. 33-80738, dated May 1, 1996.
<PAGE>
- 2 -
(15) Copy of Power of Attorney.
(16) Organizational Chart.
Item 25. Directors and Officers of the Depositor
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NAME POSITION WITH HARTFORD
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Wendell J. Bossen Vice President
Gregory A. Boyko Vice President and Controller
Peter W. Cummins Vice President
Ann M. deRaismes Vice President
Timothy M. Fitch Vice President and Actuary
Bruce D. Gardner Vice President, Director*
Joseph H. Gareau Executive Vice President and Chief Investment
Officer, Director*
J. Richard Garrett Vice President and Treasurer
John P. Ginnetti Executive Vice President and Director, Asset
Management Services, Director*
Lynda Godkin General Counsel, and Corporate Secretary
Lois W. Grady Vice President
David A. Hall Senior Vice President and Actuary,
Robert A. Kerzner Vice President
Andrew W. Kohnke Vice President
Steven M. Maher Vice President and Actuary
William B. Malchodi, Jr. Vice President and Director of Taxes
Thomas M. Marra Executive Vice President and Director Individual
Life and Annuity Division, Director*
Robert F. Nolan Vice President
Joseph J. Noto Vice President
<PAGE>
- 3 -
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NAME POSITION WITH HARTFORD
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Leonard E. Odell, Jr. Senior Vice President, Director*
Craig D. Raymond Vice President and Chief Actuary
Lowndes A. Smith President and Chief Operating Officer, Director*
Edward J. Sweeney Vice President
Raymond P. Welnicki Senior Vice President and Director, Employee Benefit
Division, Director*
Walter C. Welsh Vice President
James J. Westervelt Senior Vice President and Group Controller
Lizabeth H. Zlatkus Vice President, Director*
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Unless otherwise indicated, the principal business address of each the above
individuals is P.O. Box 2999, Hartford, CT 06104-2999.
*Denotes Board of Directors.
Item 26. Persons Controlled By or Under Common Control with the Depositor or
Registrant
Filed herewith as Exhibit 16.
Item 27. Number of Contract Owners
As of March 13, 1997, there were 1,545 contract owners.
Item 28. Indemnification
Under Section 33-320a of the Connecticut General Statutes, the Registrant must
indemnify a director or officer against judgments, fines, penalties, amounts
paid in settlement and reasonable expenses, including attorneys' fees, for
actions brought or threatened to be brought against him in his capacity as a
director or officer when it is determined by certain disinterested parties that
he acted in good faith and in a manner he reasonably believed to be in the best
interests of the Registrant. In any criminal action or proceeding, it also must
be determined that the director or officer had no reason to believe his conduct
was unlawful. The director or officer must also be indemnified when he is
successful on the merits in the defense of a proceeding or in circumstances
where a court determines that he is fairly and reasonably entitled to be
indemnified, and the court approves the amount. In shareholder derivative
suits, the director or officer must be finally adjudged not to have breached his
duty to the Registrant or a court must determine that he is fairly and
reasonably entitled to be indemnified and must approve the
<PAGE>
- 4 -
amount. In a claim based upon the director's or officer's purchase or sale of
the Registrant's securities, the director or officer may obtain indemnification
only if a court determines that, in view of all the circumstances, he is fairly
and reasonably entitled to be indemnified, and then for such amount as the court
shall determine.
The foregoing statements are specifically made subject to the detailed
provisions of Section 33-320a.
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 ITT Hartford 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 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
<PAGE>
- 5 -
ITT Hartford Life and Annuity Insurance Company - Separate Account One
ITT Hartford Life and Annuity Insurance Company - Putnam Capital
Manager Trust Separate Account Two
ITT Hartford Life and Annuity Insurance Company - Separate Account
Three
ITT Hartford Life and Annuity Insurance Company - Separate Account
Five
ITT Hartford Life and Annuity Insurance Company - Separate Account Six
American Maturity Life Insurance Company - Separate Account AMLVA
(b) Directors and Officers of HSD
Name and Principal Positions and Offices
Business Address With Underwriter
------------------ ---------------------
Lowndes A. Smith President, Director
John P. Ginnetti Executive Vice President, Director
Thomas M. Marra Executive Vice President, Director
George R. Jay Controller
Peter W. Cummins Vice President
Donald E. Waggaman, Jr. Treasurer
Lynda Godkin Secretary
Michael Wilder Director
Unless otherwise indicated, the principal business address of each the
above individuals is P.O. Box 2999, Hartford, CT 06104-2999.
Item 30. Location of Accounts and Records
All of the accounts, books, records or other documents required to be
kept by Section 31(a) of the Investment Company Act of 1940 and rules
thereunder, are maintained by Hartford at 200 Hopmeadow Street,
Simsbury, Connecticut 06089.
Item 31. Management Services
All management contracts are discussed in Part A and Part B of this
Registration Statement.
Item 32. Undertakings
(a) The Registrant hereby undertakes to file a post-effective amendment to
this Registration Statement as frequently as is necessary to ensure
that the audited financial statements in the Registration Statement
are never more than 16 months old so long as payments under the
Variable Annuity Contracts may be accepted.
(b) The Registrant hereby undertakes to include either (1) as part of any
application to purchase a Contract offered by the Prospectus, a space
that an applicant can check to
<PAGE>
- 6 -
request a Statement of Additional Information, or (2) a post card or
similar written communication affixed to or included in the Prospectus
that the applicant can remove to send for a Statement of Additional
Information.
(c) The Registrant hereby undertakes to deliver any Statement of
Additional Information and any financial statements required to be
made available under this Form promptly upon written or oral request.
(d) Hartford hereby represents that the aggregate fees and charges under
the Contract are reasonable in relation to the services rendered, the
expenses expected to be incurred, and the risks assumed by Hartford.
The Registrant is relying on the no-action letter issued by the Division of
Investment Management to American 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.
33-80738/Sep Acct Three Dean Witter Select Dimensions Variable Annuity
<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 City of Hartford, and State of Connecticut on this 10 day
of April, 1997.
HARTFORD LIFE INSURANCE COMPANY -
SEPARATE ACCOUNT THREE
(Registrant)
*By: /s/ Thomas M. Marra *By: /s/ Lynda Godkin
----------------------------------------- -------------------------
Thomas M. Marra, Executive Vice President Lynda Godkin
Attorney-in-Fact
HARTFORD LIFE INSURANCE COMPANY
(Depositor)
*By: /s/ 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.
Bruce D. Gardner, Vice President,
Director *
Joseph H. Gareau, Executive Vice
President and Chief Investment
Officer, Director *
John P. Ginnetti, Executive Vice
President, Director *
Thomas M. Marra, Executive Vice *By: /s/ Lynda Godkin
President, Director * -------------------------
Leonard E. Odell, Jr., Senior Lynda Godkin
Vice President, Director* Attorney-In-Fact
Lowndes A. Smith, President,
Chief Operating Officer, Director * Dated: April 10, 1997
Raymond P. Welnicki, Senior Vice -----------------------
President, Director *
Lizabeth H. Zlatkus, Vice President
Director *
<PAGE>
EXHIBIT INDEX
6. (a) Articles of Incorporation of Hartford
9. Opinion and Consent of Lynda Godkin, General Counsel
10. Consent of Arthur Andersen LLP, Independent Public Accountants
15. Copy of Power of Attorney
16. Organizational Chart
<PAGE>
FILING #0001681565 PG 04 OF 05 VOL B-00105
FILED 12/31/1996 10:21 AM PAGE 00680
SECRETARY OF THE STATE
CONNECTICUT SECRETARY OF THE STATE
HARTFORD LIFE INSURANCE COMPANY
CERTIFICATE AMENDING
RESTATED CERTIFICATE OF INCORPORATION
BY ACTIONS OF THE BOARD OF DIRECTORS AND THE SOLE SHAREHOLDER
1. The name of the Corporation is HARTFORD LIFE INSURANCE COMPANY.
2. The Restated Certificate of Incorporation of the Corporation is amended by
the following resolution of each of the Board of Directors and the Sole
Shareholder:
RESOLVED, that the Restated Certificate of Incorporation of the
Company, as supplemented and amended to date, is hereby further
amended by and adding the following Sections 4 and 5. All other
sections of the Restated Certificate of Incorporation shall
remain unchanged and continue in full force and effect.
"Section 4. The Board of Directors may, at any time, appoint
from among its own members such committees as it
may deem necessary for the proper conduct of the
business of the Company. The Board of Directors
shall be unrestricted as to the powers it may
confer upon such committees."
"Section 5. So much of the charter of said corporation, as
amended, as is inconsistent herewith is repealed,
provided that such repeal shall not invalidate or
otherwise affect any action taken pursuant to the
charter of the corporation, in accordance with its
terms, prior to the effective date of such
repeal."
3. The above resolutions were consented to by the Board of Directors and the
Sole Shareholder of the Corporation. The number of shares of the
Corporation's common capital stock entitled to vote thereon was 1,000 and
the vote required for adoption was 660 shares. The vote favoring adoption
was 1,000 shares, which was the greatest vote required to pass the
resolution.
<PAGE>
2
Dated at Simsbury, Connecticut this 30th day of December, 1996.
We hereby declare, under penalty of false statement, that the statements made in
the foregoing Certificate are true.
HARTFORD LIFE INSURANCE COMPANY
/s/ John P. Ginnetti
---------------------------------
John P. Ginnetti, Executive Vice
President
/s/ Lynda Godkin
---------------------------------
Lynda Godkin, Associate General Counsel
& Secretary
<PAGE>
3
RESTATED CERTIFICATE OF INCORPORATION
HARTFORD LIFE INSURANCE COMPANY
This Restated Certificate of Incorporation gives effect to
the amendment of the Certificate of Incorporation of the corporation
and otherwise purports merely to restate all those provisions
already in effect. This Restated Certificate of Incorporation has
been adopted by the Board of Directors and by the sole shareholder.
Section 1. The name of the corporation is Hartford Life
Insurance Company and it shall have all the powers granted
by the general statutes, as now enacted or hereinafter
amended to corporations formed under the Stock Corporation
Act.
Section 2. The corporation shall have the purposes and
powers to write any and all forms of insurance which any
other corporation now or hereafter chartered by Connecticut
and empowered to do an insurance business may now or
hereafter may lawfully do; to accept and to issue cede
reinsurance; to issue policies and contracts for any kind
or combination of kinds of insurance; to policies or
contracts either with or without participation in profits;
to acquire and hold any or all of the shares or other
securities of any insurance corporation; and to engage in
any lawful act or activity for which corporations may be
formed under the Stock Corporation Act. The corporation is
authorized to exercise the powers herein granted in any
state, territory or jurisdiction of the United States or in
any foreign country.
Section 3. The capital with which the corporation shall
commence business shall be an amount not less than one
thousand dollars. The authorized capital shall be two
million five hundred thousand dollars divided into one
thousand shares of common capital stock with a par value of
twenty-five hundred dollars each.
<PAGE>
4
We hereby declare, under the penalties of false statement
that the statements made in the foregoing Certificate are true.
Dated: February 10, 1982 HARTFORD LIFE INSURANCE COMPANY
By /s/ ROBERT B. GOODE, JR.
----------------------------
Attest:
/s/ WM. A. MCMAHON
- ----------------------
7342D
<PAGE>
EXHIBIT 9
THE [LOGO]
HARTFORD
April 10, 1997 Lynda Godkin
General Counsel & Secretary
Law Department
Board of Directors
Hartford Life Insurance Company
200 Hopmeadow Street
Simsbury, CT 06089
RE: SEPARATE ACCOUNT THREE
HARTFORD LIFE INSURANCE COMPANY
FILE NO. 33-80738
Dear Sir/Madam:
I have acted as General Counsel to Hartford Life Insurance Company (the
"Company"), a Connecticut insurance company, and Hartford Life 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.
Hartford Life Insurance Companies
200 Hopmeadow Street
Simsbury, CT 06089
860 843 3153
860 843 8665 Fax
Mailing Address: P.O. Box 2999
Hartford, CT 06104-2999
<PAGE>
Board of Directors
Hartford Life Insurance Company
April 10, 1997
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.33-80738 for Hartford Life Insurance Company
Separate Account Three on Form N-4.
/s/ Arthur Andersen LLP
Hartford, Connecticut
April 14, 1997
<PAGE>
HARTFORD LIFE INSURANCE COMPANY
AND
HARTFORD LIFE AND ACCIDENT INSURANCE COMPANY
POWER OF ATTORNEY
Donald R. Frahm
Bruce D. Gardner
Joseph H. Gareau
John P. Ginnetti
Thomas M. Marra
Leonard E. Odell, Jr.
Lowndes A. Smith
Raymond P. Welnicki
Lizabeth H. Zlatkus
do hereby jointly and severally authorize Lynda Godkin, Marianne O'Doherty,
and Margaret E. Hankard to sign as their agent, any Registration Statement,
pre-effective amendment, post-effective amendment and any application for
exemptive relief of the Hartford Life Insurance Company and Hartford Life and
Accident Insurance Company under the Securities Act of 1933 and/or the
Investment Company Act of 1940.
IN WITNESS WHEREOF, the undersigned have executed this Power of Attorney for the
purpose herein set forth.
/s/ Donald R. Frahm /s/Leonard E. Odell, Jr.
- --------------------------------------- ----------------------------------
Donald R. Frahm Leonard E. Odell, Jr.
/s/Bruce D. Gardner /s/Lowndes A. Smith
- --------------------------------------- ----------------------------------
Bruce D. Gardner Lowndes A. Smith
/s/Joseph H. Gareau /s/Raymond P. Welnicki
- --------------------------------------- ----------------------------------
Joseph H. Gareau Raymond P. Welnicki
/s/John P. Ginetti /s/Lizabeth H. Zlatkus
- --------------------------------------- ----------------------------------
John P. Ginnetti Lizabeth H. Zlatkus
/s/Thomas M. Marra
- ---------------------------------------
Thomas M. Marra
Dated: December 3, 1996
-------------------
<PAGE>
EXHIBIT 16
<TABLE>
<CAPTION>
<S><C>
ITT Hartford Group, Inc..
(Delaware)
|
Hartford Fire Insurance Company
(Connecticut)
|
Hartford Accident and Indemnity Company
(Connecticut)
|
Hartford Life, Inc.
(Delaware)
|
Hartford Life and Accident Insurance Company
(Connecticut)
|
|
|
- -------------------------------------------------------------------------------------------------------------------
Alpine Life Hartford Financial Hartford Life American Maturity ITT Hartford Canada
Insurance Company Services Life Insurance Company Life Insurance Holdings, Inc.
(New Jersey) Insurance Co. (Connecticut) Company (Canada)
(Connecticut) | (Connecticut) |
| |
| |
| ITT Hartford Life
| Insurance Company
| of Canada
| (Canada)
|
|
- ------------------------------------------------------------------------------------------------------------------
ITT Hartford Life and Annuity ITT Hartford International Hartford Financial Services
Insurance Company Life Reassurance Corporation Corporation
(Connecticut) (Connecticut) (Delaware)
| |
| |
| |
ITT Hartford Life, Ltd. |
(Bermuda) |
|
|
- -----------------------------------------------------------------------------------------------------------------
MS Fund HL Funding The Hartford Hartford Hartford Securities ITT Comp. Emp.
America, Inc. Company, Inc. Investment Equity Sales Distribution Benefits Service
(Delaware) (Connecticut) Management Co. Company, Inc. Company, Inc. Company
(Connecticut) (Connecticut) (Connecticut) (Connecticut)
</TABLE>
